The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the related Notes to Consolidated Financial Statements on pages 45 to 77 of this Annual Report on Form 10-K.

We are the parent corporation of the following three subsidiaries:

• Delta Biologicals, S.r.l.;

• Diamedix Corporation; and

• ImmunoVision, Inc.

Through these subsidiaries, we develop, manufacture and market diagnostic test kits, or assays, and automated systems that are used to aid in the detection of disease markers primarily in the areas of autoimmune and infectious diseases. In addition to diagnostic kits, we also design and manufacture laboratory instruments that perform the tests and provide fast and accurate results, while reducing labor costs. We also develop, manufacture and market raw materials, such as antigens used in the production of diagnostic kits.

Our management reviews financial information, allocates resources and manages the business as two segments defined by geographic region. One segment-the domestic region-contains Diamedix and ImmunoVision, our subsidiaries located in the United States and corporate operations. Our other segment-the European region -contains Delta, our subsidiary located in Italy.

On July 25, 2005, IVAX, which then owned approximately 72.3% of the outstanding shares of our common stock, entered into a definitive agreement and plan of merger with Teva providing for IVAX to be merged into a wholly-owned subsidiary of Teva. On January 26, 2006, the merger was consummated and IVAX became a wholly-owned subsidiary of Teva for an aggregate purchase price of approximately $3.8 billion in cash and 123 million Teva ADRs. The transaction was reported to be valued, for accounting purposes, at $7.9 billion, based on the value of the Teva ADRs during the five trading day period commencing two trading days before the date of the definitive agreement and plan of merger. As a result of the merger, Teva, indirectly through its wholly-owned IVAX subsidiary, owned approximately 72.3% of the outstanding shares of our common stock.

On September 2, 2008, a group comprised of Debregeas & Associes Pharma SAS, a company wholly-owned by Patrice R. Debregeas and members of his family, Paul F. Kennedy and Umbria LLC, a company wholly-owned by Mr. Kennedy, purchased from Teva all of the approximately 72.3% of the outstanding shares of our common stock then owned by Teva, indirectly through its wholly-owned IVAX subsidiary, for an aggregate purchase price of $14,000,000, or $0.70 per share. For purposes of this Annual Report on Form 10-K, Debregeas & Associes Pharma SAS, Patrice R. Debregeas, Paul F. Kennedy and Umbria LLC are collectively known as the Debregeas-Kennedy Group.

On September 1, 2010, ERBA Diagnostics Mannheim GmbH, or ERBA, an in vitro diagnostics company headquartered in Germany, the parent company of which is Transasia Bio-Medicals Ltd., or Transasia, purchased all of the approximately 72.4% of the outstanding shares of our common stock then owned by the Debregeas-Kennedy Group for an aggregate purchase price of approximately $15,000,000, or $0.75 per share. As a result of this share acquisition, the consummation of the initial transactions contemplated by the investment made by ERBA, as further described below, including ERBA's purchase from us, and our issuance to ERBA, of 6,666,667 shares of our common stock, and ERBA's exercise, in part, of the warrant, as further described below, for 600,000 shares of our common stock, ERBA now beneficially owns, directly or indirectly, approximately 78.0% of the outstanding shares of our common stock.

YEAR ENDED DECEMBER 31, 2011 COMPARED TO THE YEAR ENDED DECEMBER 31, 2010

OVERVIEW

Net loss totaled $3,297,000 in 2011 compared to net loss of $4,215,000 in 2010. Operating loss was $3,228,000 in 2011 compared to operating loss of $4,173,000 in 2010. The reduction in both net loss and loss from operations in 2011 compared to 2010 resulted primarily from reductions in operating expenses. Net revenues decreased by $272,000 to $16,760,000 in 2011 from $17,032,000 in 2010, consisting of a decrease in net revenues from domestic operations of $332,000, from $11,839,000 in 2010 to $11,507,000 in 2011, partially offset by an increase in net revenues from European operations of $60,000, including the effect of exchange rate fluctuations of the United States dollar relative to the Euro, which increased 2011 revenue by $264,000. Gross profit decreased by $217,000 to $8,602,000 in 2011 from $8,819,000 in 2010, primarily as the result of the decline in net revenue. Gross profit as a percentage of net revenues decreased to 51.3% during 2011 from 51.8% during 2010, principally as a result of higher sales of instruments, which have lower margins than reagent sales.

