2004 Annual Report

REPORTS AND ACCOUNTS AT DECEMBER 31, 2004

DiaSorin S.p.A. Registered Office in Saluggia (VC) – Share Capital € 50,000,000 Tax Code and Vercelli Companies Register No. 013144290155

INDEX

Highlights and general information

Company officers and boards Foreword Corporate structure of the Group Group operating and financial highlights

Report on Operations

Operating and financial performance by business area Operating and financial performance of the DiaSorin Group Operating and financial performance of DiaSorin S.p.A. Events in early 2005 and business outlook Transactions with related parties Research and Development Other information Conclusions – proposed allocation of the net income for the year

Page Page Page Page

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Page 10 Page 12 Page 18 Page 23 Page 24 Page 25 Page 31 Page 32

Schedules and Notes to the Financial Statements - DiaSorin S.p.A.

Balance sheet Income Statement Notes to the financial statements

Page 34 Page 38 Page 40

Schedules and Notes to the Financial Statements - DiaSorin Group

Balance sheet Income statement Notes to the financial statements

Page 63 Page 68 Page 70

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HIGHLIGHTS AND GENERAL INFORMATION

3

______

COMPANY OFFICERS AND BOARDS

Board of Directors Chairman

Gian Alberto Saporiti

Chief Executive Officer

Antonio Boniolo

Directors

Carlo Callieri Carlo Rosa 1 Chen Manachem Even Enrico Palandri Ezio Garibaldi Michele Denegri Paolo Bossi

Board of Statutory Auditors President Standing Auditors Alternate Auditors

Independent Auditors

1

Giorgio Ferrino Bruno Marchina Ottavia Alfano Bernardo Chiavazza Sonia Sacco

Deloitte & Touche S.p.A.

Managing director

4

______

FOREWORD

Shareholders, In financial 2004, your Group achieved its pre-established growth targets, outstripping forecast profitability targets.

Consolidated revenues moved up 8.1% to Euro 142.5 million while the parent company DiaSorin S.p.A. posted revenues of Euro 88.7 million, of which 34 million stemming from Group undertakings, with an upswing of 15.3%.

Turning to operating performance, the Group closed the year with an EBIT before non-operating amortization and depreciation of Euro 17.2 million, 16% up on financial 2003.

The success achieved in 2004 was forged by achievement of marketing objectives in terms of extension of the LIAISON instrument base installed at customer sites and upgrading of the diagnostic menu offered on the same technology. The new product R&D plan launched in 20032004 lived up to expectations, delivering new tests in the sector of infectiveness, auto-immunity, endocrinology and bone metabolism, considered to be strategic business areas for future development.

A full-fledged suite of other activities addressing the quality of the products and instruments offered to customers was also completed during the year.

As regards organizational structure, the Parent Company DiaSorin S.p.A. modified its Corporate Bylaws in order to align these with new regulations concerning Company Law and also adapted its governance structure, opting for the so-called “traditional� model and entrusting auditing to the Deloitte & Touche S.p.A. audit firm.

During 2004, the Company also drafted an Ethical Code of Behavior and an Organization and Management Model comprising a General Part and two Special Parts (Offences against the Public Administration and Corporate Crimes). Lastly, the Supervisory Committee was also set up.

Shareholders, we herewith submit to your attention the consolidated financial statements of the DiaSorin Group at and as of December 31, 2004 which close with a net income Euro 3,623 thousand after: - charging amortization and depreciation of Euro 18,056 thousand; - posting Euro 540 thousand to the allowance for bad and doubtful accounts and Euro 761 thousand to provisions for risks and charges.

5

We herewith submit for your approval the financial statements of DiaSorin S.p.A. at and as of December 31, 2004 which close with a net income of Euro 1,248 thousand, after: - charging amortization and depreciation of Euro 9,504 thousand; - posting Euro 539 thousand to the allowance for bad and doubtful accounts; - posting Euro 700 thousand to provisions for risks and charges; - receiving dividends of Euro 885 thousand from the German subsidiary.

The Chairman _________________________ (Gian Alberto Saporiti)

6

______ CORPORATE STRUCTURE OF THE DIASORIN GROUP

DiaSorin S.p.A.- Italy Parent Company

DiaSorin Ltd. – UK

DiaSorin Inc– USA

Sales branch % interest: 100%

Production and sales branch % interest: 100%

DiaSorin SA/NV – Belgium

DiaSorin AB – Sweden Sales branch % interest: 100%

Sales branch % interest: 99.99%

DiaSorin S.A. C.V.- Mexico

DiaSorin SA - France

Sales branch % interest: 99.99%

Sales branch % interest: 99.99%

DiaSorin S.A. – Spain

DiaSorin GmbH – Germany

Sales branch % interest: 99.99%

Production and sales branch % interest: 100%

U. Kasse – Germany Pension fund

DiaSorin Ltda – Brazil Sales branch % interest: 99.99%

7

______

OPERATING AND FINANCIAL HIGHLIGHTS OF THE DIASORIN GROUP

Thousands of Euro Consolidated revenues Gross margin EBITDA EBIT before non-operating amortization and depreciation EBIT Income before taxes Parent Company’s interest in net income

2004 142,524 74,232 31,306 17,231 13,250 7,085 3,623

2003 131,836 66,271 28,252 14,852 10,914 2,927 (680)

Net financial position Shareholders’ equity Net invested capital

(62,554) 55,207 117,761

(75,992) 52,584 128,576

8,887 5,851 21,680

12,616 6,084 16,658

698

703

Capital (tangible assets) Research and development Self-financing (net income plus amortization and depreciation) Employees at year-end

8

REPORT ON OPERATIONS (within the meaning of Art. 2428 C.C. and Art. 40 Legislative Decree No. 127/91)

9

______OPERATING AND FINANCIAL PERFORMANCE BY BUSINESS AREA

In financial 2004, DiaSorin Group revenues grew 8.1% to Euro 142.5 million, in line with forecasts.

However, 2004 revenues were negatively affected by the noteworthy slide in the US dollar. In fact, at constant parity, sales increased at a rate close to double digit.

The geographical distribution of revenues was more or less unchanged with the two major markets, i.e. Europe and North America, contributing around 55% and 23% of sales respectively. The markets covered through indirect distribution contributed for a further 16%.

DiaSorin S.p.A. posted 2004 revenues of Euro 88.7 million, 15.3% up on the 2003 figures. Sales on the Italian market accounted for just over 40% while sales for export increased their contribution.

As far as the product portfolio is concerned, Group turnover reflected ever more precisely the shift from RIA and ELISA technologies to the LIAISON proprietary technology which, during the year under review, increased its swathe of the products portfolio by around 9 percentage points, accounting for more than 31% of consolidated turnover. The growth in LIAISON technology was forged, amongst others, by a strategy of constant extension of the offer of tests in the menu and of the installed instrument population.

At year-end 2004, the LIAISON menu comprised 67 analytes while, during the year, the DiaSorin Group reached and considerably outstripped its target of a thousand automatic analyzers present at customer sites.

On the Italian market, sales on LIAISON technology bordered on Euro 22 million, with a more than 30% upswing over the previous year and with an installed base of more than 440 instruments.

With regard to the RIA and ELISA open technologies, use of the first continued to drop and this has now reached a phase of decline within its life cycle, while the second remained basically stable.

Group EBIT, before non-operating amortization and depreciation, financial charges and nonrecurrent costs, was equal to Euro 17.2 million, with a year-on-year growth of 16%.

Group financial performance was negatively affected by financial charges of Euro 4.6 million, partially offset by net exchange gains of close on Euro 1 million.

The year closed with Group consolidated income, before taxes, of Euro 7.1 million and a net income of 3.6 million.

10

DiaSorin S.p.A. posted an EBIT, before non-operating amortization and depreciation, financial charges and non-recurrent costs of Euro 8.8 million, 6.6% up on 2003. The Parent Company closed financial 2004 with an income before taxes of Euro 3.2 million and a net income of Euro 1.2 million.

As regards financial and investment management, the net financial position of the Group at yearend 2004 was negative for Euro 62.6 million, an improvement of Euro 13.4 million on the previous year.

During the year, the Parent Company repaid financial liabilities of Euro 53.3 million to shareholders and stipulated a new loan with these for Euro 55.0 million, denominated partly in US dollars.

In July, jointly with other companies operating in the sector, the Parent Company performed a securitization transaction, under Law No. 130 of 1999, of receivables from various Local Health Authorities of the Lazio Region. This transaction made it possible to unfreeze around Euro 2.2 million. Transfer under usual reserves of receivables from the National Health System to factoring companies continued during the year.

11

Analysis of the operating performance

INCOME STATEMENT Thousands of Euro A. Value of production

2004 149,344

2003 138,104

B. Production cost

139,212

133,277

Net production value (operating result) C. Financial income/(expense) E. Extraordinary income/(expense)

10,132 (3,124) 77

4,827 (2,205) 305

Income before taxes 22. Taxes Net income for the year

7,085 (3,462)

2,927 (2,057)

3,623 -

870 (1,550)

3,623

(680)

Minority interests Group interest in net income

Total revenues for the year moved up 8.1% in relation to 2003, driven in particular by sales of LIAISON products which amounted to Euro 44,325 thousand, 53% up on 2003.

Revenues for the period amounted to Euro 148,922 thousand. The breakdown is as follows: Thousands of Euro Sales and service revenues Increases in fixed assets produced internally Other revenues and income Total revenues

2004

2003

142,524 4,390 2,008 148,922

131,836 3,065 3,286 138,187

The contribution of the various business areas to the result for the period is analyzed below: Thousands of Euro Net production value Financial income/(expense) Extraordinary income/(expense) Taxes Income for the year Minority interests Group interest in net income for the year

12

2004

2003

10,132 (3,124) 77 (3,462) 3,623 3,623

4,827 (2,205) 305 (2,057) 870 (1,550) (680)

Trading operations generated a net income of Euro 10,132 thousand, as set forth below: Thousands of Euro Value of production Cost of materials and services and other operating expenses ADDED VALUE PRODUCED Personnel costs Provisions for risks and charges Amortization, depreciation and write-downs Net production value (operating result)

2004

2003

149,344 (80,845) 68,499 (38,803) (968) (18,596) 10,132

138,104 (74,220) 63,884 (40,565) (587) (17,905) 4,827

Value added generated was equal to 46.0% of revenues, more or less unchanged in relation to the 2003 figures.

The cost of labor was equal to 26.1% of revenues (compared with 29.3% in 2003) and to 56.4% of value added (63.5% in 2003).

Net production value stood at Euro 10,132 thousand, a noteworthy increase on the 2003 figures that bore the brunt of non-recurrent costs incurred by the newly-acquired German and Swedish subsidiaries for the restructuring and reorganization of production amongst the manufacturing companies of the Group.

The detail of financial and investment management is set forth below: Thousands of Euro Other financial income Interest and other financial expense Exchange rate differences TOTAL

2004

2003

424 (4,628) 1,080 (3,124)

485 (4,307) 1,617 (2,205)

The change in relation to 2003 was to be ascribed mainly to exchange differences on dollardenominated debts.

13

Analysis of financial position BALANCE SHEET Thousands of Euro As at 31.12.2004

As at 31.12.2003

A. RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL CONTRIBUTIONS B. FIXED ASSETS I. Intangible assets II. Tangible assets III. Financial assets

59,330 34,913 74

64,622 38,267 78

C. CURRENT ASSETS I. Inventories II. Accounts receivable IV. Liquid assets

22,688 53,498 9,161

22,212 55,555 6,063

501

415

D. ACCRUED INCOME AND PREPAID EXPENSES TOTAL ASSETS

-

180,165

A. Shareholders’ equity B. Reserves for risks and charges C. Reserve for employees’ severance indemnities D. Liabilities E. Accrued expenses and deferred income TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

14

187,212

55,207 11,736

52,584 12,986

6,456 104,772 1,994 180,165

6,663 113,301 1,678 187,212

CASH FLOW STATEMENT Thousands of Euro

A. NET LIQUID ASSETS AT THE BEGINNING OF THE PERIOD Net income Amortization and depreciation Accruals/(Utilization) of provisions for risks and charges Net change in reserve for severance indemnities CASH FLOW FROM TRADING OPERATIONS (Increase)/Decrease in current receivables (Increase)/Decrease in inventories Increase/(Decrease) in trade payables and other liabilities (Increase)/Decreasein other items of current assets B. CASH FLOW FROM OPERATING ACTIVITIES Investment/Divestments: - tangible assets - intangible assets - financial assets C. CASH FLOW FROM INVESTING ACTIVITIES Net change in payables to banks/shareholders/other providers f fichange in payables to controlling company Net Net change in payables to banks for interest Liability for purchase of shareholdings Liability to ASI Changes in shareholders’ equity D. CASH FLOW FROM FINANCING ACTIVITIES E. CASH FLOW FOR THE PERIOD (B+C+D) F. LIQUID ASSETS DERIVING FROM THE CHANGE IN CONSOLIDATION G. NET LIQUID ASSETS AT THE END OF THE PERIOD (A+E+F)

Financial 2004

Financial 2003

6,063 3,623 18,056 (1,250) (207)

(680) 17,453 2,462 773

20,222 2,056 (476) 1,425 1,233 24,460

20,008 (2,727) 891 (5,238) 20 12,954

(8,887) (523) 4 (9,406) (6,041) (1,002) (3,000) (913) (1,000) (11,956) 3,098

(12,952) (48,535) 2,359 (59,128) 41,460 (2,854) 1,002 (3,000) (621) 7,972 43,959 (2,215)

9,161

8,278 6,063

At December 31, 2004, invested capital amounted to Euro 117,761 thousand, own capital to Euro 55,207 thousand and the net financial position was negative for Euro 62,554 thousand.

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The detailed schedules of the items of Group financial management are set forth below: Thousands of Euro Invested capital Own capital Net financial position

As at 31 december 2004 As at 31 december 2003 117,761 128,576 55,207 52,584 (62,554) (75,992)

Invested capital and own capital comprise: Thousands of Euro

As at 31 december 2004 As at 31 december 2003

Intangible assets Tangible assets Financial assets

59,330 34,913 74

78

INVESTED CAPITAL

94,317

102,967

NET WORKING CAPITAL

29,900 (6,456)

32,272 (6,663)

117,761

128,576

Indemnity reserve Net invested capital Thousands of Euro Paid-in share capital Share premium account Other reserves Group interest in net income for the year Own capital

64,622 38,267

At December 31 2004 At December 31 2003 50,000 50,000 4,425 4,425 (1,161) (2,841) 3,623 (680) 55,207 52,584

The breakdown of the net financial position is as follows: Thousands of Euro Liquid assets TOTAL FINANCIAL ASSETS Short-term financial payables (1) Medium-term financial payables (2) TOTAL FINANCIAL LIABILITIES Net financial position

At December 31 2004 9,161 9,161 (16,626) (55,089) (71,715) (62,554)

At December 31 2003 6,063 6,063 (57,854) (24,201) (82,055) (75,992)

(1) include the short term portion of payables to banks, American Standard and Altana Pharma; (2) include the long term portion of payables to banks and Altana Pharma.

On January 28, 2004, the Parent Company repaid its liabilities to Interbanca for Euro 47,000 thousand and $7,889 thousand respectively (for a total of Euro 53,268 thousand). At the same time, it stipulated a new loan of Euro 55 million with Interbanca. Part of such loan (US$30 million) has been issued in dollars in order to balance positive cash flows resulting from transactions in this currency with payments of interest and capital to serve the same loan.

Interest is paid on a six-monthly basis applying Euribor (to the part in Euro) or Libor (to the part in US$) increased by the spread detailed below:

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Up to 31/12/04

1/1/05 - 31/12/06

1/1/07 - 31/12/10

Tranche in Euro

Euribor 6M+1.75

Euribor 6M+1.50

Euribor 6M+1.25

Tranche in $

Libor 6M+1.75

Libor 6M+1.50

Libor 6M+1.25

The loan is guaranteed by a pledge consisting of 85% of the shares forming the share capital.

Furthermore, without prior consent, the company may not dispose of its business or branches thereof, of movable and immovable property, of shareholdings or any tangible/intangible assets exceeding the amount of Euro 2.5 million relating to the carrying value for each company year.

Lastly, the company may not, without prior consent, contract any medium-term loan that may result in total exposure of more than Euro 4.0 million for each company year.

The loan, which expires in December 31, 2010, will be repaid through payment of 26 deferred sixmonthly installments of which 13 relating to the tranche in Euro and 13 to the tranche in US$. The first two installments were repaid in December 2004.

Interest for the year amounted to Euro 2,256 thousand.

It should be noted that covenants exist in relation to the aforementioned loan that the Group complied with in 2004 as set forth in the table below: Index

Reference value 2004

Net financial expense/EBITDA Net financial position/shareholders’ equity Net financial position /EBITDA

Less than 0.2 Less than 1.5 Less than 3

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2004 Group value 0.11 1.13 2.2

OPERATING AND FINANCIAL PERFORMANCE OF DIASORIN S.P.A.

Analysis of operating performance INCOME STATEMENT Thousands of Euro 2004

2003

A.

Value of production

92,268

81,735

B.

Production cost

87,893

81,646

Net production value (operating result) C. Financial income/(expense) E. Extraordinary income/(expense)

4,375 (2,379) 1,247

89 (735) 845

Income before taxes 22. Taxes

3,243 (1,995)

199 125

1,248

324

Net income for the year

Revenues for the period amounted to Euro 92,066 thousand. The detail is as follows: Thousands of Euro Sales and service revenues Increases in assets produced internally Other revenues and income Total revenues

2004

2003

88,721 406 2,939 92,066

76,897 81 3,824 80,802

Revenues for the year moved up 15.4% in relation to 2003, spurred in particular by sales of LIAISON technology products which amounted to Euro 35,889 thousand, 64% up on the 2003 data.

