Statements below regarding future events or performance are "forward-looking statements" within the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings/loss per share, net income
(loss), expenses, cash flow or other financial performance or development, expected regulatory filings and approvals, planned business transactions, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include the words "believes," "expects," "anticipates," "intends," "plans," "estimates," "may," "will," "should," "could," or similar expressions. Forward-looking statements are not guarantees of future performance or results. Known and unknown factors that could cause actual performance or results to be materially different from those expressed or implied in these statements include, but are not limited to: ability to market and sell products, whether through an internal, direct sales force or third parties; ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements; changes in relationships, including disputes or disagreements, with strategic partners and reliance on strategic partners for the performance of critical activities under collaborative arrangements; failure of distributors or other customers to meet purchase forecasts or minimum purchase requirements for the Company's products; impact of replacing distributors and success of direct sales efforts; inventory levels at distributors and other customers; impact of competitors, competing products and technology changes; ability to develop, commercialize and market new products; market acceptance of oral fluid testing or other products; changes in market acceptance of products based on product performance and extended shelf life; continued bulk purchases by customers, including governmental agencies, and the ability to fully deploy those purchases in a timely manner; ability to fund research and development and other products and operations; ability to obtain and maintain new or existing product distribution channels; reliance on sole supply sources for critical product components; availability of related products produced by third parties or products required for use of our products; ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements; history of losses and ability to achieve sustained profitability; ability to utilize net operating loss carry forwards or other deferred tax assets; volatility of our stock price; uncertainty relating to patent protection and potential patent infringement claims; uncertainty and costs of litigation relating to patents and other intellectual property; availability of licenses to patents or other technology; ability to enter into international manufacturing agreements; obstacles to international marketing and manufacturing of products; ability to sell products internationally, including changes in international funding sources; loss or impairment of sources of capital; ability to meet financial covenants in agreements with financial institutions; ability to retain qualified personnel; exposure to patent infringement, product liability, and other types of litigation; changes in international, federal or state laws and regulations; customer consolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks and civil unrest; ability to identify, complete and realize the full benefits of potential acquisitions; and general political, business and economic conditions. These and other factors are discussed more fully in our Securities and Exchange Commission ("SEC") filings, including our registration statements, Annual Report on Form 10-K for the year ended December 31, 2008, Quarterly Reports on Form 10-Q, and other filings with the SEC. Although forward-looking statements help to provide information about future prospects, readers should keep in mind that forward-looking statements may not be reliable. The forward-looking statements are made as of the date of this Report and we undertake no duty to update these statements.

The following discussion should be read in conjunction with the financial statements contained herein and the notes thereto, along with the Section entitled "Critical Accounting Policies and Estimates," set forth below.

Overview

We operate primarily in the in vitro diagnostic business. Our business principally involves the development, manufacture, marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types, and other medical devices used for the removal of warts and other benign skin lesions by cryosurgery, or freezing. Our diagnostic products include tests which are performed on a rapid basis at the point of care and tests which are processed in a laboratory. These products

are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians' offices, and commercial and industrial entities. One of our products has been sold in the over-the-counter ("OTC") or consumer retail market in the United States, Canada, Europe, Mexico and Australia.

In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for infectious diseases, drugs of abuse or other conditions. However, we have targeted the use of oral fluid in our products as a differentiating factor and believe that it provides a significant competitive advantage over blood and urine. Our oral fluid tests have sensitivity and specificity comparable to blood and/or urine tests. In vitro diagnostic tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. When combined with their ease of use, non-invasive and dignified nature, and cost effectiveness, our oral fluid tests represent a very competitive alternative to the more traditional testing methods in the diagnostic space.

During the three months ended March 31, 2009, our total revenues were $17.3 million, which represents a 5% decrease from the same period in 2008. Our net loss for the three months ended March 31, 2009 was $1.6 million, compared to net income of $2.0 million for the three months ended March 31, 2008. Our net income during the first three months of 2008 included a $4.9 million payment received from Schering-Plough Healthcare Products, Inc. ("Schering-Plough") to resolve our patent infringement litigation against them, which was recorded as other income.

