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 38 to 63 of this Annual Report on Form 10-K.

We are the parent corporation of the following three subsidiaries:

• Delta Biologicals, S.r.l.;

• Diamedix Corporation; and

• ImmunoVision, Inc.

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

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

Diamedix' products are sold in the United States through Diamedix' sales force. Diamedix markets approximately 50 assays that the FDA has cleared. Most of these assays are sold under the trade name immunosimplicity® and are available to be run in conjunction with the Mago® Plus and Aptus® systems.

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.

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 over 200 specific ELISA-based assays acquired from Diamedix and third parties, as well as a complete line of allergy products, are sold in Italy through Delta's sales representatives and independent agents who are restricted from selling competing products. Delta also sells in Italy other diagnostic products manufactured by third parties. Approximately 80% of Delta's revenue generated from customers in Italy is revenue from government owned hospitals and the remaining 20% is revenue from private laboratories. Thus, sales in Italy are heavily concentrated in the public sector. Delta also serves as the distribution and support center for selling these same products to distributors located in other European and international markets outside Italy.

On July 25, 2005, IVAX, which then owned approximately 72.3% of the outstanding shares of our common stock, entered into a definitive agreement and plan of merger with Teva providing for IVAX to be merged into a wholly-owned subsidiary of Teva. On January 26, 2006, the merger was consummated and IVAX became a wholly-owned subsidiary of Teva for an aggregate purchase price of approximately $3.8 billion in cash and

123 million Teva ADRs. The transaction was reported to be valued, for accounting purposes, at $7.9 billion, based on the value of the Teva ADRs during the five trading day period commencing two trading days before the date of the definitive agreement and plan of merger. As a result of the merger, Teva, indirectly through its IVAX subsidiary, owned approximately 72.3% of the outstanding shares of our common stock.

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

YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED DECEMBER 31, 2007

OVERVIEW

Net income totaled $196,000 in 2008 compared to a net loss of $10,434,000 in 2007. Operating loss was $243,000 in 2008 compared to an operating loss of $11,318,000 in 2007. Net income and income from operations improved significantly during 2008 compared to 2007 due to one-time charges recorded in 2007, improvements in revenue and gross profit, and reductions in operating expenses. The results of 2008 included a write-off of a portion of our product license of hepatitis technology of $560,000. The results for 2007 included a write-off of goodwill of $5,852,000, which consisted of the write-off of the entire balance of goodwill related to our Italian operations of $4,672,000 and $1,180,000 of the $2,050,000 of the goodwill recorded at ImmunoVision, a member of our domestic segment. The results for 2007 also included a write-off of PARSEC® System related assets totaling $1,674,000 and severance costs of $1,998,000 included in general and administrative expenses that were incurred in connection with management and other personnel changes. Net revenues increased $843,000 to $20,819,000 in 2008 from $19,976,000 in 2007, due to increases in domestic net revenues of $535,000 primarily as a result of increases in diagnostic kit sales to instrumentation customers and increased instrumentation sales, and increases in Italian net revenues as a result of the increase in revenue of $478,000 resulting from fluctuations of the United States dollar relative to the Euro. As measured in Euros, Italian net revenues declined by 2.7% compared to 2007. Gross profit increased $854,000 to $12,431,000, or 59.7% of net revenues, in 2008 from $11,577,000, or 58.0% of net revenues, in 2007. Operating expenses decreased in all categories in 2008 compared to 2007, particularly in Italy, which included the benefits of the effect of management and other personnel reductions, the impact of our decision during the fourth quarter of 2007 to place any further development of the PARSEC® System on hold indefinitely and a reduction in bad debt expense. Total other income decreased slightly in 2008 compared to 2007, with a reduction of interest income offset by an increase in other income due to greater foreign currency gains. Additionally, we had a net tax expense of $106,000 in 2008 compared to a net tax benefit of $329,000 in 2007. This difference was due to a 2007 deferred tax benefit resulting from the required adjustment of our deferred tax liability related to tax deductible goodwill recorded as a result of the goodwill impairment charge at ImmuoVision.