The results of the various management areas which make up the result for the period are as follows: Thousands of Euro Net production value Financial income/(expense) Extraordinary income/(expense) Taxes Net income for the year

2004

2003

4,375 (2,379) 1,247 (1,995) 1,248

89 (735) 845 125 324

Extraordinary items reflect income of Euro 1,311 thousand stemming from the net alignment of items in foreign currency for the part referring to past years, following the change in the accounting standard due to reform of accounting procedures.

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The amount consists of extraordinary realized exchange gains of Euro 2,767 thousand, net of extraordinary unrealized exchange gains of Euro 1,456.

Trading operations closed with a net income of Euro 4,375 thousand as set out below: Thousands of Euro

2004

2003

Production value Cost of materials and services and other operating expenses ADDED VALUE PRODUCED

92,268 (61,429) 30,839

81,735 (56,988) 24,747

Personnel costs Amortization, depreciation and write-downs Net production value (operating income)

(15,720) (10,744) 4,375

(14,718) (9,940) 89

Value added represented 33.5% of revenues compared with 30.6% in 2003.

The cost of labor was equal to 17% of revenues (18.2% in 2003) and 51% of value added (59.5% in 2003).

The commentary on financial and investment management is set out below: Thousands of Euro Income on equity investments Interest and other financial income Interest and other financial expense Exchange gains/(losses) Total

2004

2003

885 405 (4,320) 651 (2,379)

1,951 633 (4,057) 738 (735)

Income on equity investments refers to the distribution of dividends by the DiaSorin G.m.b.H. subsidiary, stated according to the accruals principle.

Exchange differences refer principally to active exchange differences on the new loan stipulated with Interbanca for 30 million dollars.

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Analysis of financial position

BALANCE SHEET Thousands of Euro As at 31.12.2004

A. RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL CONTRIBUTIONS B. FIXED ASSETS I. Intangible assets II. Tangible assets III. Financial assets C. CURRENT ASSETS I. Inventories II. Receivables III. Financial assets not constituting fixed assets IV. Liquid assets D. ACCRUED INCOME AND PREPAID EXPENSES TOTAL ASSETS

As at 31.12.2003

-

-

36,675 14,613 51,956

40,231 16,471 51,956

14,666 37,826

14,735 41,191

4,331 4,724

6,289 1,916

193

189

164,984

A. Shareholders’ equity B. Reserves for risks and charges C. Reserve for employees’ severance indemnities D. Liabilities E. Accrued income and prepaid expenses TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

20

172,978

55,997 1,297

54,749 531

5,856 101,792 43 164,984

5,651 110,944 1,103 172,978

CASH FLOW STATEMENT Thousands of Euro Financial 2004

Financial 2003

A. NET LIQUID ASSETS AT BEGINNING OF PERIOD Net income for the year Amortization and depreciation Additions to/(Utilization) of provisions for risks and charges (Gains)/losses on the disposal of investments Net change in reserve for severance indemnities CASH FLOW FROM TRADING OPERATIONS

8,572 1,248 9,504 766 73 205

16,392 324 9,490 (114) 237 (239)

11,796

9,698

(Increase)/Decrease in receivables stated under current assets (Increase)/Decrease in inventories Increase/(Decrease) in payables to suppliers and others (Increase)/Decrease in other items of current assets

3,467 69 (3,458) (62)

(3,996) (2,197) (1,178) 98

B. CASH FLOW FROM OPERATIONS

11,812

2,425

Investments in: - tangible assets - intangible assets - financial assets Proceeds from sale or redemption value of fixed assets

(4,300) (75) 0 220

(5,679) (39,496) (16,773) 1,487

C. CASH FLOW FROM INVESTING ACTIVITIES

(4,155)

(60,461)

Net change in payables to banks and other providers of finance Net change in payables for the purchase of equity investments Net change in payables to ASI Change in shareholders’ equity D. CASH FLOW FROM FINANCING ACTIVITIES

(4,387) (1,405) (913) 0 (6,705)

45,539 (1,500) (622) 6,799 50,216

952 9,524

(7,820) 8,572

E. CASH FLOW FOR THE PERIOD (B+C+D) G. NET LIQUID ASSETS AT THE END OF THE PERIOD (A+E)

At December 31, 2004, invested capital amounted to Euro 119,440 thousand, shareholders’ equity (own capital) to Euro 55,997 thousand and the net financial position was negative for Euro 63,443 thousand.

It should be noted that the change in invested capital in relation to 2003 is to be ascribed principally to ordinary investment activities, offset by the reduction in fixed assets with regard to the amortization and depreciation for the year. The improvement in the net financial position was driven by repayment of portions for the year of existing loans.

The following tables show a breakdown of the above-mentioned items: As at 31 december 2004 As at 31 december 2003 124,848 119,440 55,997 54,749 (70,099) (63,443)

Thousands of Euro Invested capital Own capital Net financial position

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Invested capital and own capital: the detail is as follows: Thousands of Euro

As at 31 december 2004 As at 31 december 2003

Intangible assets

36,675

40,231

Tangible assets

14,613

16,471

Financial assets

51,956

51,956

103,244

108,658

22,052

21,841

(5,856) 119,440

(5,651) 124,848

INVESTED CAPITAL NET WORKING CAPITAL Reserve for severance indemnities Net invested capital

The breakdown of own capital is as follows: Thousands of Euro

As at 31 december 2004 As at 31 december 2003

Paid-in share capital Share premium and other reserves Retained earnings Net income for the year

50,000 4,441 308 1,248

50,000 4,425

Own capital

55,997

54,749

324

The net financial position is made up as follows: As at December 31 2004

Thousands of Euro

Medium-term financial receivables (1) Short-term financial receivables (1) Liquid assets TOTAL FINANCIAL ASSETS Short-term financial payables (2) Medium-term financial payables (3) TOTAL FINANCIAL LIABILITIES Net financial position

As at December 31 2003

4,331 469 4,724 9,524 (24,084) (48,883) (72,967) (63,443)

6,289 367 1,916 8,572 (61,208) (17,463) (78,671) (70,099)

(1) include financial receivables from subsidiaries (2) include the short-term portion of payables to banks, subsidiaries, American Standard and Altana Pharma; (3) include the long-term portion of payables to banks, American Standard and Altana Pharma.

On January 28, 2004, DiaSorin S.p.A. repaid its debts to Interbanca for Euro 47,000 thousand and $7,889 thousand respectively (for a total of Euro 53,268 thousand). At the same time, it stipulated a new loan of Euro 55 million with Interbanca. Part of such loan (US$30 million) is denominated in dollars in order to balance positive cash flows resulting from transactions in this currency with payments of interest and capital to serve the same loan. For a more detailed description of the transaction, reference should be made to the commentary on the financial performance of the DiaSorin Group.

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______E V E N T S I N E A R L Y 2 0 0 5 A N D B U S I N E S S O U T L O O K

On January 23, DiaSorin S.p.A. was informed that the Ministry for Education, the University and Research has accepted its application for a loan within the framework of the Research Grants Fund under Laws Nos. 46/82 and 346/88.

For 2005, Group operating plans envisage a further increase in sales revenues that are expected to exceed the Euro 150 million mark.

This increase (which is expected to be distributed evenly in the various geographical areas of business) will, yet again, be spearheaded by LIAISON technology, driven by the upswing in the installed instrument population and launching on the market of new tests developed during 2004 and 2005.

New actions to reinforce distribution in geographical areas considered to be strategic for future Group development are also being investigated.

Gross revenues of the Group are expected to increase during 2005. Part of this upswing will be reinvested in order to cater to ambitious R&D plans steered towards extending the menu of available tests on LIAISON technology and to initiating development of the second generation analyzer.

The Group’s ability to generate cash flows from operations will be directed towards financing expenditure towards fixed assets for the purchase of new instrumentation, to pay financial charges and also to improve the net financial position according to depreciation plans.

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______T R A N S A C T I O N S W I T H R E L A T E D P A R T I E S

Relationships with subsidiaries consist mainly of commercial transactions and of various centralized services provided by the Parent Company that are charged to each subsidiary on a proquota basis according to specific contracts. Income interest and expense is paid regularly at normal market conditions as part of centralized cash management services.

A breakdown of the related amounts by subsidiary can be found in the Notes to the financial statements.

The 2004 amounts of the aforementioned relationships are set out in the table below: (Thousands of Euro)

SUBSIDIARIES

INCOME STATEMENT

2004

· Sales and service revenues · Purchasing costs and services provided · Interest and other income · Interest expense and other expenses (Amounts in thousands of Euro) BALANCE SHEET Assets

2003 36,087

29,855

12,071

21,882

1,197

578

536

947

SUBSIDIARIES At December 31 2004

· Current trade receivables · Current financial receivables · Receivables on financial assets

At December 31 2003 5,843

5,594

469

367

5,216

8,240

1,991

6,438

11,108

4,794

3,256

6,019

Liabilities

· Current trade payables · Current financial payables · Other payables

At December 31, 2004, the Company also had debts of a financial nature with the Interbanca S.p.A. shareholder, as set forth below: At December 31 2004

(Thousands of Euro) Interbanca 2000 loan for acquisition of the DiaSorin Group from ASI Interbanca 2002 loan for acquisition of the Byk Group Interbanca 2003 loan for Biofort S.p.A. transaction Interbanca 2004 loan TOTAL

24

-

At December 31 2003 9,033

5,100 -

6,800 47,000

49,099 54,199

62,833

RESEARCH AND DEVELOPMENT

1. Significant events in financial 2004

In 2004, DiaSorin R&D channeled investments into three Group sites Saluggia (Italy), Stillwater (USA) and Dietzenbach (Germany) for a total of Euro 5.4 million (charged entirely to income), 73% of which at the Saluggia site alone where 37 of a total of 56 operatives were concentrated at December 31, 2004.

To promote the development of applied research projects, during 2004 DiaSorin S.p.A incurred direct personnel and other R&D-related costs of Euro 3,015,793.

The structure addressed five mains lines of activity: a) b) c) d) e) A.

Development of new LIAISON kits Development of new biotechnological reagents Improvement of certain aspects of production process and catalogue product documentation, methods and techniques (quality plans) Improvement of the hardware and software of the LIAISON instrumental platform Research in the ‘genetic tests’ sector which has a future development potential As regards development of new LIAISON kits, in 2004 the following new products were developed at the Saluggia site: In the infectivity sector: - LIAISON test for IgG anti Borrelia anti-bodies (Lyme disease) - LIAISON test for IgM anti Borrelia anti-bodies (Lyme disease) - LIAISON test for screening of anti Treponema Pallidum anti-bodies In the new sector of auto-immunity: - LIAISON test for screening of anti-nuclear anti-bodies (ANA screen) - LIAISON test for Anti Double Stranded DNA anti-bodies (DS-DNA) - LIAISON test for anti transglutaminase anti-bodies (celiac disease) With regard to improvements to assistance and technical support - A kit for standardization and automation of a weekly cleaning procedure for hardware parts in contact with serums and reagents (LIAISON Cleaning kit) With regard to improving the current range of products: - New LIAISON kit to determine the quantity of anti Toxoplasma anti-bodies - New ELISA kit to search for anti HCV anti-bodies (‘EC-mark’ quality standard, only for “patent free” uses) As a result of product development at the Stillwater site, the first tests for small molecules became available in the endocrinology/metabolism sector: - New LIAISON kit for measurement of PTH - New LIAISON kit for measurement of Vitamin D (EC marking and FDA approved) - New LIAISON kit for measurement of Progesterone (CE marked) - New LIAISON kit for measurement of Cyclosporine

25

Other kit development projects that are expected to become available in early 2005 also continued during the year: - LIAISON test for IgG anti Borrelia anti-bodies (procedure for liquor) -

New kit for determination of the ‘avidity’ of the anti Toxoplasma anti-bodies (Toxo IgG Quant-Avidity) LIAISON test for IgG Anti Varicella Zoster (VZV) anti-bodies LIAISON test for IgM anti Varicella Zoster (VZV) anti-bodies LIAISON test for screening of anti-bodies that can be extracted from the anti nucleus (ENA screening)

and, as regards the Stillwater site: - LIAISON test for measurement of Testosterone - LIAISON test for measurement of Extradiol B.

As regards reagents, in 2004 work focused on the program directed towards enriching the collection of new recombined antigens of Epstein Barr virus (EBV), to servicing projects for improvement of existing kits in order to protect DiaSorin’s technological and market leadership in this segment. In particular, a recombining assay (of the P18 antigen of EBV) has been developed that could be incorporated in the related LIAISON EBV kits in order to further increase their clinical performance while at the same time offering an suite of advantages also as regards simplification of production processes.

New recombined antigens have also been developed to replace extractive type biological materials that are particularly difficult to procure, such as the proteins S-100 and NSE, essential components of the two exclusive kits of the LIAISON system menu. During 2005, attention will be dedicated to qualifying these reagents.

Also, following in the wake of cooperation with the Bicocca University of Milan in 2003, attention was dedicated to acquiring further in-depth knowledge of the system of expression of yeast-based heterological proteins. In particular, problems regarding growth of the cells were addressed and solved with fermentation technology (“upstream”) and those regarding extraction and purification of the proteins (“downstream”). The application on which expression technology was tested included construction of arrays deriving from the Hepatitis C virus and the expression of human transglutaminase.

Drawing on the knowledge acquired during 2004, the R&D Group is able to undertake development programs of difficult to express recombining proteins. A typical example of this class of protein is the HBsAg antigen for which activation of a specific development program is planned in 2005.

Programs directed towards obtaining the monoclonal anti-bodies necessary to construct chemical reagents for control serums for “orphan” application of natural serums and to facilitate purification of biological materials through immuno-affinity chromatography, returned less satisfactory results. The reactivity obtained from the reagents developed was not sufficient to solve the technological problem which is still a major issue due to the difficulties often encountered in procuring natural human serums and which are expected to increase with the entrance of new “specialty” products in human infectivity.

For this reason, research efforts will continue throughout 2005, reinforced also by investigations in the sector of human monoclonals.

26

C.

Part of R&D activities addressed the processing of market feedback regarding kits sold in previous years some of which required various modifications, considered necessary to correct various aspects that emerged during use in field or to address problems tied to the increased scale of production processes. These projects have been managed and documented as ‘quality plans’ as envisaged by the current quality system. Major projects of this type included improvement of the specific nature of certain LIAISON products such as Rosolia IgM, Anti HBc, HBsAg and IgM anti CMV to which the related modifications were made in 2004.

Continuing plans already launched in 2003, the project for improving the methodological approach to design was completed. This project is intended to promote application of a standardized approach to design amongst the various Project Leaders and to guarantee maximum sturdiness of new products, attempting to anticipate any critical aspects and the stress that may affect the product during its market cycle already at the optimization stage: • operating procedures for design, analytical and clinical assessment of new products and new reagents and analysis of risks have been completely revamped.

• new product validation plans have been introduced as moments for ‘real-life’ checking, intended to assess the new product in the non-‘optimized’ context of customers’ routine and with regard to the effective sample populations analyzed (not selected and therefore without potential ‘bias’) • new models have been created for the directions for use which provide much more information than in the past and are more precisely aligned with customers’ increased attention and more sophisticated quality systems • ‘Pre-launch’ information including the technical-scientific description of the product, its competitive positioning (Product Information Package, PIP) and guides for training and customer support (Frequently Asked Questions, FAQ; Troubleshooting Guides, TG) have been included in project ‘deliverables’.

This detailed attention dedicated to approach is expected to guarantee availability of a set of stable references that are as homogenous as possible within the Group and particularly useful in helping new Researchers apply a strict, effective approach to developing many of the new products envisaged in the 2005-2007 Plan, and also to facilitate introduction on the market of new products that, from now on, will be increasingly required to measure up to new analytical-clinical issues for the Company and its operators.

27

A.

With regard to improvement of the LIAISON system, major aspects addressed during the year included: a. Upgrading of the installed base to the new 2.07 software version b. Tuning of project requirements for restyling of the LIAISON system that is expected to be ordered at the start of 2005 with forecast availability of the new analyzer by 2007. c. Optimization of ‘service’ policies on machines installed in parallel, with a systematic plan of improvement of reliability of more critical parts. d. Development, in cooperation with an Italian engineering company (INPECO Srl) and the LIAISON manufacturing company (STRATEC GmbH) of a modified version of the instrument that can be connected to a robot-controlled system able to manage automatic distribution of samples to be analyzed to different analyzers (even of different vendors) thereby enhancing flexibility and ‘throughput’ of laboratory automation.

B.

The research activities of the Group operating in molecular diagnostics at the Bicocca University of Milan have generated initial indications of feasibility regarding the possibility of identifying punctiform mutations of DNA (SNPs) using OCEAN (One Cut Event AmplificatioN) technology which, in the meantime, has been patented in the United States.

OCEAN technology has been applied successfully to identify SNPs in genes that code proteins involved in coagulation of the blood. Further feasibility tests on the possibility of typization of bacteria associated to tooth caries have also been carried out.

At the moment, the technology still requires pre-amplification of the sample via PCR; however, it is characterized by a number of competitive leading edges in relation to the current technological benchmark, consisting in: a. the possibility of identifying more than one SNP in a single reaction (multiplexing) b. isothermia of the enzymatic reaction

2.

