|  x | ANNUAL REPORT      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934  |
|---------|------------------------------------------------------------------------------------------------------|

| ¨ | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934  |
|--------|----------------------------------------------------------------------------------------------------------|

| Delaware                                                                | 58-1729436                                    |
|-------------------------------------------------------------------------|-----------------------------------------------|
| (State      or other jurisdiction ofincorporation      or organization) | (I.R.S.      EmployerIdentification      No.) |
|                                                                    |                                          |
| 2401      Merced Street, San Leandro, CA                                | 94577                                         |
| (Address      of principal executive offices)                           | (Zip      Code)                               |

| Title      of each classCommon Stock,      par value $.01 pershare  |
|--------------------------------------------------------------------------|

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| FORWARD      LOOKING STATEMENTS | 1                                     |
|---------------------------------|---------------------------------------|
| PART I                     |                                  | 1 |
|                            |     ITEM 1.  | BUSINESS | 1 |
|                            |          ITEM 1A.      | RISK      FACTORS | 3 |
|                            |          ITEM 1B.      | UNRESOLVED      STAFF COMMENTS | 10 |
|                            |     ITEM 2.  | PROPERTIES | 10 |
|                            |     ITEM 3.  | LEGAL      PROCEEDINGS | 10 |
|                            |     ITEM 4.  | SUBMISSION      OF MATTERS TO A VOTE OF SECURITY HOLDERS | 10 |
|                            |                                  |   |
| PART II                    |                                  | 10 |
|                            |     ITEM 5.  | MARKET      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER      PURCHASES OF EQUITY SECURITIES | 10 |
|                            |          ITEM 6        | SELECTED      FINANCIAL DATA  | 11 |
|                            |     ITEM 7.  | MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS | 11 |
|                            |          ITEM 7A       | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 19 |
|                            |     ITEM 8.  | FINANCIAL      STATEMENTS AND SUPPLEMENTARY DATA | 19 |
|                            |     ITEM 9.  | CHANGES      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE | 39 |
|                            |     ITEM 9A. | CONTROLS      AND PROCEDURES | 39 |
|                            |     ITEM 9B. | OTHER      INFORMATION | 41 |
|                            |                                  |   |
| PART III                   |                                  | 41 |
|                            |     ITEM 10. | DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 41 |
|                            |     ITEM 11. | EXECUTIVE      COMPENSATION | 42 |
|                            |     ITEM 12. | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS | 42 |
|                            |     ITEM 13. | CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR      INDEPENDENCE | 42 |
|                            |     ITEM 14. | PRINCIPAL      ACCOUNTANT FEES AND SERVICES | 42 |
|                            |                                  |   |
| PART      IV                    |                                  | 42 |
|                            |          ITEM 15.      | EXHIBITS      AND FINANCIAL STATEMENT SCHEDULES | 42 |
|                            |                                  |
| SIGNATURES                      | S-1                                   |

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|   | • | significantly      greater name recognition; |
|--------|---------|----------------------------------------------|

|   | • | established      relationships with research institutions and pharmaceutical      manufacturers; |
|--------|---------|--------------------------------------------------------------------------------------------------|

|   | • | large,      direct sales forces and established independent distribution      networks; |
|--------|---------|-----------------------------------------------------------------------------------------|

|   | • | additional      product lines and the ability to offer rebates, bundled products, and      higher discounts or incentives; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------|

|   | • | access      to material information about our business, which we are required to      publicly disclose, while not having to disclose their own comparable      information, because it is an immaterial part of their overall      operations; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | greater      experience in conducting research and development, manufacturing and      marketing activities; and |
|--------|---------|------------------------------------------------------------------------------------------------------------------|

|   | • | greater      financial and human resources for product development, sales and marketing      and litigation. |
|--------|---------|--------------------------------------------------------------------------------------------------------------|

|   | • | changes      in economic conditions, particularly as experienced on a worldwide basis      in late 2008 and early 2009; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------|

|   | • | changes      in government programs that provide funding to companies and research      institutions; |
|--------|---------|-------------------------------------------------------------------------------------------------------|

|   | • | changes      in the regulatory environment affecting life sciences companies and life      sciences research; |
|--------|---------|---------------------------------------------------------------------------------------------------------------|

|   | • | market-driven      pressures on companies to consolidate and reduce costs;  and |
|--------|---------|---------------------------------------------------------------------------------|

|   | • | other      factors affecting research and development  spending. |
|--------|---------|------------------------------------------------------------------|

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|   | • | we      may not be able to obtain an adequate supply of quality raw materials or      component parts in a timely manner or on commercially reasonable      terms; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | suppliers      may make errors in manufacturing components that could negatively affect      the performance of our product, cause delays in shipment of our product or      lead to returns; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | we      may have difficulty locating and qualifying on a timely basis alternative      suppliers for our single sourcedsupplies; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------|

|   | • | switching      components may require product redesign, which could significantly delay      production; |
|--------|---------|----------------------------------------------------------------------------------------------------------|

|   | • | our      suppliers manufacture products for a range of customers, and fluctuations      in demand for the products these suppliers manufacture for others may      affect their ability to deliver components to us in a timely manner;      and |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | our      suppliers may encounter financial hardships either related or unrelated to      our demand for components, which could inhibit their ability to fulfill      our orders and meet ourrequirements. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  • | our partners may develop      technologies or components competitive with our      products;                 |
|--------|---------------|--------------------------------------------------------------------------------------------------------------|
|   |          |                                                                                                         |
|   | •       | some      of our agreements may terminate prematurely due to disagreements between      us and our partners; |

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|   |    |                                                                                                                              |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------|
|   | • | our      partners may not devote sufficient resources to the development and sale      of our products;                           |
|   |    |                                                                                                                              |
|   | • | our      partners may be unable to provide the resources required for us to      progress in the collaboration on a timely basis; |
|   |    |                                                                                                                              |
|   | • | our collaborations may be      unsuccessful; or                                                                                   |
|   |    |                                                                                                                              |
|   | • | we may not be able to negotiate      future collaborative arrangements on acceptable    terms.                                    |

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| Fiscal Year 2008 | High      Bid |   | Low Bid |   |
|----------------------------|---------------|--------|--------------|--------|
| First Quarter         |  $       |   | 0.90         |   |  $ |   | 0.65 |   |
| Second Quarter        |  $       |   | 0.98         |   |  $ |   | 0.65 |   |
| Third Quarter         |  $       |   | 0.98         |   |  $ |   | 0.65 |   |
| Fourth Quarter        |  $       |   | 0.93         |   |  $ |   | 0.35 |   |
|                       |          |   |         |   |   |   |   |   |
| Fiscal Year 2007 | High      Bid |   | Low      Bid |   |
| First Quarter         |  $       |   | $1.30        |   |  $ |   | 0.75 |   |
| Second Quarter        |  $       |   | 2.50         |   |  $ |   | 0.86 |   |
| Third Quarter         |  $       |   | 1.31         |   |  $ |   | 1.02 |   |
| Fourth Quarter        |  $       |   | 1.25         |   |  $ |   | 0.70 |   |

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|                                |   | Twelve Months Ended      December 31, |    |
|-------------------------------------|--------|------------------------------------------------------|---------|
|                                |   | 2008                                                 |    |   | 2007 |   |
| Cost      of goods sold             |   |  $                                              | 23,597  |   |   |  $ | 2,441 |   |
| Sales      and marketing            |   |                                                 | 160,016 |   |   |   | 122,363 |   |
| Research      and development       |   |                                                 | 71,763  |   |   |   | 44,513 |   |
| General      and administrative     |   |                                                 | 298,104 |   |   |   | 217,328 |   |
| Total      share-based compensation |   |  $                                              | 553,480 |   |   |  $ | 386,645 |   |

