FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning cash requirements. Such forward looking statements (often, but not always, using words or phrases such as "expects" or "does not expect," "is expected," "anticipates" or "does not anticipate," "plans," "estimates" or "intends," or stating that certain actions, events or results "may," "could," "would," "should," "might" or "will" be taken, occur or be achieved) involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. Such risks, uncertainties and other factors include, without limitation, the risk that we may not enter into anticipated licensing, development or supply agreements, the risk that we may not achieve the milestones necessary for us to receive payments under our development agreements, the risk that our products will not be accepted by the market, the risk that we will be unable to obtain needed debt or equity financing on satisfactory terms, or at all, the risk that we may default on our outstanding debt obligations, risks related to the general economic environment and uncertainties in the financial markets, uncertainties related to our dependence on the continued performance of strategic partners and technology and uncertainties related to the time required for us or our strategic partners to complete research and development and obtain necessary clinical data and government clearances. See also Part II, Item 1A, Risk Factors.

Forward-looking statements are based on the estimates and opinions of management on the date the statements are made. We assume no obligation to update forward-looking statements if conditions or management's estimates or opinions should change, even if new information becomes available or other events occur in the future.

OVERVIEW

We are an innovative developer and manufacturer of needle-free injection therapy systems ("NFITS").

Our long-term goal is to become the leading supplier of needle-free injection systems to the pharmaceutical and biotechnology industries. We have been focusing our business development efforts on new and existing licensing and supply agreements with leading pharmaceutical and biotechnology companies, as well as numerous research agreements that could lead to long-term agreements. Our pipeline of prospective new partnerships remains active. We are also actively pursuing additional opportunities both domestically and overseas as we expand our current product line. However, historically, finalizing agreements has been a long process and, given the current difficult global economic conditions, we believe that process will take even longer.

Our NFITS work by forcing liquid medication at high speed through a tiny orifice held against the skin. This creates a fine stream of high-pressure medication that penetrates the skin, depositing the medication in the tissue beneath. By bundling customized needle-free delivery systems with partners' injectable medications and vaccines, we can enhance demand for these products in the healthcare provider and end-user markets.

We began a strategic realignment of our company during 2006 with the singular goal of increasing shareholder value. The realignment has two concurrent phases. Phase One was to focus on our fixed operating expenses, primarily by reducing headcount and related expenses. Along this line, in March 2006 and 2007, we reduced the size of our workforce. In addition, on January 16, 2008, we eliminated an additional 13 positions, incurring approximately $0.1 million of severance and related costs in the first quarter of 2008. Phase Two of our realignment campaign is to increase our revenue by increasing product sales and adding license and development agreements. For example, in October 2007, we entered into a new three-year supply agreement with Serono for the delivery of the cool.click™ and Serojet™ spring-powered needle-free device for use with its recombinant human growth hormone drugs. In June 2008, we signed a new long-term exclusive license, development and supply agreement with Merial, a global animal health company, for a next generation companion animal device, which allows for the delivery of injectables. In addition, in January 2009, we extended our supply agreement with Ferring Pharmaceuticals to deliver the vial adapter for Ferring's proprietary products. We have also initiated new discussions with a number of potential new partners, as well as with past partners.

In 2007, we completed a business assessment for strategic targeting and focusing on the most promising potential partnership opportunities, including opportunities to secure injectable indications allowing us to partner with a pharmaceutical or biotech company or create our own drug+device combinations for the market. Although we have suspended implementation of our drug+device strategy to conserve cash, we are committed to working with our current partners and assessing ways to ensure continued beneficial long-term partner relationships. We continue to initiate discussions with new potential partners within the large pharmaceutical market, the biotechnology market, the specialty pharmaceutical market and other markets.

During the first quarter of 2009, significant focus was spent on advancing our next generation spring-powered device technology with auto-disable syringes. This focus resulted in our successfully meeting a significant milestone of delivering working prototypes for a new companion animal device and in gaining FDA 510(k) clearance for our new ZetaJetTM device, which provides unique competitive differentiation for a wide range of human injectables.