2005 research program

The 2005 research program is part of the 2005-2007 three-year plan that involves the three sites equipped with development capacity (Saluggia, Stillwater and Dietzenbach) and comprises the following main lines of development: A. Further enhancement of the LIAISON menu in the sector of human infectiveness (Saluggia) B. Completion of the LIAISON menu in fertility/endocrinology with development of test for small steroid molecules (Stillwater) and other hormones of interest in the sector of hypertension and diabetes (Saluggia).

C. Enrichment of the LIAISON menu in the sector of metabolic specialties and in monitoring of Pharmaceutical products (Stillwater, Dietzenbach) D. Enrichment of the LIAISON menu in the auto-immunity sector (Saluggia) E. Enrichment of the LIAISON menu in the oncology/central nervous system sector (Stillwater) 28

F. Start of development of the second version of the LIAISON analyzer in cooperation with an engineering Company; this is expected to be available by the end of 2007.

For 2005, the plan envisages availability of the following new products: In sector A: • • • • •

LIAISON test for IgG anti Borrelia anti-bodies (procedure for liquor) New kit for determination of the ‘avidity’ of anti Toxoplasma anti-bodies (Toxo IgG Quant-Avidity) LIAISON test for IgG Anti Varicella Zoster anti-bodies (VZV) LIAISON test for IgM anti Varicella Zoster anti-bodies (VZV) New procedures for determination in the liquor of IgG anti Rosolia, Herpes simplex, Citomegalovirus and Varicella Zoster and IgM anti Borrelia anti-bodies

Explorative projects to assess feasibility/complexity of developing a new kit for antimumps and anti-measles anti-bodies have also been started.

In sector B: • •

LIAISON test for measurement of Testosterone LIAISON test for measurement of Extradiol

Projects have also started for development of tests for active Renine, aldosterone, HGH and Insulin In sector C: • • •

LIAISON test for measurement of ACTH LIAISON test for measurement of Cyclosporine LIAISON test for measurement of Everolimus

Projects have also been launched for development of Vitamin D 1,25 OH, Calcitonine, Osteocalcine, Bone specific Alkaline Phosphatase,

In sector D: •

LIAISON test for ENA screening

Projects are also underway for development of tests for anti-phospholipid anti-bodies (cardiolipine, β2 Glicoproteina) Issue of new products in sector E is not planned for 2005 but projects will be activated that, in the long term, will make available CA 72-4, Tymidin Kynase and GFAP markers.

29

3.

Regulatory Affairs – Quality System Regulatory activities aimed at obtaining registration of a first array of LIAISON products by the American FDA were particularly intense throughout 2004. Although the times originally calculated have been extended by at least six months, we expect to obtain the registrations and therefore to start sale in the USA of some ten products, mainly in the infective serology sector (EBV, Toxoplasma, CMV, Rosolia, Treponema).

As regards the quality system, Certimedica audits were once again positive in 2004 (only one minor non-conformity was detected) and also the audits carried out by the G-MED Notified Body (with also in this case only a single non-conformity).

As regards process and product improvement, the more significant actions were as follows: - Activation of numerous ‘quality plans’ intended to solve problems highlighted by ‘postmarket surveillance’ in the case of certain products or tied to the considerable increase in the volume of LIAISON products that made it necessary to review the scale of production processes.

- Stepping-up of study, documentation and validation activities of a number of production processes that extended to production carried out at the Dietzenbach site, in particular of components common to productions of the entire Group.

- Start-up of a new system of Group procedures for management of notifications and complaints from the market and concurrent activation of a new Customer Care Group equipped with its own laboratory at DiaSorin SpA, dedicated to managing product troubleshooting, processing of customers’ notifications and training of market specialists.

The considerable success of the 2004 ‘zero backorders’ corporate project should also be noted; this is intended to eliminate delays in product availability caused by logistic and/or quality problems, now reduced to ‘physiological’ level and such as not to cause problems on the market.

Major objectives for 2005, on the regulatory front, refer to obtaining 510(k) authorizations from the FDA to sell the first set of infectivity products in the USA and continuation of registration activities of various products in China. With regard to improvement of the quality system, resources dedicated to validation of critical batches of reagents, of production processes and laboratory data management and processing software will be increased.

30

______

OTHER INFORMATION

Human resources

At December 31, 2004, there were 698 employees on the Group payroll divided as follows: 2004 16 22 28 88 335 11 25 11 162 698

Belgium Brasil France Germany Italy United Kingdom Spain Sweden USA

2003 15 18 27 99 319 12 25 28 160 703

DiaSorin S.p.A. employed 335 persons distributed as follows:

Managers White collar workers Blue collar workers Total

2004

2003

12 238 85 335

10 225 84 319

Stock option plans During the year, the Board of Directors launched a stock option plan involving 17 managers of Group companies included in incentivation programs.

Treatment of Personal Data

In compliance with Legislative Decree No. 196 of June 30, 2003 regarding the new Code on the protection of personal data (“Consolidated Privacy Act�), the company has appointed the controllers and persons responsible for data processing with formal communications. The Company has also acquired the consent of employees to treatment of their data after distributing an informative document.

31

_______ CONCLUSIONS - PROPOSED ALLOCATION OF THE NET INCOME FOR THE YEAR

Shareholders, Together with the request to approve the 2004 financial statements, it is proposed that the net income of DiaSorin S.p.A. of Euro 1,247,564.50 be allocated as follows: -

5% equal to Euro 62,378.22 to the legal reserve; carrying forward the remaining sum of Euro 1,185,186.28.

The Chairman

_________________________ (Gian Alberto Saporiti)

32

22 00 00 44 FF II N NA AN NC C II A AL L SS T TA AT TE EM ME EN NT T SS D A ..

D II A A SS O OR R II N N SS .. PP .. A •• B B aa ll aa nn cc ee ss hh ee ee tt •• II nn cc oo m m ee nn tt m ee ss tt aa tt ee m

33

_____

BALANCE SHEET

ASSETS

At 31/12/2004 Partial

A. RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL CONTRIBUTIONS

At 31/12/2003

Total

Partial

-

Total

-

B. FIXED ASSETS I. 1.

3.

4.

5.

7.

INTANGIBLE ASSETS Formation and expansion costs Industrial patent and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill Other intangible assets

Total intangible assets (B.I) II. 1.

2.

3.

4.

5.

TANGIBLE ASSETS Lands and buildings Plant and machinery Industrial and commercial equipment Other assets Current assets and advances

Total tangible assets (B.II) III.

FINANCIAL ASSETS 1. Investments in: a. subsidiaries b. other businesses

Total financial assets (B.III)

3,271 7,604,926 28,827,95 239,183

478 55,922 8,432,737 31,200,437 542,085

36,675,333

40,231,659

3,.378,161 2,250,164 8,.510,194 252,848 221,150

3,668,634 2,871,222 9,.585,360 345,401 -

14,612,517

16,470,617

51,954,889 1,000

51,954,889 1,000

51,955,889

51,955,889

TOTAL FIXED ASSETS (B)

103,243,739

108,658,165

C. CURRENT ASSETS I.

INVENTORIES 1. Raw materials, consumables and goods for resale 2. Work in progress and semifinished products 3. Contract work in progress 4. Finished products and goods

Total inventories (C.I.)

34

3,800,870

3,520,299

6,167,698 4,697,07

6,.372,993 4,842,210

14,665,644

14,735,502

ASSETS

At 31/12/2004 Partial

ACCOUNTS RECEIVABLE 1. Trade a. falling due within 12 months Total trade receivables (C.II.1)

As at 31/12/2003 Total

Partial

Total

II.

24,782,973 24,782,973

26,073,.821 26,073,821

5,842,886 469,115 885,470 7,197,471

5,593,774 367,367 1,950,843 7,911,984

302,793 302,793

521,660 521,660

4. ter Deferred tax assets a. falling due within 12 months b. falling due beyond 12 months Total deferred tax assets (C.II.4 ter)

1,345,678 3,.906,088 5,251,766

935,377 4,.304,866 5,240,243

5. From others a. falling due within 12 months b. falling due beyond 12 months Total receivables from others (C.II.5)

291,463 291,463

1,443,662 1,443,662

37,826,466

41,191,370

FINANCIAL ASSETS NOT CONSTITUTING FIXED ASSETS 7. subsidiaries a. falling due within 12 months. b. falling due beyond 12 months Total financial assets(C.III.7)

4,.331,52 4,331,527

6,.289,09 6,289,091

Total financial assets (C.III)

4,331,527

6,289,091

4,717,862 6,341

1,.911,299 4,353

4,724,203

1,915,652

2. From subsidiaries a. falling due within 12 months - trade b. falling due within 12 months - financial c. falling due within 12 months year - other Total receivables from subsidiaries (C.II.2) 4. bis Receivables from the Tax Authorities a. falling due within 12 months Total receivables from the Tax Authorities (C.II.4 bis)

Total accounts receivable (C.II) III.

IV.

LIQUID ASSETS 1. Bank and Post Office deposits 3. Cash on hand

Total liquid assets (C.IV) TOTAL CURRENT ASSETS (C)

61,547,840

D. PREPAID EXPENSES AND ACCRUED INCOME 1. Prepaid expenses 2. Accrued income

41,817 150,705

TOTAL PREPAID EXPENSES AND ACCRUED INCOME (D) TOTAL ASSETS (A + B + C + D)

35

64,131,615

34,332 154.,350 192,522

188,682

164,984,101

172,978,462

_____

BALANCE SHEET

LIABILITIES

At 31/12/2004 Partial

At 31/12/2003

Total

Partial

Total

A. SHAREHOLDERS’ EQUITY I. II. IV. VII. VIII. IX.

Share capital Share premium reserve Legal reserve Other reserves Retained earnings/(accummulated losses) Net income/(loss) for the period

50,000,000 4,424,598 16,219 308,163 1,247,564

TOTAL SHAREHOLDER’S EQUITY (A)

50,000,000 4,424,598 324,382 55,996,544

54,748,980

B. RESERVES FOR RISKS AND CHARGES 3. Other

1,297,071

531,255

TOTAL RESERVES FOR RISKS AND CHARGES (B)

1,297,071

531,255

C. RESERVE FOR EMPLOYEES’ SEVERANCE INDEMNITIES

5,855,800

5,651,017

D. LIABILITIES 3. Due to shareholders for loans a. falling due within 12 months b. falling due beyond 12 months Total liabilities towards shareholders (D.3) Due to Banks a falling due within 12 months b. falling due beyond 12 months Total liabilties to banks (D.4)

9,883,182 44,315,926 54,199,108

53,216,465 9,616,465 62,832,930

280,420 2,267,820 2,548,240

279,637 2,533,542 2,813,179

15,258,583 15,258,583

14,390,420 14,390,420

1,991,170 11,108,369 1,627,887 1,627,887

6,437,692 4,793,948 2,766,078 3,253,395

16,355,313

17,251,113

3,704,881 3,704,881

2,161,260 2,161,260

659,598

581,002

659,598

581,002

6,765,909 2,300,000 9,065,909

5,600,622 5,313,264 10,913,886

4.

7.

Trade accounts payable a. falling due within 12 months Total trade accounts payable (D.7) 9. Due to subsidiaries a. falling due within 12 months – trade b. falling due within 12 months – financial c. falling due within 12 months - other d. falling due beyond 12 months - other Total liabilities towards subsidiaries (D.9) 12. Due to the Tax Authorities a. falling due within 12 months Total liabilities towards the Tax Authorities (D.12) 13. Due to social security institutions a. falling due within 12 months Total liabilities towards social security institutions (D.13) 14. Other liabilities a. falling due withion 12 months b. falling due beyond 12 months Total other liabilities (D.14) TOTAL LIABILITIES (D) E. ACCRUED EXPENSES AND DEFERRED INCOME 1. Prepaid expenses

101,791,632

43,054

TOTAL ACCRUED EXPENSES AND DEFERRED INCOME (E)

TOTAL LIABILITIES (A + B + C + D + E)

36

110,943,790

1,103,420 43,054

1,103,420

164,984,101

172,978,462

As at 31/12/2004 Partial

Total

As at 31/12/2003 Partial

Total

MEMORANDUM ACCOUNTS Guarantees given to other companies Sureties for guarantees received Other memorandum accounts

1,302,810 8,190,059 27,072,992

TOTAL MEMORANDUM ACCOUNTS

967,855 16,308,472 22,726,866 36,565,861

37

40,003,193

_____

INCOME STATEMENT Financial year 2004 Partial

A. VALUE OF PRODUCTION 1. Sales and service revenues 2. Changes in inventories of work in progress semi-finished and finished products 3. Changes in contract work in progress 4. Increases in fixed assets produced internally 5. Other revenues and income: b. other revenues and income

Total

Financial year 2003 Partial

88,721,467

76,896,962

201,308 406,391

933,272 81,070

2,938,907

3,823,627

TOTAL VALUE OF PRODUCTION (A)

92,268,073

B. PRODUCTION COST 6. Raw materials, consumables and goods for resale

81,734,931

36,533,641

34,447,210

19,973,780

21,149,900

2,855,295

1,638,504

9. Personnel: a. wages and salaries b. social security contributions c. severance indemnities e. other personnel costs

11,121,814 3,662,541 839,713 95,894

10,437,150 3,346,130 835,643 99,444

Total cost of personnel (B.9)

15,719,962

14,718,367

3,630,970 5,873,292

3,656,218 5,719,302 114,886

539,425

450,000

10,043,687

9,940,406

271,166 700,000 1,795,277

(1,657,134)

7. Services 8. Use of third party assets

10. Amortization, depreciation and write-downs: a. amortization of intangible assets b. depreciation of tangible assets c. other write-downs of fixed assets d. write-down of receivables included in current assets and of liquid assets Total amortization, depreciations and write-downs (B.10) 11. Change in inventories of raw materials, consumables and goods for resale 12. Reserves for risks and charges 14. Miscellaneous operating expenses TOTAL PRODUCTION COST (B)

NET PRODUCTION VALUE (A - B)

38

Total

1,408,344 87,892,808

81,645,597

4,375,265

89,334

Financial year 2004 Partial

Total

Financial year 2003 Partial

Total

C. FINANCIAL INCOME AND EXPENSE 15. Income from equity investments 1. dividends from subsidiaries Total income on equity investments (C.15) 16. Other financial income: d. income other than that above: 1. from subsidiaries 4. from others Total other financial income (C.16) 17. Interest and other financial expense: d. expense other than that above: 1. towards subsidiaries 2. towards controlling companies 4. others Total interest and other financial expense (C.17) 17. bis Exchange gains/(losses)

885,470

1,950,843

885,470

1,950,843

311,907 92,804

578,270 54,540

404,711

632,810

536,291 3,784,415

947,275 90,128 3,019,215

4,320,706

4,056,618

651,125

738,056

TOTAL FINANCIAL INCOME AND EXPENSE (C15 + C16 - C17 + C17bis)

(2,379,400)

(734,909)

E. EXTRAORDINARY INCOME AND EXPENSE 20. Income: c. other extraordinary income

1,310,743

Total extraordinary income (E.20)

919,707 1,310,743

21. Expense: c. other extraordinary expense

63,799

Total extraordinary expense (E.21)

919,707

74,514 63,799

74,514

TOTAL EXTRAORDINARY ITEMS (E.20 - E.21)

1,246,944

845,193

INCOME BEFORE TAXES (A - B +/- C +/- D +/- E)

3,242,809

199,618

22. Income taxes for the year: current, deferred and prepaid a. current taxes c. prepaid taxes

2,006,768 (11,523)

647,336 (772,100)

Total income taxes for the year

1,995,245

(124,764)

26. Net income/(loss) for the year

1,247,564

324,382

39

NOTES TO THE FINANCIAL STATEMENTS AT DECEMBER 31, 2004

For information regarding the nature of corporate business, significant events in early 2005 and relationships with holding companies, subsidiaries and other affiliates, refer to the contents of the Report on Operations set forth above.

It should be noted that the data of the previous year have been suitably reclassified in order to take into account modifications made to the schedules of the financial statements in accordance with Legislative Decree No. 6/2003, and also to permit like-for-like comparison with the current year.

STRUCTURE AND CONTENTS OF THE FINANCIAL STATEMENTS

The financial statements have been prepared in accordance with the pertinent provisions of the Italian Civil Code and consist of the Balance sheet, Income Statement and these Explanatory notes drawn up according to the schedules established by the Civil Code in the version that incorporates the amendments introduced by Legislative Decree No. 6/2003.

The Notes to the financial statements are intended to illustrate, analyze and in some cases complete the data of the accounts and comprise the information required by Art. 2427 of the Italian Civil Code, by other provisions of Legislative Decree No. 127/1991 and other laws in force. Furthermore, all the additional information considered necessary for true and correct representation is provided, even if not specifically required by law.

VALUATION CRITERIA, ACCOUNTING POLICIES AND BASIS OF PRESENTATION

The financial statements have been prepared in accordance with the accounting principles and standards established by the Italian Accounting Profession and, in the absence thereof, those issued by the International Accounting Standard Board (I.A.S.B.) and are unchanged in relation to those adopted in previous years.

In particular, we can state that all transactions carried out by the company are disclosed in the accounting records and that the various items have been valued according to general criteria of prudence and the principle of going concern.

The criteria adopted in preparing the financial statements at December 31, 2004 are the same as those used in the previous year except as regards the criteria applied for conversion of items denominated in foreign currency, as described below, which have been modified in order to comply with new regulations.

INTANGIBLE ASSETS

These items are entered at purchase cost or in the case of those conferred at a value determined by independent appraisals. Such values are amortized on a straight-line basis according to the duration of the contract, the period of legal protection and, in any case, referring to expected future benefit.

40

In the case of a permanent loss of value, regardless of the amortization already charged, the asset is written down accordingly; write-downs may be reversed in subsequent years if the reasons therefore no longer exist.