Cash flow used in operating activities for the three months ended March 31, 2009 was $2.7 million compared to $3.7 million for the three months ended March 31, 2008. The decrease in cash used in operating activities is primarily the result of the collection of a large outstanding balance from one of our international customers during the first quarter of 2009. In addition, decreases in accounts payable and accrued expenses, offset by non-cash charges for stock-based compensation, depreciation and amortization, contributed to the cash used in operations during the first quarter of 2009. As of March 31, 2009, we had $78.6 million in cash, cash equivalents and short-term investments, a $3.9 million decrease from December 31, 2008.

Sales into the infectious disease testing market increased by 10% in the first quarter of 2009 primarily as a result of our decision to sell OraQuick ADVANCE® directly to U.S. hospitals and reference laboratories starting on January 1, 2009. As previously disclosed, we terminated our distribution agreement with Abbott for the sale of OraQuick ADVANCE® at the end of 2008. As a result, revenues from direct sales into the hospital market during the first quarter of 2009 increased 41% over the comparable period in 2008. This increase is due to higher average selling prices realized under the direct sales model. Pursuant to the transition agreement with Abbott, we paid a one-time, lump sum termination fee to Abbott during the first quarter of 2009. We had accrued this termination fee at December 31, 2008. We have no royalty or other ongoing financial obligations to Abbott as a result of the termination of the distribution agreement.

Competition in the market for HIV testing is intense and is expected to increase. We believe that our principal competition will come from existing laboratory-based blood tests, point-of-care rapid blood tests, laboratory-based urine assays or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms, as well as pharmaceutical companies with biotechnology divisions and medical diagnostic companies.

Sales of our cryosurgical products decreased 36% during the first three months of 2009 compared to 2008. These results reflect sales of Histofreezer® into both the domestic and international physicians' office markets and sales of the OTC formulation of this product through international distributors and U.S. retailers. During the first quarter of 2009, we launched Freeze 'n Clear Skin Clinic™, our own nationally branded cryosurgical wart removal product in the U.S. OTC market. It is not possible to predict at this time how this new branded product will perform.

SSL International plc ("SSL") distributes our cryosurgical product under its Scholl's and Dr. Scholl trademarks in the OTC market in several European countries, Australia and New Zealand. Genomma Labs ("Genomma") also distributes a similar product to the OTC market in Mexico and has rights to Argentina, Brazil and various other Central and South American countries. Overall, our

international OTC cryosurgical sales decreased 67% in the first three months of 2009 compared to the same period in the prior year primarily due to a $646,000 decline in sales to SSL, resulting from lower unit selling prices and variability in their ordering patterns and product launches.

Sales to the substance abuse testing market decreased 18% during the first quarter of 2009, due primarily to declining employment in the United States. Our workplace testing business has been impacted by the decline in employment rates in some of the markets that use our Intercept® collection device and related assays. We do not expect renewed growth in the utilization of our Intercept® product line until employment conditions in the U.S. recover.

Because of the regulatory approvals needed for most of our products, we often are required to rely on sole source providers for critical components and materials and on related products supplied by third parties. This is particularly true for our OraQuick ADVANCE® test, our OraSure ® oral fluid collection device and our oral fluid Western blot HIV-1 confirmatory product. If we are unable to obtain necessary components or materials from these sole sources, the time required to develop replacements and obtain the required FDA approvals could disrupt our ability to sell the affected products.

