Diabetes is a chronic life-threatening disease for which there is no known cure. The disease is caused by the body’s inability to produce or effectively utilize the hormone insulin. This inability prevents the body from adequately regulating blood glucose levels. According to the International Diabetes Federation, more than 194 million people worldwide are estimated to have diabetes. This population is expected to grow significantly with increasing overall life expectancy, worsening diet trends, increasingly sedentary lifestyles and growing incidence of obesity. The World Health Organization, or WHO, estimates that the number of diabetics will reach 370 million worldwide by the year 2030. In the United States, Frost & Sullivan estimates that in 2005 more than 20 million people, or about 7% of the population, had diabetes, and about 14.9 million, or 73% of the total diabetic population, were diagnosed.

They expect this figure to grow to 18.3 million, or 77% of the diabetic population, by 2011. According to Frost & Sullivan, the combined worldwide market for blood glucose monitors and test strips was approximately $6.3 billion in 2005 and is expected to grow 8% per annum in North America and 16% per annum outside of North America over the next five years.

According to a report published in Diabetes Care in 2003, diabetes is the fifth leading cause of death by disease in the United States. Complications related to diabetes include heart disease, nerve damage and limb amputations, loss of kidney function and blindness. In cases of severe hypoglycemia, diabetes patients risk acute complications, such as loss of consciousness or death. Due to the drastic nature of acute complications associated with hypoglycemia, many patients are afraid of driving down blood glucose levels. Consequently, patients often remain in a hyperglycemic state, exposing themselves to long-term chronic complications. The total cost for the healthcare system associated with the treatment of diabetes and its complications in 2002 was $132 billion, according to the ADA.

Launched in August 2005, the SideKick is the Company’s all-in-one, disposable blood glucose monitoring system that combines a vial of 50 test strips with the world’s smallest blood glucose monitor. The system is portable and conveniently sized, and can be discarded when the last test strip is used.

The TrueTrack Smart System, which was introduced in July 2003, offers one of the largest memory systems on the market, able to store 365 test results. It also has Internet uploading capability, a large and easy-to-read display and easy-to-handle capillary action test strips. An audible fill detection sensor lets the user know when enough blood has been drawn.

The Company’s TrackEASE Smart System, which was introduced in January 2004, features a capillary action test strip that quickly and easily draws a small, 1.0 microliter blood sample. An audible fill detection sensor lets the user know when enough blood has been drawn. The TrackEASE Smart System offers the user the same performance as the Company’s TrueTrack Smart System, but features a more basic set of data management capabilities.

The Company’s Prestige IQ, which was introduced in June 2001, offers a large and easy-to-read display with test strips that are wide and easy to handle. Given its features, the Prestige IQ is ideal for patients with dexterity or visual limitations, two of the most common side effects associated with diabetes. The test strip requires a 4.0 microliter blood sample size. The Prestige IQ offers a 365 test memory and Internet uploading capabilities.

In addition to its blood glucose monitoring systems, the Company offers several monitoring accessories designed to make the management of diabetes easier, including: disease management software, gentle draw lancing device, single-use sterile lancet and disposable ketone urinary test strips.

Cost of sales increased $2.9 million, or 15.0%, to $22.5 million for the six months ended June 30, 2006, as compared to $19.5 million for the same period in 2005.

Gross profit increased $5.8 million, or 21.2%, to $33.2 million for the six months ended June 30, 2006, as compared to $27.4 million for the same period in 2005.

Interest expense, net was $0.1 million for the six months ended June 30, 2006, as compared to $0.4 million for the same period in 2005

Net income increased to $3.2 million for the six months ended June 30, 2006, as compared to $2.1 million for the same period in 2005.