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|                                                   |   | Number      of Shares |     |   | Weighted      Average Grant Date Fair Value |    |
|--------------------------------------------------------|--------|-----------------------|----------|--------|---------------------------------------------|---------|
| Non-vested      stock outstanding at January 1, 2008   |   |                  | 790,306  |   |                                        |  $ | 1.10 |   |
| Granted                                                |   |                  | 491,000  |   |                                        |  $ | 0.93 |   |
| Vested                                                 |   |                  | (447,642 | )      |                                        |  $ | 1.06 |   |
| Forfeited                                              |   |                  | (10,125  | )      |                                        |  $ | 0.86 |   |
| Non-vested      stock outstanding at December 31, 2008 |   |                  | 823,539  |   |                                        |  $ | 1.03 |   |

|                     |   | 2008            |       |   | 2007          |   |
|--------------------------|--------|-----------------|------------|--------|---------------|--------|
| Risk-free      interest  |   |            | 3.83%-4.16 | %      |          |   | 4.37%-5.09 | % |
| Expected      life       |   | 6.25      Years |       |   | 10      Years |   |
| Expected      volatility |   |            | 111%-168   | %      |          |   | 157%-199 | % |
| Expected      dividend   |   |            | —    |   |          |   | — |   |

|                                                  |   | Shares |      |   | Weighted      -Average Exercise Price per Share |    |   | Weighted-Average      Remaining Contractual Terms in Years |   |   | Aggregate      Intrinsic Value |   |
|-------------------------------------------------------|--------|--------|-----------|--------|-------------------------------------------------|---------|--------|------------------------------------------------------------|--------|--------|--------------------------------|--------|
| Outstanding      at January 1, 2007                   |   |   | 880,821   |   |                                            |  $ | 2.30   |                                                       |   |   |                           |   |   |   |
| Grants                                                |   |   | 700,800   |   |                                            |  $ | 0.99   |                                                       |   |   |                           |   |   |   |
| Forfeitures                                           |   |   | (98,586   | )      |                                            |  $ | 1.03   |                                                       |   |   |                           |   |   |   |
| Expirations                                           |   |   | (149,321  | )      |                                            |  $ | 2.60   |                                                       |   |   |                           |   |   |   |
| Outstanding      at December 31, 2007            |   |   | 1,333,714 |   |                                            |  $ | 1.68   |                                                       |   |   |                           |   |   |   |
| Grants                                                |   |   | 491,000   |   |                                            |  $ | 0.93   |                                                       |   |   |                           |   |   |   |
| Forfeitures                                           |   |   | (10,125   | )      |                                            |  $ | 0.86   |                                                       |   |   |                           |   |   |   |
| Expirations                                           |   |   | (7,004    | )      |                                            |  $ | 7.80   |                                                       |   |   |                           |   |   |   |
| Outstanding      at December 31, 2008                 |   |   | 1,807,585 |   |                                            |  $ | 1.45   |                                                       |   |   | 7.6                            |   |   |  $ | — |   |
| Exercisable      at December 31, 2008                 |   |   | 984,046   |   |                                            |  $ | 1.79   |                                                       |   |   | 6.6                            |   |   |  $ | — |   |
| Vested      and expected to vest at December 31, 2008 |   |   | 1,807,585 |   |                                            |  $ | 1.45   |                                                       |   |   | 7.6                            |   |   |  $ | — |   |

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|                                           |   | 2007   |    |
|------------------------------------------------|--------|--------|---------|
| Shares      issuable upon exercise of warrants |   |   | 336,934 |   |

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|                                                                   | Page   |
|------------------------------------------------------------------------|--------|
| Report      of Independent Registered Public Accounting Firm           | 20     |
| Financial      Statements                                              |   |
| Consolidated      Balance Sheets                                       | 21     |
| Consolidated      Statements of Operations                             | 22     |
| Consolidated      Statements of Changes in Shareholders’ Deficit | 23     |
| Consolidated      Statements of Cash Flows                             | 24     |
| Notes      to Consolidated Financial Statements                        | 25     |

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|                                                                                                                                                                                      |   | 2008    |        |   | 2007   |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|-------------|--------|--------|---------|
| Assets                                                                                                                                                                                    |   |    |        |   |   |    |
| Current      assets:                                                                                                                                                                      |   |    |        |   |   |    |
| Cash      and cash equivalents                                                                                                                                                            |   |  $ | 648,757     |   |   |  $ | 167,738 |   |
| Restricted      cash                                                                                                                                                                      |   |    | 50,000      |   |   |    | 50,113 |   |
| Accounts      receivable, net                                                                                                                                                             |   |    | 3,032,980   |   |   |    | 2,229,698 |   |
| Inventory,      net                                                                                                                                                                       |   |    | 1,464,566   |   |   |    | 1,006,085 |   |
| Prepaid      expenses and other current assets                                                                                                                                            |   |    | 154,891     |   |   |    | 218,780 |   |
| Total      current assets                                                                                                                                                                 |   |    | 5,351,194   |   |   |    | 3,672,414 |   |
| Property      and equipment, net                                                                                                                                                          |   |    | 789,876     |   |   |    | 914,383 |   |
| Loan      costs, net                                                                                                                                                                      |   |    | 119,432     |   |   |    | — |   |
| Other      assets                                                                                                                                                                         |   |    | 90,232      |   |   |    | 90,232 |   |
| Total      assets                                                                                                                                                                         |   |  $ | 6,350,734   |   |   |  $ | 4,677,029 |   |
| Liabilities      and Shareholders’ Deficit                                                                                                                                          |   |    |        |   |   |    |   |   |
| Current      liabilities:                                                                                                                                                                 |   |    |        |   |   |    |   |   |
| Accounts      payable                                                                                                                                                                     |   |  $ | 879,648     |   |   |  $ | 1,785,909 |   |
| Accrued      liabilities                                                                                                                                                                  |   |    | 1,110,010   |   |   |    | 1,329,860 |   |
| Current      portion of debt                                                                                                                                                              |   |    | 2,935,565   |   |   |    | 1,406,968 |   |
| Deferred      revenue                                                                                                                                                                     |   |    | 1,217,322   |   |   |    | 1,027,006 |   |
| Other      liabilities                                                                                                                                                                    |   |    | 152,391     |   |   |    | 265,526 |   |
| Total      current liabilities                                                                                                                                                            |   |    | 6,294,936   |   |   |    | 5,815,269 |   |
|                                                                                                                                                                                      |   |    |        |   |   |    |   |   |
| Debt,      net of current portion                                                                                                                                                         |   |    | 152,275     |   |   |    | 307,938 |   |
| Commitments      and contingencies                                                                                                                                                        |   |    | —     |   |   |    | — |   |
| Shareholders’      deficit:                                                                                                                                                         |   |    |        |   |   |    |   |   |
| Common      stock, $0.01 par value per share: 50,000,000 shares authorized, 10,922,136      and 10,462,576 shares issued and outstanding at December 31, 2008 and      2007, respectively |   |    | 109,222     |   |   |    | 104,626 |   |
| Additional      paid-in capital                                                                                                                                                           |   |    | 18,770,191  |   |   |    | 17,492,662 |   |
| Accumulated      deficit                                                                                                                                                                  |   |    | (18,967,822 | )      |   |    | (19,035,398 | ) |
| Treasury      stock                                                                                                                                                                       |   |    | (8,068      | )      |   |    | (8,068 | ) |
| Total      shareholders’ deficit                                                                                                                                                    |   |    | (96,477     | )      |   |    | (1,446,178 | ) |
| Total      liabilities and shareholders’ deficit                                                                                                                                    |   |  $ | 6,350,734   |   |   |  $ | 4,677,029 |   |

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|                                      |   | 2008   |       |   | 2007   |   |
|-------------------------------------------|--------|--------|------------|--------|--------|--------|
| Revenue                                   |   | $      | 17,608,494 |   |   | $      | 15,321,729 |   |
| Cost      of goods sold                   |   |   | 7,991,743  |   |   |   | 6,885,032 |   |
| Gross      profit                         |   |   | 9,616,751  |   |   |   | 8,436,697 |   |
| Operating      costs and expenses:        |   |   |       |   |   |   |   |   |
| Sales      and marketing                  |   |   | 5,188,216  |   |   |   | 4,873,866 |   |
| Research      and development             |   |   | 1,343,752  |   |   |   | 1,322,758 |   |
| General      and administrative           |   |   | 2,594,534  |   |   |   | 2,594,936 |   |
| Total      operating costs and expenses   |   |   | 9,126,502  |   |   |   | 8,791,560 |   |
| Income      (loss) from operations        |   |   | 490,249    |   |   |   | (354,863 | ) |
| Other      income (expense):              |   |   |       |   |   |   |   |   |
| Interest      expense                     |   |   | (511,616   | )      |   |   | (299,549 | ) |
| Sale      of patent                       |   |   | 100,000    |   |   |   | — |   |
| Other      income (expense), net          |   |   | (11,057    | )      |   |   | (7,325 | ) |
| Total      other income (expense)         |   |   | (422,673   | )      |   |   | (306,874 | ) |
| Net      income (loss)                    |   | $      | 67,576     |   |   | $      | (661,737 | ) |
| Net      income (loss) per share:         |   |   |       |   |   |   |   |   |
| Basic                                     |   | $      | 0.01       |   |   | $      | (0.06 | ) |
| Diluted                                   |   | $      | 0.01       |   |   | $      | (0.06 | ) |
| Weighted      average shares outstanding: |   |   |       |   |   |   |   |   |
| Basic                                     |   |   | 10,808,828 |   |   |   | 10,373,426 |   |
| Diluted                                   |   |   | 11,067,217 |   |   |   | 10,373,426 |   |