Operating expenses decreased to $11,830,000 in 2011 from $12,992,000 in 2010, mainly as a result of decreases in general and administrative expenses. Comparing 2011 to 2010, selling expenses increased by $152,000, general and administrative expenses decreased by $1,127,000, and research and development expenses decreased by $187,000.

NET REVENUES AND GROSS PROFIT



                                                                  Period over Period
                                   2011             2010         Increase (Decrease)
     Net Revenues
     Domestic                  $ 11,507,000     $ 11,839,000     $           (332,000 )
     European                     5,253,000        5,193,000                   60,000
     Total                       16,760,000       17,032,000                 (272,000 )

     Cost of Sales                8,158,000        8,213,000                  (55,000 )

     Gross Profit              $  8,602,000     $  8,819,000     $           (217,000 )
     % of Total Net Revenues       51.3%            51.8%

Net revenues in 2011 decreased by $272,000, or 1.6%, from 2010. This decrease was comprised of decreases of $332,000 in net revenues from domestic operations offset by an increase of $60,000 in net revenues from European operations. Offsetting the decline in net revenues is the effect of an increase of $264,000 in net revenues from European operations due to fluctuation of the United States dollar relative to the Euro, as further discussed in "Currency Fluctuations" below. As measured in Euros, net revenues from European operations in 2011 decreased by 3.4% compared to 2010. Net revenues from domestic operations in 2011 decreased by 5.0% compared to 2010. The decrease in net revenues from domestic and European operations was principally due to reagent volume declines, offset by higher instrument sales.

Gross profit in 2011 decreased by $218,000, or 2.5%, from the prior year. The decrease in gross profit was primarily attributable to the decline in net revenues, offset by the effect of exchange rate fluctuations described above. The decrease in gross profit as a percentage of net revenues to 51.3% in 2011 from 51.8% in 2010 resulted mainly from higher sales of instruments, which have lower margins than reagent sales.

OPERATING EXPENSES



                                            % of                              % of          Period over Period
                           2011           Revenue            2010           Revenue        Increase (Decrease)

Selling                $  5,054,000          30.1%       $  4,902,000          28.8%       $            152,000

General and
Administrative            5,324,000          31.8%          6,451,000          37.9%                 (1,127,000 )

Research and
Development               1,452,000          8.7%           1,639,000          9.6%                    (187,000 )

Total Operating
Expenses               $ 11,830,000          70.6%       $ 12,992,000          76.3%       $         (1,162,000 )

The increase of $152,000 in selling expenses was primarily due to salaries for newly hired sales personnel and marketing expenses related to the launch of new products and trade shows.

The decrease of $1,127,000 in general and administrative expenses was due to a decrease in the number of executive officers and reduction in travel and consulting fees. Additionally, 2010 included approximately $700,000 of severance cost, which was not incurred in 2011. The overall decrease in general and administrative expenses is net of increases in bad debt provisions (primarily in Italy)($389,000 in 2011 compared to $57,000 in 2010).

The decrease in research and development expenses of $187,000 was due principally to the decrease in research and development expenses in the United States following the regulatory approval and commercial release of the Mago® 4S.

LOSS FROM OPERATIONS

Loss from operations totaled $3,228,000 in 2011 as compared to loss from operations of $4,173,000 in 2010. Loss from operations in 2011 was composed of a $1,371,000 loss from domestic operations and a $1,857,000 loss from European operations. Loss from operations in 2010 was composed of a $2,582,000 loss from domestic operations and a $1,591,000 loss from European operations.

OTHER INCOME/EXPENSE, NET

Total other expense, net for 2011 aggregates to approximately $361,000 compared to other income, net in 2010 of $70,000. Other expense in 2011 includes an unrealized foreign exchange loss of approximately $327,000 on cash deposit held in Euros. Other income in 2010 includes the net proceeds of approximately $220,000 from a cash grant awarded to us, less currency exchange losses, recurring banking fees and one-time fees related to arrangements with a leasing company. During the fourth quarter of 2010, we received the cash grant discussed above. This cash grant was awarded to us under the Qualifying Therapeutic Discovery Projects Program (Section 48D of the Internal Revenue Code, which was enacted as part of the Patient Protection and Affordable Care Act of 2010) in connection with therapeutic discovery projects relating to the Mago® 4S and certain diagnostic Enzyme-linked Immunosorbent Assay and Immunofluorescence Assay test kits.