We do not expect to report net income in 2009.

GOING CONCERN AND CASH REQUIREMENTS FOR THE NEXT TWELVE-MONTH PERIOD

See Note 1 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

CONTRACTUAL PAYMENT OBLIGATIONS

A summary of our contractual commitments and obligations as of March 31, 2009
was as follows:



                                                                 Payments Due By Period
                                                             Remainder    2010 and    2012 and    2014 and
Contractual Obligation                           Total        of 2009       2011        2013       beyond
December 2007 $600,000 LOF convertible note   $   600,000   $   600,000   $      -    $      -    $      -
$1.25 million PFG term loan(1)                    645,000       495,000     150,000          -           -
Interest on all debt facilities                    25,616        22,801       2,815          -           -
Operating leases                                2,285,634       292,819     805,459     829,364     357,992
Capital leases                                     45,472        21,664      23,808          -           -
Purchase order commitments(2)                     724,631       724,631          -           -           -

                                              $ 4,326,353   $ 2,156,915   $ 982,082   $ 829,364   $ 357,992

(1) The entire accreted value of $547,047 of our $1.25 million term loan is classified as current on our consolidated balance sheet as of March 31, 2009 due to the fact that the agreement contains subjective acceleration clauses, which could result in the debt becoming due at any time. However, since none of the subjective acceleration clauses have been triggered to date, it is included in this table according to its contractual maturity. The unpaid principal amount of the $1.25 million term loan was $645,000 at March 31, 2009.

(2) Purchase order commitments relate to future raw material inventory purchases, research and development projects and other operating expenses.

OUTSTANDING DEBT

$1.25 Million Convertible Loan

We have outstanding a term loan agreement with PFG for convertible debt financing (the "Debt Financing"). At March 31, 2009, $645,000 was outstanding under this loan. This loan matures in March 2010, with principal payments of $55,000 due per month, payable at PFG's option. If PFG elects to forgo any of the principal payments, which it has not done to date, the latest this loan will be due is March 2011. However, due to certain subjective acceleration clauses contained in the Debt Financing agreement, the accreted value of the Debt Financing is reflected as current on our balance sheet. The loan bears interest at the Prime Rate plus 3% per annum and is convertible at any time by PFG into our common stock at $0.90 per share. In addition, if our common stock trades at a price of $4.11 per share or higher for 20 consecutive trading days, we can force PFG to convert the debt to common stock, subject to certain limitations on trading volume. If we prepay this loan, we will issue PFG a warrant to purchase a number of shares of common stock equal to what it would have received upon conversion of the remaining outstanding principal balance that was prepaid at a price of $0.90 per share. As a result of the derivative accounting prescribed by EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Common Stock," at March 31, 2009, this debt was recorded on our balance sheet at $547,000 and is being accreted on the effective interest method to its face value of $645,000 over the 18-month contractual term of the debt.

$600,000 Convertible Notes

On December 5, 2007, we entered into Convertible Note Purchase and Warrant Agreements with each of Life Science Opportunities Fund II, L.P. ("LOF II") and Life Sciences Opportunities Fund II (Institutional) L.P. ("LOF Institutional" and, together with LOF II, the "Purchasers") pursuant to which we issued Convertible Promissory Notes and warrants to purchase our common stock. Pursuant to the agreements, we sold a note in the principal amount of $91,104 to LOF II and a note in the principal amount of $508,896 to LOF Institutional. The notes bear interest at the rate of 8% per annum with all principal and interest due July 15, 2009 and may not be prepaid without the written consent of the purchaser holding a given note. The notes are convertible at any time by the purchasers into our common stock at the rate of $0.75 per share. The notes will be automatically converted upon a qualified financing, as defined in the purchase agreement, at a price equal to the financing price.