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|                                      |   | Common      Stock |       |   |   |    |    | Treasury      Stock      |   |    |                  |   |   |   |    |
|-------------------------------------------|--------|-------------------|------------|--------|--------|---------|---------|--------------------------|--------|---------|-----------------------|--------|--------|--------|---------|
|                                      |   | NumberofShares    |       |   | Amount |    |    | AdditionalPaid-inCapital |   |    | Number      of Shares |   |   | Amount |    |   | Accumulated      Deficit |   |   | Total |   |
| Balance      at January 1, 2007           |   |              | 9,891,393  |   |   |  $ | 98,914  |                     |   |  $ | 17,108,125            |   |   |   | 4,746   |   |   |  $ | (8,068 | ) |   |  $ | (18,373,661 | ) |   |  $ | (1,174,690 | ) |
| Issuance      of restricted shares        |   |              | 530,000    |   |   |    | 5,300   |                     |   |    | (5,300                | )      |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Exercise      of warrants                 |   |              | 41,183     |   |   |    | 412     |                     |   |    | 3,192                 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 3,604 |   |
| FAS      123 (R) Share-based compensation |   |              | —    |   |   |    | — |                     |   |    | 386,645               |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 386,645 |   |
| Net      loss                             |   |              | —    |   |   |    | — |                     |   |    | —               |   |   |   | — |   |   |   | — |   |   |   | (661,737 | ) |   |   | (661,737 | ) |
| Balance      at December 31, 2007    |   |              | 10,462,576 |   |   |    | 104,626 |                     |   |    | 17,492,662            |   |   |   | 4,746   |   |   |   | (8,068 | ) |   |   | (19,035,398 | ) |   |   | (1,446,178 | ) |
| Issuance      of common stock             |   |              | 250,000    |   |   |    | 2,500   |                     |   |    | 210,000               |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 212,500 |   |
| Issuance      of warrants                 |   |              | —    |   |   |    | — |                     |   |    | 339,509               |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 339,509 |   |
| Issuance      of stock options to vendors |   |              | —    |   |   |    | — |                     |   |    | 8,989                 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 8,989 |   |
| FAS      123 (R) Share-based compensation |   |              | —    |   |   |    | — |                     |   |    | 553,479               |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 553,479 |   |
| Issuance      of restricted shares        |   |              | 209,560    |   |   |    | 2,096   |                     |   |    | 165,552               |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 167,648 |   |
| Net      income                           |   |              | —    |   |   |    | — |                     |   |    | —               |   |   |   | — |   |   |   | — |   |   |   | 67,576 |   |   |   | 67,576 |   |
| Balance      at December 31, 2008         |   |              | 10,922,136 |   |   |  $ | 109,222 |                     |   |  $ | 18,770,191            |   |   |   | 4,746   |   |   |  $ | (8,068 | ) |   |  $ | (18,967,822 | ) |   |  $ | (96,477 | ) |

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|                                                                                                         |   | 2008    |      |   | 2007   |    |
|--------------------------------------------------------------------------------------------------------------|--------|---------|-----------|--------|--------|---------|
| Cash      flows from operating activities:                                                                   |   |    |      |   |   |    |
| Net      income (loss)                                                                                       |   |  $ | 67,576    |   |   |  $ | (661,737 | ) |
| Adjustments      to reconcile net income (loss) to net cash provided by (used in) operating      activities: |   |    |      |   |   |    |   |   |
| Depreciation      and amortization                                                                           |   |    | 534,379   |   |   |    | 601,181 |   |
| Allowance      for sales returns and doubtful accounts                                                       |   |    | (80,855   | )      |   |    | (12,320 | ) |
| Allowance      for excess and obsolete inventory                                                             |   |    | 81        |   |   |    | 4,698 |   |
| Provision      for demo equipment                                                                            |   |    | (45,000   | )      |   |    | (8,175 | ) |
| Amortization      of loan fees                                                                               |   |    | 73,828    |   |   |    | — |   |
| Amortization      of debt issuance costs                                                                     |   |    | 162,251   |   |   |    | — |   |
| Share-based      compensation                                                                                |   |    | 553,480   |   |   |    | 386,645 |   |
| Stock      and warrants issued in lieu of payment                                                            |   |    | 8,988     |   |   |    | — |   |
| Change      in operating assets and liabilities:                                                             |   |    |      |   |   |    |   |   |
| Accounts      receivables                                                                                    |   |    | (722,427  | )      |   |    | (27,968 | ) |
| Inventory                                                                                                    |   |    | (458,562  | )      |   |    | (377,231 | ) |
| Prepaid      expenses and other current assets                                                               |   |    | 63,890    |   |   |    | (29,256 | ) |
| Other      assets                                                                                            |   |    | —   |   |   |    | 1,075 |   |
| Accounts      payable                                                                                        |   |    | (906,261  | )      |   |    | 177,623 |   |
| Accrued      liabilities                                                                                     |   |    | 17,798    |   |   |    | 354,194 |   |
| Deferred      revenue                                                                                        |   |    | 190,316   |   |   |    | 131,131 |   |
| Other      liabilities                                                                                       |   |    | (113,135  | )      |   |    | 55,052 |   |
| Net      cash provided by (used in) operating activities                                                     |   |    | (653,653  | )      |   |    | 594,912 |   |
| Cash      flows from investing activities:                                                                   |   |    |      |   |   |    |   |   |
| Restricted      cash                                                                                         |   |    | 113       |   |   |    | (50,113 | ) |
| Purchase      of property and equipment                                                                      |   |    | (364,873  | )      |   |    | (458,483 | ) |
| Net      cash used in investing activities                                                                   |   |    | (364,760  | )      |   |    | (508,596 | ) |
| Cash      flows from financing activities:                                                                   |   |    |      |   |   |    |   |   |
| Lines      of credit, net                                                                                    |   |    | 822,032   |   |   |    | 232,162 |   |
| Proceeds      from debt obligation                                                                           |   |    | 1,500,000 |   |   |    | — |   |
| Repayment      of debt obligation                                                                            |   |    | (815,000  | )      |   |    | (600,000 | ) |
| Payment      of loan fees                                                                                    |   |    | (150,100  | )      |   |    | — |   |
| Proceeds      from exercise of warrants                                                                      |   |    | —   |   |   |    | 3,604 |   |
| Proceeds      from sale of stock                                                                             |   |    | 142,500   |   |   |    | — |   |
| Net      cash provided by (used in) financing activities                                                     |   |    | 1,499,432 |   |   |    | (364,234 | ) |
| Net      increase (decrease) in cash and cash equivalents                                                    |   |    | 481,019   |   |   |    | (277,918 | ) |
| Cash      and cash equivalents at the beginning of the year                                                  |   |    | 167,738   |   |   |    | 445,656 |   |
| Cash      and cash equivalents at the end of the year                                                        |   |  $ | 648,757   |   |   |  $ | 167,738 |   |
|                                                                                                         |   |    |      |   |   |    |   |   |
| Supplemental      disclosures of cash flow information:                                                      |   |    |      |   |   |    |   |   |
| Interest      paid during the year                                                                           |   |  $ | 316,115   |   |   |  $ | 299,549 |   |
| Supplemental      disclosure of non-cash investing and financing      activities:                            |   |    |      |   |   |    |   |   |
| Issuance      of restricted shares at par value                                                              |   |  $ | —   |   |   |  $ | 5,300 |   |
| Issuance      of common stock warrants                                                                       |   |  $ | 339,509   |   |   |  $ | — |   |

----

----

----

|                                           |   | 2007   |    |
|------------------------------------------------|--------|--------|---------|
| Shares      issuable upon exercise of warrants |   |   | 336,934 |   |

----

----

|                           |   | Level      1 |    |   | Level      2 |   |    | Level      3 |   |          |        Total |   |
|--------------------------------|--------|--------------|---------|--------|--------------|--------|---------|--------------|--------|--------------------|-------------------|--------|
| Cash      and cash equivalents |   | $            | 648,757 |   |         | $      | — |         |   | $                  | —           |   | $ | 648,757 |   |
| Restricted      cash           |   |         | 50,000  |   |         |   | — |         |   |               | —           |   |   |        50,000 |   |
| Total      assets              |   | $            | 698,757 |   |         | $      | — |         |   | $                  | —           |   | $ | 698,757 |   |