NET REVENUES AND GROSS PROFIT



                                                              Period over Period
                                   2008           2007        Increase (Decrease)
     Net Revenues
     Domestic                  $ 14,262,000   $ 13,727,000   $             535,000
     Italian                      6,557,000      6,249,000                 308,000

     Total                       20,819,000     19,976,000                 843,000

     Cost of Sales                8,388,000      8,399,000                 (11,000 )

     Gross Profit              $ 12,431,000   $ 11,577,000   $             854,000
     % of Total Net Revenues       59.7%          58.0%

Net revenues in 2008 increased $843,000, or 4.2%, from 2007. This increase was comprised of increases in net revenues from domestic operations of $535,000 and net revenues from Italian operations of $308,000. Domestic net revenues in 2008 increased 3.9% compared to 2007, primarily due to increases in diagnostic kit sales to instrumentation customers and increased instrumentation sales. The 4.9% increase in net revenues from Italian operations includes the effect of an increase in revenue of $478,000 due to currency fluctuations of the United States dollar relative to the Euro as further discussed in "Currency Fluctuations" below. As measured in Euros, Italian net revenues declined by 2.7% compared to 2007 due principally to a decrease in sales volumes to customers within Italy, partially offset by an increase in sales from Italy to our international distributors. Gross profit in 2008 increased $854,000, or 7.4%, from the prior year primarily as a result of the increase in net revenues, including the effect of exchange rate fluctuations, described above. The principal factors in the increase in gross profit as a percentage of net revenues to 59.7% in 2008 from 58.0% in 2007 were lower labor costs and exchange rate benefits and, to a lesser extent, improved gross margins on domestic reagent sales.

OPERATING EXPENSES



                                                % of                         % of         Period over Period
                                   2008        Revenue          2007        Revenue       Increase (Decrease)
Selling Expenses
Domestic                       $  3,111,000       14.9 %    $  3,123,000       15.6 %    $             (12,000 )
Italian                           1,822,000        8.8 %       2,363,000       11.9 %                 (541,000 )

Total                             4,933,000       23.7 %       5,486,000       27.5 %                 (553,000 )

General and Administrative        5,364,000       25.8 %       7,730,000       38.7 %               (2,366,000 )

Research and Development          1,817,000        8.7 %       2,152,000       10.8 %                 (335,000 )

Impairment of Product
License and Goodwill                560,000        2.7 %       5,852,000       29.3 %               (5,292,000 )

Write-off of PARSEC®
Related Assets                           -         N/A         1,674,000        8.4 %               (1,674,000 )

Total Operating Expenses       $ 12,674,000       60.9 %    $ 22,894,000      114.6 %    $         (10,220,000 )

The most significant variations in operating expenses occurred as a result of two non-cash charges recorded during 2007, the largest of which was a goodwill impairment charge of $5,852,000. The determination to analyze our recorded goodwill balance for impairment was based principally upon the decline in our market capitalization to less than our June 30, 2007 book value for the preceding seven weeks prior to the end of the third quarter, as well as the decision to change our strategic direction and to place any further development of the PARSEC® System on hold indefinitely. Based primarily upon our estimate of forecasted discounted cash flows and our market capitalization, we determined that the carrying amount of the goodwill at our Italian subsidiary, Delta Biologicals, and at ImmunoVision, a member of our domestic segment, was in excess of its respective fair value. On completion of the second step of the analysis of our goodwill balance, we concluded that all $4,672,000 of the goodwill recorded at Delta Biologicals and $1,180,000 of the $2,050,000 of goodwill recorded

at ImmunoVision was impaired. As a result, we recorded a non-cash goodwill impairment charge to operations totaling $5,852,000 during 2007. We did not record a goodwill impairment charge during 2008.