Amortization rates are detailed in a specific comment of the item of the accounts.

Formation and expansion costs and goodwill are stated with the consent of the Board of Statutory Auditors.

TANGIBLE ASSETS

Tangible assets are stated at purchase cost, including any direct accessory charges and the portion of direct and indirect costs that can be reasonably ascribed to the asset.

For assets conferred, the carrying value corresponds to that established in the related deeds based on expert appraisals.

Ordinary maintenance costs are charged to income as incurred. The costs of improvements are stated to increase the assets concerned only in the case of effective increases in production or extension of the useful life thereof.

Assets are cancelled from the category concerned when disposed of or are scrapped when it is considered that they can no longer be usefully employed inside the company.

The gross book value of the assets is distributed over the years in which these are used through straight-line depreciation at constant annual rates that are calculated referring to the forecast useful life of the assets and their possibilities of use. The net book values therefore express the values that can be recovered in subsequent years through the normal flow of revenues. The depreciation rates adopted are indicated in the specific comment on the item of the accounts.

In the case of permanent impairment of value, regardless of depreciation already provided, the asset concerned is written down. Any write-downs are reversed in subsequent years if the underlying assumptions therefor are no longer correct.

For assets purchased during the year, the normal rates are reduced by half considering the minor period of use.

Depreciation starts when the assets are considered suitable for use.

FINANCIAL ASSETS

The carrying value of investments held for the longer term consists of the purchase or formation cost.

In the case of permanent losses of value due to negative economic trends, both current and future, of the investee company and therefore in the case in which the underlying shareholders’ equity resulting from the latest financial statements has undergone a permanent loss of value, the necessary

41

write-down is made. Write-downs may be reversed in subsequent years if the reasons therefor no longer exist.

INVENTORIES OF RAW MATERIALS, SEMI-FINISHED GOODS, FINISHED PRODUCTS AND WORK IN PROGRESS

Raw materials, semi-finished goods, work in progress, finished products and goods are stated at the lower of purchase and production cost and realizable value as reflected by market trends.

Purchase costs include the prices paid to suppliers increased by accessory charges incurred until deposit in company warehouses, net of discounts and refunds.

Production costs comprise both the specific costs of the individual goods or categories of goods, and also reasonably ascribable portions of costs incurred globally in the activities carried out to prepare these (general production expenses).

When allocating general production expenses for assignment to the cost of the products, normal production capacity of the plants is taken into account.

The LIFO method is adopted for raw materials, goods and finished products while the average weighted cost is used for semi-finished products and work in progress.

Inventories are stated net of write-downs in order to take into account any obsolete or slow-moving stocks.

RECEIVABLES AND PAYABLES

Receivables are entered at presumed realizable value. Payables are stated at nominal value.

ACCRUALS AND DEFERRALS

These items include the quotas of costs and income common to two or more accounting periods in accordance with the accruals principle.

RESERVES FOR RISKS AND CHARGES

Provisions to this type of reserves are intended to cover potential liabilities of the company according to realistic estimates.

RESERVE FOR EMPLOYEES’ SEVERANCE INDEMNITIES

The reserve for employees’ severance indemnities is calculated according to legal and contractual requirements and represents the liability accrued by the company towards employees, net of advances already paid.

REVENUES AND EXPENSES

These items are stated according to the principle of prudence, also disclosing the relating accruals and deferrals.

42

Revenues are recognized at the moment of transfer of ownership of the goods sold to the purchaser or at the time of completion of the services.

Research and development costs are considered as operating expenses and are therefore charged entirely to income as incurred.

All commercial transactions with controlling companies and subsidiaries and with the companies controlled thereby are carried out at normal market conditions.

DIVIDENDS

Dividends are recognized in the income statement of the year to which they refer on an accruals basis. The related deferred taxes are also recognized on dividends thus disclosed.

LEASED ASSETS

Leased assets are stated in accordance with accounting policies consistent with the current interpretation of the law which establishes accounting of leasing fees as operating costs.

INCOME TAXES FOR THE YEAR

Current taxes are stated in the income statement with tax liabilities offsetting item according to a reasonable assessment of direct taxes for the year, taking into account any prior losses.

Both deferred and prepaid taxes are determined on the basis of the temporary differences between the value attributed to the assets and liabilities according to statutory criteria and the value attributed to the same assets and liabilities for fiscal purposes.

Deferred tax assets are stated, in accordance with the principle of prudence, where there is a reasonable certainty of the existence, in the years in which the related temporary differences will reverse, of a taxable income not less than the differences that will be cancelled. Deferred taxes are not allocated on reserves taxed only in the case of distribution if there is little possibility that the related liability will vest.

CONVERSION OF ITEMS IN FOREIGN CURRENCY

Accounts receivable and payable not held as long-term investments and expressed originally in foreign currencies other than those of countries that have adopted the Euro are stated at the rates prevailing at year-end. The net positive or negative difference between the values of receivables and payables converted at year-end exchange rates and those resulting at the original exchange rates is stated in the income statement under Exchange gains/(losses). Any net income stemming from alignment of values in currency with year-end exchange rates contribute to forming the income for the year and, during approval of the financial statements, is disclosed for the part not offset by any loss for the year, in a non-available shareholders’ equity reserve.

43

______

BALANCE SHEET ASSETS

B

- FIXED ASSETS

B.I

- INTANGIBLE ASSETS

Euro

36,675,333

The detail is as follows: FORMATION AND EXPANSION COSTS

INDUSTRIAL PATENT AND INTELLECTUAL PROPERTY RIGHTS

CONCESSIONS, LICENSES, TRADEMARKS AND SIMILAR RIGHTS

GOODWILL

OTHERS

TOTAL

SOFTWARE, LICENSES AND SIMILAR RIGHTS

TRADEMARKS

VALUE AT 31/12/2003: - Original cost

24,089

349,984

889,460

10,893,868

34,037,732

2,008,150

-

(4,595)

(858)

-

-

-

(5,453)

(23,611)

(289,467)

(598,093)

(2,751,640)

(2,837,295)

(1,466,065)

(7,966,171)

478

55,922

290,509

8,142,228

31,200,437

542,085

40,231,659

- Investments

-

-

-

74,644

-

-

74,644

- Disposals (historical cost)

-

-

-

-

-

-

-

- Disposals (accumulated amortization)

-

-

-

-

-

-

-

- Amortization for the year

(478)

(52,651)

(128,748)

(773,707)

(2,372,484)

(302,902)

(3,630,970)

- Provision for write-down - Accumulated amortization - Net value

48,203,283

CHANGES DURING THE PERIOD

- Write-downs for the year

-

-

-

-

-

-

-

- Reclassifications of historical cost

-

-

(243,512)

243,512

-

-

-

- Reclassificationsof accumulated depreciation

-

-

97,405

(97,405)

-

-

48,277,927

VALUE AT 31/12/2004: - Original cost

24,089

349,984

645,948

11,212,024

34,037,732

2,008,150

- Provisions for write-down

-

(4,595)

(858)

-

-

-

(5,453)

- Accumulated amortization

(24,089)

(342,118)

(629,436)

(3,622,752)

(5,209,779)

(1,768,967)

(11,597,141)

-

3,271

15,654

7,589,272

28,827,953

239,183

36,675,333

- Net value

B.I. 1 Formation and expansion costs Euro 0 Refer to expenses incurred in previous years for formation of the company. The amortization charge for the year was Euro 478.

B.I.3 Industrial patents and intellectual property rights Euro 3,271 Refer mainly to the cost of registering patents. The amortization charge for the year was Euro 52,651.

B.I.4 Concessions, licenses, trademarks and similar rights Euro 7,604,926 Include licenses referring to distribution rights acquired by the company from the DiaSorin AB (Sweden) and Diasorin Deutschland GmbH (Germany) subsidiaries in 2003, the value of which is being written down over a period of 15 years. Total amortization for the period amounted to Euro 902,454.

B.I.5 Goodwill Euro 28,827,953 Represents the net book value of the goodwill arising in 2003 in relation to the Byk Diagnostica S.r.l. incorporated company (Euro 2,014,182), written down over ten years, and the net book value of the goodwill arising in 2003 on the merger of DiaSorin S.p.A. in Biofort S.p.A. (Euro 26,813,771), written down over fifteen years.

Total amortization for financial 2004 amounted to Euro 2,372,484.

44

The value and period of amortization of the goodwill are consistent with company results and future development plans.

B.I.7 Other intangibles Euro 239,183 Refer to capitalization of costs incurred for the acquisition of software packages produced for internal use.

Movements on this account during the year reflect amortization of Euro 302,903.

B.II TANGIBLE ASSETS

Euro

14,612,517

Movements on this account are set out below.

LANDS AND BUILDINGS

PLANT AND MACHINERY

OTHER ASSETS

INDUSTRIAL AND COMMERCIAL EQUIPMENT

CURRENT FIXED ASSETS AND ADVANCES

TOTAL

VALUE AS AT 31/12/2003 - Original cost - Ordinary depreciation

5,651,509

6,541,571

25,058,936

1,355,439

-

38,607,455

(1,982,875)

(3,670,349)

(10,845,560)

(1,010,038)

-

(17,508,822) (4,513,130)

- Accelerated depreciation

-

-

(4,513,130)

-

-

- Write-downs

-

-

(114,886)

-

-

(114,886)

2,871,222

9,585,360

345,401

-

16,470,617

- Net value

3,668,634

CHANGE IN THE PERIOD - Disposals (historical cost)

-

(34,438)

(1,703,062)

(52,266)

-

(1,789,766)

- Disposals (accumulated depreciation)

-

26,237

916,324

50,717

-

993,278

- Disposals (accummulated accelerated depreciation)

-

-

502,676

-

-

502,676

21,545

122,660

3,884,915

49,858

221,150

4,300,128

- Investments/capitalization - Riclassifications (historical cost)

-

119,715

(119,715)

-

-

-

- Reclassifications (accumulated depreciation)

-

(23,943)

23,943

-

-

-

- Reclassifications (accumulated accelerated depreciation) anticipfor ) the period - ordinary -ammort Depreciation

-

-

-

-

-

-

(725,278)

(2,677,191)

(140,862)

-

(3,855,349)

(312,018)

- Depreciation for the period - accelerated

-

-

(2,017,942)

-

-

(2,017,942)

- Write-downs Depreciations VALUE AS AT 31/12/2004

-

(106,011)

114,886

-

-

8,875

- Original cost - Ordinary depreciation

5,673,054

6,749,508

27,121,074

1,353,031

221,150

41,117,817

(2,294,893)

(4,393,333)

(12,582,484)

(1,100,183)

-

(20,370,893) (6,028,396)

- Accelerated depreciation

-

-

(6,028,396)

-

-

- Write-downs

-

(106,011)

-

-

-

(106,011)

2,250,164

8,510,194

252,848

221,150

14,612,517

- Net value

3,378,161

There are no liens of any type on tangible assets.

Depreciation for the period is determined applying the following rates, taking into account the residual possibility of use of the assets.

Buildings - Industrial buildings Plant and machinery - Generic plant - Specific plant - Machinery Equipment - Equipment - Equipment with third parties Other assets

5.5% 10% 12% 12% 40% 25%

45

- Furniture, machines and office equipment - Electronic machines - Motor vehicles

12% 20% 20/25%

In addition to ordinary depreciation, rates of economic significance, considering the above average use thereof, have been applied only to equipment on loan to third parties.

B.III FINANCIAL ASSETS

Euro

51,955,889

This caption was unchanged in relation to the previous year. The breakdown is set out below: Company

Registered office

Currency

Share capital

Par value per share or quota

% of direct interest

No. shares or quotas owned directly

250

Cost

Value as Shareholders’ at equity as per last 31/12/2004 financial statements

INVESTMENTS IN SUBSIDIARIES at 31/12/2004

DIASORIN SA

BRUSSELS Belgium

EUR

1,674,000

6,696

99.00%

DIASORIN LTDA

SAN PAOLO Brazil

BRR

10,011,893

1

99.00%

ANTONY France

EUR

960,000

15

99.00%

62,494

MADRID Spain

EUR

1,453,687

6

99.00%

DIASORIN Ltd

WOKINGHAM Great Britain

GBP

500

DIASORIN Inc.

STILLWATER USA Q MEXICO CITY Mexico

USD

DIASORIN S.A.

DIASORIN SA

DIASORIN MEXICO SA de CV

1,145,001

1,145,001

2,410,018

10,011,893 2,588,027

2,588,027

3,818,053

1,717,500

1,717,500

2,764,827

241,878

572,500

5,330,802

5,487,335

1 100.00%

500

572,500

572,500

413,387

1

0 100.00%

100

6,297,500

30,914,849

12,469,521

MXP

50,000

1 100.00%

50,000

12,512

12,512

30,522

DIASORIN DEUTSCHLAND GMBH

DIETZENBACH Germany

EUR

275,000

1 100.00%

1

4,855,032

4,855,032

4,160,470

DIASORIN AB

Bromma Sweden

EUR

5,000,000

1 100.00%

1

4,818,667

4,818,667

5,201,948

22,579,238

51,954,889

TOTAL SHAREHOLDINGS IN OTHER COMPANIES Saluggia CONSORZIO SOBEDIA Italy

EUR

5,000

20

TOTAL

1

1,000

1,000

22,580,238

51,955,889

During 2003, the American investment was revalued for Euro 24,617 thousand in order to align this with the higher value of the investment resulting from an independent appraisal.

Such higher value is supported by cash flows obtained from the subsidiary and forecast earnings.

No value adjustments have been made to equity investments that recorded losses during the year insofar as these are not considered permanent.

C - CURRENT ASSETS C.I

- INVENTORIES

The detail is as follows: - Raw materials - Semi-finished products - Finished products 46

Euro

14,665,644

Euro Euro Euro

3,800,870 6,167,698 4,697,076

Inventories of raw materials, goods and finished products are valued according by the LIFO method. If the inventories had been valued at the costs current at year-end, the resulting value would not have differed to any considerable extent from that stated in the accounts.

Inventories are stated net of provisions for write-down of the warehouse of Euro 1,397,702.

C.II ACCOUNTS RECEIVABLE

Euro At 31/12/2004

C.II.1 Trade a – falling due within 12 months C.II.2 from subsidiaries a – falling due within 12 mionths C.II.4 bis from the Tax Authorities a – falling due within 12 months C.II.4 ter Prepaid taxes a – falling due within 12 months b – falling due beyond 12 months C.II.5 from others a – falling due beyond 12 months TOTAL

37,826,466 At 31/12/2003

24,782,973

26,073,821

7,197,471

7,911,984

302,793

521,660

1,345,678 3,906,088

935,377 4,304,866

291,463 37,826,466

1,443,662 41,191,370

The breakdown of receivables denominated in foreign currency at December 31, 2004 is as follows: 31/12/2004

US dollars

Currency

Euro

4,355,090

3,337,167

The detail of accounts receivables by geographical areas is set out in the table below: Accounts receivable Trade From subsidiaries From affiliates From shareholders From the Tax Authorities Prepaid taxes From others Total

Italy 19,332,846

Other EU countries

Rest of Europe Others

1,457,818 4,072,125

61,166

3,931,143 3,125,346

24,782,973 7,197,471 0 0 302,793 5,251,766 291,463

5,529,943

61,166

7,056,489

37,826,466

302,793 5,251,766 291,463

25,178,868

TOTAL

C.II.1 Trade accounts receivable Euro 24,782,973 The balance of the allowance for bad and doubtful accounts amounted to Euro 3,646,161 following utilization during the year of Euro 16,089 and allocation of Euro 539,425.

47

C.II.2 from subsidiaries

Euro

7,197,471

.a. falling due within 12 months – trade Euro 5,842,886 Relate to supplies of goods and services to other Group companies. The breakdown is as follows:

- DiaSorin INC. (USA) - DiaSorin S.A. (Spain) - DiaSorin LTDA. (Brazil) - DiaSorin S.A. (France) - DiaSorin SANV (Belgium) - DiaSorin Ltd (U.K.) - DiaSorin Deutschland GmbH (Germany) - DiaSorin AB (Sweden)

1,132,256 303,167 1,991,115 542,383 139,177 471,554 1,036,335 226,899 -----------5,842,886 ======= .b. falling due within 12 months - financial Euro 469,115 Relate to Group centralized cash management transactions with DiaSorin S.A. (Spain) for Euro 467,956 and DiaSorin Ltd (UK) for Euro 1,159. .c. falling due within 12 months – others Euro 885,470 Refer to the amount receivable from DiaSorin Deutschland GmbH (Germany) for distribution of the related dividends.

C.II.4.bis from the Tax Authorities Euro 302,793 Refer mainly to receivables from the Tax Authorities for withholdings and for advance payments.

C.II.4.ter Deferred tax assets Euro 5,251,766 Deferred tax assets have been determined applying the rates that, it is assumed, will be in force at the time of use of the related fiscal benefits. Pre-paid taxes allocated during the year amounted to Euro 1,394,479 and refer to amortization of goodwill written down in previous years and to entertainment expenses restricted to the period 2005-2010 as current industrial plans suggest the existence of a future taxable income not less than the differences that will be reversed. Deferred tax assets were used for Euro 1,382,956, relating mainly to prior fiscal losses (equal to Euro 489,060) and to the amortization of the goodwill for the year (for Euro 751,963).

