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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File Number 1-14798

IVAX Diagnostics, Inc.

(Exact name of registrant as specified in its charter)

2140 North Miami Avenue, Miami, Florida 33127

(Address of principal executive offices, including zip code)

(305) 324-2300

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes  ¨    No  x

The aggregate market value of the voting common stock held by non-affiliates of the registrant on June 30, 2004, was approximately $44,591,840.

As of March 18, 2005, there were 27,019,829 shares of common stock outstanding.

Documents Incorporated by Reference: None

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IVAX Diagnostics, Inc.

Annual Report on Form 10-K

for the year ended December 31, 2004

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Table of Contents

PART I

Cautionary Statement Concerning Forward-looking Statements

We have made forward-looking statements, which are subject to risks and uncertainties, in this Annual Report on Form 10-K. These statements are based on the beliefs and assumptions of our management and on the information currently available to it. Forward-looking statements may be preceded by, followed by, or otherwise include the words “may,” “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “could,” “would,” “should,” or similar expressions or statements that certain events or conditions may occur. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by these forward-looking statements. These forward-looking statements are based largely on our expectations and the beliefs and assumptions of our management and on the information currently available to it and are subject to a number of risks and uncertainties, including, but not limited to, the risks and uncertainties associated with: economic, competitive, political, governmental and other factors affecting us and our operations, markets and products; the success of technological, strategic and business initiatives, including our automation strategy and our development and commercial release of our new proprietary instrument system, named the PARSEC^™ System; our ability to receive regulatory approval for the PARSEC^™ System; the performance of the PARSEC^™ System; the ability of the PARSEC^™ System to be a factor in our growth; the ability of the PARSEC^™ System to expand the menu of test kits we offer; making the PARSEC^™ System our primary product; our ability to market the PARSEC^™ System; our customers’ integration of the PARSEC^™ System into their operations; constantly changing, and our compliance with, governmental regulation, including “European Conformity” marking on our products sold throughout the European Union; our adoption or implementation of new accounting statements and pronouncements; our limited operating revenues and history of primarily operational losses; our ability to collect our accounts receivable and to make or change judgments and estimates regarding our allowances for doubtful accounts; our ability to utilize our deferred tax assets and to make or change judgments and estimates regarding our valuation allowances and reserves against our deferred tax assets; our ability to achieve cost advantages from our own manufacture of instrument systems, reagents and test kits; our ability to grow beyond the autoimmune and infectious disease markets and to expand into additional diagnostic test sectors; our ability to internally manufacture our own hepatitis products and raw materials for these products, to obtain regulatory approval for these products and to become competitive in markets outside of the United States; our agreements with IVAX Corporation, or IVAX, third party distributors and key personnel; consolidation of our customers affecting our operations, markets and products; reimbursement policies of governmental and private third parties affecting our operations, markets and products; price constraints imposed by our customers and governmental and private third parties; our ability to consummate potential acquisitions of businesses or products; our ability to integrate acquired businesses or products; protecting our intellectual property; political and economic instability and foreign currency fluctuation affecting our foreign operations; the holding of substantially all of our cash and cash equivalents and marketable securities at a single brokerage firm, including risks relating to the bankruptcy or insolvency of such brokerage firm; litigation regarding products, distribution rights, intellectual property rights and product liability; voting control of our common stock by IVAX; conflicts of interest with IVAX and with our officers, directors and employees; and other factors discussed elsewhere in this Annual Report on Form 10-K. Many of these factors are beyond our control.

Business

General. We are the parent corporation of the following three subsidiaries:

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Through these subsidiaries, we develop, manufacture, and market diagnostic test kits, or assays, and automated systems that are used to aid in the detection of disease markers primarily in the areas of autoimmune and infectious diseases. These tests, which are designed to aid in the identification of the causes of illness and disease, assist physicians in selecting appropriate patient treatment. Most of our tests are based on Enzyme Linked ImmunoSorbent Assay, or ELISA, technology, a clinical testing methodology used worldwide. Specific tests are prepared using a 96 well microplate format whereby specific antigens are typically coated on the wells of a microplate during the manufacturing process. A test using ELISA technology involves a series of reagent additions to the microplate causing a reaction that results in a visible color in the wells. The amount of color is directly proportionate to the amount of the specific analyte in the patient sample. Our kits are designed to be performed either manually or in an automated format. In addition to our line of diagnostic kits, we also design and manufacture laboratory instruments that perform the tests and provide fast and accurate results, while reducing labor costs. Our existing proprietary instruments, named the Mago^® Plus and Aptus^® systems, include a fully-automated ELISA processor operating with our own user-friendly software, allowing customers to perform tests in an automated mode. We have designed our new proprietary instrument system, named the PARSEC^™ System, in a modular format, which we believe should permit different detection technologies to be incorporated. We expect that this design should enable customers to utilize not only ELISA-based kits, but also other methods such as chemiluminescent-based assays in the future. We also believe that the PARSEC^™ System’s design is scalable, which we believe should give customers the ability to “customize” the configuration of the PARSEC^™ System to the testing and work flow requirements of their particular laboratories. We have not yet received regulatory approval for the PARSEC^™ System, nor is it yet available for commercial release. We also develop, manufacture, and market raw materials, such as antigens used in the production of diagnostic kits.

Our management reviews financial information, allocates resources and manages the business as two segments defined by geographic region. One segment—the domestic region—contains our subsidiaries located in the United States and corporate operations. Our other segment—the Italian region—contains our subsidiary located in Italy. For additional information about our two segments, see Note 9 to our Consolidated Financial Statements.

Delta, which IVAX acquired in 1991, was established in 1980. From its facility located in Pomezia, Italy, it develops and manufactures scientific and laboratory instruments, including its proprietary Mago^® Plus and Aptus^® systems, which include hardware, reagents, and software. The Mago^® Plus and Aptus^® systems, in association with 104 specific assays acquired from Diamedix and third parties, as well as a complete line of allergy products, are sold directly in Italy through Delta’s independent sales force and sales representatives, most of whom work exclusively for Delta. Delta also sells in Italy other diagnostic products manufactured by third parties. Approximately 90% of Delta’s customers in Italy are government owned hospitals and the remaining 10% are private laboratories. Thus, sales in Italy are heavily concentrated in the public sector. Delta also serves as the distribution center for selling these same products to customers located in other European and international markets outside Italy. Some of these sales, such as in Spain and Portugal, are made through distributors while others are made on a direct basis. The sales made on a direct basis occur primarily in the United Kingdom, France and Germany. These sales are supported by our employees or sales agents based in England, France and Italy.