----

|                                      | 2008   |                                 |   | 2007   |   |
|-------------------------------------------|--------|--------------------------------------|--------|--------|--------|
| Accounts      receivable                  | $      | 3,090,416                            |   |   | $      | 2,367,989 |   |
| Less      allowance for sales returns     |   | (52,436                              | )      |   |   | (133,291) |   |
| Less      allowance for doubtful accounts |   |      (5,000 | )      |   |   |      (5,000 | ) |
| Accounts      receivable, net             | $      | 3,032,980                            |   |   | $      | 2,229,698 |   |

|                                                  | 2008   |      |   | 2007   |   |
|-------------------------------------------------------|--------|-----------|--------|--------|--------|
| Raw      materials                                    | $      | 1,496,555 |   |   | $      | 896,935 |   |
| Inventory      in transit                             |   | 14,623    |   |   |   | 155,681 |   |
| Less      allowance for excess and obsolete inventory |   | (46,612   | )      |   |   |       (46,531 | ) |
| Inventory,      net                                   | $      | 1,464,566 |   |   | $      | 1,006,085 |   |

|                                                | 2008   |       |   | 2007   |   |
|-----------------------------------------------------|--------|------------|--------|--------|--------|
| Machinery      and equipment                        | $      | 564,191    |   |   | $      | 435,617 |   |
| Furniture      and fixtures                         |   | 211,317    |   |   |   |             208,201 |   |
| Leasehold      improvements                         |   | 1,507,500  |   |   |   |          1,507,500 |   |
| Loaner      and demonstration units                 |   | 541,485    |   |   |   |            1,160,053 |   |
| Computers                                           |   | 357,374    |   |   |   |             358,443 |   |
| Software                                            |   | 105,890    |   |   |   |              103,796 |   |
| Total      property and equipment                   |   | 3,287,757  |   |   |   |          3,773,610 |   |
| Less      accumulated depreciation and amortization |   | (2,497,881 | )      |   |   |        (2,859,227 | ) |
| Property      and equipment, net                    | $      | 789,876    |   |   | $      | 914,383 |   |

|                               |   | 2008    |    |   | 2007   |    |
|------------------------------------|--------|---------|---------|--------|--------|---------|
| Loan      costs                    |   |  $ | 193,260 |   |   |  $ | — |   |
| Less      accumulated amortization |   |    | (73,828 | )      |   |    | — |   |
| Loan      costs, net               |   |  $ | 119,432 |   |   |  $ | — |   |

----

|                                  |   | 2008    |      |   | 2007   |    |
|---------------------------------------|--------|---------|-----------|--------|--------|---------|
| Payroll      and related costs        |   |  $ | 642,629   |   |   |  $ | 455,641 |   |
| Warranty                              |   |    | 104,767   |   |   |    | 153,251 |   |
| Audit      and tax service fees       |   |    | 88,250    |   |   |    | 62,250 |   |
| Finder’s      fee               |   |    | 175,000   |   |   |    | 175,000 |   |
| Consultant      and Board member fees |   |    | 4,080     |   |   |    | 1,792 |   |
| Founder's      bonus                  |   |    | —   |   |   |    | 398,162 |   |
| Other                                 |   |    | 95,284    |   |   |    | 83,764 |   |
| Total      accrued liabilities        |   |  $ | 1,110,010 |   |   |  $ | 1,329,860 |   |

|                                                                      | 2008   |       |   | 2007   |   |
|---------------------------------------------------------------------------|--------|------------|--------|--------|--------|
| Bridge      Bank Line of Credit                                           | $      | 2,029,000  |   |   | $      | — |   |
| Agility      Capital LLC and Montage Capital LLC, net of debt discount    |   | 906,565    |   |   |   | — |   |
| ETP      Venture Capital II LLC Convertible Note, net of debt    discount |   | 152,275    |   |   |   | 307,938 |   |
| Alexandria      Finance, LLC Term Loan                                    |   | —    |   |   |   | 200,000 |   |
| BFI      Business Finance Line of Credit                                  |   | —    |   |   |   | 1,206,968 |   |
| Total      debt                                                           |   | 3,087,840  |   |   |   | 1,714,906 |   |
| Less      current portion                                                 |   | (2,935,565 | )      |   |   | (1,406,968 | ) |
| Debt,      net of current portion                                         | $      | 152,275    |   |   | $      | 307,938 |   |

----

| Year      ending December 31:                         |   |   |    |
|-------------------------------------------------------|--------|--------|---------|
| 2011                                                  |   | $      | 152,275 |   |
| ETP/FBR      Venture Capital II, LLC Convertible Note |   | $      | 152,275 |   |

| 5. | Commitments and      Contingencies |
|----|------------------------------------|

| Year      ending December 31:  |   |   |      |
|-------------------------------------|--------|--------|-----------|
| 2009                                |   | $      | 595,536   |   |
| 2010                                |   |   | 598,055   |   |
| 2011                                |   |   | 550,572   |   |
| Total      minimum lease obligation |   | $      | 1,744,163 |   |

| 6. | Income    Taxes |
|----|-----------------|

----

|                                  |   | 2008   |       |   | 2007   |   |
|---------------------------------------|--------|--------|------------|--------|--------|--------|
| Net      operating loss carryforwards |   | $      | 3,542,720  |   |   | $      | 3,677,511 |   |
| Research      and development credits |   |   | 868,427    |   |   |   | 759,099 |   |
| Reserves      and accruals            |   |   | 1,208,156  |   |   |   | 1,281,102 |   |
| Total                                 |   |   | 5,619,303  |   |   |   | 5,717,712 |   |
| Less      valuation allowance         |   |   | (5,619,303 | )      |   |   | (5,717,712 | ) |
| Deferred      taxes                   |   | $      | —    |   |   | $      | — |   |

| 7. | Common    Stock |
|----|-----------------|

----

|                            |   | Common      Stock WarrantsOutstanding      at December 31,      2008 |   | Common      Stock WarrantsExercisable      at December 31, 2008 |
|---------------------------------|--------|---------------------------------------------------------------------------|--------|----------------------------------------------------------------------|
|  ExercisePrice             |   | NumberOutstanding                                                         |   | WeightedAverageRemainingContractualLifeIn      Years                 |   | WeightedAverageExercisePrice |   | NumberExercisable |   | WeightedAverageExercisePrice |
| $    0.0875 |   |  364,169                                                             |   |  3.25                                                           |   | $ | 0.0875 |   |  364,169 |   | $ | 0.0875 |
| $    0.8000 |   | 373,769                                                                   |   | 5.83                                                                 |   |   | 0.8000 |   | 373,769 |   | $ | 0.8000 |
| $    1.2000 |   | 125,000                                                                   |   | 7.55                                                                 |   | $ | 1.2000 |   | 125,000 |   | $ | 1.2000 |
| $    1.7500 |   | 102,861                                                                   |   | 3.27                                                                 |   | $ | 1.7500 |   | 102,861 |   | $ | 1.7500 |
| $    8.5900 |   | 22,500                                                                    |   | 1.34                                                                 |   | $ | 8.5900 |   | 22,500 |   | $ | 8.5900 |
| $  14.6900            |   | 5,000                                                                     |   | 1.17                                                                 |   | $ | 14.690 |   | 5,000 |   | $ | 14.690 |
|                            |   | 993,299                                                                   |   |                                                                 |   |   |   |   | 993,299 |   |   |   |

----

|                                                            |   |                    |   |   | Outstanding      Options |   |
|-----------------------------------------------------------------|--------|-------------------------|--------|--------|--------------------------|--------|
|                                                            |   | SharesAvailableForGrant |   |   | Number      of Shares    |   |   | WeightedAverageExercisePrice |   |        AggregatePrice |   |
| Balance      at January 1, 2007                                 |   | 1,052,339               |   |   | 880,821                  |   |   | $ | 2.30 |   | $ | 2,028,639 |   |
| Authorized      under the evergreen provisions of the 2006 Plan |   | 494,570                 |   |   | —                  |   |   | $ | — |   |   | — |   |
| Restricted      shares issued                                   |   | (530,000                | )      |   | —                  |   |   | $ | — |   |   | — |   |
| Granted                                                         |   | (700,800                | )      |   | 700,800                  |   |   | $ | 0.99 |   |   | 696,086 |   |
| Cancelled                                                       |   | 98,586                  |   |   | (98,586                  | )      |   | $ | 1.03 |   |   | (101,994 | ) |
| Expired                                                         |   | 86,693                  |   |   | (149,321                 | )      |   | $ | 2.60 |   |   | (387,894 | ) |
| Balance      at December 31, 2007                          |   | 501,388                 |   |   | 1,333,714                |   |   | $ | 1.68 |   |   | 2,234,837 |   |
| Authorized      under the evergreen provisions of the 2006 Plan |   | 500,000                 |   |   | —                  |   |   |   | — |   |   | — |   |
| Granted                                                         |   | (491,000                | )      |   | 491,000                  |   |   | $ | 0.93 |   |   | 455,200 |   |
| Cancelled                                                       |   | 10,125                  |   |   | (10,125                  | )      |   | $ | 0.86 |   |   | (8,750 | ) |
| Expired                                                         |   | 2,504                   |   |   | (7,004                   | )      |   | $ | 7.80 |   |   | (54,616 | ) |
| Balance      at December 31, 2008                          |   | 523,017                 |   |   | 1,807,585                |   |   | $ | 1.45 |   | $ | 2,626,671 |   |

