UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

INVERNESS MEDICAL INNOVATIONS, INC.

DELAWARE		04-3565120
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

51 SAWYER ROAD, SUITE 200
WALTHAM, MASSACHUSETTS 02453
(Address of principal executive offices)

(781) 647-3900
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

The number of shares outstanding of the registrant’s common stock, par value of $0.001 per share, as of May 4, 2007 was 46,584,855.

 

 

INVERNESS MEDICAL INNOVATIONS, INC.

REPORT ON FORM 10-Q

For the Quarterly Period Ended March 31, 2007

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these statements by forward-looking words such as “may,” “could,” “should,” “would,” “intend,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue” or similar words. There are a number of important factors that could cause actual results of Inverness Medical Innovations, Inc. and its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, the risk factors detailed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ending December 31, 2006, as amended and other risk factors identified herein or from time to time in our periodic filings with the Securities and Exchange Commission. Readers should carefully review these factors as well as the “Special Statement Regarding Forward-Looking Statements” beginning on page 35, in this Quarterly Report on Form 10-Q and should not place undue reliance on our forward-looking statements. These forward-looking statements are based on information, plans and estimates at the date of this report. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

     Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Inverness Medical Innovations, Inc. and its subsidiaries.

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
a) Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006			3
b) Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006			4
c) Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006			5
d) Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			36
Item 4. Controls and Procedures			37
PART II. OTHER INFORMATION
Item 1A. Risk Factors			37
Item 6. Exhibits			37
SIGNATURE			39
EX-4.1 Sixth Supplemental Indenture, dated as of March 14, 2007
EX-4.2 Seventh Supplemental Indenture, dated as of May 1, 2007
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO & CFO

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

(in thousands, except per share amounts)

		Three Months Ended March 31,
		2007				2006
Net product sales		$	153,749			$	122,753
License and royalty revenue			5,230				5,068
Net revenue			158,979				127,821
Cost of sales			80,641				75,567
Gross profit			78,338				52,254
Operating expenses:
Research and development (Note 11)			12,009				10,610
Sales and marketing			28,331				20,822
General and administrative			22,659				15,838
Total operating expenses			62,999				47,270
Operating income			15,339				4,984
Interest expense, including amortization of original issue discounts and write-off of deferred financing costs (Note 13)			(5,184	)			(5,721	)
Other income (expense), net			2,029				(428	)
Income (loss) before provision for income taxes			12,184				(1,165	)
Provision for income taxes			5,879				1,465
Net income (loss)		$	6,305			$	(2,630	)
Net income (loss) per common share – basic (Note 5)		$	0.14			$	(0.09	)
Net income (loss) per common share – diluted (Note 5)		$	0.14			$	(0.09	)
Weighted average common shares – basic (Note 5)			44,446				29,585
Weighted average common shares – diluted (Note 5)			46,198				29,585

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

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

(in thousands, except par value)

		March 31,				December 31,
		2007				2006
ASSETS
Current assets:
Cash and cash equivalents		$	180,941			$	71,104
Accounts receivable, net of allowances of $8,870 at March 31, 2007 and $8,401 at December 31, 2006			99,876				100,388
Inventories, net			87,331				78,322
Deferred tax assets			5,416				5,332
Related party note receivable			14,733				—
Prepaid expenses and other current assets			21,923				20,398
Total current assets			410,220				275,544
Property, plant and equipment, net			81,330				82,312
Goodwill			489,435				439,369
Other intangible assets with indefinite lives			68,402				68,107
Core technology and patents, net			87,565				87,732
Other intangible assets, net			105,369				83,794
Deferred financing costs, net and other non-current assets			13,101				13,218
Other investments and available-for-sale securities			83,914				35,617
Deferred tax assets			1,038				78
Total assets		$	1,340,374			$	1,085,771
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	8,876			$	7,504
Current portion of capital lease obligations			597				584
Accounts payable			42,898				46,342
Accrued expenses and other current liabilities			70,701				87,801
Total current liabilities			123,072				142,231
Long-term liabilities:
Long-term debt, net of current portion			150,132				194,473
Capital lease obligations, net of current portion			259				415
Deferred tax liabilities			28,588				23,984
Other long-term liabilities			11,644				10,530
Total long-term liabilities			190,623				229,402
Commitments and contingencies (Note 17)
Series A redeemable convertible preferred stock, $0.001 par value:
Authorized: 2,667 shares
Issued: 2,527 shares at March 31, 2007 and December 31, 2006
Outstanding: none at March 31, 2007 and December 31, 2006			—				—
Stockholders’ equity:
Preferred stock, $0.001 par value
Authorized: 2,333 shares
Issued: none			—				—
Common stock, $0.001 par value
Authorized: 100,000 shares
Issued and outstanding: 46,573 shares at March 31, 2007 and 39,215 shares at December 31, 2006			47				39
Additional paid-in capital			1,105,837				826,987
Accumulated deficit			(120,764	)			(127,069	)
Accumulated other comprehensive income			41,559				14,181
Total stockholders’ equity			1,026,679				714,138
Total liabilities and stockholders’ equity		$	1,340,374			$	1,085,771

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

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

(in thousands)