Diamedix was established in 1986 after it acquired all of the assets and retained substantially all of the personnel of Cordis Laboratories, Inc., a company that had developed, manufactured, and marketed diagnostic equipment since 1962. IVAX acquired Diamedix in 1987. Diamedix’ products are sold in the United States through Diamedix’ sales force. Diamedix manufactures 44 assays that the United States Food and Drug Administration, or FDA, has cleared and that are available to be run in conjunction with the Mago^® Plus and Aptus^® systems. These assays are sold under the trade name immunosimplicity^®. Diamedix is located in Miami, Florida.

Since 1985, ImmunoVision has been developing, manufacturing, and marketing autoimmune reagents and research products for use by research laboratories and commercial diagnostic manufacturers. These

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manufacturers (including Diamedix) use these antigens to produce autoimmune diagnostic kits. IVAX acquired ImmunoVision in 1995. ImmunoVision is located in Springdale, Arkansas.

Merger. On November 21, 2000, IVAX and the pre-merger IVAX Diagnostics, Inc., then a wholly-owned subsidiary of IVAX which was incorporated in 1996 by IVAX to be the parent corporation of Diamedix, Delta and ImmunoVision, entered into a definitive merger agreement with us, pursuant to which the pre-merger Diagnostics would merge with and into us, with us as the surviving corporation. The merger was consummated on March 14, 2001, and our name was changed from “b2bstores.com Inc.” to “IVAX Diagnostics, Inc.” As a result of the merger, approximately 70% of the issued and outstanding shares of our common stock became owned by IVAX and our business became that of the pre-merger Diagnostics.

We were incorporated on June 28, 1999 under the laws of the State of Delaware. Prior to the merger, we operated an Internet web site that was specifically designed to assist business customers in the operation and development of their businesses. The web site was designed to provide business customers with access to products and supplies, a network of business services and business content. On December 1, 2000, we ceased all web site related operations and permanently shut down our web site.

Market. Our products are primarily associated with the in vitro diagnostics market. In vitro diagnostic assays are tests that are used to detect specific substances, usually either antigens or antibodies, outside the body. This usually involves using a blood sample or other bodily fluid sample for testing. The market for in vitro diagnostic products consists of reference laboratory and hospital laboratory testing, testing in physician offices, and over the counter testing, in which testing can be performed at home by the consumer. Industry analysts have estimated that the world market for in vitro diagnostics was $27.7 billion in 2003 and estimated to grow at a rate of 7% annually. Of this total $27.7 billion market, the world immunoassay market in which we operate is estimated by industry analysts to be $5.37 billion. We have focused our efforts on the niche market for autoimmune and infectious disease immunoassay products. Our ELISA autoimmune product line consists of 20 test kits that the FDA has cleared. These include test kits for screening antinuclear antibodies and specific tests to measure antibodies to dsDNA, SSA, SSB, Sm, Sm/RNP, Scl 70, Jo-1, Rheumatoid Factor, MPO, PR-3, TPO, TG, and others. These products are used for the diagnosis and monitoring of autoimmune diseases, including Systemic Lupus Erythematosus, or SLE, Rheumatoid Arthritis, Mixed Connective Tissue Disease, Sjogren’s Syndrome, Scleroderma, and Dermatopolymyositis. Our infectious disease product line includes 24 kits that the FDA has cleared, including Toxoplasma IgG, Toxoplasma IgM, Rubella IgG, Rubella IgM, Cytomegalovirus, or CMV, IgG, CMV IgM, Herpes Simplex Virus, or HSV, IgG, HSV IgM, Measles, Varicella Zoster Virus, or VZV, Lyme Disease, H. pylori, Mumps, six different Epstein-Barr Virus, or EBV, kits and others.

We believe that the market trend for in vitro diagnostic products is towards increased laboratory automation that would allow laboratories to lower their overall costs. We believe that our proprietary Mago^® Plus and Aptus^® systems and PARSEC^™ System should enable laboratories to achieve more automation in the test sectors in which we compete.

We are seeking to differentiate ourselves from our competitors through our proprietary instrument systems. While some of our competitors offer proprietary instruments, other competitors use third parties to manufacture these instruments for them. We believe that the cost advantage we enjoy from our own manufacture of the Mago^® Plus and Aptus^® systems and the PARSEC^™ System, coupled with our production of certain autoimmune reagents at ImmunoVision and our production of diagnostic test kits at Diamedix, should position us to target new product markets for growth beyond the niche market for autoimmune and infectious disease immunoassay products in which we currently compete. We expect that our new proprietary PARSEC^™ System should enable us to expand the menu of test kits that we currently offer and that we should be able to expand into testing sectors beyond the autoimmune and infectious disease products. We expect that the PARSEC^™ System will be marketed to hospitals, reference testing laboratories, clinics and pharmaceutical, and biotechnology research companies. We presented the PARSEC^™ System at the American Association for Clinical Chemistry (AACC) Clinical Lab Exposition in Los Angeles, California in July 2004 and the Medica Exhibition in Dusseldorf, Germany in November 2004. We have not yet received regulatory approval for the PARSEC^™ System, nor is it yet available for commercial release.

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Research and Development. We devote substantial resources for research and development. For the years ended December 31, 2004, 2003 and 2002, we spent $1.3 million, $1.3 million and $1.4 million, respectively, for research and development activities. There is no assurance that these expenditures will result in the development of new products or product enhancements, that we will successfully complete products currently under development, that we will obtain regulatory approval or that any approved product will be produced in commercial quantities, at reasonable costs, and be successfully marketed.

Our research and development efforts are targeted primarily towards the development of our new proprietary PARSEC^™ System. While there is no assurance that we will be successful, we are seeking to expand the test kits menu we offer in the autoimmune and infectious disease testing sectors and considering moving into additional diagnostic test sectors such as HIV, Hepatitis, and allergy detection. In September 2004, we signed a license agreement with an Italian diagnostics company that allows us access to its technology for manufacturing certain hepatitis products. This agreement is expected to enable us to become competitive in markets outside of the United States by providing us with the technology that, over time, would allows us to internally manufacture our own hepatitis products with the “CE Marking,” as well as internally manufacture our own raw materials for these hepatitis products.

Sales and Marketing. We currently market our products in the United States through our own sales force to hospitals, reference laboratories, clinical laboratories, and research laboratories, as well as to other commercial companies that manufacture diagnostic products. We also sell some of our products to pharmaceutical and biotechnology companies. We market our products in certain international markets through a network of independent distributors. We market and sell our products in Italy through a network of salespersons and sales agents, most of whom work on an exclusive basis for Delta. We also sell our products in other global markets through a number of independent distributors. Sales personnel are trained to demonstrate our products in the laboratory setting. Our marketing and technical service departments located in Miami, Florida, Springdale, Arkansas, and Pomezia, Italy support their efforts. We participate in a number of industry trade shows in the United States and Europe.