In past years, BioMerieux ("BMX") manufactured and sold the only oral fluid HIV-1 screening test that had received FDA approval for use in detecting HIV-1 in an oral fluid specimen collected with our OraSure® collection device. BMX also supplied the HIV-1 antigen used to manufacture our oral fluid Western blot HIV-1 confirmatory test and was the exclusive world-wide distributor of that product. BMX discontinued manufacturing their HIV-1 EIA screening test during 2007. As a result, we intend to seek FDA approval of an alternative HIV-1 EIA screening test for use with our OraSure® collection device. BMX also elected not to renew our Western blot agreements beyond December 31, 2007, and we are now selling the Western blot oral fluid HIV-1 confirmatory test directly to our laboratory customers.

We rely heavily on distributors to purchase and resell many of our products. For example, SSL has exclusive rights to our wart removal product in the OTC footcare market in Europe, Australia and New Zealand and Genomma Labs has exclusive rights in Mexico, Argentina, Brazil, and various other Central and South American countries. We have contracted with several distributors to sell our OraQuick ADVANCE® HIV-1/2 test to the U.S. physician office market and our Intercept® and OraSure® product lines are sold by several laboratory distributors. We expect to enter into additional distribution agreements for new and future products, for distribution in the U.S. and internationally. If our distributors are unable or unwilling to meet the minimum purchase commitments set forth in their agreements or otherwise substantially reduce the volume of their purchases, our revenues and results of operations could be adversely affected.

We generated 86% of our first quarter 2009 revenues in the U.S. marketplace, compared to 78% in 2008. We are continuously evaluating strategies to increase our sales penetration in markets outside the U.S. As our business in foreign countries increases, we could be exposed to other economic, political, exchange rate, regulatory and cultural risks.

The current economic downturn, including disruptions in the capital and credit markets, may continue indefinitely and intensify, and could adversely affect our financial performance and condition or those of our customers and suppliers. These circumstances could adversely affect our access to liquidity needed to conduct or expand our business or conduct acquisitions or make other discretionary investments. These circumstances may also adversely impact the capital needs of our customers and suppliers, which, in turn, could adversely affect their ability to purchase our products or supply us with necessary equipment, raw materials or components. In addition, demand for our products by consumers may also be adversely affected by the economic downturn.

Results of Operations

Three months ended March 31, 2009 compared to March 31, 2008

Total revenues decreased 5% to $17.3 million in the first quarter of 2009 from $18.1 million in the comparable quarter in 2008. Increased sales of our OraQuick ADVANCE® rapid HIV-1/2 antibody test were more than offset by decreased sales of our cryosurgical and substance abuse testing products. Revenues derived from products sold to customers outside the U.S. were $2.4 million and $3.9 million, or 14% and 22% of total revenues, in the first quarters of 2009 and 2008, respectively. Because the majority of our international sales are transactions in U.S. dollars, the impact of fluctuating foreign currency exchange rates has not been material to our operating results.

The table below shows the amount of total revenues (in thousands, except %) generated in each of our principal markets and by licensing and product development activities.

                                                           Three Months Ended March 31,
                                                                                 Percentage of Total
                                                   Dollars                            Revenues
                                                                     %
Market                                         2009       2008     Change        2009           2008
Infectious disease testing                   $ 10,451   $  9,480       10 %          61 %           52 %
Substance abuse testing                         2,690      3,277      (18 )          16             18
Cryosurgical systems                            2,145      3,336      (36 )          12             18
Insurance risk assessment                       1,635      1,543        6             9              9

Product revenues                               16,921     17,636       (4 )          98             97
Licensing and product development                 335        453      (26 )           2              3

Total revenues                               $ 17,256   $ 18,089       (5 )%        100 %          100 %

Infectious Disease Testing Market

Sales to the infectious disease testing market increased 10% to $10.5 million in the first quarter of 2009, primarily as a result of the continued strong performance of our OraQuick ADVANCE® rapid HIV-1/2 antibody test in an increasingly competitive environment. OraQuick ® sales totaled $9.8 million and $8.9 million in the first quarters of 2009 and 2008, respectively. Sales of our OraSure® oral fluid collection device totaled $693,000 and $627,000 in the first quarters of 2009 and 2008, respectively.