There was net interest income of $4,000 in 2010 and net interest expense of $22,000 in 2011. The expense in 2011 was related to the revolving line of credit entered into during 2011.

INCOME TAX PROVISION

We recorded a net income tax benefit of $292,000 during 2011 and a provision of $111,000 during 2010. During 2011, our wholly-owned subsidiary in Italy - Delta Biologicals, S.r.l. - eliminated the balance of its intercompany loan of approximately $1,900,000 due to us, as a result of converting the loan to capital (equity). We had accrued for a potential withholding tax that would have been due upon payment of the interest on the loan. With the conversion of the balance to equity, approximately $400,000 of withholding tax liability was relieved during the three months ended June 30, 2011, as the accrued interest would not be paid and therefore no withholding tax should be accrued. This reversal of the tax liability was recorded in the three months ended June 30, 2011 as a one-time credit to income tax expense in the accompanying consolidated financial statements.

The current portion of our tax provisions in both 2011 and 2010 relates to Italian local income taxes based upon applicable statutory rates effective in Italy, while the deferred tax provision in these same periods relates to domestic tax deductible goodwill. No current tax benefit was recorded during 2010 and 2011 on our losses because we had a full valuation allowance against the net deferred income tax assets.

NET LOSS

We generated a net loss of $3,297,000 in 2011 as compared to a net loss of $4,215,000 in 2010. Our basic and diluted loss per common share was $0.11 in 2011 as compared to a basic and diluted loss per common share of $0.15 in 2010. The net loss for both years resulted primarily from the various factors discussed above. See Note 3, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a description of the calculation of loss per common share.

The independent auditors' report issued in conjunction with our consolidated financial statements for the year ended December 31, 2010 contained an explanatory paragraph indicating that certain matters raised substantial doubt about our ability to continue as a going concern.

We cannot guarantee that we can generate net income, increase revenues, improve our cash flow or successfully obtain debt or equity financing on acceptable terms, or at all, and, if we cannot do so, then we may not be able to survive and any investment in our company may be lost. We are evaluating various forms of debt and equity financing arrangements. Any such financing arrangements would likely impose positive and negative covenants on us, which could restrict various aspects of our business, operations and finances. In addition, any issuance of equity securities, or securities convertible into shares of our common stock, would be dilutive to our existing stockholders. For the long-term, we intend to utilize principally existing cash and cash equivalents, as well as internally generated funds, which are anticipated to be derived primarily from the sale of existing diagnostic and instrumentation products and diagnostic and instrumentation products currently under development as well as possible sources of debt and equity financings. If we are not successful in improving our operating results and cash flows or if existing and possible future sources of liquidity described above are insufficient, then we may be required to curtail or reduce our operations.

At December 31, 2011, our working capital was $8,631,000 compared to $7,081,000 at December 31, 2010. Cash and cash equivalents totaled $3,653,000 at December 31, 2011 and $1,826,000 at December 31, 2010.

Net cash flows of $2,693,000 were used in operating activities during 2011 as compared to $1,883,000 that were used in operating activities during 2010. Cash used in operating activities during 2011 was the result of the net loss of $3,297,000 and changes in operating assets and liabilities of $928,000, offset by non-cash items of $1,533,000. The non-cash items include depreciation and amortization, non-cash compensation, a provision for doubtful accounts receivable, a provision for inventory obsolescence, non-cash compensation and deferred income taxes. Cash provided by changes in operating assets and liabilities was due to changes in accounts receivable, inventories, other current assets, accounts payable and accrued expenses and other long-term liabilities. Cash used in operating activities during 2010 was the result of the net loss of $4,215,000 offset by non-cash items of $1,090,000 and changes in operating assets and liabilities of $1,242,000. The non-cash items include depreciation and amortization, non-cash compensation, a provision for doubtful accounts receivable, a provision for inventory obsolescence, non-cash compensation and deferred income taxes. Cash provided by changes in operating assets and liabilities was due to changes in accounts receivable, inventories, other current assets, accounts payable and accrued expenses and other long-term liabilities.