The products we market are purchased principally by healthcare providers that typically bill third party payors such as governmental programs (e.g., Medicare and Medicaid), private insurance plans, and managed care plans, for healthcare services provided to their patients. Governmental reimbursement policies are subject to rapid and significant changes in the United States at both the federal and state levels and in other countries. Private third party payors are increasingly negotiating the prices charged for medical products and services. There can be no assurance that healthcare providers will not respond to such pressures by substituting competitors’ products for our products. A third party payor may deny reimbursement if it determines that a device was not used in accordance with cost-effective treatment methods, was experimental, or for other reasons. There can be no assurance that our products will qualify for reimbursement by governmental programs in accordance with guidelines established by the Centers for Medicare and Medicaid Services, by state government payors, or by commercial insurance carriers, or that reimbursement will be available in other countries.

In Italy, as well as in most other countries in Western Europe, our products are sold predominantly to public hospital laboratories, which are managed by government structures either directly or indirectly. In most cases, our products are sold through tenders for multiple year periods. Due to the efforts exercised by many governments to contain healthcare costs, there has been a constant effort to consolidate laboratory units and, consequently, the bid process continues to become even more competitive.

On May 15, 2002, we consummated the acquisition of certain of the assets of the global enzyme immunoassay product line of Sigma Diagnostics for approximately $2,212,000 and the assumption of certain liabilities. As a result of the consummation of the transaction with Sigma Diagnostics, we no longer sell reagents or instrumentation to Sigma Diagnostics, which had been our largest customer during 2001 and 2000 and which had marketed such reagents and instrumentation throughout the world under previous agreements with us. Instead, we sell enzyme immunoassay instrumentation and reagents directly to Sigma Diagnostics’ former

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customer base. Selected employees previously affiliated with Sigma Diagnostics, primarily in the field sales, instrument service and technical support areas, joined us. As a result of the consummation of the transaction with Sigma Diagnostics, our previous agreements with Sigma Diagnostics have been terminated.

Our business is not considered seasonal in nature, but our Italian operations may be slightly affected by the general reduction in business activity in Europe during the traditional summer vacation months.

Our business is not materially affected by order backlog or working capital issues.

Competition. We compete on a worldwide basis and there are numerous competitors in the specific market sectors in which we offer our products. These competitors range from major pharmaceutical companies to development stage diagnostic companies. Many of these companies, such as Abbott Laboratories and Diagnostic Products Corporation, are much larger and have significantly greater financial, technical, manufacturing, sales, and marketing resources than us.

The diagnostics industry has experienced considerable consolidation through mergers and acquisitions in the past several years. At the same time, the competition in test sectors such as autoimmune is very fragmented as it is comprised of primarily small companies with no single company possessing a dominant market position. We compete in the marketplace on the basis of the quality of our products, price, instrument design and efficiency, as well as our relationships with customers. In addition to Abbott Laboratories and Diagnostic Products Corporation, our competitors include Bio-Rad Laboratories, DiaSorin, Meridian Bioscience, Inc., Inverness Medical Innovations, Inc., Stratagene Corporation and Trinity Biotech plc.

The in vitro diagnostic market in which we sell many of our products is highly competitive. The market for our products is characterized by continual and rapid technological developments that have resulted in, and will likely continue to result in, substantial improvements in product function and performance. Our success will depend, in part, on our ability to anticipate changes in technology and industry requirements and to respond to technological developments on a timely basis either internally or through strategic alliances. Several companies have developed, or are developing, scientific instruments and assays that compete or will compete directly with products we market. Many existing and potential competitors have substantially greater financial, marketing, research, and technological resources, as well as established reputations for success in developing, manufacturing, selling, and servicing products, than us. Competitors that are more vertically integrated than us may have more flexibility to compete effectively on price. We expect that existing and new competitors will continue to introduce products or services that are, directly or indirectly, competitive with those that we sell. Such competitors may succeed in developing products that are more functional or less costly than those sold by us and may be more successful in marketing such products. These and other innovations in the rapidly changing medical technology market will negatively affect the sales of the products we market. There can be no assurance that we will be able to compete successfully in this market or that technology developments by our competitors will not render our products or technologies obsolete.

Personnel. As of December 31, 2004, we had approximately 116 full time employees, of whom 17 were managerial, 47 were technical and manufacturing, 14 were administrative, and 38 were sales and marketing.

Intellectual Property. In December 1994, Diamedix entered into an intellectual property agreement with two inventors pursuant to which it acquired all rights, title, and interest in the Mago^® instrument, including all related software and technical information. During 2003, Diamedix completed its obligation to make payments under the intellectual property agreement. Separately, in December 1994, the pre-merger Diagnostics entered into consulting agreements with each of the inventors. Only one of these consulting agreements, which was amended in July 2003, currently remains in effect.

The technology associated with the design and manufacture of the Mago^® and Aptus^® instruments is not protected by patent registrations or license restrictions. The Mago^® instrument has been our primary product. In the future, we expect that the PARSEC^™ System will become our primary product. We have filed several patent

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applications related to the new innovative features in the PARSEC^™ System. There can be no assurance that our competitors will not gain access to our trade secrets and proprietary and confidential technologies, or that they will not independently develop similar or competing trade secrets and technologies.

On March 14, 2001, we entered into a use of name license with IVAX whereby IVAX granted us a non-exclusive, royalty free license to use the name “IVAX.” IVAX may terminate this license at any time upon 90 days’ written notice. Upon termination of the agreement, we are required to take all steps reasonably necessary to change our name as soon as is practicable. The termination of this agreement by IVAX could have a material adverse effect on our ability to market our products and on us.

Governmental Regulation. The testing, manufacturing, and sale of our products are subject to regulation by numerous governmental authorities, principally the FDA. To comply with FDA requirements, we must, among other things, manufacture our products in conformance with the FDA’s medical device Quality System regulations. Diamedix is listed as a registered establishment with the FDA and Delta has received UNI ISO 9001 certification complemented by the requirements of UNI CEI EN ISO 13485 validating its quality system. The FDA classifies medical devices into three classes (Class I, II or III). Class I devices are subject to general controls, such as good manufacturing practices, and may or may not be subject to pre-market notification. Pre-market notifications must be submitted to the FDA before products can be commercially distributed. Some Class I devices have been deemed exempt from this requirement by the FDA. Class II devices are subject to the same general controls, pre-market notification and performance standards. Usually, Class III devices are those that must receive pre-market approval by the FDA to ensure their safety and effectiveness. Most of our products are classified as Class I or II devices. Generally, before a new test kit can be introduced to the market, it is necessary to obtain FDA clearance in the form of a pre-market 510(k) notification. A 510(k) notification provides data to show that the new device is substantially equivalent to other devices in the marketplace. Almost all of the products sold by us have received 510(k) clearance. In addition, customers using diagnostic tests for clinical purposes in the United States are also regulated under the Clinical Laboratory Improvement Amendments of 1988, or CLIA. CLIA is intended to ensure the quality and reliability of all medical testing in laboratories in the United States by requiring that any healthcare facility in which testing is performed meets specified standards in the areas of personnel qualification, administration, participation in proficiency testing, patient test management, quality control, quality assurance, and inspections.