The detail of deferred tax assets stated in the accounts is provided below:

48

Temporary differences

Tax effect IRES (rate)

At 31/12/2004 Total fiscal effect

Fiscal effect IRAP (rate)

Deferred tax assets For permanent losses of value . Provisions for risks and charges . Entertainment expenses . Directors’ fees . Other costs deductible in subsequent years TOTAL

12,112,152 1,503,712 263,491 60,000 166,190 13,879,355

3,997,010 496,225 86,952 19,800 54,843 4,654,830

514,767 63,908 11,198 7,063 596,936

4,511,777 560,133 98,150 19,800 61,906 5,251,766

Deferred tax assets have not been calculated on temporary timing differences that will be reversed after 2010 or the period of reversal of which is not known at the moment, which amount to Euro 2,220 thousand.

C.II.5 from others The breakdown is as follows:

Euro

As at 31/12/2004

Other receivables For advance payments on supplies From employees for advances Net receivables from the Tax Authorities for VAT Germany Security deposits and other items TOTAL

189,646 57,675 44,142 291,463

C.III – FINANCIAL ASSETS OTHER THAN FIXED ASSETS

291,463

As at 31/12/2003 36,204 150,777 1,119,312 137,369 1,443,662

Euro

4,331,527

Refer to the outstanding portion of the at-call loan granted to the American subsidiary for a total of US$5,900,000.

C.IV - LIQUID ASSETS

Euro

4,724,203

Consist exclusively of ordinary bank and post office current accounts including the Group central cash management account.

Cash and cash equivalents on hand amounted to Euro 6,341.

D.

- PREPAID EXPENSES AND ACCRUED INCOME

Refer mainly to insurance, interest and leasing and rental fees.

49

Euro

192,522

A.

SHAREHOLDERS’ EQUITY

Euro

55,996,544

The movement on shareholders’ equity is set out below:

Share premium

CHANGES IN SHAREHOLDERS’ EQUITY Capital Value at 31/12/2003 Allocation to the legal reserve

50,000,000

reserve 4,424,598

Retained Profit/(loss) for the Legal earnings/accumureserve lated losses period -

-

16,219

Allocation of retained earnings

308,163

Net income for the period Value at 31/12/2004

50,000,000

4,424,598

16,219

308,163

Net worth for the fin. period

324,382

54,748,980

(16,219)

-

(308,163)

-

1,247,564

1,247,564

1,247,564

55,996,544

The paid-up share capital consists of 50 million shares to bearer with a par value of Euro 1 each.

The composition of shareholders’ equity at December 31, 2004 is set out below: Amount at 31/12/2004 Capital reserves . Share capital . Share premium reserve Reserves formed with profit . Legal reserve . Retained earnings/(losses) . Income/(loss) for the period

Quota Possibility of utilization available

50,000,000 4,424,598

---A,B

---100%

16,219 308,163 1,247,564

---A,B,C A,B,C

---100% 95%

A: increase in share capital B: coverage of prior losses C: for distribution of dividends to the shareholders

B. RESERVES FOR RISKS AND CHARGES

Euro

1,297,071

B.3 Other provisions The detail is as follows:

Euro

1,297,071

Provision for Agents’ Supplementary Indemnity Amounts to Euro 397,071 and reflects possible charges to be paid to agents of the company in the case of discontinuation of the agency relationship for causes ascribable to the company.

Provision for litigation Amounts to Euro 700,000 and refers to potential commercial and fiscal litigation.

Provision for Warranty Risks Amounts to Euro 200,000 and refers to coverage, on a contractual and historical basis, of charges on sales for the year that will arise in the future.

50

C. RESERVE FOR EMPLOYEES’ SEVERANCE INDEMNITIES

Euro

5,855,800

The changes in this account are set out below.

Value as at 31/12/2003 Increases: - provision for the period Decreases: - amounts paid in the period Value as at 31/12/2004

D. LIABILITIES

Euro

Euro

5,651,017

"

839,713

" Euro

(634,930) 5,855,800

101,791,632

Company liabilities at year-end are set out in the schedule below:

D.3 Liabilities towards shareholders for loans a – falling due within 12 months b – falling due beyond 12 months D.4 Due to banks

Values as at 31/12/2004

Values as at 31/12/2003

9,883,182 44,315,926

53,216,465 9,616,465

280,420 2,267,820

279,637 2,533,542

15,258,583

14,390,420

a – falling due within 12 months b – falling due beyond 12 months D.7 Trade accounts payable a – falling due within12 months D.9 Due to subsidiaries a – falling due within 12 months - trade b – falling due within 12 months - financial c – falling due within 12 months - others d – falling due beyond 12 months - others D.12 Due to the Tax Authorities

1,991,170

6,437,692

11,108,369 1,627,887 1,627,887

4,793,948 2,766,078 3,253,395

3,704,881

2,161,260

659,598

581,002

6,765,909 2,300,000 101,791,632

5,600,622 5,313,264 110,943,790

a – falling due within 12 months D.13 Due to pension and social security institutions a – falling due within1 2 months D.14 Other liabilities a – falling due within 12 months b – falling due beyond 12 months TOTAL

The breakdown of liabilities according to geographical area is set out below:

51

Italy

Liabilities Due to banks Due to shareholders for loans Trade Due to subsidiaries Due to affiliates Due to controlling company Due to the Tax Authorities Due to pension and social security institutes Due to others Total

2,548,240 54,199,108 7,662,261

Other EU countries

Rest of Europe

4,839,380 12,707,301

186,337

17,546,681

186,337

3,704,881 659,598 8,551,997

77,326,085

€ € €

54,199,108

Long-term of which beyond 5 years portion

Short-term portion 3,388,432 4,794,750 1,700,000 9,883,182

2,548,240 54,199,108 15,258,583 16,355,313 0 0 3,704,881 659,598 9,065,909

6,732,529 101,791,632

Euro

Currency

Interbanca 2004 USD Interbanca 2004 Euro Interbanca 2002 for purchase of Byk Group TOTAL

2,570,605 3,648,012

513,912

D.3 Liabilities towards shareholders for loans The detail is as follows: Issued by

Others TOTAL

16,942,166 23,973,760 3,400,000 44,315,926

3,388,432 4,794,760 0 8,183,192

Total 20,330,598 28,768,510 5,100,000 54,199,108

On January 28, 2004, DiaSorin S.p.A. repaid its debts to Interbanca for Euro 47,000 thousand and $7,889 thousand respectively (for a total of Euro 53,268 thousand). At the same time, it stipulated a new loan of 55 million with Interbanca. Part of such loan (US$30 million) is denominated in dollars in order to balance positive cash flows resulting from transactions in this currency with payments of interest and capital to serve the same loan.

Interest is paid on a six-month basis applying Euribor (to the part in Euro) or Libor (to the part in US$) increased by the spread detailed below: Up to 31/12/04

1/1/05 - 31/12/06

1/1/07 - 31/12/10

Tranche in Euro

Euribor 6M+1.75

Euribor 6M+1.50

Euribor 6M+1.25

Tranche in $

Libor 6M+1.75

Libor 6M+1.50

Libor 6M+1.25

The loan is guaranteed by a pledge consisting of 85% of the shares forming the share capital.

Furthermore, without prior consent, the company may not dispose of its business or branches thereof, of movable and immovable property, of shareholdings or any tangible/intangible asset exceeding the amount of Euro 2.5 million relating to the carrying value for each company year.

Lastly, the company may not, without prior consent, contract any medium-term loan that may result in total exposure of more than Euro 4.0 million for each company year.

The loan, which expires in December 31, 2010, will be repaid through payment of 26 deferred sixmonthly installments of which 13 relating to the tranche in Euro and 13 to the tranche in US$. The first two installments were repaid in December 2004.

Interest for the year amounted to Euro 2,256 thousand.

It should be noted that covenants exist in relation to the aforementioned loan that the Group complied with in 2004 as set forth in the table below: 52

Reference value

Index Net financial expense/EBITDA

Group value 2004

less than 0.2 less than 1.5 less than 3

Net financial position/shareholders’ equity Net financial position/EBITDA

D.4 Due to banks

Euro

0.1 1.1 2.2

2,548,240

Refer to the outstanding portion of the soft loan (1.50 percentage points) granted by CRT – Unicredit of Turin, equal to Euro 3,063,493, within the framework of Law No. 365/2000, in favor of entities damaged by the 2000 floods, and maturing in 2012.

D.7 Trade payables Euro 15,258,583 Refer to commercial transactions and all fall due within 12 months.

The breakdown of trade accounts payable in non-EU foreign currency carried at historical cost is as follows: 31/12/2004 Currency US dollars Swedish Krone Pounds sterling Canadian dollars

1,553,045 1,050,081 5,369 1,362

D.9 Due to subsidiaries

Euro 1,140,184 116,410 7,616 829

Euro

a. falling due within 12 months – trade Euro Refer to goods and services received from subsidiaries. The detail is as follows: - DiaSorin Deutschland GmbH (Germany) - DiaSorin Inc. (USA) - DiaSorin S.A. (Spain) - DiaSorin S.A. (France) - DiaSorin S.A. (Mexico) - DiaSorin S.A. (Belgium) - DiaSorin A.B. (Sweden)

1,505,203 248,099 112,800 4,103 11,759 509 108,697 -----------1,991,170 =======

53

31/12/2003 Currency 2,057,197 35,958 25,670

Euro 1,770,655 51,018 16,352

16,355,313

1,991,170

b. falling due within 12 months - financial Euro 11,108,369 Refer to the Group’s centralized cash management. The breakdown is as follows:

- DiaSorin Deutschland GmbH (Germany) - DiaSorin Inc. (USA) - DiaSorin SANV (Belgium) - DiaSorin S.A. (France) - DiaSorin AB (Sweden)

1,281,253 3,400,833 282,746 80,180 6,063,357 -----------11,108,369 =======

c. falling due within 12 months – others Euro 1,627,887 Refer to the portion of amounts due to DiaSorin Deutschland GmbH (Euro 1,073,600) and DiaSorin AB (Euro 554,287) in 2005 for acquisition of distribution and production license rights. d. falling due beyond 12 months - others Euro 1,627,887 Reflect the amount falling due beyond 12 months of liabilities for the purchase of distribution rights from Diasorin Deutschland GmbH (for Euro 1,073,600) and from DiaSorin AB (for Euro 554,287).

D.12 Due to the Tax Authorities

Euro

3,704,881

Refer mainly to the liability towards the Tax Authorities for VAT on sales on which tax has been deferred (Euro 1,980,974). This item also includes the tax liability for the year (Euro 2,006,768) net of advances paid (Euro 934,978).

D.13 Due to pension and social security institutes

Euro

659,598

The detail is as follows: As at 31/12/2004 As at 31/12/2003 544,980 714 82,384 31,520 659,598

INPS INAIL ASSIDIM/FONCHIM/FASI/FASCHIM ENASARCO TOTAL

54

501,692 892 49,918 28,500 581,002

D.14 Due to others

Euro

9,065,909

The detail is as follows: Al 31/12/2004

Al 31/12/2003

4,600,000 513,912 3,305,197 184,971 271,204 190,625 9,065,909

6,805,000 1,426,531 2,431,800 0 152,178 98,377 10,913,886

Paybles to Altana Pharma Paybles to American Standard Paybles to Employees Paybles to Tax Anthorities for VAT in Germany Paybles to Farmafactoring Other liabilities TOTAL

The amount owing to Altana Pharma refers: - for Euro 3,000,000 to the amount due for acquisition of equity interests at the end of 2002, repaid during the year in the sum of Euro 1,405 thousand; - for Euro 1,600,000 to the financial liability acquired in 2003 from DiaSorin Deutschland GmbH. Both the above amounts will be repaid at constant rates over the next two years.

The amount owing to “American Standard” comprises the outstanding portion of the $2,100,000 envisaged by the “Settlement Agreement” and will be paid next year; $700 thousand were repaid during the year.

Movements in the two items indicated above are set out in the table below: beginning balance

repayments

Paybles to Altana Pharma Paybles to American Standard

6,805,000 1,426,531

(2,205,000) (571,989)

TOTAL

8,231,531

(2,776,989)

E. ACCRUED

EXPENSES AND DEFERRED INCOME

Reflect mainly accruals of interest for the year.

55

exchange difference

total

of which short term

(340,630)

4,600,000 513,912

2,300,000 513,913

(340,630)

5,113,912

2,813,913

Euro

43,054

MEMORANDUM ACCOUNTS

The memorandum accounts reflect the risks, commitments and guarantees given by the company to third parties. The detail is as follows: As at 31/12/2004

As at 31/12/2003

Guarantees given to third parties

1,302,810

967,855

Sureties for guarantees received

8,190,059

16,308,472

27,072,992

22,726,866

Other memorandum accounts Comprising : -

Company assets with third parties

-

Company goods with third parties

-

Contractual commitments

-

Third party goods

-

Collection orders in circulation

23,909,975

TOTAL

22,204,320

2,195

-

2,287,276

171,212

16,616

13,330

856,930

338,004 36,565,861

40,003,193

Guarantees given to third parties refer to public tenders for the domestic market.

The amount stated under Sureties for guarantees received refers mainly to: -

guarantees for endorsement credit of $700,000 granted by SAN PAOLO IMI as part of the settlement agreement with American Standard, beneficiary of the guarantee, that will be repaid next year;

-

two guarantees issued by INTERBANCA (for Euro 6,000,000 and Euro 1,600,000) referring to the credit line that can be used in “endorsement� form as financial support for acquisition of the diagnostic activities of the Altana Pharma group, which will be reduced at constant rates over the next two years.

Other memorandum accounts include instruments on free loan or as free issue material.

This item also includes contractual commitments referring to buy-back at term of $3,000,000 as part of a cash forward transaction on the American currency stipulated in December and expiring in June 2005. This currency swap resulted in disclosure under financial expense of the income statement of the related accrual pertaining to the year of the difference between the sales price and repurchase price of the dollars.

Leased assets are stated according to current statutory practice in Italy that envisages disclosure of leasing fees paid in the income statement. Application of the financial method would have resulted in disclosure of interest on the capital financed and the quotas of amortization on the value of the assets leased, proportionally to the remaining possibility of use of the assets, and also statement of the assets on the assets side of the balance sheet and of the remaining liability under liabilities.

This recalculation has no significant effect on the income for the year and on shareholders’ equity at December 31, 2004.

56

A. PRODUCTION VALUE

Euro

92,268,073

Euro

88,721,467

The detail is as follows: A.1 Sales and service revenues

The breakdown of sales and service revenues by geographical area is set out below: Euro/Thousands

Italy 2004

Abroad 2004

Total 2004

TOTAL

36,271

52,450

88,721

A.4 4 Increase in fixed assets produced internally

Euro

406,391

Reflects the capitalization of costs referring to the reconditioning of assets and spare parts used for such activities.

A.5.b Other revenues and income

Euro

2,938,907

The detail is as follows:

Costs for services rebilled to subsidiaries Royaltie receivable Capital gains on disposal of assets Legal fees charged to customers following legaal actions Revenue from contractual penalties Other sundry income TOTAL

2004

2003

2,173,992 53,361 96,534 48,625 114,454 451,941 2,938,907

1,959,206 22,319 122,244 79,274 310,874 1,329,710 3,823,627

The costs rebilled to subsidiaries refer to the reallocation of costs incurred centrally for corporate management of the Group that are charged according to use of services by the companies.

B. PRODUCTION COST

Euro

87,892,808

Euro

36,533,641

The detail is as follows: B.6 Raw materials, consumables and goods for resale

Include costs for purchases from subsidiaries of Euro 8,554,292.

57

B.7 Services

Euro

19,973,780

The breakdown is as follows:

Hearth care Industrial expenses Expenses for external services Sales expenses Functional expenses Professional services Intercompany services Bank fees and charges TOTAL

2004

2003

43,997 2,981,209 2,356,784 7,128,641 1,793,953 1,977,354 3,518,515 173,327 19,973,780

36,747 2,893,488 2,108,290 6,467,299 1,582,691 2,174,038 5,685,449 201,898 21,149,900

The costs for intercompany services include rebilling of services provided by the German and Swedish subsidiaries on the basis of service agreements stipulated during the year.

B.8 Use of third party assets

Euro

2,855,295

Refer to fees for the rental of real property and related accessory charges, to Royalties payable for the use of patents, to leasing fees for equipment, motor vehicles and other.

B.9 Cost of personnel

Euro

15,719,962

The average work force during the year was as follows : managers 12 – white collar workers 233.6 – blue collar workers 84.9 for an average total of 330.5 persons.

B.10 Amortization, depreciation and write-downs

Euro

10,043,687

For an analysis of these items, refer to the comment on the matching income statement items.

B.12 Provisions for risks and charges

Euro

700,000

Refer to provisions made to cover potential commercial and fiscal disputes.

B.14 Miscellaneous operating expenses

Euro

1,795,277

Reflect membership fees, capital losses on disposals, entertainment expenses, adverts, books, newspapers, indirect taxes and non-operating losses.

C. FINANCIAL INCOME AND EXPENSE

Euro

2,379,400

C.15

Euro

885,470

Income from equity investments

Stem from the distribution of dividends by the DiaSorin G.m.b.H. affiliate stated on an accruals basis.

58

C.16

Other financial income

C.16.d.1 from subsidiaries

Euro

404,711

Euro

311,907

Refer to the loan to the DiaSorin Inc. subsidiary for Euro 295,866 and centralized cash management relationships with other subsidiaries for Euro 16,041.

C.16.d.4 from others

Euro

92,804

The detail is as follows:

Interest income on receivables from banks Other income TOTAL

2004

2003

69,456 23,348 92,804

46,539 8,001 54,540

C.17 Interest and other financial expense

Euro

4,320,706

C.17.d.1 payable to subsidiaries

Euro

536,291

Refer to interest at market rates accrued on financial liabilities towards subsidiary operating companies stemming from centralized cash management as already amply discussed.