		Three Months Ended March 31,
		2007				2006
Cash Flows from Operating Activities:
Net income (loss)		$	6,305			$	(2,630	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Interest expense related to amortization and write-off of non-cash original issue discount and deferred financing costs			1,139				677
Non-cash income related to currency hedge			—				(217	)
Non-cash stock-based compensation expense			1,593				1,318
Loss on sale of fixed assets			50				—
Interest in minority investments			(436	)			—
Depreciation and amortization			11,129				7,646
Deferred and other non-cash income taxes			3,796				743
Other non-cash items			96				141
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net			9,484				(6,308	)
Inventories, net			(3,195	)			4,413
Prepaid expenses and other current assets			(1,418	)			(780	)
Accounts payable			(8,067	)			(7,367	)
Accrued expenses and other current liabilities			(13,874	)			(4,469	)
Other non-current liabilities			938				91
Net cash provided by (used in) operating activities			7,540				(6,742	)
Cash Flows from Investing Activities:
Purchases of property, plant and equipment			(3,075	)			(4,349	)
Proceeds from sale of equipment			38				33
Note receivable with related party			(14,733	)			—
Cash paid for acquisitions and transactional costs, net of cash acquired			(68,160	)			(70,169	)
Cash paid for minority interest investments and available-for-sale securities			(25,602	)			—
(Increase) decrease in other assets			(1,877	)			1,040
Net cash used in investing activities			(113,409	)			(73,445	)
Cash Flows from Financing Activities:
Cash paid for financing costs			(137	)			(316	)
Proceeds from issuance of common stock, net of issuance costs			264,132				82,128
Net proceeds (payments) under revolving line of credit			68				(3,654	)
Tax benefit on exercised stock options			160				—
Repayments of notes payable			(49,700	)			(42	)
Principal payments of capital lease obligations			(143	)			(137	)
Net cash provided by financing activities			214,380				77,979
Foreign exchange effect on cash and cash equivalents			1,326				1,463
Net increase (decrease) in cash and cash equivalents			109,837				(745	)
Cash and cash equivalents, beginning of period			71,104				34,270
Cash and cash equivalents, end of period		$	180,941			$	33,525
Supplemental Disclosure of Non-cash Activities:
Fair value of stock issued for acquisitions		$	13,133			$	25,480

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

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

(1) Basis of Presentation of Financial Information

     The accompanying consolidated financial statements of Inverness Medical Innovations, Inc. and its subsidiaries are unaudited. In the opinion of management, the unaudited consolidated financial statements contain all adjustments considered normal and recurring and necessary for their fair presentation. Interim results are not necessarily indicative of results to be expected for the year. These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows. Our audited consolidated financial statements for the year ended December 31, 2006 included information and footnotes necessary for such presentation and were included in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on March 26, 2007. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2006.

(2) Cash and Cash Equivalents

     We consider all highly liquid cash investments with original maturities of three months or less at the date of acquisition to be cash equivalents. At March 31, 2007, our cash equivalents consisted of money market funds.

(3) Inventories

     Inventories are stated at the lower of cost (first in, first out) or market and are comprised of the following (in thousands):

		March 31, 2007				December 31, 2006
Raw materials		$	26,673			$	29,372
Work-in-process			20,883				19,080
Finished goods			39,775				29,870
		$	87,331			$	78,322

(4) Stock-Based Compensation

     Effective January 1, 2006, we began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123-R, Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, we accounted for stock options according to the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. We adopted the modified prospective transition method provided for under SFAS No. 123-R, and consequently have not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock options now includes: (i) amortization related to the remaining unvested portion of all stock option awards granted prior to January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (ii) amortization related to all stock option awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123-R. In addition, we record expense over the offering period in connection with shares issued under our employee stock purchase plan. The compensation expense for stock-based compensation awards includes an estimate for forfeitures and is recognized over the expected term of the options using the straight-line method.

     In accordance with SFAS No. 123-R, as of March 31, 2007, our results of operations reflected compensation expense for new stock options granted and vested under our stock incentive plan and employee stock purchase plan during the first three months of 2007 and 2006 and the unvested portion of previous stock option grants which vested during the first three months of 2007 and 2006. Stock-based compensation expense in the amount of $1.6 million ($1.4 million, net of tax) and $1.3 million ($1.2 million, net of tax) was reflected in the consolidated statement of operations for the first three months of 2007 and 2006, respectively, as follows (in thousands):

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

		Three Months Ended March 31,
		2007				2006
Cost of sales		$	85			$	109
Research and development			223				270
Sales and marketing			324				188
General and administrative			961				751
		$	1,593			$	1,318

     In accordance with SFAS No. 123-R, we report the excess tax benefits from the exercise of stock options as financing cash flows. For the three months ended March 31, 2007 and 2006, there was $0.2 million and $0, respectively, of excess tax benefits generated from option exercises.

     Our stock option plans provide for grants of options to employees to purchase common stock at the fair market value of such shares on the grant date of the award. The options vest over a four year period, beginning on the date of grant, with a graded vesting schedule of 25% at the end of each of the four years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing method. We use historical data to estimate the expected price volatility and the expected forfeiture rate. For the three months ended March 31, 2007 and 2006, we have chosen to employ the simplified method of calculating the expected option term, which averages an award’s weighted average vesting period and its contractual term. The contractual term of our stock option awards is ten years. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant with a remaining term equal to the expected term of the option. We have not made any dividend payments nor do we have plans to pay dividends in the foreseeable future. The following assumptions were used to estimate the fair value of options granted during the first three months of 2007 and 2006 using the Black-Scholes option-pricing model:

		Three Months Ended March 31,
Stock Options:		2007				2006
Risk-free interest rate			4.53	%			4.38	%
Expected dividend yield			—				—
Expected term		6.25 years				6.25 years
Expected volatility			44.69	%			42	%

		Three Months Ended March 31,
Employee Stock Purchase Plan:		2007				2006
Risk-free interest rate			4.94	%			4.55	%
Expected dividend yield			—				—
Expected term		181 days				181 days
Expected volatility			32.64	%			32.71	%

     A summary of the stock option activity for the three months ended March 31, 2007 is as follows (in thousands, except price per share and contractual term):

										Weighted
										Average
						Weighted				Remaining
						Average Exercise				Contractual				Aggregate
		Options				Price				Term				Intrinsic value
Options outstanding, January 1, 2007			3,775			$	21.11
Granted			218			$	40.79
Exercised			(111	)		$	19.32
Canceled/forfeited/expired			(4	)		$	54.74
Options outstanding, March 31, 2007			3,878			$	22.23			6.5 years				$	83,765
Options exercisable, March 31, 2007			2,403			$	17.11			5.1 years				$	64,297

     The weighted average fair value under the Black-Scholes option pricing model of options granted to employees during the three months ended March 31, 2007 and 2006 was $20.54 per share and $12.89 per share, respectively.