Additionally, the products we sell are subject to extensive regulation by governmental authorities in the United States and other countries, including, among other things, the regulation of the testing, approval, manufacturing, labeling, marketing, and sale of diagnostic devices. As a general matter, foreign regulatory requirements for medical devices are becoming increasingly stringent. In the European Union, a single regulatory approval process has been created and approval is represented by the “CE Marking.” “CE” is an abbreviation for Conformite Europeene, or European Conformity, and the “CE Marking” when placed on a product indicates compliance with the requirements of the applicable regulatory directive. Medical devices properly bearing the “CE Marking” may be commercially distributed throughout the European Union. “CE Marking” must be obtained for all medical devices commercially distributed throughout the European Union even though the products may have received FDA clearance. In order to be commercially distributed throughout the European Union, certain of our products must bear the “CE Marking.” All of the products that we currently sell throughout the European Union are in conformity with the applicable “CE” regulations under the In Vitro Diagnostics Directive. We have also received an ISO 13485:1996 certificate, giving us approval for Europe and Canada. If in the future we lose the authorization to use the “CE Marking,” we may not be able to sell our products in the European Union, which could have a material adverse effect on our business, prospects, operating results and financial condition.

Failure to comply with any governmental regulation can result in fines, unanticipated compliance expenditures, interruptions of production, product recalls or suspensions, and criminal prosecution. The process of obtaining regulatory approval is rigorous, time consuming, and costly. There is no assurance that we will attain necessary approvals on a timely basis, if at all. In addition, product approvals can be withdrawn if we fail

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to comply with regulatory standards or if unforeseen problems occur following initial marketing. Domestic and foreign regulations are subject to change and extensive changes in regulation may increase our operating expenses. There can be no assurance that we will not encounter delays in obtaining necessary domestic or foreign regulatory approvals, if at all, or failures to comply with applicable regulatory requirements, or extensive changes in regulation.

We are also subject to numerous federal, state, and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances.

Our employment relations in Italy are governed by numerous regulatory and contractual requirements, including national collective labor agreements and individual employer labor agreements. These arrangements address a number of specific issues affecting our working conditions including hiring, work time, wages and benefits, and termination of employment. We must make significant payments in order to comply with these requirements.

The evolving and complex nature of regulatory requirements, the broad authority and discretion of the FDA and the high level of regulatory oversight in our industry result in a continuing possibility that our business and results of operations may be adversely affected by regulatory issues despite our efforts to maintain compliance with regulatory requirements.

Available Information. Our Internet web site is www.ivaxdiagnostics.com. We make available, free of charge, through our web site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(d) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such documents are electronically filed with or furnished to the Securities and Exchange Commission. Information contained in our web site is not part of this Annual Report on Form 10-K and shall not be incorporated by reference herein.

Our corporate headquarters are located in Miami, Florida. Our corporate headquarters share facilities with Diamedix, which owns approximately 56,000 square feet of buildings at its facility in Miami, Florida. From this facility, Diamedix conducts research and development of in vitro diagnostic products, reagent kit manufacturing, marketing, and corporate management activities. Delta leases approximately 27,000 feet of industrial space in Pomezia, Italy. This facility is where our proprietary instrumentation is manufactured. ImmunoVision leases approximately 5,700 square feet of commercial space in Springdale, Arkansas.

We believe our facilities are in satisfactory condition, are suitable for their intended use and, in the aggregate, have capacities in excess of those necessary to meet our present needs. A portion of our facilities, as well as our corporate headquarters and other critical business functions are located in areas subject to hurricane casualty risk. Although we have certain limited protection afforded by insurance, our business and our earnings could be materially adversely affected in the event of a major windstorm.

We are involved in various legal claims and actions and regulatory matters and other notices and demand proceedings arising in the ordinary course of business. While it is not possible to predict or determine the outcome of these proceedings, in the opinion of management, based on a review with legal counsel, any losses resulting from such legal proceedings would not have a material adverse impact on our financial position, results of operations or cash flows.

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No matters were submitted to a vote of security holders during the quarter ended December 31, 2004.

PART II

Our common stock is listed on the American Stock Exchange and trades under the symbol IVD.

As of the close of business on March 28, 2005, there were approximately 49 holders of record of our common stock.

The following table sets forth the high and low sales price of a share of our common stock for each quarter in 2004 and 2003, as reported by the American Stock Exchange:

We did not pay cash dividends on our common stock during 2004 or 2003 and we do not intend to pay any cash dividends in the foreseeable future.

The following table sets forth selected historical financial data as of and for the fiscal years ended December 31, 2004, 2003, 2002, 2001 and 2000 that has been derived from, and is qualified by reference to, our Consolidated Financial Statements. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and the Consolidated Financial Statements and related Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. The historical selected financial data prior to consummation of the merger are those of the pre-merger Diagnostics with retroactive restatement of equity and earnings per share.

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The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the related Notes to Consolidated Financial Statements on pages 20 to 39 of this Annual Report on Form 10-K.

Overview

We are the parent corporation of the following three subsidiaries:

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

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

From its facility located in Pomezia, Italy, Delta develops and manufactures scientific and laboratory instruments, including its proprietary Mago^® Plus and Aptus^® systems, which include hardware, reagents, and software. The Mago^® Plus and Aptus^® systems, in association with 104 specific assays acquired from Diamedix and third parties, as well as a complete line of allergy products, are sold directly in Italy through Delta’s independent sales representatives, most of whom work exclusively for Delta. Delta also sells in Italy other diagnostic products manufactured by third parties. Approximately 90% of Delta’s customers in Italy are government owned hospitals and the remaining 10% are private laboratories. Thus, sales in Italy are heavily concentrated in the public sector.

Diamedix’ products are sold in the United States through Diamedix’ sales force. Diamedix markets 44 assays that the FDA has cleared and that are available to be run in conjunction with the Mago^® Plus and Aptus^® systems. These assays are sold under the trade name immunosimplicity^®.

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ImmunoVision develops, manufactures, and markets autoimmune reagents and research products for use by research laboratories and commercial diagnostic manufacturers. These manufacturers (including Diamedix) use these antigens to produce autoimmune diagnostic kits.

