Financial Highlights for the Quarter and Nine Months Ended September 30, 2012

Net revenues for the third quarter of 2012 were $3,789,000 compared with $4,060,000 in the third quarter of 2011, a decrease of $271,000 or 6.7%. The decrease in revenue was primarily the result of reduced sales in international markets from our European operations. Net revenue in the nine months ended September 30, 2012 decreased by $196,000, or 1.6%, from the same period last year, with net revenues from domestic operations decreasing by $121,000 or 1.4% and net revenues from European operations decreasing by $75,000 or 1.9%.

Gross profit for the third quarter of 2012 was $2,062,000 or 54.4% of net revenue, compared with $2,086,000 or 51.4% of net revenue for the third quarter of 2011. The decrease in gross profit resulted from lower sales and the increase in gross profit margin percentage was principally as a result of an increase in sales of our proprietary instruments in the US, which have a higher average margin. Gross profit for the nine months ended September 30, 2012 decreased by $172,000, or 2.9%, from the same period last year. The decrease in gross profit was primarily attributable to a decrease in sales.

Operating expenses for the third quarter of 2012 decreased to $2,104,000 from $3,083,000 for the third quarter of 2011. Operating expense for the nine months ended September 30, 2012 decreased to $6,686,000 from $9,726,000 in the nine months ended September 30, 2011 as a result of decreases in all three categories of operating expenses. Selling expenses decreased mainly due to open sales positions in the United States and, in Italy, reduction in workforce and lower commissions. General and administrative expenses decreased as a result of reduction in workforce, reduction in leased office space and reduction in provision for doubtful accounts. Research and development expenses decreased principally due to reduction of research and development activities in the United States and funding of research and development in Italy.

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