The other non-cash charge during 2007 was a write-off of PARSEC® System related assets included in inventory, property and equipment, equipment on lease and other current assets totaling $1,674,000 as a result of our decision during the fourth quarter of 2007 to change our strategic direction to focus on the development of the new Mago® 4 instrument as a platform for marketing our test kits and to place any further development of the PARSEC® System on hold indefinitely. We did not record a write-off of PARSEC® System related assets during 2008.

In 2008, we recorded a non-cash charge of $560,000 relating to the partial impairment of our product license of hepatitis technology. Following the results of the recently concluded inspection by the applicable notifying body required for us to obtain "CE Marking," and considering the impact of the current global economic conditions, we revised our assumptions supporting the computation of the fair value of the license to reflect the further delay in product launch and the possibility of a decrease in projected market share as a result of this delay. Based upon this methodology, and utilizing significant assumptions in the income approach used to determine fair value, we recorded a non-cash product license impairment charge to operations totaling $560,000 during 2008. We did not record a product license impairment charge during 2007.

All other categories of operating expenses also declined in 2008 compared to 2007. General and administrative expenses decreased $2,366,000 in 2008 compared to 2007 principally due to accrued severance costs of $1,998,000 as a result of anticipated costs associated with management and other personnel changes that occurred, or were being negotiated during, 2007. Included in this amount is the effect of a separation agreement and general release negotiated with Giorgio D'Urso in connection with his resignation, effective January 10, 2008, as our President and Chief Executive Officer and as a member of our Board of Directors. Pursuant to this separation agreement, we paid Mr. D'Urso a one-time lump-sum payment of $495,000 and terminated his then existing employment agreement that provided for Mr. D'Urso to serve as our President and Chief Executive Officer until February 24, 2010 and to receive a minimum annual base salary of $348,519. The remaining severance costs principally include estimated costs in connection with the terminations of selected employees of Delta Biologicals, our Italian subsidiary. The decrease in general and administrative expenses was also the result of significant bad debt recoveries, particularly in Italy, as well as lower professional fees. This decrease in general and administrative expenses was partially offset by an increase in compensation costs and legal fees relating to the acquisition by the Debregeas-Kennedy Group of the approximately 72.3% of our outstanding shares of our common stock previously owned by Teva.

Selling expenses decreased $553,000 in 2008 compared to 2007. Selling expenses amounted to 23.7% of net revenues in 2008 compared to 27.5% of net revenues in 2007. The decrease in Italian selling expense of $541,000 was primarily as a result of a reduction in labor costs. As measured in Euros, Italian selling expense decreased 491,000 Euro, or 28.5%, principally due to reduced headcount.

Research and development expenses decreased $335,000 in 2008 compared to 2007. As measured in Euros, Italian research and development expenses decreased to 773,000 Euro in 2008 from 1,128,000 Euro in 2007 primarily as a result of a decline in labor, professional fees and associated operating costs resulting from our decision during the fourth quarter of 2007 to place any further development of the PARSEC® System on hold indefinitely and to focus on the development of the Mago ® 4 as a platform for marketing our test kits. Additionally, the decrease in Italian research and development expenses was partially offset by comparatively smaller increases in hepatitis product development costs in Italy. Domestic research and development expenses were relatively unchanged from 2007 to 2008. Domestic research and development expenses during 2008 included expenses associated with the validation of our test kits on the DSX™ and DS2™ instrument systems from Dynex Technologies that we have begun to promote in conjunction with our test kits. 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

Loss from operations totaled $243,000 in 2008 compared to a loss from operations of $11,318,000 in 2007. Loss from operations in 2008 was composed of a $61,000 loss from domestic operations, including the $560,000 charge for the impairment of our product license of hepatitis technology, and a loss from Italian operations of $174,000. The loss from operations in 2007 was composed of a loss from Italian operations of $9,304,000, which included charges of $4,672,000 for goodwill impairment, $1,430,000 for the write-off of PARSEC®System related assets and $1,413,000 of the recorded severance costs described above, and a loss from domestic operations of $1,999,000, which included charges of $1,180,000 for goodwill impairment, $244,000 for the write-off of PARSEC ® System related assets and $585,000 of the recorded severance costs described above. Domestic operations include corporate expenditures, including costs relating to our status as a public company.