The warrants are exercisable for an aggregate of 80,000 shares of our common stock at an exercise price of $0.75 per share. Each warrant is immediately exercisable and expires four years from the date of issuance.

RESULTS OF OPERATIONS

The consolidated financial data for the three-month periods ended March 31, 2009
and 2008 are presented in the following table:



Three Months Ended March 31,                                    2009              2008
Revenue:
Net sales of products                                       $  1,857,546      $  1,681,151
License and technology fees                                      127,690           131,638

                                                               1,985,236         1,812,789
Operating expenses:
Manufacturing                                                  1,143,131         1,187,640
Research and development                                         436,874           593,531
Selling, general and administrative                              581,035           733,320

Total operating expenses                                       2,161,040         2,514,491

Operating loss                                                  (175,804 )        (701,702 )
Interest income                                                    3,104            17,496
Interest expense                                                 (50,118 )        (192,897 )
Change in fair value of derivative liabilities                    (1,421 )         224,088

Net loss                                                        (224,239 )        (653,015 )
Preferred stock dividends                                        (12,471 )        (110,768 )

Net loss allocable to common shareholders                   $   (236,710 )    $   (763,783 )

Basic and diluted net loss per common share allocable to
common shareholders                                         $      (0.01 )    $      (0.05 )

Shares used in per share calculations                         16,613,432        15,484,400

Revenue

Product sales increased $176,000, or 10.5%, in the first quarter of 2009 compared to the first quarter of 2008 primarily due to the following:

• an increase in sales to Serono from $642,000 to $785,000, or 22%, in the first quarter of 2009 compared to the first quarter of 2008 due to the timing of orders from Serono;

• an increase in sales to Ferring from $111,000 to $208,000, or 87%, in the first quarter of 2009 compared to the first quarter of 2008; and

• an increase in sales to the military from $56,000 to $195,000, or 248%, in the first quarter of 2009 compared to the first quarter of 2008.

These factors were partially offset by:

• a decrease in sales to Merial from $666,000 in the first quarter of 2008 to $557,000 in the first quarter of 2009, or 16%, due to the timing of orders; and

• a decrease in B2000 sales to BioScrip and Roche/Trimeris from $46,000 in the first quarter of 2008 to $7,000 in the first quarter of 2009, or an 85% decrease.

We currently have significant supply agreements or commitments with Serono, Merial and Ferring Pharmaceuticals Inc.

License and technology fees were relatively flat in the first quarter of 2009 compared to the first quarter of 2008. The first quarter of 2009 included $42,000 from Serono, $64,000 from Merial and $13,000 from Vical.

We currently have active licensing and/or development agreements, which often include commercial product supply provisions, with Merial, the Centers for Disease Control and Prevention and Vical.

Manufacturing Expense

Manufacturing expense is made up of the cost of products sold and manufacturing overhead expense related to excess manufacturing capacity.

Manufacturing expense decreased $45,000, or 3.7%, in the first quarter of 2009 compared to the first quarter of 2008 primarily due to product mix and lower indirect overhead.

Research and Development

Research and development costs include labor, materials and costs associated with clinical studies or incurred in the research and development of new products and modifications to existing products.

Research and development expense decreased $157,000, or 26%, in the first quarter of 2009 compared to the first quarter of 2008 primarily due to the timing of expenses related to on-going projects and the implementation of salary reductions in February 2009. In addition, the first quarter of 2008 included $92,000 of restructuring expenses compared to none in the first quarter of 2009.

Current significant projects include the next generation spring-powered device with an auto disable feature.

Selling, General and Administrative

Selling, general and administrative costs include labor, travel, outside services and overhead incurred in our sales, marketing, management and administrative support functions.

Selling, general and administrative expense decreased $152,000, or 21%, in the first quarter of 2009 compared to the first quarter of 2008 primarily due to salary reductions implemented in February 2009 and lower legal and corporate communications expenses.