Net cash of $626,000 was used in investing activities during 2011 as compared to $368,000 that was used in investing activities during 2010. The cash flows relating to investing activities in 2011 were principally for capital expenditures (including the upgrade of our information technology infrastructure in the United States) and acquisition of equipment on lease, offset by cash released from restricted deposits.

Financing activities during the year ended December 31, 2011 reflect the consummation of two significant financing arrangements - the Line of Credit under the Loan Agreement, under which we have drawn down an amount of $737,000 as of December 31, 2011, and the Investment under the Stock Purchase Agreement, resulting in our receipt of net proceeds (after expenses of $400,000 related to the offering) of $4,600,000. In April 2012, ERBA exercised, in part, the Warrant by paying an aggregate price of $450,000 to us. We also incurred capital lease payments of $72,000 and bank financing costs of $101,000 in 2011. During 2010, we acquired equipment aggregating $222,000 under a capital lease and repaid approximately $38,000 during the year.

Liquidity is expected to be sufficient through the end of 2012 from the combination of the existing cash and cash equivalents at December 31, 2011, the exercise of warrants subsequent to December 31, 2011 and the other sources of future cash flow described above.

A significant portion of our cash and cash equivalents is presently held at one international securities brokerage firm. Accordingly, we are subject to credit risk if this brokerage firm is unable to repay the balance in the account or deliver our securities or if the brokerage firm should become bankrupt or otherwise insolvent. We invest in only select money market instruments, United States treasury investments, municipal and other governmental agency securities and corporate issuers.

Our product research and development expenditures were $1,451,000 in 2011. In the fourth quarter of 2011, a subsidiary of the Company entered into a contract research and development agreement with ERBA for a total of Euro 700,000, pursuant to which ERBA has agreed to pay the subsidiary a total amount of Euro 133,000, equivalent to approximately $186,000, during the fourth quarter of 2011 and an additional Euro 567,000 during 2012 for the results of certain research and development. Actual expenditures will depend upon, among other things, the outcome of clinical testing of products under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions and liquidity. There can be no assurance that these expenditures will result in the development of new products or product enhancements, that we will successfully complete products under development, that we will obtain regulatory approval or that any approved product will be produced in commercial quantities, at reasonable costs, and be successfully marketed. Our sales, marketing and service expenses totaled $5,054,000 in 2011. We may increase spending in certain of these areas in 2012 as we expand in new markets and support new distribution channels.

We may need to utilize cash to assist our European subsidiary, Delta Biologicals, in maintaining its compliance with capital requirements established by Italian law. In connection with our evaluation of our operating results, financial condition and cash position, and specifically considering our results of operations and cash utilization during 2011, we continue to implement measures expected to improve future cash flow. To this end, we expect operating results to improve from the operating results achieved during 2011 based principally upon increases in revenue as a result of new channels of distribution in the United States and international markets.

We maintain allowances for doubtful accounts, particularly in Italy where payment cycles are longer than in the United States, for estimated losses resulting from the inability of our customers to make required or timely payments. Additionally, we periodically receive payments based upon negotiated agreements with governmental regions in Italy, acting on behalf of hospitals located in the region, in satisfaction of previously outstanding accounts receivable balances. We may anticipate collection of these amounts through a payment as described above, and, therefore, not provide an allowance for doubtful accounts for these amounts. If contemplated payments are not received, if existing agreements are not complied with or cancelled, or if we require additional allowances, then our operating results could be materially adversely affected during the period in which we make the determination to increase the allowance for doubtful accounts.

Off-Balance Sheet Arrangements. As of December 31, 2011, we had no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, allowance for doubtful accounts, inventories, intangible assets, stock compensation, income and other tax accruals, the realization of long-lived assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our assumptions and estimates may, however, prove to have been incorrect and our actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and the judgments and estimates we make concerning their application have significant impact on our consolidated financial statements.