OTHER INCOME, NET

Interest income decreased $143,000 to $292,000 in 2008 from $435,000 in 2007 due principally to lower average cash balances and lower average yields, including the effect of maximum or default contractual interest rates paid to us in the earlier part of 2008 on the auction rate securities then held by us, which rates, under the terms of the auction rate securities' governing documents, expired and subsequently converted to below market rates. Interest income in 2008 also includes interest we received in conjunction with our receipt of a tax payment from the Italian government. Other income, net totaled $253,000 during 2008, compared to other income, net of $120,000 in 2007. Amounts included in other income, net in 2008 and 2007 were primarily net foreign currency gains or losses on transactions, particularly by our Italian subsidiary, which were denominated in currencies other than the subsidiary's functional currency. Also included in other income was a $661,000 decline in fair value of our investment in auction rate securities that was equally offset by a gain of $661,000 from a put option recorded as a result of rights we received from UBS, the international securities brokerage firm that held all the auction rate securities in which we invested, upon our election to sell to UBS all of the auction rate securities in which we invested at their par value of $4,100,000 at any time during the two-year period beginning January 2, 2009 (See Note 2, Marketable Securities, in the accompanying consolidated financial statements). We exercised these rights on January 2, 2009 and received all of the $4,100,000 par value of these auction rate securities on January 5, 2009.

INCOME TAX PROVISION (BENEFIT)

We recorded an income tax provision of $106,000 during 2008 and a tax benefit of $329,000 during 2007. The current portion of our tax provision in 2008 relates to Italian local income taxes based upon applicable statutory rates effective in Italy, while the deferred tax provision relates to domestic tax deductible goodwill. The tax benefit in 2007 relates to the domestic deferred tax benefit, recorded due to the adjustment of our deferred tax liability relating to tax deductible goodwill, recognized as a result of the goodwill impairment charge taken at ImmunoVision, partially offset by a current tax provision related to Italian local income taxes based upon applicable statutory rates effective in Italy. No current domestic tax provision was recorded in 2008 due to the expected utilization of prior period net operating losses to offset current domestic taxable income. No current domestic tax benefit was recorded in 2007 despite our domestic losses because we had a full valuation allowance against the domestic net deferred income tax assets.

NET INCOME (LOSS)

We earned net income of $196,000 in 2008 compared to a net loss of $10,434,000 in 2007. Our basic and diluted net income per common share was $0.01 in 2008 compared to a basic and diluted net loss per common share of $0.38 in 2007. The net income in 2008 and net loss in 2007 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 Annual Report on Form 10-K for a description of the calculation of income (loss) per share.

At December 31, 2008, our working capital was $15,304,000 compared to $9,732,000 at December 31, 2007. Cash and cash equivalents totaled $4,421,000 at December 31, 2008 and $3,901,000 at December 31, 2007. Short-term marketable securities were $4,100,000 at December 31, 2008 and $1,925,000 at December 31, 2007. Long-term marketable securities were $0 at December 31, 2008, and $4,100,000 at December 31, 2007.