|                                           |   | OptionsOutstanding      atDecember 31,      2008 |   | OptionsExercisable      atDecember 31,      2008 |
|------------------------------------------------|--------|-------------------------------------------------------|--------|-------------------------------------------------------|
| Exercise Price                            |   | NumberOutstanding                                     |   | WeightedAverageRemainingContractualLifeIn      Years  |   | Weighted      Average ExercisePrice |   | NumberExercisable |   | Weighted      Average ExercisePrice |
| $      0.80-0.90 |   | 512,334                                               |   | 8.5                                                   |   | $ | 0.88 |   | 247,937 |   | $ | 0.87 |
| $      0.95-0.98 |   |  410,000                                         |   | 9.2                                                   |   | $ | 0.99 |   |  62,500 |   | $ | 0.99 |
| $      1.12-1.35 |   | 353,060                                               |   | 8.2                                                   |   | $ | 1.21 |   | 191,780 |   | $ | 1.24 |
| $      1.40-1.53 |   | 246,288                                               |   | 6.9                                                   |   | $ | 1.52 |   | 208,788 |   | $ | 1.52 |
| $    1.66-16.87            |   | 285,903                                               |   | 3.6                                                   |   | $ | 3.34 |   |  273,041 |   | $ | 3.48 |
|                                           |   | 1,807,585                                             |   |                                                  |   |   |   |   | 984,046 |   |   |   |

----

|                                |   | Twelve Months Ended      December 31, |    |
|-------------------------------------|--------|------------------------------------------------------|---------|
|                                |   | 2008                                                 |    |   | 2007 |   |
| Cost      of goods sold             |   |  $                                              | 23,597  |   |   |  $ | 2,441 |   |
| Sales      and marketing            |   |                                                 | 160,016 |   |   |   | 122,363 |   |
| Research      and development       |   |                                                 | 71,763  |   |   |   | 44,513 |   |
| General      and administrative     |   |                                                 | 298,104 |   |   |   | 217,328 |   |
| Total      share-based compensation |   |  $                                              | 553,480 |   |   |  $ | 386,645 |   |

|                                                   |   | Number      of Shares |     |   | Weighted      Average Grant Date Fair Value |    |
|--------------------------------------------------------|--------|-----------------------|----------|--------|---------------------------------------------|---------|
| Non-vested      stock outstanding at January 1, 2008   |   |                  | 790,306  |   |                                        |  $ | 1.10 |   |
| Granted                                                |   |                  | 491,000  |   |                                        |  $ | 0.93 |   |
| Vested                                                 |   |                  | (447,642 | )      |                                        |  $ | 1.06 |   |
| Forfeited                                              |   |                  | (10,125  | )      |                                        |  $ | 0.86 |   |
| Non-vested      stock outstanding at December 31, 2008 |   |                  | 823,539  |   |                                        |  $ | 1.03 |   |

|                     |   | 2008            |             |   | 2007          |   |
|--------------------------|--------|-----------------|------------------|--------|---------------|--------|
| Risk-free      interest  |   |            | 3.83%-      4.16 | %      |          |   | 4.37%      –5.09 | % |
| Expected      life       |   | 6.25      Years |             |   | 10      Years |   |
| Expected      volatility |   |            | 111%-168         | %      |          |   | 157%      - 199 | % |
| Expected      dividend   |   |            | —          |   |          |   | — |   |

----

|                                                  |   | Shares |      |   | Weighted      -Average Exercise Price per Share |    |   | Weighted-Average      Remaining Contractual Terms in Years |   |   | Aggregate      Intrinsic Value |   |
|-------------------------------------------------------|--------|--------|-----------|--------|-------------------------------------------------|---------|--------|------------------------------------------------------------|--------|--------|--------------------------------|--------|
| Outstanding      at January 1, 2007                   |   |   | 880,821   |   |                                            |  $ | 2.30   |                                                       |   |   |                           |   |   |   |
| Grants                                                |   |   | 700,800   |   |                                            |  $ | 0.99   |                                                       |   |   |                           |   |   |   |
| Forfeitures                                           |   |   | (98,586   | )      |                                            |  $ | 1.03   |                                                       |   |   |                           |   |   |   |
| Expirations                                           |   |   | 149,321   | )      |                                            |  $ | 2.60   |                                                       |   |   |                           |   |   |   |
| Outstanding      at December 31, 2007            |   |   | 1,333,714 |   |                                            |  $ | 1.68   |                                                       |   |   |                           |   |   |   |
| Grants                                                |   |   | 491,000   |   |                                            |  $ | 0.93   |                                                       |   |   |                           |   |   |   |
| Forfeitures                                           |   |   | (10,125   | )      |                                            |  $ | 0.86   |                                                       |   |   |                           |   |   |   |
| Expirations                                           |   |   | (7,004    | )      |                                            |  $ | 7.80   |                                                       |   |   |                           |   |   |   |
| Outstanding      at December 31, 2008                 |   |   | 1,807,585 |   |                                            |  $ | 1.45   |                                                       |   |   | 7.6                            |   |   |  $ | — |   |
| Exercisable      at December 31, 2008                 |   |   | 984,046   |   |                                            |  $ | 1.79   |                                                       |   |   | 6.6                            |   |   |  $ | — |   |
| Vested      and expected to vest at December 31, 2008 |   |   | 1,807,585 |   |                                            |  $ | 1.45   |                                                       |   |   | 7.6                            |   |   |  $ | — |   |

| 8. | Employee      Benefits Plan  |
|----|-----------------------------------|

| 9. | Business      Segment Information  |
|----|-----------------------------------------|

|                      |   | 2008    |       |   | 2007   |    |
|---------------------------|--------|---------|------------|--------|--------|---------|
| North      America        |   |  $ | 9,850,013  |   |   |  $ | 8,128,413 |   |
| Asia      and Pacific Rim |   |    | 3,602,649  |   |   |    | 2,696,736 |   |
| Europe                    |   |    | 3,986,038  |   |   |    | 4,450,748 |   |
| Other                     |   |    | 169,794    |   |   |    | 45,832 |   |
| Total      revenue        |   |  $ | 17,608,494 |   |   |  $ | 15,321,729 |   |

|                         |   | 2008    |    |   | 2007   |    |
|------------------------------|--------|---------|---------|--------|--------|---------|
| United      States           |   |  $ | 999,540 |   |   |  $ | 1,004,615 |   |
| International                |   |    | — |   |   |    | — |   |
| Total      long-lived assets |   |  $ | 999,540 |   |   |  $ | 1,004,615 |   |

----

| 10. | Quarterly      Financial Data (Unaudited)  |
|-----|-------------------------------------------------|