The table below shows a breakdown of our total OraQuick® revenues (in thousands, except %) during the first quarters of 2009 and 2008.

                                            Three Months Ended March 31,
          Customers                         2009          2008      % Change
          Direct to U.S. Public Health   $    6,577    $    6,282          5 %
          Hospital Market                     2,722         1,925         41
          International                         459           646        (29 )

          Total OraQuick® revenues       $    9,758    $    8,853         10 %

During the first quarter of 2009, OraQuick ® revenue derived from direct sales to the U.S. public health market increased by 5% as compared to 2008 and continues to benefit from growth in our base business. Sales into the hospital market increased 41% to $2.7 million during the first quarter of 2009 as compared to $1.9 million in 2008. On January 1, 2009, we switched to a direct sales model for U.S. hospitals as a result of the termination of our distribution agreement with Abbott Laboratories at the end of 2008. The increase in revenues in the U.S. hospital market is due to higher average selling prices realized under our direct sales model.

We believe that our OraQuick ADVANCE ® device, which is FDA-approved for detecting antibodies to both HIV-1 and HIV-2 in oral fluid, finger-stick and venous whole blood, and plasma samples, and is CLIA-waived for use with all sample types except plasma, provides a significant competitive advantage, thereby enabling us to fully implement a strategy for selling OraQuick® in the U.S. and internationally. We received CE mark approval for our OraQuick ADVANCE® test and we currently sell small quantities of this product in Europe. We have established distribution channels in several European countries and are pursuing other distributors elsewhere in the European Union and in other countries.

International sales of our OraQuick® HIV-1/2 test decreased to $459,000 for the three months ended March 31, 2009 from $646,000 for the three months ended March 31, 2008. This 29% decline was a result of lower sales into Africa.

We have continued to see evidence that sales of OraQuick ADVANCE® are negatively impacting sales of our OraSure® oral fluid collection device in the infectious disease testing market in the U.S. While our sales of OraSure® increased slightly from $627,000 in the first quarter of 2008 to $693,000 in the first quarter of 2009, some customers who have purchased our OraSure® device for laboratory HIV-1 testing in the past are now electing to purchase our OraQuick ADVANCE® test. We believe this is the result of customers recognizing the benefits of rapid HIV testing, especially with oral fluid, and the CDC's efforts to increase rapid HIV testing in healthcare settings. While it is not possible at this time to estimate the extent of such ongoing change in purchasing patterns, we expect OraSure® sales to decline.

Substance Abuse Testing Market

Substance abuse testing revenues decreased 18% to $2.7 million in the first quarter of 2009 from $3.3 million in the first quarter of 2008, as sales of our Intercept® product for workplace testing were impacted by the continuing adverse economic conditions and higher unemployment rates.

The table below shows a breakdown of our total Intercept® revenues (in thousands, except %) generated in each market during the first quarters of 2009 and 2008.

                                          Three Months Ended March 31,
           Market                         2009          2008      % Change
           Workplace testing           $      857    $    1,016        (16 )%
           Criminal justice                   552           619        (11 )
           International                      523           525          0
           Direct                             168           271        (38 )

           Total Intercept® revenues   $    2,100    $    2,431        (14 )%

Our workplace testing business decreased 16% from $1.0 million in the first quarter of 2008 to $857,000 in the first quarter of 2009. Pre-employment drug screening represents over 50% of our workplace testing business and the current decline in the domestic economy and rising unemployment have had a direct impact on this part of our business.

We do not expect renewed growth in Intercept® sales until employment conditions in the U.S. recover and overall economic conditions improve. In addition, our microplate oral fluid drug assays, which are sold for use with the Intercept®collection device, have come under increasing competitive pressure from "home-brew" assays developed internally by our laboratory customers. Our oral fluid microplate assays also compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers. We believe our competitors are developing oral fluid tests suitable for use on these fully automated homogeneous assay

systems and these assays, if and when they are developed and commercialized, could represent a significant competitive threat to our oral fluid microplate business. In order to meet this competition, we are jointly developing and intend to commercialize fully-automated homogeneous oral fluid drugs of abuse assays with Roche Diagnostics for use with our Intercept ® device.