Restructuring

Restructuring and severance charges were included as a component of operating
expenses as follows:



                                                     Three Months Ended
                                                         March 31,
                                                   2009          2008
            Manufacturing                         $   -     $       12,330
            Research and development                  -             92,135
            Selling, general and administrative       -                764

            Total                                 $   -     $      105,229

Our accrued liability for past restructuring activities totaled $0 at both March 31, 2009 and December 31, 2008.

Interest Expense

Interest expense included the following:



                                                         Three Months Ended
                                                             March 31,
                                                          2009        2008
         Contractual interest expense                  $    9,767   $  35,972
         Amortization of debt issuance costs               17,086      94,757
         Accretion of $1.25 million convertible debt       23,265      62,168

                                                       $   50,118   $ 192,897

Change in Fair Value of Derivative Liabilities

Our derivative liabilities are recorded at fair value and are marked to market each period. The fair value of these instruments is determined using the Black-Scholes valuation model.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception in 1985, we have financed our operations, working capital needs and capital expenditures primarily from private placements of securities, the exercise of warrants, loans, proceeds received from our initial public offering in 1986, proceeds received from a public offering of common stock in 1993, licensing and technology revenues and revenues from sales of products.

Total cash, cash equivalents and short-term marketable securities at March 31, 2009 were $1.0 million compared to $1.4 million at December 31, 2008. We had a working capital deficit of $0.2 million at March 31, 2009 compared to $0.3 million at December 31, 2008. Going forward, we anticipate debt retirement costs to be approximately $165,000 per quarter in 2009 for our $645,000 convertible loan, and, unless converted into common stock or deferred, our outstanding $600,000 convertible debt plus accrued interest will be due in July 2009. Given our current cash and cash equivalents, our debt repayment obligations and our current rate of cash usage, if no new licensing, development or supply agreements with up-front payments are entered into or we do not raise debt or equity financing or restructure our existing debt obligations, we anticipate that we will be unable to continue operations beyond the third or fourth quarter of 2009. We are addressing this issue by engaging the services of Ferghana Partners to assist us as we pursue various strategic alternatives, as well as working with a debt broker in pursuing additional debt financing options.

The overall decrease in cash, cash equivalents and short-term marketable securities during the first quarter of 2009 resulted from $29,000 used for other investing activities, primarily patent applications, $169,000 used for principal payments on short and long-term debt and capital leases and $161,000 used in operations, as discussed in more detail below.

Net accounts receivable increased $1.0 million to $1.5 million at March 31, 2009 compared to $0.5 million at December 31, 2008. Receivables from three different customers accounted for a total of 75% of our accounts receivable balance at March 31, 2009, with individual accounts totaling 53%, 12%, 10%, respectively. Of the accounts receivable due at March 31, 2009, $1.5 million was collected prior to the filing of this Form 10-Q. Historically, we have not had collection problems related to our accounts receivable.

Inventories decreased $0.1 million to $0.9 million at March 31, 2009 compared to $1.0 million at December 31, 2008, primarily due to the timing of orders.

We did not have any capital expenditures in the first quarter of 2009. We anticipate spending up to a total of $50,000 in 2009 for production molds for current research and development projects.

Accounts payable increased $0.3 million to $1.0 million at March 31, 2009 compared to $0.7 million at December 31, 2008 primarily due to payments owed vendors.

Derivative liabilities of $24,000 at March 31, 2009 reflect the fair value of the derivative liabilities associated with certain of our debt and equity transactions. The fair value of the derivative liabilities is adjusted on a quarterly basis using the Black-Scholes valuation model, with changes in fair value being recorded as a component of earnings.

Deferred revenue totaled $1.9 million at March 31, 2009 compared to $1.8 million at December 31, 2008. The balance at March 31, 2009 included $1.7 million received from Merial, $175,000 received from Serono and $4,000 received from Vical.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We reaffirm the critical accounting policies and estimates as reported in our Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on March 31, 2009.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 8 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.