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

     As of March 31, 2007, there was $15.9 million, net of estimated forfeitures, related to unvested stock options that are expected to vest. That cost is expected to be recognized over a weighted-average period of 2.77 years.

(5) Net Income (Loss) Per Common Share

     The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

		Three Months Ended March 31,
		2007				2006
Numerator:
Net income (loss) – basic and diluted		$	6,305			$	(2,630	)
Denominator:
Denominator for basic net income (loss) per common share – weighted average shares			44,446				29,585
Effect of dilutive securities:
Stock options			1,567				—
Warrants			185				—
Dilutive potential common shares			1,752				—
Denominator for diluted net income (loss) per common share – weighted average shares			46,198				29,585
Net income (loss) per common share – basic		$	0.14			$	(0.09	)
Net income (loss) per common share – diluted		$	0.14			$	(0.09	)

     We had the following potential dilutive securities outstanding on March 31, 2007: options to purchase an aggregate of 0.7 million shares of common stock. These potential dilutive securities were not included in the computation of diluted net income (loss) per common share because the effect of including such potential dilutive securities would be anti-dilutive.

     We had the following potential dilutive securities outstanding on March 31, 2006: (a) options and warrants to purchase an aggregate of 4.4 million shares of common stock at a weighted average exercise price of $18.71 per share, and (b) 104,000 shares of common stock held in escrow. These potential dilutive securities were not included in the computation of diluted net income (loss) per common share because the effect of including such potential dilutive securities would be anti-dilutive.

(6) Uncertain Income Tax Positions

     We adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109 on January 1, 2007. The cumulative effect of adopting FIN 48 had no change to the January 1, 2007 retained earnings balance. Upon adoption, the liability for income taxes associated with uncertain tax positions at January 1, 2007 was $2.2 million. This amount of $2.2 million, if recognized, would favorably affect our effective tax rate. In addition, consistent with the provisions of FIN 48, we classified $2.2 million of income tax liabilities as non-current income tax liabilities because a payment of cash is not anticipated within one year of balance sheet date. In the three months period ending March 31, 2007, we increased the liability for income taxes associated with uncertain tax positions by $0.2 million for a total of $2.4 million at March 31, 2007. These non-current income tax liabilities are recorded in other long-term liabilities in our consolidated balance sheet at March 31, 2007.

     Interest and penalties related to income tax liabilities are included in income tax expense. The balance of accrued interest and penalties recorded in the consolidated balance sheet at January 1, 2007 was $ 0.1 million. In the three months period ending March 31, 2007, we accrued an additional amount of approximately $20,000 for interest and penalties for a total of $0.1 million at March 31, 2007.

     With limited exception, we are subject to U.S. federal, state and local or non-U.S. income tax audits by tax authorities for all years. We are currently under income tax examination by a number of state and foreign tax authorities and anticipate these audits will be completed by the end of 2008. We do anticipate an increase every quarter to the total amount of unrecognized tax benefits.

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

(7) Comprehensive Income or Loss

     We account for comprehensive income as prescribed by SFAS No. 130, Reporting Comprehensive Income. In general, comprehensive income (loss) combines net income (loss) and other changes in equity during the year from non-owner sources. Our accumulated other comprehensive income, which is a component of shareholders’ equity, includes primarily foreign currency translation adjustments and is our only source of equity from non-owners. For the three months ended March 31, 2007 and 2006, we generated a comprehensive gain of $33.7 million and $0.5 million, respectively.

(8) Stockholders’ Equity

     We raised net proceeds of approximately $261.3 million through an underwritten public offering of 6,900,000 shares of our common stock. In January 2007, we sold 6,000,000 shares to the public at $39.65 per share, and in February 2007, our underwriters exercised in full an option to purchase an additional 900,000 shares to cover over-allotments. Net proceeds include deductions for underwriting discounts and commissions and take into effect the reimbursement by the underwriters of a portion of our offering expenses. Of this amount, we used $44.9 million to repay principal outstanding and accrued interest on our term loan under our senior credit facility, with the remainder of the net proceeds retained for working capital and other general corporate purposes, including the financing of potential acquisitions or other investments.

(9) Business Combinations

     Acquisitions are an important part of our growth strategy. When we acquire businesses, we seek to complement existing products and services, enhance or expand our product lines and/or expand our customer base. We determine what we are willing to pay for each acquisition partially based on our expectation that we can cost effectively integrate the products and services of the acquired companies into our existing infrastructure. In addition, we utilize existing infrastructure of the acquired companies to cost effectively introduce our products to new geographic areas.

     We account for our acquisitions using the purchase method of accounting as defined under SFAS No. 141, Business Combinations. Accordingly, the operating results of the acquired company is included in our consolidated financial statements of operations after the acquisition date as part of reporting unit it relates to. Accounting for these acquisitions has resulted in the capitalization of the cost in excess of fair value of the net assets acquired in each of these acquisitions as goodwill. We estimated the fair values of the assets acquired in each acquisition as of the date of acquisition and these estimates are subject to adjustment. We complete these assessments within one year of the date of acquisition. We have undertaken certain restructurings of the acquired businesses to realize efficiencies and potential cost savings. Our restructuring activities include the elimination of duplicate facilities, reductions in staffing levels, and other costs associated with exiting certain activities of the businesses we acquire. The estimated cost of these restructuring activities are included as costs of the acquisition and are recorded as additional purchase price consistent with the guidance of Emerging Issue Task Force (“EITF”) Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. Any common stock issued with our acquisitions is determined based on the average market price of our common stock pursuant to Issue No. 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination.

     (a) Acquisition of Instant Technologies, Inc.