C.17.d.4 payable to others

Euro

3,784,415

The detail is as follows:

Bank interest Fees on factoring Fees on financial guarantees Interest paybles to others TOTAL

C.17.bis Foreign exchange gains and losses

Euro

2004

2003

2,387,094 974,900 148,476 273,945 3,784,415

1,776,211 1,020,543 222,461 3,019,215

651,125

Refer to commercial and financial net gains realized on debit or credit relationships concluded during the year and not realized on existing debit or credit relationships valued at year-end exchange rates. In particular, net losses during the year amounted to Euro 516 thousand while the unrealized part consists of a profit of Euro 1,167 thousand. The net balance of exchange rate losses/gains including the part referring to previous years, stated under extraordinary income and expense, was negative for Euro 289 thousand.

59

E. EXTRAORDINARY INCOME AND EXPENSE

Euro

1,246,944

E.20 Extraordinary income

Euro

1,310,743

Refers to the net adjustment of items denominated in foreign currency for the part referring to previous years following the change in the accounting principle required by the reform to the financial statements. The amount stated consists of extraordinary realized gains on exchange rates of Euro 2,769,363, net of extraordinary expense on unrealized exchange rates for Euro 1,458,620.

E.21 Extraordinary expense

Euro

63,799

Euro

1,995,245

Refer to the charge for the 2003 tax amnesty.

E.22 Income taxes for the year

Income taxes for financial 2004 are detailed as follows:

Current taxes of which IRAP

Advance taxes Net taxes

2004

2003

2,006,768 981,564 (11,523) 1,995,245

647,336 647,336 (772,100) (124,764)

Advance taxes are net of utilization of deferred tax assets allocated in previous years (Euro 1,422 thousand).

Currant taxes include the fiscal effect deriving from alignment of accounting principles following reform of the financial statements, included under extraordinary income and expense.

The reconciliation between the fiscal liability stated in the accounts and the theoretical fiscal liability is shown in the table below: Financial 2004 Taxable income

Tax

3,242,809

Pre-tax income Theortetical tax

1,070,127

Deferred tax assets not allocated on temporary differences in increased of the year Total permanent differences Use of losses brought forward Taxable income IRES stated IRAP stated Totale taxes stated

(435,118) 1,611,964 (1,347,895) 3,071,760 1,013,681 981,564 1,995,245

60

To facilitate understanding of the reconciliation between the tax liability stated in the accounts and the theoretical tax liability, IRAP (Regional Tax on Production Activities) has not been taken into account insofar as it is a tax with a different taxable base from the pre-tax income. Therefore, theoretical taxes have been determined applying only the current tax rate (IRES equal to 33% in 2004) to the pre-tax income.

Referring to the aforementioned reconciliation, it should be noted that the permanent differences include the fiscal effect on non-deductible costs relating to amortization of the goodwill arising on the Biofort merger for Euro 2,062,610.

61

22 00 00 44 C EN NT T SS CO ON N SS O OL L II D DA AT TE ED D FF II N NA AN NC C II A AL L SS T TA AT TE EM ME O O FF T TH HE E D D II A A SS O OR R II N N G GR RO OU U PP •• C C oo nn ss oo ll ii dd aa tt ee dd bb aa ll aa nn cc ee ss hh ee ee tt •• C C oo nn ss oo ll ii dd aa tt ee dd ii nn cc oo m m ee ss tt aa tt ee m m ee nn tt

62

_____

CONSOLIDATED BALANCE SHEET LIABILITIES

Thousands of Euro

ASSETS

As at 31/12/2004 Partial

As at 31/12/2003

Total

A. RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL CONTRIBUTIONS

Partial

Total

-

-

B. FIXED ASSETS I.

1.

3.

4.

5.

6.

7.

8.

INTANGIBLE ASSETS Formation and expansion costs Industrial patent and intellectual property rights Concessions, licenses, trademarks and similar rights Goodwill Consolidation difference Assets in progress and advances Other intangible assets

Total intangible assets (B.I) II.

1.

2.

3.

4.

5.

TANGIBLE ASSETS Land and buildings Plant and machinery Industrial and commercial equipment Other assets Construction in course and advances

Total tangible assets (B.II) III.

2.

FINANCIAL ASSETS 1. Investments in: a. subsidiaries b. affiliates c. other businesses receivables d. from others

Total financial assets (B.III)

234 3 8,407 31,626 18,152 1 907

330 67 9,211 34,213 19,548 439 814

59,330

64,622

10,428 2,911 20,676 657 241

11,431 3,568 22,380 868 20

34,913

38,267

39

39

1

1

34

38

74

78

TOTAL FIXED ASSETS (B)

94,317

102,967

C. CURRENT ASSETS I.

INVENTORIES 1. Raw materials, consumables and goods for resale 2. Work in progress and semi-finished products 3. Contract work in progress 4. Finished products and goods 5. Advances

Total inventories (C.I.)

63

5,714

5,425

8,294 0 8,639 41

7,971

22,688

22,212

8,814 2

Thousands of Euro

ASSETS

As at 31/12/2004 Partial

ACCOUNTS RECEIVABLE 1. Trade a. falling due within 12 months Total trade receivables (C.II.1)

As at 31/12/2003

Total

Partial

Total

II.

43,223 43,223

44,184 44,184

4. bis From Tax Authorities a. falling due within 12 months Total receivables from Tax Authorities (C.II.4 bis)

635 635

976 976

4. ter Prepaid taxes a. falling due within 12 months a. falling due beyond 12 months Total receivables from Tax Authorities (C.II.4 ter)

8,384 8,384

935 7,231 8,166

5. From others a. falling due within 12 months Total receivables from others (C.II.5)

1,256 1,256

2,229 2,229

53,498

55,555

9,149 12

6,051 12

9,161

6,063

Total accounts receivables (C.II) IV.

LIQUID ASSETS 1. Bank and Post Office deposits 3. Cash on hand

Total liquid assets (C.IV) TOTAL CURRENT ASSETS (C)

85,347

83,830

D. PREPAID EXPENSES AND ACCRUED INCOME

1. Prepaid expenses 2. Other accruals and deferrals

80 421

TOTAL PREPAID EXPENSES AND ACCRUED INCOME (D)

TOTAL ASSETS (A + B + C + D)

64

415 501

415

180,165

187,212

_____CONSOLIDATED BALANCE SHEET Euro/thousand LIABILITIES

As at 31/12/2004 Partial

As at 31/12/2003

Total

Partial

Total

A. SHAREHOLDERS’ EQUITY I. II. IV. V. VIII. IX. X.

Capital Share premium reserve Legal reserve Consolidation reserve Conversion reserve Retained earnings/(accumulated losses) Net income/(loss for the period

50,000 4,425 16 867 (3,028) (696) 3,623

TOTAL SHAREHOLDERS’ EQUITY

50,000 4,425 867 (2,028) 870 55,207

Minority interest in net income and reserves

54,134 (1,550)

-

GROUP TOTAL SHAREHOLDERS’ EQUITY (A)

55,207

B. RESERVES FOR RISKS AND CHARGES 1. Provision for pensions and similar liabilities i i ili also deferred for taxes, 2. Provision diff i 3. others

8,548 1,727 1,461

TOTAL RESERVES FOR RISKS AND CHARGES (B) C. RESERVE FOR EMPLOYEES’ SEVERANCE INDEMNITIES

52,584

11,274 884 828 11,736

12,986

6,456

6,663

D. LIABILITIES 3. Liabilities to shareholders for loans a. falling due within 12 months b. falling due beyond 12 months Total liabilities towards shareholders (D.3)

9,883 44,316 54,199

51,823 8,223 60,046

4. Due to banks a. falling due within 12 months b. falling due beyond 12 months Total due to banks (D.4)

455 5,450 5,905

458 6,154 6,612

5. Due to other providers of finance a. falling due within 12 months b. falling due beyond 12 months Total liabilities towards other providers of finance (D.5)

1,746 1,750 3,496

1,314 1,669 2,983

6. Advances Total advances (D.6)

74 74

7. Trade accounts payable a. falling due within 12 months Total trade accounts payable (D.7)

18,257 18,257

65

-

18,019 18,019

Thousands of Euro

LIABILITIES

As at 31/12/2004 Partial

12. Due to Tax Authorities a. falling due within 12 months Total due to Tax Authorities (D.12)

Partial

Total

6,949 6,949

6,123 6,123

1,089

979

1,089

979

4,657 10,146 14,803

10,385 8,154 18,539

13. Due to social security institutions a. falling due within 12 months Total liabilities towards social security institutions (D.13) 14. Other payables a. falling due within 12 months b. falling due beyond 12 months Total other payables (D.13)

Total

As at 31/12/2003

TOTAL LIABILITIES

104,772

113,301

E. ACCRUED EXPENSES AND DEFERRED INCOME 2. Other accruals and deferrals

1,994

TOTAL ACCRUED EXPENSES AND DEFERRED INCOME (D) TOTAL LIABILITIES (A + B + C + D + E)

66

1,678 1,994

1,678

180,165

187,212

_____CONSOLIDATED BALANCE SHEET Thousands of Euro

MEMORANDUM ACCOUNTS

As at 31/12/2004 Partial

Guarantees given to third party Sureties for guarantees received Other memorandum accounts

As at 31/12/2003

Total

1,303 8,190 29,866

67

Total

968 16,308 22,985 39,359

TOTAL

Partial

40,261

____CONSOLIDATED INCOME STATEMENT Thousands of Euro Financial year 2004 Partial A. VALUE OF PRODUCTION 1. Sales and service revenues 2. Change in inventories of work in progress, semi-finished and finished products 4. Increases in fixed assets produced internally 5. Other revenues and income: b. other revenues and income

Financial year 2003

Total

142,524

Partial

Total

131,836

422 4,390

(83) 3,065

2,008

3,286

TOTAL VALUE OF PRODUCTION (A)

149,344

B. PRODUCTION COST 6. Raw materials, consumables, and goods for resale 7. Services 8. Use of third party assets 9. Personnel: a. wages and salaries b. social security contributions c. severance indemnities d. provision for pensions and similar obligations e. other costs Total personnel costs (B.9) 10. Amortization, depreciation and write-downs a. amortization of intangible assets b. depreciation of tangible assets c. other write-downs of fixed assets d. write-down of receivables included in current assets and of liquid assets Total amortization, depreciation and write-downs (B.10) 11. Change in inventories of raw materials, consumables, and goods for resale 12. Provisions for risks and charges 13. Other provisions 14. Miscellaneous operating expenses TOTAL PRODUCTION COST (B)

NET PRODUCTION VALUE (A - B)

68

138,104

44,492 28,365 4,622

41,496 27,488 5,245

29,801 6,875 1,211 612 304

30,169 6,815 2,224 1,147 210

38,803

40,565

5,815 12,241 -

5,709 11,629 115

540

452

18,596

17,905

532 761 207 2,834

(1,581) 350 237 1,572 139,212

133,277

10,132

4,827

Thousands of Euro Financial year 2004

Financial year 2003

Partial

Partial

Total

Total

C. FINANCIAL INCOME AND EXPENSE

16. Other financial income: a. from receivables stated under fixed assets - others d. income other than that above 4. from others and miscellaneous income Total other financial income (C.16)

1

3

423

482

424

485

17. Interest and other financial expense: a. interest payable to subsidiaries c. interest payable to controlling companies d. expense other than above: 4. to others

(56)

(56)

(4,572)

(4,251)

Total interest and other financial expense (C.17)

(4,628)

(4,307)

17.bis Exchange gains/(losses)

1,080

1,617

TOTAL FINANCIAL INCOME AND EXPENSE (C15 + C16 - C17+C17bis)

(3,124)

(2,205)

E. EXTRAORDINARY INCOME AND EXPENSE

20. Income: a. gains on disposals c. other extraordinary income

196 965

Total extraordinary income (E.20)

196

21. Expense: b. prior year taxes c. other extraordinary expense

(55) (64)

Total extraordinary expense (E.21)

(660) (119)

(660)

77

305

7,085

2,927

3,462

2,057

3,623

870

TOTAL EXTRAORDINARY ITEMS (E.20 - E.21) INCOME BEFORE TAXES (A - B +/- C +/- D +/- E) 22. Income taxes for the year, current, advanced and deferred Net income/ (loss) for the year 23 Minority interest in net income/(loss) for the year

-

Group interest in net income/(loss) for the year

3,623

69

965

(1,550) (680)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT AS AT DECEMBER 31, 2004

For information regarding the nature of the Group’s business, significant events in early 2005, refer to the contents of the Report on Operations above.

It should be noted that the data of the previous year have been suitably reclassified to take into account changes to the schedules of the accounts introduced by Legislative Decree No. 6/2003 and therefore to permit like-for-like comparison with the current year.

STRUCTURE AND CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements have been prepared according to the provisions of Legislative Decree No. 127/1991 and comprise the Balance sheet, Income statement and these Explanatory notes.

The Notes to the financial statements are intended to illustrate, analyze and in some cases complete the data of the accounts and comprise the information required by Art. 38 of Legislative Decree No. 127/1991 and other laws in force. Furthermore, all the additional information deemed necessary for true and correct representation of the financial performance and financial position and of the operating performance of the Group is provided, even where not specifically required by law.

The consolidated financial statements comprise the financial statements of Diasorin S.p.A. and of the Italian and foreign subsidiaries in which it holds more than 50% of the capital at December 31, 2004. These financial statements have been included in the consolidated accounts according to the line-by-line method as envisaged by Art. 26 of the aforementioned Legislative Decree No. 127/91.

Non-operational subsidiaries and those of limited significant within the Group have been valued at cost.

The list of companies consolidated line by line is provided below: Company

HQ

DiaSorin S.p.A.

Italy

DiaSorin Inc.

USA

DiaSorin S.A./N.V. DiaSorin S.A. DiaSorin L.t.d.

% intere Capogruppo 100.00%

Belgium

99.99%

Spain

99.99%

Great Britain

100.00%

DiaSorin L.t.d.a.

Brazil

99.99%

DiaSorin S.A.

France

99.99%

DiaSorin Deutschland GmbH DiaSorin AB

The entire interest in Diasorin Mexico S.A. has been valued at cost.

70

Germany

100.00%

Sweden

100.00%

The financial statements used for consolidation purposes are those approved or prepared by the respective Boards of the individual companies for approval by their respective Meetings, suitably adapted and, where necessary, rectified to comply with Group accounting principles and also to eliminate any tax-driven effects. Group accounting principles comply with current legal provisions interpreted and integrated according to the accounting principles and standards established by the Italian Accounting Profession and, in the absence thereof, those issued by the International Accounting Standard Board (I.A.S.B.) The reconciliation between the shareholders’ equity and net income stated in the statutory accounts at December 31, 2004 of DiaSorin S.p.A. and the shareholders’ equity and net income for the year stated in the Group consolidated financial statements on the same date is set forth in the commentary on shareholders’ equity.

The summary schedules with the values of the financial statements utilized, including the aggregate and consolidated data, are attached.

BASIS OF CONSOLIDATION AND CONVERSION OF FINANCIAL STATEMENTS IN FOREIGN CURRENCY

The main accounting principles applied in preparing the consolidated financial statements are discussed below:

The carrying values of equity investments consolidated line by line are eliminated against the corresponding underlying shareholders’ equity of the respective companies on the date of preparation of the financial statements, with consequent assumption of the total amount of assets and liabilities, costs and revenues. The difference between the value of the equity investment and the underlying shareholders’ equity is posted where possible to specific items of assets and liabilities of the consolidated companies; any residual amount, if positive, is stated on the assets side of the consolidated financial statements under “difference arising on consolidation” and written down over a period of 15 years; any negative amount is stated under “Consolidation reserve” of shareholders’ equity.

Receivables and payables and also expenses and revenues amongst consolidated companies are eliminated.

Profit and loses on transactions between companies included in the consolidation are eliminated.

Financial statements denominated in currencies other than the Euro, the money of account of the consolidated financial statements, are translated applying the year-end exchange rates to items of the balance sheet and the average exchange rate for the year to items of the income statement. Differences arising on translation of items of initial shareholders’ equity at the exchange rate prevailing at the end of the previous year compared with that in force at the end of the current financial year are posted to a specific item of shareholders’ equity together with those deriving from conversion of the income statement at average exchange rates in relation to the final exchange rate of the year. For financial 2004, the following exchange rates were used to translate financial statements expressed another currency into Euro:

71

Currency

Exchange rate at Exchange rate at 31/12/2004 31/12/2003 1.3621 1.263 0.705 0.7048 3.6729 3.6627 9.0206 9.08

US Dollar Pound sterling Brazilian Reais Swedish Krone

VALUATION CRITERIA

The more significant accounting policies applied, which are consistent with those of the previous year, are set out below:

INTANGIBLE ASSETS

These items are entered at purchase cost or in the case of those conferred at a value determined by independent appraisals. Such values are amortized on a straight-line basis according to the duration of the contract, the period of legal protection and, in any case, referring to expected future benefit to the Group.

Amortization rates are detailed in a specific comment of the item of the accounts.

The goodwill stated in the individual statutory financial statements included in the consolidation is written down over a period of between 10 and 15 years and the difference on consolidation is amortized over 15 years, according to internal analyses and evaluations and development plans and also considering cash return on operations plans.

In the case of a permanent loss of value, regardless of amortization already charged, the asset is written down accordingly; write-downs may be reversed in subsequent years if the reasons therefor no longer exist.

TANGIBLE ASSETS

Fixed assets are stated at purchase cost including any directly-attributable costs and the portion of direct and indirect costs that can be reasonability ascribed to the asset.