In the years ended December 31, 2008 and 2007, available cash was typically invested in money market accounts and auction rate securities. Auction rate securities are floating rate debt securities with long-term maturities (generally between 20 and 30 years), the interest rates of which are reset periodically (typically every 28 or 35 days) through a competitive bidding process often referred to as a "Dutch auction." Despite the underlying long-term maturity of these securities, such securities were typically priced and subsequently traded as short-term investments because of their interest rate reset feature. The Dutch auction process has historically provided a liquid market for auction rate securities, as this mechanism generally allows existing investors to rollover their holdings and continue to own their respective securities at then existing market interest rates or to liquidate their holdings by selling their securities at par value. In early 2008, however, primarily due to the liquidity issues experienced in global credit and capital markets, many auctions for auction rate securities failed and the sellers of such securities have been unable to liquidate their securities. A seller must then wait until the next successful auction to attempt to sell its auction rate securities, unless there is a secondary market for the particular securities. As a result of a failed auction, however, the auction rate securities may pay interest to the holder at a maximum or default rate defined by the securities' governing documents.

During January 2008, all $6,025,000 of our portfolio of marketable securities, which were classified as short-term or long-term as of December 31, 2007, were sold through the Dutch auction process, with $1,925,000 of the proceeds then invested in select money market instruments and $4,100,000 of the proceeds reinvested in auction rate securities. All of the auction rate securities in which we invested were secured by pools of student loans, in excess of 90% of which were guaranteed under the Federal Family Education Loan Program ("FFELP"). We do not own, and have not invested in, any auction rate securities secured by mortgages or collateralized debt obligations.

As described above, during 2008, the uncertainties in the global credit and capital markets prevented sellers of auction rate securities, including us, from liquidating their holdings in auction rate securities. Since mid-February 2008, each of the remaining auction rate securities that we held, the par value of which was approximately $4,100,000 in the aggregate, experienced, and has continued to experience, failed auctions. As a result of these failed auctions, we were unable to liquidate our investment in these auction rate securities. We included the $4,100,000 of auction rate securities in long-term marketable securities in which we were invested in the accompanying consolidated balance sheet as of December 31, 2007 because we could not predict when future auctions related to these securities would be successful or when we would be able to otherwise liquidate our investment in these auction rate securities.

During August 2008, UBS, the international securities brokerage firm that held the auction rate securities in which we had invested, entered into a settlement in principle with the New York Attorney General, the Massachusetts Securities Division, the SEC and other state regulatory agencies represented by North American Securities Administrators Association. Under the terms of the settlement in principle, UBS communicated to us that it would redeem at par all auction rate securities held by its corporate clients during time periods beginning as early as January 1, 2009 and as late as June 30, 2010. During October 2008, we received an offer letter from UBS pursuant to which UBS was offering Auction Rate Securities Rights (the "Rights"). The Rights gave us, upon our election at any time during the two-year period beginning January 2, 2009, the right to sell to UBS, and required UBS to purchase from us upon such exercise, all of the auction rate securities in which we invested at their par value of $4,100,000 (the "Put Option").

As a result our acceptance of the Rights, we recognized an other-than-temporary impairment of $661,000 on these auction rate securities, which was equally offset by income of $661,000 from the Rights, representing the

fair value of the Put Option. At December 31, 2008, we have classified both the auction rate securities and the Rights as short-term marketable securities. We exercised the Rights on January 2, 2009 and received all of the $4,100,000 par value of these auction rate securities on January 5, 2009.

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

Net cash flows of $648,000 were used in operating activities during 2008 compared to $1,889,000 that were provided by operating activities during 2007. Cash used in operating activities during 2008 was primarily the result of the payment of approximately $2,315,000 of severance costs accrued for estimated costs associated with management and other personnel changes that were accrued during 2007. Included in this amount is the effect of a separation agreement and general release negotiated with Giorgio D'Urso upon his resignation, effective January 10, 2008, as our President and Chief Executive Officer and as a member of our Board of Directors. Pursuant to the separation agreement, we paid Mr. D'Urso a one-time lump-sum payment of $495,000 and terminated Mr. D'Urso's employment agreement that provided for Mr. D'Urso to serve as our President and Chief Executive Officer until February 24, 2010 at a minimum annual base salary of $348,519. The remaining severance costs paid during 2008 included the payment of a portion of the estimated costs for the terminations in 2007 of selected . . .