     On March 12, 2007, we acquired 75% of the issued and outstanding capital stock of Instant Technologies, Inc. (“Instant”), a privately-owned distributor of rapid drugs of abuse diagnostic products used in the workplace, criminal justice and other testing markets. The preliminary aggregate purchase price was $43.9 million, which consisted of $30.6 million in cash, 0.3 million shares of our common stock with an aggregate fair value of $13.1 million and $0.2 million in direct acquisition costs.

     The aggregate purchase price was preliminarily allocated to the assets acquired and liabilities assumed at the date of acquisition as follows (in thousands):

Cash and cash equivalents		$	327
Accounts receivable			3,638
Inventories			4,448
Other assets			780
Property, plant and equipment			141
Goodwill			36,306
Trademarks			2,500
Customer relationships			10,000
Accounts payable and accrued expenses			(4,279	)
Long-term debt			(4,925	)
Deferred tax liability			(5,000	)
		$	43,936

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

     The above values for the assets acquired and liabilities assumed are based on preliminary management estimates due to the timing of the acquisition. Final purchase price allocation may differ from the above. Management has assigned an estimated useful life of 10 years to trademarks and customer relationships and has recorded both assets in other intangibles, net in the accompanying consolidated balance sheet.

     The operating results of Instant are included in our professional diagnostic products reporting unit and business segment.

     (b) Acquisition of First Check Diagnostics LLC

     On January 31, 2007, we acquired substantially all of the assets of First Check Diagnostics LLC (“First Check”), a privately-held diagnostics company in the field of home testing for drugs of abuse, including marijuana, cocaine, methamphetamines and opiates. The preliminary aggregate purchase price was approximately $24.7 million, which consisted of $24.5 million in cash and $0.2 million in direct acquisition costs.

     The aggregate purchase price was preliminarily allocated to the assets acquired and liabilities assumed at the date of acquisition as follows (in thousands):

Accounts receivable		$	1,569
Inventories			638
Other assets			40
Property, plant and equipment			7
Goodwill			11,370
Trademarks			1,300
Customer relationships			11,000
Accounts payable and accrued expenses			(1,184	)
		$	24,740

     The above values for the assets acquired and liabilities assumed are based on preliminary management estimates due to the timing of the acquisition. Final purchase price allocation may differ from the above. Management has assigned an estimated useful life of 10 years to trademarks and customer relationships and has recorded both assets in other intangibles, net in the accompanying consolidated balance sheet.

     The operating results of First Check are included in our consumer products reporting unit and business segment. Goodwill generated from this acquisition is not deductible for tax purposes.

     (c) Various Other Acquisitions

     During the first quarter of 2007, we acquired the following businesses for a preliminary aggregate purchase price of $6.7 million, which was paid in cash:

	•		Promesan S.r.l. (“Promesan”), located in Milan, Italy, a distributor of point-of-care diagnostic testing products to the Italian marketplace
	•		the assets of Nihon Schering K.K. (“NSKK”), located in Japan, a diagnostic distribution business
	•		Gabmed, located in Nettetal, Germany, a distributor of point-of care diagnostic testing products in the German marketplace

     NSKK is included in our consumer and professional diagnostic products reporting unit and business segment and Gabmed and Promesan are included in our professional diagnostic products reporting unit and business segment. Goodwill has been preliminarily recognized in the Gabmed and Promesan transactions and amounted to approximately $4.8 million. Preliminary valuations of intangible assets have been performed for these acquisitions; however adjustments to intangible assets, and the resulting goodwill, may occur as final valuations are prepared. Goodwill related to the Promesan and Gabmed acquisitions is not deductible for tax purposes. Goodwill related to the NSKK acquisition is expected to be fully deductible for tax purposes.

     (d) Restructuring Plans of Acquisitions

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

     In connection with our acquisitions of Thermo BioStar, Inc. (“BioStar”), Ischemia Technologies, Inc. (“Ischemia”), Ostex International, Inc. (“Ostex”), IVC Industries, Inc. (now operating as Inverness Medical Nutritionals Group or “IMN”) and certain entities, businesses and intellectual property of Unilever Plc (the “Unipath business”), we recorded restructuring costs as part of the respective aggregate purchase prices in accordance with EITF No. 95-3.

     The following table sets forth the restructuring costs recorded to date in connection with the restructuring activities of these acquired businesses (in thousands):

						Severance				Impairment of				Facility
		Total				Related				Fixed Assets				Related
BioStar		$	521			$	83			$	438			$	—
Ischemia			1,725				1,590				—				135
Ostex			3,941				2,081				—				1,860
IMN			1,587				1,587				—				—
Unipath business			4,159				4,159				—				—
Total restructuring costs		$	11,933			$	9,500			$	438			$	1,995

     All restructuring charges related to these plans have been accounted for as of March 31, 2007. The total number of employees to be involuntarily terminated under these plans was 176, of which all have been terminated as of March 31, 2007. As of March 31, 2007, $1.6 million related to severance charges and $0.6 million related to facility exit costs remain unpaid.

     (e) Pro Forma Financial Information

     The following table presents selected unaudited financial information of our company, including the assets of ACON laboratories’ business of researching, developing, manufacturing, marketing and selling lateral flow immunoassay and directly-related products in the United States, Canada, Europe (excluding Russia, the former Soviet Republics that are not part of the European Union and Turkey), Israel, Australia, Japan and New Zealand (the “Innovacon business”) including ABON BioPharm (Hangzhou) Co., Ltd (“ABON”), the owner of a newly-constructed manufacturing facility in Hangzhou, China and Instant, as if the acquisitions of these entities had occurred on January 1, 2006. Pro forma results exclude adjustments for various other less significant acquisitions completed since January 1, 2006, as these acquisitions did not materially affect our results of operations. The pro forma results are derived from the historical financial results of the acquired businesses for all periods presented and are not necessarily indicative of the results that would have occurred had the acquisitions been consummated on January 1, 2006.