|                                      |   | For      the Year Ended December 31, 2008 |       |   |
|-------------------------------------------|--------|------------------------------------------------|------------|--------|
|                                      |   | FirstQuarter                                   |       |   | SecondQuarter |   |   | ThirdQuarter |   |   | FourthQuarter |   |
| Revenue                                   |   | $                                              | 3,668,143  |   |   | $ | 4,243,667 |   |   | $ | 4,870,150 |   |   | $ | 4,826,534 |   |
| Cost      of goods sold                   |   |                                           | 1,556,793  |   |   |   | 1,857,435 |   |   |   | 2,369,521 |   |   |   | 2,207,994 |   |
| Gross      profit                         |   |                                           | 2,111,350  |   |   |   | 2,386,232 |   |   |   | 2,500,629 |   |   |   | 2,618,540 |   |
| Operating      expenses:                  |   |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales      and marketing                  |   |                                           | 1,184,721  |   |   |   | 1,312,771 |   |   |   | 1,305,807 |   |   |   | 1,384,917 |   |
| Research      and development expenses    |   |                                           | 375,275    |   |   |   | 272,802 |   |   |   | 348,602 |   |   |   | 347,073 |   |
| General      and administrative expenses  |   |                                           | 566,842    |   |   |   | 603,583 |   |   |   | 677,529 |   |   |   | 746,580 |   |
| Total      operating expenses             |   |                                           | 2,126,838  |   |   |   | 2,189,156 |   |   |   | 2,331,938 |   |   |   | 2,478,570 |   |
| Income      (loss) from operations        |   |                                           | (15,488    | )      |   |   | 197,076 |   |   |   | 168,691 |   |   |   | 139,970 |   |
| Other      income (expense):              |   |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                     |   |                                           | (83,290    | )      |   |   | (174,796 | ) |   |   | (137,870 | ) |   |   | (115,660 | ) |
| Sale      of patent                       |   |                                           | 100,000    |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Other      income (expense), net          |   |                                           | (3,279     | )      |   |   | 919 |   |   |   | (8,962 | ) |   |   | 265 |   |
| Total      other income (expense)         |   |                                           | 13,431     |   |   |   | (173,877 | ) |   |   | (146,832 | ) |   |   | (115,395 | ) |
| Net      income (loss)                    |   | $                                              | (2,057     | )      |   | $ | 23,199 |   |   | $ | 21,859 |   |   | $ | 24,575 |   |
| Net      income (loss) per share:         |   |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                     |   | $                                              | (0.00      | )      |   | $ | 0.00 |   |   | $ | 0.00 |   |   | $ | 0.00 |   |
| Diluted                                   |   | $                                              | (0.00      | )      |   | $ | 0.00 |   |   | $ | 0.00 |   |   | $ | 0.00 |   |
| Weighted      average shares outstanding: |   |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                     |   |                                           | 10,536,390 |   |   |   | 10,873,776 |   |   |   | 10,922,136 |   |   |   | 10,922,136 |   |
| Diluted                                   |   |                                           | 10,536,390 |   |   |   | 11,281,197 |   |   |   | 11,237,224 |   |   |   | 11,233,185 |   |

|                                                              |   | For      the Year Ended December 31, 2007 |      |
|-------------------------------------------------------------------|--------|------------------------------------------------|-----------|
|                                                              |   | FirstQuarter                                   |      |   | SecondQuarter |   |   | ThirdQuarter |   |   | FourthQuarter |   |
| Revenue                                                           |   | $                                              | 3,546,936 |   |   | $ | 3,611,820 |   |   | $ | 3,680,160 |   |   | $ | 4,482,813 |   |
| Cost      of goods sold                                           |   |                                           | 1,575,317 |   |   |   | 1,619,770 |   |   |   | 1,690,139 |   |   |   | 1,999,806 |   |
| Gross      profit                                                 |   |                                           | 1,971,619 |   |   |   | 1,992,050 |   |   |   | 1,990,021 |   |   |   | 2,483,007 |   |
| Operating      expenses:                                          |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales      and marketing                                          |   |                                           | 1,054,569 |   |   |   | 1,162,826 |   |   |   | 1,299,011 |   |   |   | 1,357,460 |   |
| Research      and development expenses                            |   |                                           | 303,494   |   |   |   | 343,996 |   |   |   | 298,820 |   |   |   | 376,448 |   |
| General      and administrative expenses                          |   |                                           | 531,998   |   |   |   | 753,297 |   |   |   | 604,475 |   |   |   | 705,166 |   |
| Total      operating expenses                                     |   |                                           | 1,890,061 |   |   |   | 2,260,119 |   |   |   | 2,202,306 |   |   |   | 2,439,074 |   |
| Income      (loss) from operations                                |   |                                           | 81,558    |   |   |   | (268,069 | ) |   |   | (212,285 | ) |   |   | 43,933 |   |
| Other      income (expense):                                      |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                             |   |                                           | (82,452   | ) |   |   | (66,693 | ) |   |   | (71,811 | ) |   |   | (78,593 | ) |
| Other      income (expense), net                                  |   |                                           | 229       |   |   |   | (2,635 | ) |   |   | (5,459 | ) |   |   | 540 |   |
| Total      other income (expense)                                 |   |                                           | (82,223   | ) |   |   | (69,328 | ) |   |   | (77,270 | ) |   |   | (78,053 | )  |
| Net      loss                                                     |   | $                                              | (665      | ) |   | $ | (337,397 | ) |   | $ | (289,555 | ) |   | $ | (34,120 | ) |
| Net      loss per share - basic and diluted                       |   | $                                              | (0.00     | ) |   | $ | (0.03 | ) |   | $ | (0.03 | ) |   | $ | (0.00 | ) |
| Weighted      average shares outstanding - basic      and diluted |   |                                           | 9,891,393 |   |   |   | 10,421,393 |   |   |   | 10,449,147 |   |   |   | 10,462,576 |   |

----

|  | 1. | Our      control environment did not sufficiently promote effective internal      control over financial reporting throughout our organizational structure      and this material weakness was a contributing factor to other material      weaknesses. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | The      Board of Directors has not established adequate financial reporting      monitoring activities to  mitigate the risk of management      override, specifically: |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Board      of Directors delegation of authority has not been formally      documented. |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | Insufficient      oversight of accounting principle  implementation. |
|--------|--------|----------------------------------------------------------------------|

|  | 3. | Due      to an insufficient number of personnel with an appropriate level of      experience and knowledge of U.S. GAAP and SEC reporting requirements that      are commensurate with our financial reporting requirements, there have      been significant audit adjustments to the quarterly and annual financial      statements as well as insufficient compliance with U.S GAAP and SEC      reporting requirements. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | 1. | The      Board of Directors has not established adequate financial reporting      monitoring activities to  mitigate the risk of management      override, specifically: |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The whistleblower      program has not been adequately communicated to  employees. |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | Insufficient      oversight of external audit specifically related to executive      sessions. |
|--------|--------|------------------------------------------------------------------------------------------------|

|  | 2. | Due      to an insufficient number of personnel with an appropriate level of      experience and knowledge of U.S GAAP and SEC reporting requirements that      are commensurate with the Company’s financial reporting requirements there      has been insufficient monitoring of new accounting    principles. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3. | We      have not maintained sufficient competent evidence to support the effective      operation of our internal controls over financial reporting, specifically      related to management’s review of journal entries; account analyses,      reconciliations, and other records underlying recorded amounts; customer      contracts; and critical spreadsheetcontrols. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 4. | We      have not adequately divided, or compensated for, incompatible functions      among personnel to reduce the risk that a potential material misstatement      of the financial statements would occur without being prevented or      detected.  Specifically, journal entries or account analyses      prepared by the Controller are not subject to review, and access to our      accounting modules has not been adequately    restricted.  |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 1. | We      posted the whistleblower policy on our website and our audit committee now      engages in executive sessions with our external auditors at least      monthly. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 2. | We      appointed a new Chief Financial Officer who is responsible for completing      quarterly and annual U.S. GAAP and SEC checklists and monitoring of new      accounting principles. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3. | We      increased management’s review of key financial documents and records and      have formalized our review procedures and now maintain formal      documentation to evidence the effective operation of our internal controls      over financial reporting, specifically related to management’s review of      journal entries; account analyses, reconciliations, and other records      underlying recorded amounts, customer contracts, and critical spreadsheet      controls. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 4. | We      made our information technology group the primary system administrator for      our accounting system and restricted access to specific modules of the      accounting system on a need-to-use and/or read-only basis.  We      also formalized the process of journal entry and account analysis review      including redistribution of roles and responsibilities; the Chief      Financial Officer now reviews all journal entries and account      analyses. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NAME                     | AGE  | POSITION                                               |
|--------------------------|-----------|--------------------------------------------------------|
| Michael      P. Henighan | 56        | Chief      Financial Officer                           |
| Jeff      Whitmore       | 39        | Vice      President, Global Sales                      |
| Siavash      Ghazvini    | 39        | Vice      President, Marketing and BusinessDevelopment |