The historical financial statements prior to the merger of us and the pre-merger Diagnostics are those of the pre-merger Diagnostics with no adjustments except for retroactive restatement, as if a stock split occurred, to reflect the 20,000,000 shares of common stock that IVAX received in the merger as outstanding for all periods presented.

Results of Operations

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Overview

Net income in 2004 was $152,000 compared to a net loss in 2003 of $675,000. Contributing to this improvement was an increase in revenue of $1,260,000 which, excluding the effect of foreign currency fluctuations, was principally driven by an increase in revenue from reagents sold due to an increased number of instrument placements. The combination of this increased revenue and an improved gross profit as a percentage of net revenues caused our gross profits to increase to $11,209,000 in 2004 from $10,189,000 in 2003. Our operating expenses increased by $303,000, primarily as a result of an increase of $476,000 in selling expenses offset by a $209,000 decrease in general and administrative expenses. As a result, operating loss improved from a loss of $1,031,000 in 2003 to a loss of $314,000 in 2004.

Net Revenues and Gross Profit

Net revenues in 2004 increased $1,260,000, or 7.1%, from 2003. This increase was comprised of increases in external net revenues of $848,000 from Italian operations and $412,000 from domestic operations. The increase in external net revenues from Italian operations of 14.2% was primarily attributable to an increase in revenue due to fluctuations of the United States dollar relative to the Euro, as further discussed in “Currency Fluctuations” below. As measured in Euros, Italian revenues increased primarily as a result of higher revenue generated from reagent sales due to an increased number of instrument placements, partially offset by decreased revenue resulting from a lower volume of instrument sales. Domestic external net revenues in 2004 increased by 3.5% from 2003. This increase was primarily due to greater revenue derived from reagent sales due to an increased number of instrument placements as well as revenue from a contract manufacturing arrangement which commenced in December 2003, and was partially offset by decreased revenue from a lower volume of instrumentation sales. Gross profit in 2004 increased $1,020,000, or 10%, from the prior year. The increases in gross profit and gross profit as a percentage of net revenues were primarily attributable to the increase in net revenues as well as manufacturing efficiencies gained from the replacement of products manufactured by others with products manufactured by us. Also contributing to the increase in gross profit was the effect of exchange rate fluctuations of the United States dollar relative to the Euro.

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Operating Expenses

Selling expenses in 2004 increased by $476,000 from 2003. The increase of $417,000 in the Italian portion of selling expenses was primarily due to the effect of exchange rate fluctuations and, when measured in local currency, increased payroll costs. Promotional costs related to our anticipated new PARSEC^™ instrument system also contributed to the increase. Domestic selling expenses increased $59,000, also primarily as a result of increased payroll costs, but were partially offset by decreased promotional costs. General and administrative expenses decreased $209,000 from 2003 partially due to a decrease in compensation expense that includes the result of the completion on June 30, 2003 of the amortization of noncash stock option compensation costs recorded as a result of the merger between b2bstores.com and the pre-merger Diagnostics. General and administrative expenses were also lower in 2004 than in 2003 due to reduced legal costs, but higher insurance expenses partially offset these decreases. Research and development expenses increased $36,000 due to an increase in Italian research and development expenses to $539,000 in 2004 from $472,000 in 2003, partially offset by a decrease in domestic research and development expenses to $794,000 in 2004 from $824,000 in 2003. The increase in research and development expenses was primarily the result of increased Italian research and development expenses due to the effect of exchange rate fluctuations, partially offset by lower payroll and supply costs. The future level of research and development expenditures will depend on, among other things, the outcome of ongoing testing of products and instrumentation under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions and liquidity.

Loss from Operations

Losses from operations were $314,000 and $1,031,000 in 2004 and 2003, respectively. Excluding intersegment elimination adjustments, which decreased consolidated loss from operations by $137,000, the loss from operations in 2004 was composed of losses from operations of $224,000 from domestic operations and $227,000 from Italian operations. Excluding intersegment elimination adjustments, which increased consolidated loss from operations by $10,000, the loss from operations in 2003 was composed of a loss from operations of $944,000 from domestic operations and $77,000 from Italian operations.

Other Income, Net

Interest income decreased to $223,000 in 2004 from $226,000 in 2003. Other income, net totaled $225,000 during 2004, compared to $211,000 in 2003. Amounts included in other income, net in 2004 and 2003 were primarily net foreign currency gains by our Italian subsidiary on transactions which were denominated in currencies other than its functional currency.

Income Tax Provision

During 2004 we recorded an income tax benefit of $19,000 compared to a tax provision of $80,000 in 2003. The benefit was realized by our Italian operation as a result of before tax losses in Italy. The 2003 tax provision relates primarily to Italian local income taxes based upon applicable statutory rates effective in Italy.

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Net Income (Loss)

We generated net income in 2004 of $152,000 compared to a net loss of $675,000 in 2003. Our net income per basic and diluted common share was $0.01 in 2004 compared to basic and diluted net loss per common share of $0.02 in 2003. The net income in 2004 and the net loss in 2003 resulted primarily from the various factors discussed above. See Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included elsewhere in this report on Form 10-K, for the calculation of earnings per share.

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Overview

Revenue growth in 2003 was principally driven by revenue attributable to our sale of reagents to customers we obtained as a result of our May 2002 transaction with Sigma Diagnostics. The combination of this increased volume of sales of reagents and the conversion of customers we obtained as a result of our transaction with Sigma Diagnostics from reagent kits formerly sold by Sigma Diagnostics that were obtained from third-party manufacturers to reagent kits manufactured by us allowed us to increase our gross profit as a percentage of net revenues to 57.7% in 2003 from 47.5% in 2002. Our operating expenses increased by $1,146,000, including an increase of $699,000 in selling expenses and an increase in general and administrative expenses of $577,000. Despite these increased expenses, operating results improved from a loss of $3,498,000 in 2002 to a loss of $1,031,000 in 2003.

Net Revenues and Gross Profit

Net revenues increased $3,832,000, or 27.7%, in 2003 compared to 2002. This increase was comprised of an increase of $2,700,000 in external net revenues from domestic operations and an increase of $1,132,000 in external net revenues from Italian operations. Revenue from domestic operations increased 30.0% primarily due to revenue from reagents sold to customers obtained as a result of our transaction with Sigma Diagnostics as well as volume increases in reagent revenue generated from new instrumentation placements. The increase in external net revenues from Italian operations of 23.4% was primarily attributable to an increase in revenue due to fluctuations of the United States dollar relative to the Euro, as further discussed in “Currency Fluctuations” below. As measured in Euros, the increase in Italian revenue was primarily due to increased reagent sales outside of Italy to customers obtained as a result of our transaction with Sigma Diagnostics as well as increased international sales efforts. Gross profit in 2003 increased $3,613,000, or 54.9%, from the prior year. The increase in gross profit and gross profit as a percentage of total net revenues was primarily attributable to increased domestic revenue, the conversion of former Sigma Diagnostics customers to reagent kits manufactured by us rather than versions of reagent kits formerly sold by Sigma Diagnostics that were obtained from third-party manufacturers, and the manufacturing efficiencies we achieved that were generated by the resulting increases in the volume of our reagent kits.