		Three Months Ended March 31,
		2007				2006
		(in thousands, except per share amounts)
Pro forma net revenue		$	163,816			$	144,668
Pro forma net income		$	6,632			$	26
Pro forma net income per common share – basic (1)		$	0.15			$	0.00
Pro forma net income per common share – diluted (1)		$	0.14			$	0.00

(10) Restructuring Plans

     In May 2006, we committed to a plan to cease operations at our manufacturing facility in San Diego, California and to write off certain excess manufacturing equipment at other impacted facilities. Additionally, in June 2006, we committed to a plan to reorganize the sales and marketing and customer service functions in certain of our U.S. professional diagnostic companies. During the three months ended March 31, 2007, we recorded $0.5 million in restructuring charge under these plans. The $0.5 million included $0.1 million related to severance charges and $0.4 million related to facility exit costs. The $0.5 million was charged to general and administrative expense and was included in our professional diagnostic products business segments. Including the charges recorded through March 31, 2007, we have incurred total restructuring charges related to these plans of approximately $12.6 million. Substantially, all severance related charges have been expensed. The total number of employees to be involuntarily terminated under these plans is 132, of which 129 have been terminated as of March 31, 2007. As of March 31, 2007, $0.2 million related to severance charges remain unpaid.

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

(11) Other Arrangements

     On February 25, 2005, we entered into a co-development agreement with ITI Scotland Limited (“ITI”), whereby ITI agreed to provide us with approximately £30 million over three years to partially fund research and development programs focused on identifying novel biomarkers and near-patient and home use tests for cardiovascular and other diseases (“the Programs”). We agreed to invest £37.5 million in the Programs over three years from the date of the agreement. Through our subsidiary, Stirling Medical Innovations Limited (“Stirling”), we established a new research center in Stirling, Scotland, where we consolidated many of our existing cardiology programs and will ultimately commercialize products arising from the Programs. ITI and Stirling will have exclusive rights to the developed technology in their respective fields of use. As of March 31, 2007, we had received approximately $40.9 million in funding from ITI. As qualified expenditures are made under the co-development arrangement, we recognize the fee earned during the period as a reduction of our related expenses, subject to certain limitations. For the three months ended March 31, 2007 and 2006, we recognized $4.9 million and $4.3 million of reimbursements, respectively, of which $4.4 million and $3.8 million, respectively, offset our research and development spending and $0.5 million in both periods reduced our general, administrative and marketing spending incurred by Stirling.

(12) Other Investments and Available-for-sale Securities

     (a) Investment in Chembio Diagnostics, Inc.

     In September 2006, we acquired 5% of Chembio Diagnostics, Inc. (“Chembio”), a developer and manufacturer of rapid diagnostic tests for infectious diseases, through the purchase of 40 shares of their preferred stock. The preferred stock pays a dividend of 7%, payable in cash or common stock. The aggregate purchase price of $2.0 million was paid in cash. In addition to the preferred stock, we received a warrant to purchase 625,000 shares of Chembio’s common stock at $0.80 per share. Chembio’s stock is publicly traded. The warrant, accounted for as a derivative instrument, had a fair value of approximately $0.4 million at the date of issuance. The fair value of this warrant was estimated at the time of issuance using the Black-Scholes pricing model and assuming no dividend yield, expected volatility of 116%, risk-free rate of 4.9% and a contractual term of five years. We mark to market the warrant over the contractual term. As of March 31, 2007 and December 31, 2006, the warrant was valued at $0.3 million and $0.4 million, respectively.

     (b) Equity Method Investments

     In November 2006, we acquired 40% of Vedalab S.A. (“Vedalab”), a French manufacturer and supplier of rapid diagnostic tests in the professional markets. The aggregate purchase price was $9.7 million which consisted of $7.6 million in cash, 49,787 shares of our common stock with an aggregate fair value of $2.0 million and $0.1 million in estimated direct acquisition costs. On the same date, we settled an ongoing patent infringement claim with Vedalab. Under the terms of the settlement, Vedalab paid to us $5.1 million and agreed to pay royalties on future sales ranging from 5% to 10%, depending on the products being sold in exchange for a license under certain patents to manufacture its current products as its facility in Alencon, France. In January, 2007, we received $0.7 million from Vedalab in the form of a dividend distribution. This was accounted for as a reduction in the value of our investment in accordance with APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. We account for our 40% investment in Vedalab under the equity method of accounting in accordance with APB Opinion No. 18. For the three months ended March 31, 2007, we recorded $0.1 million in other income, which represented our minority share of Vedalab’s profit for the respective period.

     In May 2006, we acquired 49% of TechLab, Inc. (“TechLab”), a privately-held developer, manufacturer and distributor of rapid non-invasive intestinal diagnostics tests in the areas of intestinal inflammation, antibiotic associated diarrhea and parasitology. The aggregate purchase price was $8.8 million which consisted of 303,417 shares of our common stock with an aggregate fair value of $8.6 million and $0.2 million in estimated direct acquisition costs. We account for our 49% investment in TechLab under the equity method of accounting, in accordance with APB Opinion No. 18. For the three months ended March 31, 2007, we recorded $0.3 million in other income, which represented our minority share of TechLab’s profit for the respective period.

     (c) Available-for-sale Securities

     Our investment in available-for-sale securities (long-term) consists of 750,000 shares of common stock in Biosite purchased since December 2006. We intend to hold these securities indefinitely and therefore have classified them as long-term in our accompanying consolidated balance sheet. Upon purchase, the shares were recorded at their market value, as measured by their closing price on the Nasdaq Capital Market. Unrealized holding gains and losses on available-for-sale securities are reported in accumulated other comprehensive income within stockholders’ equity. As of March 31, 2007, the fair value of these securities was approximately $63.0 million, which included unrealized holding gains of approximately $24.0 million for the three months ended March 31, 2007.

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

(13) Senior Credit Facilities

     As of December 31, 2006, $44.8 million of borrowings were outstanding under our senior credit facility. On February 1, 2007, using a portion of the proceeds from our sale of 6.9 million shares of common stock in the first quarter of 2007 (Note 8), we paid the remaining principal balance outstanding and accrued interest under our senior credit facility.