----

----

| Number | Description                                                                          |
|--------|--------------------------------------------------------------------------------------|
| 2.11   | Agreement      and Plan of Merger dated as of December 14, 2004                      |
|   |                                                                                 |
| 2.22   | Amendment      No. 1 to Agreement and Plan of Merger dated April 6,  2005            |
|   |                                                                                 |
| 2.33   | Amendment      No. 2 to Agreement and Plan of Merger dated July 6,2005               |
|   |                                                                                 |
| 2.44   | Amendment      No. 3 to Agreement and Plan of Merger dated August 25,  2005          |
|   |                                                                                 |
| 3.15   | Certificate      of Incorporation                                                    |
|   |                                                                                 |
| 3.1.15 | Certificate      of Amendment to Certificate of Incorporation                        |
|   |                                                                                 |
| 3.26   | Bylaws                                                                               |
|   |                                                                                 |
| 4.17   | 1993      Stock Incentive Plan*                                                      |
|   |                                                                                 |
| 4.28   | 2000      Stock Incentive Plan*                                                      |
|   |                                                                                 |
| 4.35   | Amended      and Restated 1999 Stock Option Plan of Alpha Innotech      Corporation* |
|   |                                                                                 |
| 4.45   | 2001      Milestone Stock Option Plan of Alpha Innotech  Corporation*                |
|   |                                                                                 |
| 4.59   | 2006      Equity Incentive Plan*                                                     |
|   |                                                                                 |
| 4.65   | Secured      Promissory Note Issued to Alexandria Dated April 8,2005                 |
|   |                                                                                 |
| 4.75   | Loan      and Security Agreement with BFI dated March 9, 2004                        |
|   |                                                                                 |
| 4.810  | Form      of Convertible Note Issued to ETP/FBR Venture Capital II,    LLC           |
|   |                                                                                 |
| 4.910  | Form      of Warrant Issued to ETP/FBR Venture Capital II, LLC                       |
|   |                                                                                 |
| 4.109  | Form      of 2006 Equity Incentive Plan Stock Option Agreement                       |
|   |                                                                                 |
| 4.1111 | Form      of 2006 Equity Incentive Plan Stock Award Agreement                        |
|   |                                                                                 |
| 10.110 | Form      of Securities Purchase Agreement with ETP/FBR Venture Capital II,      LLC |
|   |                                                                                 |

| 1 | Incorporated by reference to our      Form 8-K filed December 17,2004 |
|---|----------------------------------------------------------------------------|

| 2 | Incorporated by reference to our      Form 8-K filed April 12,2005. |
|---|--------------------------------------------------------------------------|

| 3 | Incorporated by reference to our      Form 8-K filed July 11,2005. |
|---|-------------------------------------------------------------------------|

| 4 | Incorporated by reference to our      Form 8-K filed August 26,2005. |
|---|---------------------------------------------------------------------------|

| 5 | Incorporated      by reference to our Form 8-K filed October 7,  2005. |
|---|-----------------------------------------------------------------------------|

| 6 | Incorporated      by reference to the Registrant's Registration Statement on Form S-1 (File      No. 33-20584). |
|---|----------------------------------------------------------------------------------------------------------------------|

| 7 | Incorporated      by reference to the Registrant's Annual Report on Form 10-KSB for the      fiscal year ended December 31,1994. |
|---|---------------------------------------------------------------------------------------------------------------------------------------|

| 8 | Incorporated      by reference to Registrant's Definitive Proxy Statement filed on      June 23, 2000 (File  No. 001-14257). |
|---|---------------------------------------------------------------------------------------------------------------------------------------------|

| 9 | Incorporated      by reference to our Form S-8 filed October 19,  2006. |
|---|-------------------------------------------------------------------------|

| 10 | Incorporated      by reference to our Quarterly Report on Form 10-QSB for the quarter ending      June 30, 2006 filed August 14,2006. |
|----|---------------------------------------------------------------------------------------------------------------------------------------|

| 11 | Incorporated      by reference to Exhibit 4.11 to our Form 10-KSB filed March 31,      2008. |
|----|----------------------------------------------------------------------------------------------|

----

| 10.912  | First      Modification to Loan and Security Agreement with BFI Business Finance      dated as of October 26, 2007   |
|---------|----------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                 |
| 10.1013 | Secured      Promissory Note to BFI Business Finance dated January 15,    2008                                       |
|    |                                                                                                                 |
| 10.1113 | Second      Modification to Loan and Security Agreement with BFI Business Finance      dated as of February 29, 2008 |
|    |                                                                                                                 |
| 10.1213 | Secured      Promissory Note to BFI Business Finance dated as of February 29,      2008                              |
|    |                                                                                                                 |
| 10.1314 | Employment      Contract with Ronald H. Bissinger dated July 17, 2007*                                               |
|    |                                                                                                                 |
| 10.1413 | Common      Stock Purchase Agreement with William Snider dated as of March 13,      2008                             |
|    |                                                                                                                 |
| 10.1515 | Loan      Agreement by and between Montage Capital LLC and Agility Capital LLC dated      as of May 9, 2008          |
|    |                                                                                                                 |
| 10.1615 | Form      of Warrant issued to Montage Capital LLC and Agility Capital      LLC                                      |
|    |                                                                                                                 |
| 10.1716 | Employee      offer letter to Michael P. Henighan*                                                                   |
|    |                                                                                                                 |
| 10.1817 | Business      Financing Agreement with Bridge Bank, National Association dated as of      September 3, 2009          |
|    |                                                                                                                 |
| 10.1917 | Borrower      Agreement dated as of September 3, 2009                                                                |
|    |                                                                                                                 |
| 11.118  | Statement      regarding computation of per share earnings                                                           |
|    |                                                                                                                 |
| 14.119  | Code      of Ethical Conduct                                                                                         |
|    |                                                                                                                 |
| 21.1    | Subsidiaries      of the small business issuer                                                                       |
|    |                                                                                                                 |
| 23.1    | Letter      of Consent From Independent Registered Public Accounting Firm, Rowbotham      & Company              |
|    |                                                                                                                 |
| 24.120  | Power      of attorney                                                                                               |
|    |                                                                                                                 |
| 31.1    | Rule      13a-14(a) Certification (CEO)                                                                              |
|    |                                                                                                                 |
| 31.2    | Rule      13a-14(a) Certification (CFO)                                                                              |
|    |                                                                                                                 |
| 32.1    | Section      1350 Certification (CEO)                                                                                |
|    |                                                                                                                 |
| 32.2    | Section      1350 Certification (CFO)                                                                                |

| * | Management contract or      compensatory plan |
|---|-----------------------------------------------|

| 12 | Incorporated      by reference to our Form 10-QSB filed November 14,  2007. |
|----|-----------------------------------------------------------------------------|

| 13 | Incorporated      by reference to our Form 10-KSB filed March 31,  2008 |
|----|-------------------------------------------------------------------------|

| 14 | Incorporated      by reference to our Form 8-K filed July 20,2007 |
|----|-------------------------------------------------------------------|

| 15 | Incorporated      by reference to Exhibit 10.15 to our Form 8-K filed May 13,      2008 |
|----|-----------------------------------------------------------------------------------------|

| 16 | Incorporated      by reference to our Form 8-K filed August 22,  2008 |
|----|-----------------------------------------------------------------------|

| 17 | Incorporated      by reference to Exhibit 10.17 to our Form 8-K filed September 5,      2009 |
|----|----------------------------------------------------------------------------------------------|

| 18 | Incorporated      by reference to the discussion of “Income (Loss) Per Share” located in      Note 1 of the consolidated financial statements for the years ended      December 31, 2008 and 2007 of thisreport. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 19 | Copy      available on our website at  www.alphainnotech.com. |
|----|---------------------------------------------------------------|

| 20 | Incorporated      by reference to Power of Attorney located on page S-2 of this      report.  |
|----|----------------------------------------------------------------------------------------------------|

----

|   |   |
|--------|--------|

|                      |   | Alpha      Innotech Corp.                                           |
|---------------------------|--------|---------------------------------------------------------------------|
| Date:      March 26, 2009 |   | /s/      Ronald Bissinger                                           |
|                      |   | Ronald      Bissinger                                               |
|                      |   | Chief      Executive Officer                                        |
|                      |   | (Principal      Executive Officer)                                  |
|                      |   |                                                                |
| Date:      March 26, 2009 |   | /s/      Michael P. Henighan                                        |
|                      |   | Michael      P. Henighan                                            |
|                      |   | Chief      Financial Officer                                        |
|                      |   | (Principal      Financial Officer and Principal Accounting Officer) |
|                      |   |                                                                |

----

| Signature                               |   | Title                                                                     |   | Date                |
|-----------------------------------------|--------|---------------------------------------------------------------------------|--------|---------------------|
| /s/      Ronald H.      Bissinger       |   | Chief      Executive Officer                                              |   | March      26, 2009 |
| Ronald      H. Bissinger                |   | (Principal      Executive Officer)                                        |   |                |
|                                    |   |                                                                      |   |                |
|  /s/      Michael P.      Henighan |   |          Chief      Financial Officer                      |   | March      26, 2009 |
| Michael      P. Henighan                |   |          (Principal      Financial and Accounting Officer) |   |                |
|                                    |   |                                                                      |   |                |
| /s/      William      Snider            |   | Chairman                                                                  |   | March      26, 2009 |
| William      Snider                     |   |                                                                      |   |                |
|                                    |   |                                                                      |   |                |
| /s/      Haseeb      Chaudhry           |   | Vice      Chairman                                                        |   | March      26, 2009 |
| Haseeb      Chaudhry                    |   |                                                                      |   |                |
|                                    |   |                                                                      |   |                |
| /s/      Michael D. Bick, Ph.      D.   |   | Director                                                                  |   | March      26, 2009 |
| Michael      D. Bick, Ph. D.            |   |                                                                      |   |                |
|                                    |   |                                                                      |   |                |
| /s/      James H.      Chamberlain      |   | Director                                                                  |   | March      26, 2009 |
| James      H. Chamberlain               |   |                                                                      |   |                |
|                                    |   |                                                                      |   |                |
| /s/      Gus      Davis                 |   | Director                                                                  |   | March      26, 2009 |
| Gus      Davis                          |   |                                                                      |   |                |
|                                    |   |                                                                      |   |                |
| /s/      Joseph Keegan, Ph.      D.     |   | Director                                                                  |   | March      26, 2009 |
| Joseph      Keegan, Ph. D.              |   |                                                                      |   |                |