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Operating Expenses

Selling expenses in 2003 increased $699,000 compared to 2002. The increase in the domestic portion of selling expenses of $329,000 was primarily due to greater domestic payroll costs related to the increase in sales personnel obtained as a result of our transaction with Sigma Diagnostics as well as increased domestic sales efforts. The $370,000 increase in expenses incurred in Italy in 2003 compared to expenses incurred in Italy in 2002 was primarily due to the effect of exchange rate fluctuations. General and administrative expenses increased $577,000 from 2002, primarily due to increased insurance and legal costs as well as expenses related to the integration of the certain assets acquired from Sigma Diagnostics. Partially offsetting this increase was a decrease in compensation expense due to the completion on June 30, 2003 of the amortization of noncash stock option compensation costs recorded as a result of the merger between b2bstores.com and the pre-merger Diagnostics. Research and development expenses decreased $130,000 from research and development expenses recorded in 2002, primarily as a result of a decrease in domestic research and development expenses to $825,000 in 2003 from $953,000 in 2002. This decrease was primarily due to reductions in labor and supply and consumables costs. Additionally, Italian research and development expenses decreased to $472,000 in 2003 from $473,000 in 2002. Exclusive of the effect of exchange rate fluctuations, Italian research and development expenses decreased due to reduced instrumentation development costs, primarily as a result of a reduction in consulting expenses. The future level of research and development expenditures will depend on, among other things, the outcome of ongoing testing of products and instrumentation under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions and liquidity.

Operating Loss

Operating losses were $1,031,000 and $3,498,000 during 2003 and 2002, respectively. Exclusive of intersegment elimination adjustments, which increased the consolidated operating loss by $10,000, our operating loss in 2003 was composed of an operating loss of $944,000 from domestic operations and an operating loss of $77,000 from Italian operations. Excluding intersegment elimination adjustments, which increased consolidated operating loss by $21,000 in 2002, domestic operations incurred an operating loss of $3,142,000 and Italian operations generated an operating loss of $335,000.

Other Income

Interest income decreased to $226,000 in 2003 from $465,000 in 2002. The decrease of $239,000 was primarily due to lower interest rates in 2003 as well as a reduction in cash and cash equivalents and marketable securities. Other income, net, totaled $211,000 during 2003 compared to $77,000 in 2002, an increase of $134,000. This increase was due to larger net foreign currency gains recognized in 2003 by our Italian subsidiary on transactions which were denominated in currencies other than its functional currency.

Liquidity and Capital Resources

At December 31, 2004, our working capital was $22,993,000 compared to $24,334,000 at December 31, 2003 and $23,521,000 at December 31, 2002. Cash and cash equivalents totaled $7,493,000 at December 31,

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2004, $2,865,000 at December 31, 2003 and $15,942,000 at December 31, 2002. Short-term marketable securities were $4,650,000 at December 31, 2004 and $12,600,000 at December 31, 2003. Certain reclassifications of cash and cash equivalents and short-term marketable securities have been made to prior year consolidated financial statements to conform to the current year presentation. In the consolidated balance sheets, we reclassified from cash and cash equivalents to marketable securities $12,600,000 and $20,950,000 as of December 31, 2003 and 2001 (no reclassification was required as of December 31, 2002), respectively, which resulted in reclassifications to the consolidated statements of cash flows for the years ended December 31, 2003 and 2002. Our short-term marketable securities are investments in auction rate debt securities with final maturities longer than one year, but with interest rates typically resetting every 28 or 35 days through an auction mechanism. These short-term marketable securities consist primarily of taxable municipal bonds and government agency securities. Substantially all of our cash and cash equivalents and short-term marketable securities are presently held at one national securities brokerage firm. Accordingly, we are subject to credit risk if this brokerage firm is unable to repay the balance in the account or deliver our securities or if the brokerage firm should become bankrupt or otherwise insolvent. We only invest in select money market instruments, municipal securities and corporate issuers.

Net cash of $22,000 was provided by operating activities during 2004, compared to $530,000 that was provided by operating activities in 2003 and $2,251,000 that was used in 2002. Cash provided by operating activities during 2004 was primarily the result of cash generated from operating results, adjusted for non-cash items, of $1,256,000 and an increase of $115,000 in long-term liabilities primarily as a result of reduced payments for required severance and retirement costs in Italy, offset by a net working capital increase, excluding the change in cash balance, of $1,355,000. This increase in net working capital was principally due to increases in accounts receivable and inventories, particularly components necessary for the future production of the PARSEC^™ System, as well as an increase in other current assets. Cash provided in 2003 was principally the result of cash provided by operating results, adjusted for non-cash items, of $959,000 that were partially offset by an increase in net working capital, excluding the change in cash, of $460,000. This increase in net working capital was primarily the result of an increase in accounts receivable and other current assets. During 2002 cash was used in operating activities primarily as the result of an operating loss, adjusted for non-cash items, of $1,331,000 and an increase in net working capital, excluding the change in cash balance, of $717,000. The net working capital increase was caused principally by an increase in accounts receivable, which includes the effect of sales made to customers obtained as a result of our transaction with Sigma Diagnostics, and was partially offset by reductions in inventories and other current assets.

Net cash of $7,218,000 was provided by investing activities during 2004, compared to $13,698,000 that was used during 2003 and $17,513,000 that was provided during 2002. The increase in cash provided by investing activities in 2004 compared to 2003 and the use of cash from investing activities in 2003 compared to 2002 was primarily the result of the net sale or purchase of marketable securities in each of the respective years. A reduction in our acquisitions of equipment on lease, including a reduction in the cost of those instruments, also contributed to the increase in cash provided from investing activities in 2004 compared to 2003. The use of approximately $2,212,000 for our acquisition of certain assets of the enzyme immunoassay product line of Sigma Diagnostics in May 2002 contributed to the decrease in cash used for investing activities during 2003 compared to 2002.