     Borrowings under the revolving lines of credit bear interest at either (i) the London Interbank Offered Rate (“LIBOR”), as defined in the agreement, plus applicable margins or, at our option or (ii) a floating Index Rate, as defined in the agreement, plus applicable margins. Applicable margins, if we choose to use the LIBOR or the Index Rate, can range from 2.75% to 3.75% or 1.50% to 2.50%, respectively, for our revolving lines of credit depending on the quarterly adjustments that are based on our consolidated financial performance. The total amount available under our existing credit agreement is $110.0 million, of which none is outstanding as of March 31, 2007. We recorded interest expense, including amortization of deferred financing costs, under these senior credit facilities in the aggregate amount of $1.5 million in each of the three months ended March 31, 2007 and 2006.

     Borrowings under the senior credit facility are secured by the stock of certain of our U.S. and foreign subsidiaries, substantially all of our intellectual property rights, substantially all of the assets of our businesses in the U.S. and a significant portion of the assets of our businesses outside the U.S. Under the senior credit agreement, as amended, we must comply with various financial and non-financial covenants. The primary financial covenants pertain to, among other things, fixed charge coverage ratio, capital expenditures, various leverage ratios, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and a minimum cash requirement. Additionally, the senior credit agreement currently prohibits us from paying dividends. As of March 31, 2007, we were in compliance with the covenants.

(14) Defined Benefit Pension Plan

     Our subsidiary in England, Unipath Ltd., has a defined benefit pension plan established for certain of its employees. The net periodic benefit costs are as follows (in thousands):

		Three Months Ended March 31,
		2007				2006
Service cost		$	—			$	—
Interest cost			150				135
Expected return on plan assets			(125	)			(112	)
Realized losses			86				77
Net periodic benefit cost		$	111			$	100

(15) Financial Information by Segment

     Under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision making group is composed of the chief executive officer and members of senior management. Our reportable operating segments are Consumer Diagnostic Products, Vitamins and Nutritional Supplements, Professional Diagnostic Products, and Corporate and Other. Our operating results include license and royalty revenue which are allocated to Consumer Diagnostic Products and Professional Diagnostic Products on the basis of the original license or royalty agreement. Included in the operating loss of Corporate and Other are non-allocable corporate expenditures and expenses related to our research and development activities in the area of cardiology, the latter of which amounted to $4.7 million, net of the ITI funding (Note 11) of $4.4 million, and $5.6 million, net of the ITI funding of $3.8 million for the three months ended March 31, 2007 and 2006, respectively. Total assets in the area of cardiology, which are included in Corporate and Other in the tables below, amounted to $61.8 million at March 31, 2007 and $51.6 million at December 31, 2006.

     We evaluate performance of our operating segments based on revenue and operating income (loss). Segment information for the three months ended March 31, 2006 and 2005 is as follows (in thousands):

		Consumer				Vitamins and				Professional				Corporate
		Diagnostic				Nutritional				Diagnostic				and
		Products				Supplements				Products				Other				Total
Three Months Ended March 31, 2007:
Net revenue to external customers		$	53,569			$	17,784			$	87,626			$	—			$	158,979
Operating income (loss)		$	6,840			$	(702	)		$	20,206			$	(11,005	)		$	15,339

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

		Consumer				Vitamins and				Professional				Corporate
		Diagnostic				Nutritional				Diagnostic				and
		Products				Supplements				Products				Other				Total
Three Months Ended March 31, 2006:
Net revenue to external customers		$	43,314			$	19,003			$	65,504			$	—			$	127,821
Operating income (loss)		$	8,480			$	(1,077	)		$	9,416			$	(11,835	)		$	4,984
Assets:
As of March 31, 2007		$	319,051			$	52,228			$	738,886			$	230,209			$	1,340,374
As of December 31, 2006		$	314,815			$	49,896			$	625,560			$	95,500			$	1,085,771

(16) Related Party Transactions

     On March 22, 2007, we entered into a convertible loan agreement with a related party whereby we loaned the related party £7.5 million ($14.7 million as of the transaction date). In the event the related party consummates a specific target acquisition on or before September 30, 2007, the loan amount will simultaneously be converted into shares of the related party’s stock per the prescribed conversion formula defined in the loan agreement. In the event the related party does not consummate the specific target acquisition by September 30, 2007, the full amount of the loan, plus any accrued interest, will become payable to us on September 30, 2007.

(17) Material Contingencies and Legal Settlements

     Due to the nature of our business, we may from time to time be subject to commercial disputes, consumer product claims or various other lawsuits arising in the ordinary course of our business, and we expect this will continue to be the case in the future. These lawsuits generally seek damages, sometimes in substantial amounts, for commercial or personal injuries allegedly suffered and can include claims for punitive or other special damages. In addition, we aggressively defend our patent and other intellectual property rights. This often involves bringing infringement or other commercial claims against third parties, which can be expensive and can results in counterclaims against us. We are currently not a party to any material legal proceedings.

     As of March 31, 2007, we had contingent consideration obligations related to our acquisitions of Instant, First Check, Binax, Inc. (“Binax”) and CLONDIAG chip technologies Gmbtt (“Clondiag”). The contingent considerations will be accounted for as increases in the aggregate purchase prices if and when the contingencies occur.

     With respect to Instant, the terms of the acquisition agreement provide for $16.6 million of contingent consideration payable in cash or cash and stock to acquire the remaining 25% ownership interest in Instant. The seller, who is now an employee of Instant, has the option, but is not obligated, to sell his remaining 25% during the four-year period commencing April 1, 2008 and ending March 31, 2012. The option is contingent upon the business meeting certain revenue and gross profit targets or may be triggered should the seller be terminated as an employee, without cause. The option shall terminate if not exercised during the period mentioned above. Furthermore, we have the option, but not an obligation, to acquire the remaining 25% from the seller on or before March 31, 2012 for $24.6 million in cash or cash and stock. If the seller is no longer an employee of the company at the time of exercise, the full consideration shall be payable in cash. The option shall terminate if not exercised during the period mentioned above.