For assets conferred, the carrying value corresponds to that established in the related deeds based on expert appraisals.

Ordinary maintenance costs are charged to income as incurred. The costs of improvements are stated to increase the assets concerned only in the case of effective increases in production or extension of the useful life thereof.

Assets are cancelled from the category concerned when disposed of or are scrapped when it is considered that they can no longer be usefully employed inside the company.

72

The gross book value of the assets is distributed over the years in which these are used through straight-line depreciation at constant annual rates that are calculated referring to the forecast useful life of the assets and their possibilities of use. The net book values therefore express the values that can be recovered in subsequent years through the normal flow of revenues. The depreciation rates applied are indicated in the specific comment on the item of the accounts.

In the case of a permanent impairment of value, regardless of depreciation already provided, the asset concerned is written down. Any write-downs are reversed in subsequent years if the underlying assumptions therefore are no longer correct.

For assets purchased during the year, the normal rates are reduced by half considering the minor period of use.

Depreciation is not calculated for assets not yet suitable for use.

Certain Group companies use leased assets which are stated according to international accounting standards.

FINANCIAL ASSETS

Equity investments not consolidated line by line are stated at cost and written down in the case of permanent impairment of value. Any write-downs are reversed in subsequent years if the underlying assumptions therefore are no longer correct.

INVENTORIES OF RAW MATERIALS, SEMI-FINISHED GOODS, FINISHED PRODUCTS AND WORK IN PROGRESS

Raw materials, semi-finished goods, work in progress, finished products and goods are stated at the lower of purchase and production cost and realizable value as reflected by market trends.

Purchase costs include the prices paid to suppliers increased by accessory charges incurred until deposit in the warehouses of the company, net of discounts and refunds.

Production costs comprise both the specific costs of the individual goods or categories of goods, and also reasonably ascribable portions of costs incurred globally in the activities carried out to prepare these (general production expenses).

When allocating general production expenses for assignment to the cost of the products, normal production capacity of the plants is taken into account.

The LIFO method is adopted for raw materials, goods and finished products while the average weighted cost is adopted for semi-finished products and work in progress.

Inventories are stated net of write-downs in order to take into account any obsolete or slow-moving stocks.

RECEIVABLES AND PAYABLES

Receivables are entered at presumed realizable value. Payables are stated at nominal value.

73

ACCRUALS AND DEFERRALS

These items include the quotas of costs and income common to two or more accounting periods in compliance with the accruals principle.

RESERVES FOR RISKS AND CHARGES

Provisions to this type of reserves are intended to cover potential liabilities of the company according to realistic estimates of these.

RESERVE FOR EMPLOYEES’ SEVERANCE INDEMNITIES

The reserve for employees’ severance indemnities is calculated according to legal and contractual provisions and represents the liability accrued by the Group towards employees, net of advances already paid.

REVENUES AND EXPENSES

These items are stated according to the principle of prudence, also disclosing the relating accruals and deferrals.

Revenues are recognized at the moment of transfer of ownership of the goods sold to the purchaser or at the time of completion of the services.

Research and development costs are considered as operating expenses and therefore are charged entirely to income as incurred.

INCOME TAXES FOR THE YEAR

The liability for income taxes for the year is calculated according to legislation in force in the countries where Group companies operate. Deferred taxes are allocated in order to take into account temporary differences between the value attributed to assets and liabilities according to the criteria adopted in preparing the consolidated financial statements and the value attribute thereto for tax purposes.

Pre-paid tax assets are stated, in accordance with the principle of prudence, where there is a reasonable certainty of the existence, in the years in which the related temporary differences will reverse, of a taxable income not less than the differences that will be cancelled. Deferred taxes are not allocated on reserves taxed only in the case of distribution if there is little possibility that the related debt will vest.

Deferred tax assets or liabilities referring to the most significant consolidation adjustments are also determined.

Deferred tax assets and liabilities are offset if referring to the same company. The resulting balance is stated under “Other receivables” of current assets if active and under “Provisions for deferred taxes” if negative.

74

CONVERSION CRITERIA FOR ENTRIES IN FOREIGN CURRENCY

Receivables and payables denominated originally in foreign currencies other than those of countries that have adopted the Euro are stated at year-end exchange rates; positive and negative differences between the values of receivables and payables translated at year-end exchange rates and those recorded at the original rates are stated in the income statement under financial income and financial expense respectively.

75

______CONSOLIDATED BALANCE SHEET ASSETS B – FIXED ASSETS

The schedules of changes in intangible, tangible and financial assets are attached to these Notes.

B.I - INTANGIBLE ASSETS

Euro

59,330 thousand

For details of the movement on this amount, refer to Annex 1.

B.I.1 – Formation and expansion costs Euro 234 thousand Refer mainly to expenses incurred for the setting up of Group companies and are written down over five years.

B.I.3 Industrial patents and intellectual property rights

Euro

3 thousand

Refer mainly to the cost of registration of new patents and are written down over 5 years.

B.I.4 Concessions, licenses, trademarks and similar rights Euro 8,407 thousand Refer mainly to production and distribution rights acquired in the previous year.

The concessions and licenses are written down according to the duration of the contract.

Trademarks are amortized over 5 years.

B.I.5 – Goodwill Euro 31,626 thousand The goodwill carried in the consolidated financial statements arose mainly on mergers carried out in Italy (the net book value of the related goodwill at December 31, 2004 was equal to Euro 28,828 thousand) and in Germany (the net book value of the related goodwill to the December 31, 2004 was equal to Euro 2,764 thousand). The goodwill disclosed in the financial statements of the Parent Company consists of the net book value of the goodwill referring to the Byk Diagnostica S.r.l. incorporated company (Euro 2,014 thousand) and of the net book value of the goodwill arising on the merger of DiaSorin S.p.A. with Biofort S.p.A. (Euro 26,814 thousand). The goodwill relating to Byk Diagnostica S.r.l. is being amortized over 10 years starting from the second half of 2001 and is fiscally deductible while that arising on the merger between Biofort S.p.A. and DiaSorin S.p.A. and between German investees is written down over 15 years. The different periods of amortization are justified by the different earnings prospect of the products to which they refer.

The value and the period of amortization of the goodwill are also justified by the result of the Group and future development plans.

B.I.6 – Difference on consolidation

Euro

18,152 thousand

Reflects the higher value between the purchase cost recorded at the Parent Company in relation to the shareholders’ equity of the investees at the date of acquisition (June 13 2003). The amount thus determined is amortized over 15 years consistently with expectations regarding the duration and development of the business and of the products of the Group, similarly to the criteria applied for goodwill.

B.I.7 – Assets under construction and advance payments

Refer mainly to on-going SW projects.

76

Euro

1 thousand

B.I.8 - Other intangibles

Euro

907 thousand

Euro

34,913 thousand

Refer mainly to software and are written down over 5 years.

B.II – TANGIBLE ASSETS

For the movement on this account, refer to Annex 2.

Depreciation for the period has been determined applying the following rates that take into account the remaining possibility of use of the assets: Buildings - Industrial buildings Plant and machinery - Generic plant - Specific plant - Machinery Equipment - Equipment - Equipment with third parties Other assets - Furniture, machines and office equipment - Electronic machines - Motor vehicles

5.5% 10% 12% 12% 40% 25% 12% 20% 20/25%

In addition to ordinary depreciation, rates twice those indicated have been applied only to equipment on loan to third parties to take into account the effective life of the assets concerned.

Capital expenditures during the year referred mainly to equipment and commercial instrumentation.

B.III – FINANCIAL ASSETS

Euro

74 thousand

B.III 1) a) – Investments in subsidiaries

Euro

39 thousand

Comprise:

Euro 13 thousand referring to the value of the 100% interest in Diasorin Mexico S.A. de C.V. Euro 26 thousand relating to the investment in the German Ukasse pension fund.

B.III 2) d) – Other receivables

Euro

Refer to security deposits.

77

34 thousand

C – CURRENT ASSETS C.I – INVENTORIES

Euro

22,688 thousand

Inventories are entered net of the provision for write-down which amounts to Euro 2,036 thousand.

The breakdown of this item is set forth in the related schedule of the consolidated financial statements.

C.II – ACCOUNTS RECEIVABLE

Euro

53,498 thousand

The detail is as follows: Values as at 31/12/2004 Values as at 31/12/2003 43,223 44,184 635 976 8,384 8,166 1,256 2,229 53,498 55,555

Trade From subsidiaries From affiliates From Tax Authorities For prepaid taxes From others TOTAL

C.II.1 –Trade accounts receivable

Euro

43,223 thousand

Net receivables refer for Euro 35,881 thousand to the domestic markets of the consolidated companies. It should be noted that receivables from public authorities on home markets amounted to Euro 21,135 thousand. The detail of receivables by geographical areas is set out below: Values as at 31/12/2004 21,107 9,650 7,509 4,957 43,223

Italy Europe America Other countries TOTAL

C.II.4.bis Receivables from the Tax Authorities

Euro

635 thousand

Refer mainly to receivables from the Tax Authorities for withholdings and for advance payment of taxes.

C.II.4.ter Pre-paid tax assets

Euro

8,384 thousand

Receivables for pre-paid taxes have been determined applying the rates that, it is assumed, will be in force at the time of use of the related fiscal benefits. The detail of pre-paid tax assets stated in the accounts is provided below:

78

As at 31/12/2004 Temporary differences Pre-paid tax assets . Write-down of intangibles for permanent impairment of value . Reserves for risks and charges . Entertainment expenses . Elimination of intercompany profit (temporary differences) . Directors’ fees . Other costs deductible in subsequent years TOTAL

C.II.5 Other receivables

Euro

Tax effect

12,112 3,329 264 6,517

4,512 1,240 98 2,428

322 22,544

106 8,384

1,256 thousand

The detail is as follows:

Receivables for advances on supplies Receivables from employees for advances Net receivables from the Tax Authorities for indirect taxes Security deposits and other items TOTAL

Values as at 31/12/2004 Values as at 31/12/2003 190 36 172 252 364 1,124 530 817 1,256 2,229

D. - PREPAID EXPENSES AND ACCRUED INCOME

Reflect mainly prepaid expenses on insurance and rental contracts.

79

Euro

501 thousand

______ CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS’ EQUITY

A. – SHAREHOLDERS’ EQUITY

Euro 55,207 thousand

Euro 50,000 thousand The fully paid-in share capital consists of 50 million shares To bearer with a par value of Euro 1 each.

Share capital

Euro 867 thousand The consolidation reserve reflects the negative difference arising on elimination of the carrying value against the underlying shareholders’ equity.

Consolidation reserve

Euro 3,028 thousand Is negative and reflects the alignment of the shareholders’ equity of the companies consolidated according to the line-by-line method deriving from conversion of financial statement denominated in currencies other than the Euro at the exchange rates prevailing at year-end.

Conversion reserve

Changes in shareholders’ equity are set out below: CHANGES IN SHAREHOLDERS’ EQUITY Value as at 31/12/2003 Allocation to legal reserve Allocation of retained earnings Differences on conversion of accounts in currency Net income for the period Value as at 31/12/2004

Capital

50,000

Share premium reserve 4,425

Legal reserve

16

50,000

4,425

16

Retained Net income/ ShareholConsolidation Conversion earnings (accumula- ders’ equity reserve reserve (accumulated ted losses) for the year losses) 867 (2,028) (680) 52,584 (16) (696) 696 (1,000) (1,000) 3,623 3,623 867 (3,028) (696) 3,623 55,207

The reconciliation between the shareholders’ equity and net income in the statutory financial statements of DiaSorin S.p.A. for the year ended December 31, 2004 and the similar data of the consolidated financial statements is as follows (amounts expressed in thousands of Euro):

Statutory accounts of DiaSorin S.p.A. Assumption of the results of the consolidated companies and differences between the carrying value of the consolidated companies and the related shareholders’ equity Elimination of unrealized intergroup profit net of the related tax effect Alignment with accounting principle on exchange rates in statutory accounts Elimination of intergroup dividends Allocation of net income to third parties Consolidated financial statements of the DiaSorin Group

80

Shareholders’ 2004 equity at Net income 31/12/2004 1,248 55,997 4,707 (569) (878) (885) 3,623

2,688 (2,593) (885) 55,207

2003 net Shareholder income s’ equity at 31/12/2003 324 54,749 2,160 (541) 878 (1,951) (1,550) (680)

2,482 (2,024) 878 (1,951) (1,550) 52,584

B. – RESERVES FOR RISKS AND CHARGES

Euro 11,736 thousand

Euro 8,548 thousand Represents the liability accrued towards employees according to contractual agreements or Italian legislation. Refer in particular to the German and Swedish subsidiaries.

B.1 – Provisions for pensions and similar obligations

Euro 1,727 thousand Reflects liabilities for deferred taxes net of pre-paid tax assets, where these can be offset, relating to the individual consolidated companies. Also includes provisions taken in relation to the tax assessment of the Brazilian subsidiary (Euro 507 thousand).

B.2 – Provisions for taxes, including deferred taxes

B.3 – Others Euro 1,461 thousand Refer for Euro 1,297 thousand to the Reflecta controlling company and reflect:

Provision for Agents’ Supplementary Indemnity Amounts to Euro 397 thousand and reflects possible charges to be paid to agents of the Company in the case of discontinuation of the agency relationship for causes ascribable to the Company.

Provision for litigation Amounts to Euro 700 thousand and refers to litigation pending.

Provision for Warranty Risks Amounts to Euro 200 thousand and refers to coverage, on a contractual and historical basis, of charges on sales for the year that will arise in the future.

B. RESERVE FOR EMPLOYEES’ SEVERANCE INDEMNITIES This item is to be ascribed mainly to the Parent Company.

Changes in this account are set out below:

Euro 6,456 thousand

2004 6,663 1,211 (1,418) 6,456

Initial value Provision Utilization/other movements Value at 31/12/2004

D. – LIABILITIES

2003 5,890 2,224 (1,451) 6,663

Euro 104,772 thousand

The detail is as follows:

81

Liabilities to shareholders for loans a – falling due within 12 months b – falling due beyond 12 months Due to banks a – falling due within 12 months b – falling due beyond 12 months Due to other providers of finance a – falling due wihtin 12 months b – falling due beyond 12 months Advances a – falling due within 12 months Trade a – falling due within 12 months Tax payables a – a – falling due within 12 months Payables to social security institutions a – a – falling due within 12 months Other payables a - falling due within 12 months b - falling due beyond 12 months TOTAL

Currency

Interbanca 2004 Euro Interbanca 2002 for acquisition of the Byk Group TOTAL

Values as 31/12/2003

9,883 44,316

51,823 8,223

455 5,450

458 6,154

1,746 1,750

1,314 1,669

74

D.3 – Due to shareholders for loans Refer entirely to the Parent Company and are detailed below:

Interbanca 2004 USD

Values as at 31/12/2004

$ Equivalent value € Euro Euro

18,257

18,019

6,949

6,123

1,089

979

4,657 10,146 104,772

10,385 8,154 113,301

Euro 54,199 thousand

Short-term portion 4,616 3,388 4,795 1,700 9,883

Long-term portion

Total

23,077 16,942 23,974 3,400 44,316

27,693 20,331 28,769 5,100 54,199

On January 28, 2004, DiaSorin S.p.A. repaid its debts to Interbanca for Euro 47,000 thousand and $7,889 thousand respectively (for a total of Euro 53,268 thousand). At the same time, it stipulated a new loan of 55 million with Interbanca. Part of such loan (US$30 million) has been issued in dollars in order to balance positive cash flows resulting from transactions in this currency with payments of interest and capital to serve the same loan.

The loan is guaranteed by a lien of 85% of the shares forming the share capital.

Furthermore, without prior consent, the company may not dispose of its business or branches thereof, of movable and immovable property, of shareholdings or any tangible/intangible asset exceeding the amount of Euro 2.5 million relating to the carrying value for each company year.

Lastly, the company may not, without prior consent, contract any medium-term loan that may result in total exposure of more than Euro 4.0 million for each company year.

The loan, which expires in December 31, 2010, will be repaid through payment of 26 deferred sixmonthly installments of which 13 relating to the tranche in Euro and 13 to the tranche in US$. The first two installments were repaid in December 2004.

Interest for the year amounted to Euro 2,256 thousand.

82

It should be noted that covenants exist in relation to the aforementioned loan that the Group complied with in 2004 as set forth in the table below: Index

2004 reference value

Net financial expense/EBITDA Net financial position/shareholders’ equity Net financial position/EBITDA

Group value 2004

Less 0.2 Less than 1.5 Less than 3

D.4 – Due to banks

Euro

0.11 1.13 2.22

5,905 thousand

Refer to the Parent Company and to the American subsidiary and are detailed as follows: Provider Well Fargo Bank (USA loans) CRT Unicredit for 2000 floods TOTAL

Currency Short-term portion $ 238 Equivalent value € 175 Euro 280 455

Long-term portion Total 4,335 4,573 3,182 3,357 2,268 2,548 5,450 5,905

Local level covenants exist with regard to the Well Fargo loan that were complied with by the DiaSorin Inc. subsidiary D.5 – Due to other providers of finance Euro 3,496 thousand Reflect the recording of leasing contracts according to International Accounting Standards. The breakdown of these liabilities according to due date is as follows: 2005 400 624 689 33 1,746

DiaSorin S.A. (Spain) DiaSorin S.A./N.V. DiaSorin S.A. (France) DiaSorin S.p.A. (Italy) TOTAL

D.12 – Due to the Tax Authorities The breakdown is as follows:

2006 338 425 428 23 1,214

Euro

2007 152 208 176 536

6,949 thousand

Values at 31/12/2004 2,610 664 3,675 6,949

Tax Authorities for VAT Tax Authorities for withholdings Income taxes TOTAL

83

total 890 1,257 1,293 56 3,496

Values at 31/12/2003 3,799 778 1,546 6,123

D.13 – Due to social security institutions

Euro

1,089 thousand

Reflect amounts to be paid at the end of the year for quotas of contributions due by the companies and withholdings made on employees for contributions on salaries as established by current legislation.