Net cash of $2,579,000 was used in financing activities in 2004 compared to $266,000 that was provided by financing activities during 2003 and $1,959,000 that was used in financing activities in 2002. The increase in cash utilized in 2004 compared to 2003 was due to our June 25, 2004 use of approximately $2,629,000 to purchase and redeem 657,125 shares of our common stock from a group of three unaffiliated stockholders at an exercise price of $4.00 per share in accordance with the terms of a previously announced Redemption Agreement. These shares have been retired and have resumed the status of authorized and unissued shares. The increase in cash provided during 2003 compared to 2002 was due to our repurchase of approximately $2,054,000 worth of common stock in 2002 as part of our share repurchase program, which includes approximately $1,655,800 that we used to repurchase shares of our common stock under the terms of a previously announced

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Redemption Agreement. We made no repurchases of our common stock during 2004 or 2003 as part of the common stock repurchase program approved by our Board of Directors in May 2002.

Our product research and development expenditures are expected to be approximately $2,000,000 during 2005. Actual expenditures will depend upon, among other things, the outcome of clinical testing of products under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions and liquidity. There can be no assurance that these expenditures will result in the development of new products or product enhancements, that we will successfully complete products under development, that we will obtain regulatory approval or that any approved product will be produced in commercial quantities, at reasonable costs, and be successfully marketed. In addition, we estimate that cash of approximately $1,100,000 will be required in fiscal 2005 to improve and expand our facilities, equipment and information systems. Included in these improvements are anticipated purchases of equipment that will be necessary to integrate the acquisition of technology expected to be received by us under our license agreement with an Italian diagnostics company. Additionally, if certain performance objectives are satisfied regarding the transfer of this technology to our facility in Italy, then we will be required to pay a total of approximately $1,300,000 in milestone payments under the license agreement.

Our principal source of short term liquidity is existing cash and cash equivalents and marketable securities received as a result of cash received from the completion of the merger between b2bstores.com and the pre-merger Diagnostics, which we believe will be sufficient to meet our operating needs and anticipated capital expenditures over at least the next twelve months. For the long term, we intend to utilize principally existing cash and cash equivalents and marketable securities, as well as internally generated funds, which are anticipated to be derived primarily from the sale of existing diagnostic and instrumentation products and diagnostic and instrumentation products currently under development. To the extent that these sources of liquidity are insufficient, we may consider issuing debt or equity securities or curtailing or reducing our operations.

We maintain allowances for doubtful accounts, particularly in Italy for the operations of our Italian subsidiary, for estimated losses resulting from the inability of our customers to make required or timely payments. Payment cycles are longer in Italy than in the United States. If we require additional allowances, our operating results could be materially adversely affected during the period in which the determination to increase the allowance is or was made. We have reached an agreement with certain customers within a region of Italy which is expected to result in receipt of a payment of approximately $2 million Euro, much of which is delinquent, later in 2005. While we expect payment in 2005, payment cannot be assured and allowances related to such receivables will not be reversed until such amounts are received.

On May 15, 2002, we consummated our acquisition of certain of the assets of the global enzyme immunoassay product line of Sigma Diagnostics for $2,211,747 and the assumption of certain liabilities. The fair value of assets acquired of $2,456,747 includes reagent and instrumentation inventory as well as enzyme immunoassay instrumentation placed at customer locations. Selected employees previously affiliated with Sigma Diagnostics, primarily in the field sales, instrument service and technical support areas, joined us. As a result of the consummation of the transaction with Sigma Diagnostics, our previous agreements with Sigma Diagnostics have been terminated.

Contractual Obligations. The following table summarizes our significant contractual obligations as of December 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.

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The expected timing of payment of the obligations described in the table above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on a number of factors.

Off-Balance Sheet Arrangements. As of December 31, 2004, we had no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material.

Critical Accounting Policies

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

A principal source of revenue is our “reagent rental” program in which customers make reagent kit purchase commitments with us that typically last for a period of three to five years. In exchange, we include a Mago^® Plus instrument and any required instrument service, which are paid for by the customer through these reagent kit purchases over the life of the commitment. We recognize revenue from the reagent kit sales when title passes, which is generally at the time of shipment. Should actual reagent kit or instrument failure rates significantly increase, our future operating results could be negatively impacted by increased warranty obligations and service delivery costs.

We maintain allowances for doubtful accounts, particularly in Italy for the operations of our Italian subsidiary, for estimated losses resulting from the inability of our customers to make required payments. In many instances our receivables in Italy, while currently due and payable, take in excess of a year to collect. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, then we may be required to make additional allowances which would adversely affect our operating results during the period in which the determination or allowance is or was made. Our allowances for doubtful accounts were $3,081,000 and $2,898,000 at December 31, 2004 and 2003, respectively. A provision for losses on accounts receivable of $20,000 was recorded in 2004, while $141,000 was recorded in 2003.

We regularly review inventory quantities on hand, including components for current and future versions of instrumentation, and, if necessary, record a provision for excess and obsolete inventory based primarily on our estimates of product demand and production requirements. These estimates of future instrumentation and diagnostic kit product demand may prove to be inaccurate, in which case any resulting adjustments to the value of inventory would be recognized in our cost of goods sold at the time of such determination. Inventory reserves were $436,000 and $936,000 as of December 31, 2004 and 2003, respectively. During 2004, $143,000 was charged to cost and expenses while $291,000 was charged in 2003. Included within our inventory balance at December 31, 2004 was approximately $800,000 in PARSEC^™ instrumentation and instrument components.

Pursuant to SFAS No. 142, Goodwill and Other Intangible Assets, we analyzed our goodwill for impairment issues and will continue to do so in future periods. In assessing the recoverability of our goodwill and other

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intangibles, we made assumptions regarding estimated future cash flows, including current and projected levels of income, business trends, prospects and market conditions, to determine the fair value of the respected assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded. Any resulting impairment loss would be recorded as a charge against our earnings and could have a material adverse impact of our financial condition and results of operations.

We accounted for income taxes on our consolidated financial statements on a stand-alone basis as if we had filed our own income tax returns. However, the pre-merger Diagnostics reported its income taxes until the merger with b2bstores.com as part of a consolidated group. Therefore, all domestic net operating losses generated prior to the merger were utilized by IVAX. Since the merger, we have experienced net domestic losses from operations. Accounting principles generally accepted in the United States require that we record a valuation allowance against the deferred tax asset associated with these losses if it is “more likely than not” that we will not be able to utilize the net operating loss to offset future taxes. Due to the cumulative net losses from the operations of our domestic operations since the merger, we have provided full valuation reserves of $3,146,000 against domestic deferred tax assets and currently provide for only foreign income taxes because we believe we have sufficient prior years’ net operating loss carryforwards to offset current taxable income. Over time we may reach levels of profitability that could cause our management to conclude that it is more likely than not that we will realize all or a portion of the domestic net operating loss carryforward. Upon reaching such a conclusion, and upon such time as we reversed the entire valuation against the deferred tax asset, we would then provide for income taxes at a rate equal to our combined federal and state effective rates. Conversely, we have recorded foreign deferred tax assets of $1,067,000 as a result of losses generated in Italy with no valuation allowance due to the belief that over time, either through operations or available tax planning strategies, we will return to previous levels of profitability that will permit the deferred asset to be realized. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period. Additionally, if we change or establish valuation reserves against our foreign deferred tax assets, our results of operations could be materially adversely affected.