     With respect to First Check, we will pay an earn-out to First Check equal to the incremental revenue growth of the acquired products for 2007 and for the first nine months of 2008, as compared to the immediately preceding comparable periods.

     With respect to Binax, the terms of the acquisition agreement provide for $11.0 million of contingent cash consideration payable to the Binax shareholders upon the successful completion of certain new product developments during the five years following the acquisition.

     With respect to Clondiag, the terms of the acquisition agreement provide for $8.9 million of contingent consideration, consisting of 224,316 shares of our common stock and approximately $3.0 million of cash or stock in the event that four specified products are developed on Clondiag’s platform technology during the three years following the acquisition date.

(18) Recent Accounting Pronouncements

Recently Issued Standards

     In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged. We continue to evaluate the impact that the adoption of SFAS No. 157 will have, if any, on our consolidated financial statements.

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB No 115. This Statement provides companies with an option to measure, at specified election dates, many financial instruments and certain other items at fair value that are not currently measured at fair value. The standard also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities. If the fair value option is elected, the effect of the first remeasurement to fair value is reported as a cumulative effect adjustment to the opening balance of retained earnings. The statement is to be applied prospectively upon adoption. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We plan to adopt SFAS No. 159 as of January 1, 2008, and are currently evaluating the impact of SFAS No. 159 on our results of operations or financial position.

Recently Adopted Standards

     We adopted FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109 on January 1, 2007. FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. See Note 6 for information pertaining to the effects of adoption on our consolidated balance sheet.

     In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring in fiscal years beginning after September 15, 2006. The adoption of SFAS No. 155 did not have any impact on our financial position, results of operations or cash flows.

     In June 2006, the FASB ratified the consensus on EITF Issue No. 06-03, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement. The scope of EITF Issue No. 06-03 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, Universal Service Fund (“USF”) contributions and some excise taxes. The Task Force affirmed its conclusion that entities should present these taxes in the income statement on either a gross or a net basis, based on their accounting policy, which should be disclosed pursuant to APB Opinion No. 22, Disclosure of Accounting Policies. If such taxes are significant, and are presented on a gross basis, the amounts of those taxes should be disclosed. The consensus on Issue No. 06-03 will be effective for interim and annual reporting periods beginning after December 15, 2006. As required by EITF 06-03, we adopted this new accounting standard for the interim period beginning January 1, 2007. The adoption of EITF 06-03 did not have any impact on our financial position, results of operations or cash flows.

     In December 2006, the FASB issued FASB Staff Position (“FSP”) No. EITF 00-19-2, Accounting for Registration Payment Arrangements. This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. The guidance in this FSP amends FASB Statement No. 133, Accounting for Derivative Financial Instruments and Hedging Activities, and No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity and FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others to include scope exceptions for registration payment arrangements. This FSP is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of issuance of this FSP. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of this FSP, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. As required by EITF 00-19-2, we adopted this new accounting standard on January 1, 2007. The adoption of EITF 00-19-2 did not have any impact on our financial position, results of operations or cash flows.

(19) Guarantor Financial Information

     We issued $150.0 million in senior subordinated notes (the “Bonds”) to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in compliance with Regulation S of the Securities Act. Our payment obligations under the Bonds are currently guaranteed by all of our domestic subsidiaries (the “Guarantor Subsidiaries”). The guarantee is full and unconditional. Separate financial statements of the Guarantor Subsidiaries are

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

(unaudited)

not presented because we have determined that they would not be material to investors in the Bonds. The following supplemental financial information sets forth, on a consolidating basis, the statements of operations and cash flows for the three months ended March 31, 2007 and 2006 and the balance sheets as of March 31, 2007 and December 31, 2006 for our company (the “Issuer”), the Guarantor Subsidiaries and our other subsidiaries (the “Non-Guarantor Subsidiaries”). The supplemental financial information reflects our investments and the Guarantor Subsidiaries’ investments in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.

     We have extensive transactions and relationships between various members of our consolidated group. These transactions and relationships include intercompany pricing agreements, intellectual property royalty agreements, and general and administrative and research and development cost sharing agreements. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2007
(unaudited)
(in thousands)

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net product sales		$	6,857			$	87,266			$	88,886			$	(29,260	)		$	153,749
License and royalty revenue			—				138				5,092				—				5,230
Net revenue			6,857				87,404				93,978				(29,260	)			158,979
Cost of sales			5,219				51,064				52,552				(28,194	)			80,641
Gross profit			1,638				36,340				41,426				(1,066	)			78,338
Operating expenses:
Research and development			321				1,938				9,750				—				12,009
Sales and marketing			1,254				14,806				12,271				—				28,331
General and administrative			5,899				6,105				10,655				—				22,659
Total operating expenses			7,474				22,849				32,676				—				62,999
Operating (loss) income			(5,836	)			13,491				8,750				(1,066	)			15,339
Equity in earnings (losses) of subsidiaries, net of tax			9,738				—				—				(9,738	)			—
Interest expense, including amortization of original issue discounts and write-off of deferred financing costs			(3,478	)			(930	)			(7,982	)			7,206				(5,184	)
Other income (expense), net			7,288				1,415				595				(7,269	)			2,029
Income (loss) before provision for income taxes			7,712				13,976				1,363				(10,867	)			12,184
Provision for income taxes			1,407				3,441				1,031				—				5,879
Net income (loss)		$	6,305			$	10,535			$	332			$	(10,867	)		$	6,305

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2006
(unaudited)
(in thousands)