D.14 – Other payables

Euro 14,803 thousand

These are detailed in the table below: Values as at 31/12/2004 7,600 514 5,571 1,117 14,802

Payables to Altana Pharma Payables to American Standard Payables to employees Various payables TOTAL

Values as at 31/12/2003 11,305 1,108 5,240 886 18,539

The amount owing to Altana Pharma refers: - for Euro 6,000 thousand to the charge for purchase of shareholdings at the end of 2002; - for Euro 1,600 thousand to financial payables acquired by the Parent Company from DiaSorin Deutschland GmbH. Both items will be paid at constant rates over the next two years.

The liability towards “American Standard” comprises the part outstanding of the amount of $2,100,000 established in the “Settlement Agreement” and will be paid in the next year.

During financial 2004, $700 thousand was repaid.

D. – ACCRUED EXPENSES AND DEFERRED INCOME

Reflect mainly prepaid expenses due to interest and insurance.

84

Euro

1,994 thousand

MEMORANDUM ACCOUNTS

The commentary on the memorandum accounts is set out below.

The memorandum accounts reflect risks, commitments and guarantees given by the Company to third parties. The detail is as follows: Values at 31/12/2004 Guarantees given to third parties Sureties for guarantees received Other memorandum accounts

Values at 31/12/2003 1,303 8,190 29,866

- Company assets with third parties - Company goods with third party - Contractual commitments - Leasing commitments - Third party goods - Collection orders in circulation TOTAL

23,909 2 2,304 2,777 17 857

968 16,308 22,985 22,214 28 392 13 338

39,359

40,261

Guarantees given to third parties refer to public tenders for the domestic market.

The amount stated under Sureties for guarantees received refers mainly to: -

guarantees for endorsement credit of $700,000 granted by SAN PAOLO IMI as part of the settlement agreement with American Standard, beneficiary of the guarantee, that will be repaid in the next two years;

-

two guarantees issued by INTERBANCA (for Euro 6,000,000 and Euro 1,600,000) referring to the credit line that can be used in “endorsement� form as financial support for acquisition of the diagnostic activities of the Altana Pharma group, which will be reduced at constant rates over the next three years.

Other memorandum accounts include instruments on free loan or as free issue material.

This item also includes contractual commitments referring to the buy-back at term of $3,000,000 as part of a cash forward transaction on the American currency stipulated in December and expiring in June 2005. This currency swap resulted in disclosure under financial expense of the Income Statement of the related accrual pertaining to the year of the difference between the sales price and repurchase price of the dollars.

85

______ C O N S O L I D A T E D I N C O M E S T A T E M E N T

A. PRODUCTION VALUE

Euro 149,344 thousand

A.1 Revenue from sales and services

Euro 142,524 thousand

The detail of sales and service revenues by geographical area is as follows:

Revenues in Europe Revenues in Europe of which Italy Revenues in North and South America (United States, Canada and Brazil) Revenues- rest of the world TOTAL

2004

2003

87,07 36,270 41,388

80,055 33,711 30,805

13,529 142,524

20,976 131,836

Sales and service revenues, according to type of sales and services divided according to type of product are detailed below: 2004 27,600 58,564 44,325 12,035 142,524

Diagnostic kits with radio-active technique Diagnostic kits with techniques other than radio-active Specific diagnostic kits for LIAISON instruments Diagnostic and other minor instruments TOTAL

A.4 Increase in fixed assets produced internally

Euro

2003 31,807 60,198 28,937 10,894 131,836

4,390 thousand

Refer to the capitalization of instruments produced inside the Group and to capitalization of the costs of reconditioning of assets and the spare material used for this purpose.

A.5.b Other revenues and income

Euro

2,008 thousand

The breakdown is as follows: 2004 562 436 41 0 405 0 564 2,008

Refund of transport costs Capital gains on the disposal of assets Royalties Factoring of funds Non-operating income Distribution revenues Other miscellaneous income TOTAL

2003 1.017 369 24 515 519 700 142 3,286

B. PRODUCTION COST

Euro 139,212 thousand

B.6 Raw materials, consumables and goods for resale

Euro

44,492 thousand

The detail is as follows: 2004 Purchases of raw materials Purchases of finished products Purchases of consumables Other costs TOTAL

11,311 29,092 4,025 64 44,492

86

2003 14,749 21,675 3,482 1,590 41,496

B.7 Services

Euro

28,365 thousand

Consisting mainly of:

Transport costs Commisions payable on sales Maintenance costs Consulting fees Consulting fees – special projects Travel costs Technical assistance costs General costs Costs for information services Insurance costs Other costs TOTAL

B.8 Use of third party assets

Euro

2004

2003

4,575 3,325 1,283 2,405 1,596 3,858 2,263 5,324 566 659 2,511 28,365

4,924 2,719 1,387 3,248 4,060 2,408 4,333 705 636 3,068 27,488

4,622 thousand

This item comprises:

Royalties payable Equipment and motor vehicle rental fees Property rent Other TOTAL

B.9 Personnel costs

Euro

2004

2003

1,925 1,712 554 431 4,622

2,365 1,773 566 541 5,245

38,803 thousand

For the detail, refer to the schedule of the consolidated financial statements.

The average workforce during 2004 was 701. The breakdown by category is as follows: -

managers 30 white collar workers 540 blue collar workers 131

B.10 Amortization, depreciation

and write-downs

Euro

18,596 thousand

Euro

761 thousand

For an analysis of these items, refer to Annexes 1 and 2.

B.12 Provisions for risks and charges

This item refers to provisions made in relation to potential commercial and fiscal litigation.

B.14 Miscellaneous operating expenses

Euro

2,834 thousand

Consisting of:

Advertising and entertainment t Indirect taxes t Non-operating losses Losses on the disposal of assets Costs for contractual penalties Other TOTAL

87

2004

2003

295 658 778 223 442 438 2,834

272 653 392 255 1,572

C. FINANCIAL INCOME AND EXPENSE

Euro

(3,124) thousand

C.16.d – Other income

Euro

424 thousand

C.17 - Interest and other financial expense

Euro

4,628 thousand

C.17.a – Due to subsidiaries

Euro

56 thousand

Euro

4,572 thousand

This item reflects mainly interest receivable on bank deposits.

Refer to interest payable to the UKASSE subsidiary.

C.17.d – Due to others

Refer for Euro 2,516 thousand to interest on loans payable to banks, for Euro 1,126 thousand to fees on factoring of receivables by DiaSorin S.p.A. This item also includes Euro 144 thousand of interest payable on leasing contracts, rerecorded according to the method established by IAS. C.17 bis- Exchange rate gains/(losses)

Euro

1,080 thousand

Refer to net gains on exchange rates, of a commercial and financial nature on debit and credit relationships concluded during the year and unrealized on existing debit and credit relationships valued at the year-end exchange rate.

E. EXTRAORDINARY INCOME AND EXPENSE

Euro

77 thousand

E.21 a – Capital gains on the disposal of assets

Euro

196 thousand

Euro

119 thousand

Refer entirely to the sale of land by the American subsidiary.

E.21 c - Other extraordinary expense

Refer mainly to the tax amnesty of the Parent Company (Euro 64 thousand) and to extraordinary expense incurred by the Brazilian subsidiary for tax assessments.

22 – Income taxes

Euro

3,462 thousand

Reflect current taxes of Euro 5,817 thousand and deferred tax assets of Euro 2,355 thousand.

The reconciliation between the fiscal liability stated in the accounts and the theoretical fiscal liability determined according to theoretical tax rates applied in Italy, is as follows: Financial 2004 Theoretical tax . Use of fiscal losses . Fiscal effect of permanent differences . Deferred tax assets not allocated . Fiscal effect deriving from foreign tax rates different from Italian theoretical tax rates . Other differences Income taxes for the year stated in the accounts IRAP stated in the accounts Total current, advance and deferred taxes

88

2,338 (445) 1,257 (841) 217 (46) 2,480 982 3,462

To facilitate understanding of the reconciliation between the fiscal liability stated in the accounts and the theoretical tax liability, IRAP (Regional Tax on Production Activities) has not been taken into account insofar as it is a tax with a different taxable base from the pre-tax income. Therefore, the theoretical taxes have been determined applying only the current tax rate (IRES equal to 33% in 2004) to the pre-tax income.

Referring to the aforementioned reconciliation, it should be noted that the permanent differences include the fiscal effect on non-deductible costs relating to amortization of the goodwill arising on the Biofort merger (amply discussed in the Notes) for Euro 3,458 thousand.

89

ANNEXES TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

This Annexes contain additional information to that provided in the Notes and are an integral part thereof.

This information is provided in the following annexes: 1. Schedule of changes in intangible assets 2. Schedule of the changes in tangible assets.

3. Summary consolidation schedules

90

Annex 1. Schedule of changes in intangible assets FORMATION AND EXPANSION COSTS

VALUE AS AT 31/12/2003 Original cost Write-downs Other movements (mergers/acquisitions) Reclassifications Exchange differences Amortization Net value CHANGES DURING THE PERIOD INCREASES FOR: Discontinuation of amortization Purchases Other movements (mergers/acquisitions) Reclassifications Exchange differences CHANGES DURING THE PERIOD DECREASES FOR: Disposals Write-downs/Decreases Ammortization Delta area Reclassifications Exchange differences VALUE AS AT 31/12/04 Original cost Write-downs Other movements (mergers/acquisitions) Reclassifications Exchange differences Ammortization Net value

INDUSTR. PATENT RIGHTS AND USE OF INTELL. PROP.

CONC., LICENSES, TRADEMARKS AND SIMILAR RIGHTS

OTHERS

GOODWILL DIFFERENCE ON INTANGIBLES CONSOLIDATION IN COURSE AND ADVANCES

TOTAL

848 2 (1) (69) (450) 330

845 (290) (488) 67

16,545 (1,700) 17 (91) (5,560) 9,211

36,469 (25,065) 34,129 (3) (11,317) 34,213

15,877 5,022 (1,351) 19,548

444 (5) 439

2,712 (118) (1,780) 814

73,740 (27,173) 39,153 16 (163) (20,951) 64,622

82 (43)

1

268 56 (59)

-

-

-

221 382 -

571 438 (101)

(169) 34

(64) (1)

(1,089) 20

(2,587) -

(1,396) -

(438) -

(510) -

931 -

845 (290) (552) 3

16,813 (1,700) (91) 73 (39) (6,649) 8,407

36,469 (25,065) (3) 34,129 (13,904) 31,626

15,877 5,022 (2,747) 18,152

444 (438) (5) 1

2,933 (118) 382 (2,290) 907

(5,815) (438) 53 74,312 (27,173) (94) 17 39,034 (26,766) 59,330

(78) (619) 234

91

Annex 2. Schedule of changes in tangible assets

CAPTION

ORIGINAL VALUES AT 31/12/03 Original cost Write-downs/Revaluations Exchange differences Depreciation Net value CHANGES DURING THE PERIOD INCREASES FOR: Discontinuation of depreciation Purchases Reclassifications/Revaluations Exchange differences CHANGES DURING THE PERIOD DECREASES FOR: Disposals Write-downs/Decreases Depreciation Reclassifications Exchange differences VALUE AT 31/12/04 Original cost Write-downs/Revaluations Reclassifications Exchange differences Depreciation Net value

LANDS AND BUILDINGS

PLANT AND MACHINERY

INDUSTRIAL AND COMMERCIAL EQUIPMENT

CURRENT FIXED ASSETS AND ADVANCES

OTHER ASSETS

14,943 3,979 (864) (6,627) 11,431

10,097 101 (33) (6,597) 3,568

56,509 1,818 (808) (35,139) 22,380

2,291 307 (78) (1,652) 867

121 0 70

901 224 296 2

3,982 9,661 382 356

53 122

(111)

(944)

(59)

(736)

(833) (294) (9)

(4,709) 0 (10,339) (449) (588)

(333) (6) (10)

9,377 101 2 (39) (6,529) 2,911

61,460 1,818 (67) (1,040) (41,496) 20,676

2,354 307 (6) (66) (1,932) 657

(347) 14,953 3,979 (1,141) (7,363) 10,428

92

TOTAL

20

20

222

22

83,860 6,205 (1,783) (50,015) 38,266

4,935 10,351 679 450

(1)

(5,823) 0 (12,241) (749) (955)

242

88,387

(1) 241

(71) (2,288) (57,320) 34,913

Annex 3 – Summary consolidation schedules ASSETS

Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Spain Belgium Brazil Great France USA Germany Sweden Britain

Diasorin Italy

Aggr. total

Elisions & Consolidated adjust.

(Thousands of Euro)

B.

FIXED ASSETS

I. Intangible assets II. Tangible assets III. Financial assets TOTAL FIXED ASSETS (B)

1 1,814 1,815

1,612 1,612

146 2,321 2,467

34 346 380

169 1,689 24 1,882

663 6,871 7,534

3,490 6,209 33 9,732

221 3 224

36,675 14,613 56,287 107,575

41,178 35,696 56,347 133,221

18,152 (783) (56,273) (38,904)

59,330 34,913 74 94,317

421 5,747 137 6,305

594 2,216 609 3,419

555 3,138 391 4,084

249 340 70 659

516 1,903 138 2,557

5,486 9,023 2,222 16,731

3,324 7,101 758 11,183

54 7,980 112 8,146

14,666 37,712 4,724 57,102

25,865 75,160 9,161 110,186

(3,177) (21,662) (24,839)

22,688 53,498 9,161 85,347

-

24

1

70

70

80

34

30

192

501

-

501

8,120

5,055

6,552

1,109

4,509

24,345

20,949

8,400

164,869

243,908

(63,743)

180,165

C. CURRENT ASSETS I. Inventories II. Receivables IV. Liquid assets TOTAL CURRENT ASSETS (C)

D. PREPAID EXPENSES AND ACCRUED INCOME TOTAL ASSETS (A + B + C + D)

LIABILITIES

Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Spain Belgium Brazil Great France USA Germany Sweden Italy Britain

Aggr. Elisions & Consolid dated total adjust.

(Thousands of Euro) A. SHAREHOLDER’S EQUITY I. II. IV. V. VI. VII. VIII. IX. X.

Capital 1,454 Share premium reserve 2,787 Legal reserve 183 Consolidation reserve Statutory reserve 845 Other reserves Conversion reserve Retained earnings/(accumulated losses) 333 Net income/(Loss) for the period 164

1,674 32 33 408 383

2,733 (297) (43) 24 621

5,766

2,530

3,038

263

1,131

TOTAL SHAREHOLDERS’ EQUITY (A)

1 960 1,567 4,354 46 482 107 9 - (1,160) 36 (1,266) 5,954 (265) (283) 3,321

275 4,119 (216) 1,030

551 126 47 4,181 (23)

50,000 4,425 16 308 1,248

57,648 13,133 403 845 4,444 (1,147) 9,762 6,196

(7,648) (8,708) (387) 867 (845) (4,444) 4,175 (9,066) (9,819)

50,000 4,425 16 867 (3,028) (696) 3,623

12,469

5,208

4,882

55,997

91,284 (35,875)

55,207

B. RESERVES FOR RISKS AND CHARGES

-

80

682

-

133

842

5,693

2,471

1,297

11,198

538

11,736

C. SEVERANCE INDEMNITY RESERVE

-

-

74

-

137

-

389

538

5,856

6,994

(538)

6,456

2,020

2,443

2,757

800

3,111

10,787

8,478

370 101,677

132,443 (27,671)

104,772

331

3

-

48

-

247

1,181

141

8,117

5,056

6,551

1,111

4,512

24,345

20,949

D. LIABILITIES E. ACCRUED LIABILITIES TOTAL LIABILITIES (A + B + C + D + E)

INCOME STATEMENT

43

8,402 164,870

Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin Diasorin DiaSorin Spain Belgium Brazil Great France Usa Germany Sweden Italy Britain

1,994

-

1,994

243,913 (63,546)

180,165

Aggr. total

Elisions e Consolidated adjust.

(Thousand of Euro) A. VALUE OF PRODUCTION

8,440

8,250

8,161

2,833

9,123

42,821

24,508

3,365

92,268

199,769 (50,425)

149,344

B. PRODUCTION COST

8,097

7,643

7,017

3,030

9,351

37,614

22,717

3,757

87,893

187,119 (47,907)

139,212

NET PRODUCTION VALUE

343

607

1,144

(197)

(228)

5,207

1,791

(392)

4,375

12,650

(2,518)

10,132

C. FINANCIAL INCOME AND EXPENSE

(98)

(44)

52

(85)

12

-

6

(51)

-

245

569

1,145

(282)

80

185

525

165

384

620

E. EXTRAORDINARY INCOME AND EXPENSE INCOME BEFORE TAXES (A - B +/- C +/- D +/- E) 22 INCOME TAXES FOR THE YEAR NET INCOME/(LOSS) FOR THE PERIOD

93

16

(75)

205

(1,068)

(1,085)

(2,039)

(3,124)

(135)

(29)

146

(64)

(127)

204

77

(216)

5,088

1,687

(41)

3,243

11,438

(4,353)

7,085

(17)

68

1,767

658

(17)

1,995

5,244

(1,782)

3,462

(265)

(284)

3,321

1,029

(24)

1,248

6,194

(2,571)

3,623

94