The critical accounting policies discussed are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

Recently Issued Accounting Standards

On November 24, 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material be recognized as current period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. It is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The impact of adoption of this statement is not expected to be significant.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS 123(R), which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. It requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. It is effective as of the first interim or annual reporting period that begins after June 15, 2005 and requires companies to expense the fair value of all awards that have future vesting provisions, are modified, or are newly granted beginning on the grant date of such options. The cumulative effect of the initial application of this statement, if any, is to be recognized as of the effective date. SFAS 123(R) can be adopted under two methods,

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the modified prospective or the modified retrospective applications. Under the modified prospective application, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the effective date should be recognized as the requisite service is rendered on or after the effective date. The compensation cost for that portion of awards should be based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosure under SFAS No. 123. Changes to the grant-date fair value of awards granted before the effective date of this statement are precluded. The compensation cost for those earlier awards should be attributed to periods beginning on or after the effective date of this statement using the attribution method that was used under SFAS No. 123, except that the method of recognizing forfeitures only as they occur should be continued. Any unearned or deferred compensation related to those earlier awards should be eliminated against the appropriate equity accounts. The modified retrospective application may be applied to all prior years that SFAS No. 123 was effective or only to prior interim periods in the year of initial adoption if the effective date of SFAS 123(R) does not coincide with the beginning of the fiscal year. We have not yet determined if we will use the modified prospective or modified retrospective method. The impact of adoption of SFAS 123(R), which may be material, cannot be predicted at this time partly because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123(R) in prior periods, its impact would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Currency Fluctuations

For the years ended December 31, 2004, 2003 and 2002, approximately 36.0%, 33.8% and 34.8%, respectively, of our net revenues were generated in currencies other than the United States dollar. Fluctuations in the value of foreign currencies relative to the United States dollar affect our reported results of operations. If the United States dollar weakens relative to the foreign currency, then our earnings generated in the foreign currency will, in effect, increase when converted into United States dollars and vice versa. Exchange rate differences resulting from the strength or weakness of the United States dollar against the Euro resulted in an increase of approximately $591,000 in net revenues in 2004 compared to 2003 and an increase of approximately $953,000 in net revenues in 2003 compared to 2002. During the three years ended December 31, 2004, no subsidiary was domiciled in a highly inflationary environment. The effects of inflation on consolidated net revenues and operating income were not significant.

Delta represented 36.0% of our net revenues in 2004. Conducting an international business inherently involves a number of difficulties, risks, and uncertainties, such as export and trade restrictions, inconsistent and changing regulatory requirements, tariffs and other trade barriers, cultural issues, longer payment cycles, problems in collecting accounts receivable, political instability, local economic downturns, seasonal reductions in business activity in Europe during the traditional summer vacation months, and potentially adverse tax consequences.

For the three year period ended December 31, 2004, the impact of inflation and changing prices on our net sales and revenues and on income from continuing operations was not material.

Income Taxes

We recognized an income tax (benefit) provision of $(19,000), $80,000 and $(126,000) for the three years ended December 31, 2004, 2003 and 2002, respectively, which related to foreign operations. Through March 14, 2001, we reported our domestic income taxes as part of a consolidated group with IVAX. All domestic taxable losses generated prior to that date were utilized by IVAX. Effective March 14, 2001, as a result of the merger between b2bstores.com and the pre-merger Diagnostics, we are no longer included in the consolidated income tax returns of IVAX.

For financial statement purposes, we accounted for income taxes on a stand-alone basis as though we had filed our own income tax returns. Our income tax provisions for the years ended December 31, 2004, 2003 and

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2002 were different from the amount computed on the loss before provision for income taxes at the United States federal statutory rate of 35% primarily due to the reversal of the tax impact of domestic taxable losses which include the previously discussed non-deductible stock option compensation expense.

As of December 31, 2004, we had no net domestic deferred tax asset, as domestic net operating losses generated prior to the merger were utilized by IVAX and a full valuation allowance has been established against domestic deferred tax assets generated subsequent to March 14, 2001. The foreign net deferred tax asset was $1,067,000 at December 31, 2004, of which $1,060,000 is included in other current assets and $7,000 is included in other assets in the accompanying consolidated balance sheet. Realization of the net deferred tax asset is dependent upon generating sufficient future foreign taxable income and upon future events occurring which will result in the reversal of the temporary differences. Although realization is not assured, we believe that based upon the composition of the net foreign deferred tax asset and available tax planning strategies, it is more likely than not that we will realize the deferred tax asset through a combination of reaching levels of profitability which will permit the net operating loss to be used and receiving sufficient payments on foreign accounts receivable which will reverse the temporary difference. If we change or establish a valuation allowance against our foreign net deferred tax asset, our results of operations could be materially adversely affected.

Risk of Product Liability Claims

Developing, manufacturing and marketing diagnostic test kits, reagents and instruments subject us to the risk of product liability claims. We believe that we continue to maintain an adequate amount of product liability insurance, but there can be no assurance that our insurance will cover all existing and future claims. There can be no assurance that claims arising under any pending or future product liability cases, whether or not covered by insurance, will not have a material adverse effect on our business, results of operations or financial condition. Our current products liability insurance is a “claims made” policy.

Market risk represents the risk of loss that may impact our consolidated financial position, results of operations or cash flows. In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.

Foreign Currency Exchange Rate Risk. We are exposed to exchange rate risk when our Italian subsidiary enters into transactions denominated in currencies other than its functional currency. For additional information about foreign currency exchange rate risk, see “Currency Fluctuations” in our Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Interest Rate Risk. We do not have debt obligations and our investments are current. We believe that our exposure to market risk relating to interest rate risk is not material.

Commodity Price Risk. We do not believe we are subject to any material risk associated with commodity prices.

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IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

    of IVAX Diagnostics, Inc.

We have audited the accompanying consolidated balance sheets of IVAX Diagnostics, Inc. (a Delaware corporation and majority-owned subsidiary of IVAX Corporation) and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of IVAX Diagnostics, Inc. and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/    Ernst & Young LLP

Certified Public Accountants

Miami, Florida,

February 11, 2005

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IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

The accompanying notes to consolidated financial statements are an integral part of these statements.

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IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

The accompanying notes to consolidated financial statements are an integral part of these statements.

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IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002