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net product sales		$	5,887			$	72,877			$	61,252			$	(17,263	)		$	122,753
License and royalty revenue			—				71				4,997				—				5,068
Net revenue			5,887				72,948				66,249				(17,263	)			127,821
Cost of sales			6,697				51,012				34,929				(17,071	)			75,567
Gross profit			(810	)			21,936				31,320				(192	)			52,254
Operating expenses:
Research and development			983				1,928				7,699				—				10,610
Sales and marketing			1,302				10,084				9,436				—				20,822
General and administrative			5,152				3,876				6,810				—				15,838
Total operating expenses			7,437				15,888				23,945				—				47,270
Operating (loss) income			(8,247	)			6,048				7,375				(192	)			4,984
Equity in earnings (losses) of subsidiaries, net of tax			7,271				—				—				(7,271	)			—
Interest expense, including amortization of original issue discounts and write-off of deferred financing costs			(4,079	)			(796	)			(2,523	)			1,677				(5,721	)
Other income (expense), net			2,703				(99	)			(1,355	)			(1,677	)			(428	)
(Loss) income before provision for income taxes			(2,352	)			5,153				3,497				(7,463	)			(1,165	)
Provision for income taxes			278				554				633				—				1,465
Net (loss) income		$	(2,630	)		$	4,599			$	2,864			$	(7,463	)		$	(2,630	)

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
March 31, 2007
(unaudited)
(in thousands)

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	104,301			$	33,728			$	42,912			$	—			$	180,941
Accounts receivable, net of allowances			2,908				50,101				46,867				—				99,876
Inventories, net			6,567				44,245				41,174				(4,655	)			87,331
Deferred tax assets			—				—				5,416				—				5,416
Related party note receivable			—				—				14,733				—				14,733
Prepaid expenses and other current assets			2,915				2,668				16,340				—				21,923
Intercompany receivables			65,257				76,379				15,223				(156,859	)			—
Total current assets			181,948				207,121				182,665				(161,514	)			410,220
Property, plant and equipment, net			1,976				23,556				55,798				—				81,330
Goodwill			107,663				117,864				263,908				—				489,435
Other intangible assets with indefinite lives			—				21,120				47,282				—				68,402
Core technology and patents, net			18,053				12,861				56,651				—				87,565
Other intangible assets, net			26,262				41,908				37,199				—				105,369
Deferred financing costs, net and other non-current assets			6,979				1,871				4,251				—				13,101
Other investments and available-for-sale securities			455,110				(663	)			9,511				(380,044	)			83,914
Deferred tax assets			122				4,327				(3,411	)			—				1,038
Intercompany notes receivable			458,322				56,267				—				(514,589	)			—
Total assets		$	1,256,435			$	486,232			$	653,854			$	(1,056,147	)		$	1,340,374
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	—			$	—			$	8,876			$	—			$	8,876
Current portion of capital lease obligations			—				562				35				—				597
Accounts payable			5,340				16,675				20,883				—				42,898
Accrued expenses and other current liabilities			20,498				16,838				33,365				—				70,701
Intercompany payables			45,284				40,002				71,564				(156,850	)			—
Total current liabilities			71,122				74,077				134,723				(156,850	)			123,072
Long-term liabilities:
Long-term debt, net of current portion			150,000				—				132				—				150,132
Capital lease obligations, net of current portion			—				214				45				—				259
Deferred tax liabilities			8,515				15,042				5,031				—				28,588
Other long-term liabilities			119				291				11,178				56				11,644
Intercompany notes payable			—				159,277				355,315				(514,592	)			—
Total long-term liabilities			158,634				174,824				371,701				(514,536	)			190,623
Stockholders’ equity			1,026,679				237,331				147,430				(384,761	)			1,026,679
Total liabilities and stockholders’ equity		$	1,256,435			$	486,232			$	653,854			$	(1,056,147	)		$	1,340,374

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31, 2006
(unaudited)
(in thousands)

						Guarantor				Non-Guarantor
		Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	16,350			$	19,755			$	34,999			$	—			$	71,104
Accounts receivable, net of allowances			2,538				53,544				44,306				—				100,388
Inventories, net			5,984				38,804				37,116				(3,582	)			78,322
Deferred tax assets			—				—				5,332				—				5,332
Prepaid expenses and other current assets			2,238				2,444				15,716				—				20,398
Intercompany receivables			57,748				67,589				8,542				(133,879	)			—
Total current assets			84,858				182,136				146,011				(137,461	)			275,544
Property, plant and equipment, net			2,098				24,710				55,504				—				82,312
Goodwill			71,136				109,116				259,117				—				439,369
Other intangible assets with indefinite lives			—				21,120				46,987				—				68,107
Core technology and patents, net			18,496				13,304				55,932				—				87,732
Other intangible assets, net			14,321				31,098				38,375				—				83,794
Deferred financing costs, net and other non-current assets			6,314				2,277				4,627				—				13,218
Other investments and available-for-sale securities			387,818				(778	)			10,835				(362,258	)			35,617
Deferred tax assets			—				—				78				—				78
Intercompany notes receivable			355,074				56,267				—				(411,341	)			—
Total assets		$	940,115			$	439,250			$	617,466			$	(911,060	)		$	1,085,771
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	—			$	450			$	7,054			$	—			$	7,504
Current portion of capital lease obligations			—				551				33				—				584
Accounts payable			5,302				19,998				21,042				—				46,342
Accrued expenses and other current liabilities			24,920				19,721				42,642				518				87,801
Intercompany payables			40,803				35,967				60,179				(136,949	)			—
Total current liabilities			71,025				76,687				130,950				(136,431	)			142,231
Long-term liabilities:
Long-term debt, net of current portion			150,000				44,325				148				—				194,473
Capital lease obligations, net of current portion			—				360				55				—				415
Deferred tax liabilities			4,903				8,149				10,932				—				23,984
Other long-term liabilities			49				305				10,176				—				10,530
Intercompany notes payable			—				85,983				322,275				(408,258	)			—
Total long-term liabilities			154,952				139,122				343,586				(408,258	)			229,402
Stockholders’ equity			714,138				223,441				142,930				(366,371	)			714,138
Total liabilities and stockholders’ equity		$	940,115			$	439,250			$	617,466			$	(911,060	)		$	1,085,771