REVENUE RECOGNITION

A principal source of revenue is our "reagent rental" program in which customers make reagent kit purchase commitments with us that will usually last for a period of three to five years. In exchange, we typically include an instrument system, which remains our property (or, in the case of a lease financing arrangement, that of the financing company). We also include any required instrument service. Both the instrumentation and service are paid for by the customer through these reagent kit purchases over the life of the commitment. We recognize revenue from the reagent kit sales when title passes, which is generally at the time of shipment. Should actual reagent kit or instrument failure rates significantly increase, our future operating results could be negatively impacted by increased warranty obligations and service delivery costs.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We maintain allowances for doubtful accounts, particularly in Italy for the operations of our European subsidiary, for estimated losses based on historical loss percentages resulting from the inability of our customers to make required payments. In many instances our receivables in Italy, while currently due and payable, take in excess of a year to collect. Additionally, we may receive payments based upon negotiated agreements with governmental regions in Italy, acting on behalf of hospitals located in the region, in satisfaction of previously outstanding accounts receivable balances. Consequently, we may consider the potential receipt of those types of payments in determining our allowance for doubtful accounts. If contemplated payments are not received when expected or at all, if negotiated agreements are not complied with in a timely manner or at all, or if the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, then our operating results could be materially adversely affected during the period in which we make the determination to increase the allowance for doubtful accounts. Our consolidated allowances for doubtful accounts were $717,000 and $399,000 as of December 31, 2011 and December 31, 2010, respectively. This increase resulted almost entirely in Italy from the operations of our European subsidiary.

INVENTORY

We regularly review inventory quantities on hand, which include components for current or future versions of products and instrumentation. If necessary, we record a provision for excess and obsolete inventory based primarily on our estimates of component obsolescence, product demand and production requirements, as well as based upon the status of a product within the regulatory approval process. In accordance with our inventory accounting policy, our inventory balance at December 31, 2011 included components for current or future versions of products and instrumentation.

Our inventory balance as of December 31, 2011 and 2010 included approximately $200,000 of inventory relating to our hepatitis product, substantially all of which has a shelf life exceeding five years, for which we obtained "CE Marking" approval in the European Union during 2011 and which we recently began marketing in certain markets. Inventory reserves were $419,000 and $452,000 as of December 31, 2011 and December 31, 2010, respectively.

GOODWILL AND OTHER INTANGIBLES

The determination as to whether a write-down of goodwill is necessary involves significant judgment based upon our short-term and long-term projections for the company. The assumptions supporting the estimated future cash flows of the reporting unit, including profit margins, long-term forecasts, discount rates and terminal growth rates, reflect our best estimates. All of our goodwill is currently recorded at ImmunoVision, one of our domestic subsidiaries. Although we consider our current market capitalization, we do not believe it to be an appropriate measure for the fair value of ImmunoVision, as ImmunoVision represents less than 10% of our net revenues and total assets, and we believe that it is more meaningful to compute fair value based primarily upon discounted cash flows. However, the continued decline in our market capitalization could also potentially require us to record additional impairment charges in future periods for the remaining $870,000 of goodwill at ImmunoVision.

Our product license is existing technology, obtained from an Italian diagnostics company that had developed and successfully commercialized this technology to manufacture hepatitis products sold by them and for which it had already received "CE Marking" approval from the European Union. Through the acquisition of this existing technology in its current form, we expect to be able to derive revenue from the manufacture and sale of new hepatitis products. In exchange for the Italian diagnostics company's assistance in transferring the know-how of the manufacturing technology, we agreed to pay a total of 1,000,000 Euros in the form of four milestone payments upon the Italian diagnostics company's achievement of certain enumerated performance objectives related to the transfer of such existing technology. We made the first three milestone payments upon the achievement of the enumerated performance objectives in prior years. We expect to make, or otherwise settle, the fourth and final milestone payment of $129,000 during 2012 as we have now received "CE Marking" approval from the European Union for our hepatitis products.

During the fourth quarter of 2008, we determined that the carrying amount of the product license was in excess of its fair value and recorded a non-cash impairment charge to operations totaling $560,000, reducing the carrying value of the product license to $683,000 as of December 31, 2008, from $1,243,000 as of December 31, 2007. During the fourth quarter of 2009, we determined that the carrying amount of the product license was in excess of its fair value and recorded a non-cash impairment charge to operations totaling $400,000, reducing the carrying value of the product license to $283,000 as of December 31, 2009. Fair value was determined based upon the income approach, which estimates fair value based upon future discounted cash flows. Based upon amended regulatory standards adopted by the applicable notifying body during the fourth quarter of 2009 to obtain "CE Marking" and additional requirements specified during 2010 by the applicable notifying body, we revised our assumptions supporting our . . .