----

| Number | Description                                                                          |
|--------|--------------------------------------------------------------------------------------|
| 2.11   | Agreement      and Plan of Merger dated as of December 14, 2004                      |
|   |                                                                                 |
| 2.22   | Amendment      No. 1 to Agreement and Plan of Merger dated April 6,  2005            |
|   |                                                                                 |
| 2.33   | Amendment      No. 2 to Agreement and Plan of Merger dated July 6,2005               |
|   |                                                                                 |
| 2.44   | Amendment      No. 3 to Agreement and Plan of Merger dated August 25,  2005          |
|   |                                                                                 |
| 3.15   | Certificate      of Incorporation                                                    |
|   |                                                                                 |
| 3.1.15 | Certificate      of Amendment to Certificate of Incorporation                        |
|   |                                                                                 |
| 3.26   | Bylaws                                                                               |
|   |                                                                                 |
| 4.17   | 1993      Stock Incentive Plan*                                                      |
|   |                                                                                 |
| 4.28   | 2000      Stock Incentive Plan*                                                      |
|   |                                                                                 |
| 4.35   | Amended      and Restated 1999 Stock Option Plan of Alpha Innotech      Corporation* |
|   |                                                                                 |
| 4.45   | 2001      Milestone Stock Option Plan of Alpha Innotech  Corporation*                |
|   |                                                                                 |
| 4.59   | 2006      Equity Incentive Plan*                                                     |
|   |                                                                                 |
| 4.65   | Secured      Promissory Note Issued to Alexandria Dated April 8,2005                 |
|   |                                                                                 |
| 4.75   | Loan      and Security Agreement with BFI dated March 9, 2004                        |
|   |                                                                                 |
| 4.810  | Form      of Convertible Note Issued to ETP/FBR Venture Capital II,    LLC           |
|   |                                                                                 |
| 4.910  | Form      of Warrant Issued to ETP/FBR Venture Capital II, LLC                       |
|   |                                                                                 |
| 4.109  | Form      of 2006 Equity Incentive Plan Stock Option Agreement                       |
|   |                                                                                 |
| 4.1111 | Form      of 2006 Equity Incentive Plan Stock Award Agreement                        |
|   |                                                                                 |
| 10.110 | Form      of Securities Purchase Agreement with ETP/FBR Venture Capital II,      LLC |
|   |                                                                                 |

| 1 | Incorporated by reference to our      Form 8-K filed December 17,2004 |
|---|----------------------------------------------------------------------------|

| 2 | Incorporated by reference to our      Form 8-K filed April 12,2005. |
|---|--------------------------------------------------------------------------|

| 3 | Incorporated by reference to our      Form 8-K filed July 11,2005. |
|---|-------------------------------------------------------------------------|

| 4 | Incorporated by reference to our      Form 8-K filed August 26,2005. |
|---|---------------------------------------------------------------------------|

| 5 | Incorporated      by reference to our Form 8-K filed October 7,  2005. |
|---|-----------------------------------------------------------------------------|

| 6 | Incorporated      by reference to the Registrant's Registration Statement on Form S-1 (File      No. 33-20584). |
|---|----------------------------------------------------------------------------------------------------------------------|

| 7 | Incorporated      by reference to the Registrant's Annual Report on Form 10-KSB for the      fiscal year ended December 31,1994. |
|---|---------------------------------------------------------------------------------------------------------------------------------------|

| 8 | Incorporated      by reference to Registrant's Definitive Proxy Statement filed on      June 23, 2000 (File  No. 001-14257). |
|---|---------------------------------------------------------------------------------------------------------------------------------------------|

| 9 | Incorporated      by reference to our Form S-8 filed October 19,  2006. |
|---|-------------------------------------------------------------------------|

| 10 | Incorporated      by reference to our Quarterly Report on Form 10-QSB for the quarter ending      June 30, 2006 filed August 14,2006. |
|----|---------------------------------------------------------------------------------------------------------------------------------------|

| 11 | Incorporated      by reference to Exhibit 4.11 to our Form 10-KSB filed March 31,      2008. |
|----|----------------------------------------------------------------------------------------------|

----

| 10.912  | First      Modification to Loan and Security Agreement with BFI Business Finance      dated as of October 26, 2007   |
|---------|----------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                 |
| 10.1013 | Secured      Promissory Note to BFI Business Finance dated January 15,    2008                                       |
|    |                                                                                                                 |
| 10.1113 | Second      Modification to Loan and Security Agreement with BFI Business Finance      dated as of February 29, 2008 |
|    |                                                                                                                 |
| 10.1213 | Secured      Promissory Note to BFI Business Finance dated as of February 29,      2008                              |
|    |                                                                                                                 |
| 10.1314 | Employment      Contract with Ronald H. Bissinger dated July 17, 2007*                                               |
|    |                                                                                                                 |
| 10.1413 | Common      Stock Purchase Agreement with William Snider dated as of March 13,      2008                             |
|    |                                                                                                                 |
| 10.1515 | Loan      Agreement by and between Montage Capital LLC and Agility Capital LLC dated      as of May 9, 2008          |
|    |                                                                                                                 |
| 10.1615 | Form      of Warrant issued to Montage Capital LLC and Agility Capital      LLC                                      |
|    |                                                                                                                 |
| 10.1716 | Employee      offer letter to Michael P. Henighan*                                                                   |
|    |                                                                                                                 |
| 10.1817 | Business      Financing Agreement with Bridge Bank, National Association dated as of      September 3, 2009          |
|    |                                                                                                                 |
| 10.1917 | Borrower      Agreement dated as of September 3, 2009                                                                |
|    |                                                                                                                 |
| 11.118  | Statement      regarding computation of per share earnings                                                           |
|    |                                                                                                                 |
| 14.119  | Code      of Ethical Conduct                                                                                         |
|    |                                                                                                                 |
| 21.1    | Subsidiaries      of the small business issuer                                                                       |
|    |                                                                                                                 |
| 23.1    | Letter      of Consent From Independent Registered Public Accounting Firm, Rowbotham      & Company              |
|    |                                                                                                                 |
| 24.120  | Power      of attorney                                                                                               |
|    |                                                                                                                 |
| 31.1    | Rule      13a-14(a) Certification (CEO)                                                                              |
|    |                                                                                                                 |
| 31.2    | Rule      13a-14(a) Certification (CFO)                                                                              |
|    |                                                                                                                 |
| 32.1    | Section      1350 Certification (CEO)                                                                                |
|    |                                                                                                                 |
| 32.2    | Section      1350 Certification (CFO)                                                                                |

| * | Management contract or      compensatory plan |
|---|-----------------------------------------------|

| 12 | Incorporated      by reference to our Form 10-QSB filed November 14,  2007. |
|----|-----------------------------------------------------------------------------|

| 13 | Incorporated      by reference to our Form 10-KSB filed March 31,  2008 |
|----|-------------------------------------------------------------------------|

| 14 | Incorporated      by reference to our Form 8-K filed July 20,2007 |
|----|-------------------------------------------------------------------|

| 15 | Incorporated      by reference to Exhibit 10.15 to our Form 8-K filed May 13,      2008 |
|----|-----------------------------------------------------------------------------------------|

| 16 | Incorporated      by reference to our Form 8-K filed August 22,  2008 |
|----|-----------------------------------------------------------------------|

| 17 | Incorporated      by reference to Exhibit 10.17 to our Form 8-K filed September 5,      2009 |
|----|----------------------------------------------------------------------------------------------|

| 18 | Incorporated      by reference to the discussion of “Income (Loss) Per Share” located in      Note 1 of the consolidated financial statements for the years ended      December 31, 2008 and 2007 of thisreport. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 19 | Copy      available on our website at  www.alphainnotech.com. |
|----|---------------------------------------------------------------|

| 20 | Incorporated      by reference to Power of Attorney located on page S-2 of this      report.  |
|----|----------------------------------------------------------------------------------------------------|

----