Cryosurgical Systems Market

Sales of our products in the cryosurgical systems market (which includes both the physicians' office and OTC markets) decreased 36% to $2.1 million in the first quarter of 2009, compared to $3.3 million in the same period of the prior year.

The table below shows a breakdown of our total cryosurgical systems revenues (in thousands, except %) generated in each market during the first quarters of 2009 and 2008.

                                               Three Months Ended March 31,
      Market                                   2009          2008      % Change
      Professional domestic                 $      942    $    1,034         (9 )%
      Professional international                   629           737        (15 )
      OTC domestic                                  57            -         100
      OTC international                            517         1,565        (67 )

      Total cryosurgical systems revenues   $    2,145    $    3,336        (36 )%

The overall decrease in cryosurgical systems revenues was primarily the result of a 55% decrease in sales to our international OTC distributor, SSL. We have an agreement with SSL under which we manufacture and supply, and SSL distributes on an exclusive basis, our cryosurgical wart removal product in the OTC market in Europe, Australia and New Zealand under SSL's Scholl and Dr. Scholl trademarks. Sales to SSL were $517,000 and $1.2 million in the first quarters of 2009 and 2008, respectively. The decrease in revenues from SSL during the first quarter of 2009 resulted from lower unit selling prices and variability in SSL's ordering patterns and because during the first quarter of 2009, SSL purchased product primarily for one European market, while product was purchased for four European markets during the comparable period in 2008.

We also have granted Genomma Labs exclusive distribution rights to our cryosurgical wart removal product in the OTC markets in Mexico, Argentina, Brazil, and various other Central and South American countries. First quarter of 2008 international revenues included approximately $400,000 of sales to Genomma. This compares to no sales during the first quarter of 2009. During 2008, Genomma Labs reduced its purchases from us, in response to an increase in product returns from retailers in Mexico who overstocked during the winter months of 2007. Throughout 2008, Genomma worked to reduce its excess inventory position, and accordingly did not purchase additional product from us. Genomma has currently worked through their excess inventory levels and we expect to record sales to Genomma beginning in the second quarter of 2009.

During the first quarter of 2009, we reentered the U.S. OTC cryosurgery marketplace through the launch of our own cryosurgical wart removal product under our new national brand, Freeze 'n Clear Skin Clinic™. In February 2009, we shipped product to one major retailer and we plan to expand distribution to other retailers in the future. It is not possible to predict at this time how successful our new brand will be in the domestic OTC marketplace.

Sales of our Histofreezer® product to physicians' offices in the United States decreased 9% to $942,000 in the first quarter of 2009, as compared to $1.0 million in 2008. Sales of Histofreezer® in the international market decreased 15% to $629,000 in the first quarter of 2009, as compared to $737,000 in 2008. The selling prices for our Histofreezer® product are lower in some foreign countries due to differences in the healthcare systems in those countries. During 2008, some distributors in these countries purchased English-labeled

Histofreezer® product and resold it into the domestic distribution network to distributors who employ alternate sourcing programs. We aggressively addressed this diversion issue in 2008. The residual impact of the 2008 diversion issue has been minimal in the domestic physicians' office market during the first quarter of 2009 and we do not expect it to have a material impact on 2009 revenues. The decline in revenues in the international market reflects the correction of this diversion issue.

We are beginning to see some evidence that sales of OTC cryosurgical products may reduce the number of individuals that will seek to obtain treatment of their warts by a physician, which in turn could negatively affect sales of our Histofreezer® product in the domestic professional market. Furthermore, in the European professional marketplace, there is increasing pressure to change or exclude healthcare reimbursement for certain treatment types, including . . .