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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                              
|---------- |  | ---------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                              
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.    
|          
|           |  | For the fiscal year ended: December 31, 2004                                                 
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.

Commission file number:





Adeza Biomedical Corporation


(Exact name of Registrant as specified in its charter)


|                                                                    |  |                                             
|------------------------------------------------------------------- |  | --------------------------------------------
|Delaware                                                            |  | 77-0054952                                  
|(State or Other Jurisdiction of
     Incorporation or Organization) |  | (I.R.S. Employer
     Identification Number)

1240 Elko Drive, Sunnyvale, California 94089


(Address of principal executive offices and zip code)


(408) 745-0975


(Registrants telephone number, including area code)





Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.001 Par Value





þ o


þ o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS







|             |  |                                                                                                                      |  |  |    |  |  | 
|------------ |  | -------------------------------------------------------------------------------------------------------------------- |  |  | -- |  |  | 
|PART I      
|Item 1.      |  | Business                                                                                                             |  |  | 1  | 
|Item 2.      |  | Properties                                                                                                           |  |  | 31 | 
|Item 3.      |  | Legal Proceedings                                                                                                    |  |  | 31 | 
|Item 4.      |  | Submission of Matters to a vote of Security
    Holders                                                              |  |  | 31 | 
|PART II     
|Item 5.      |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 32 | 
|Item 6.      |  | Selected Financial Data                                                                                              |  |  | 33 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 34 | 
|Item 8.      |  | Financial Statements and Supplementary
    Data                                                                      |  |  | 42 | 
|Item 9.      |  | Changes in and disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |  | 42 | 
|Item 9A.     |  | Controls and Procedures                                                                                              |  |  | 42 | 
|PART III    
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 43 | 
|Item 11.     |  | Executive Compensation                                                                                               |  |  | 43 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |  | 43 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 43 | 
|Item 14.     |  | Principal Accounting Fees and Services                                                                               |  |  | 44 | 
|PART IV     
|Item 15.     |  | Exhibits and Financial Statement
    Schedules                                                                       |  |  | 44 | 
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2



tm IQ


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##### Table of Contents






PART 1







|        |         
|------- | --------
|Item 1. | Business

FORWARD-LOOKING STATEMENTS






| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the unpredictability of our quarterly and annual revenues and
    results of operations, including on a quarter-to-quarter basis;                 
|
| |  | our estimates regarding market size, future revenues, royalty
    costs, expenses and capital requirements and needs for
    additional financing;
|
| |  | the rate and degree of market acceptance of our products;                                                                                         
|
| |  | our marketing and manufacturing capacity and strategy;                                                                                            
|
| |  | our ability to develop and market new and enhanced products;                                                                                      
|
| |  | the timing of and our ability to obtain and maintain regulatory
    clearances for our products;                                                  
|
| |  | the timing of, and our ability to obtain, reimbursement for our
    diagnostic products; and                                                      
|
| |  | our competitors.                                                                                                                                  





OVERVIEW


IQ tm




1



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OVERVIEW OF TARGETED MARKETS




| |              
| | -------------
| | Preterm birth





2



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| |                              
| | -----------------------------
| | Preterm birth market segments





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Women with signs and symptoms of preterm
    labor  We believe that there are approximately
    1 million episodes each year in the United States where
    women who were originally designated as either
    high-risk or low-risk for preterm birth
    seek urgent medical care for signs and symptoms of preterm
    labor. Some of these signs and symptoms include uterine
    contractions, cervical dilation, vaginal infection, backache,
    pelvic pain, abdominal fullness or discomfort, change in vaginal
    discharge and vaginal bleeding. However, as these signs and
    symptoms are common throughout pregnancy, they do not provide a
    sufficient basis for making an accurate diagnosis of preterm
    labor and impending birth. Without a reliable method to assess
    the risk of preterm birth, the healthcare provider may not be
    able to make appropriate treatment decisions, such as whether to
    hospitalize the woman, prescribe medications to delay the onset
    of labor or accelerate fetal lung development, request expensive
    transport to an advanced NICU facility or instruct the woman to
    remain home on bed rest and discontinue employment. If
    appropriate, these interventions can significantly increase the
    chance of infant survival. If healthcare providers could
    accurately identify women at risk, they could avoid many
    unnecessary interventions and their associated costs.
|
| |  | Women designated as high-risk for preterm
    birth  We believe that up to 1.2 million
    women in the United States annually may be designated as
    high-risk for preterm birth during their pregnancy.
    Risk factors include previous preterm birth, multiple gestation,
    uterine anomalies, gestational diabetes, hypertension, low
    pre-pregnancy weight, use of illicit drugs, sexually transmitted
    diseases, vaginal infections, smoking, consumption of alcohol
    and demographic factors such as low socioeconomic status,
    certain ages and races. In addition, some women may also be
    designated as high-risk later in pregnancy when
    evaluated using a vaginally inserted ultrasound probe to assess
    cervical length. This method requires specially trained medical
    personnel, and its accuracy is highly dependent on specific user
    technique. However, healthcare providers have had limited
    success in accurately determining the risk of preterm birth
    based on these risk factors and evaluations. As a result, there
    is a need for an easy-to-use, objective method to identify women
    at multiple times during pregnancy who are truly at high risk
    for preterm birth.                                                                                                                                                                                                                
|
| |  | Women designated as low-risk for preterm
    birth  We believe that up to 2.8 million
    women annually in the United States with no known risk factors
    are designated as low-risk. However, according to
    the March of Dimes, women with no known causes of preterm birth
    account for approximately 50% of all preterm births. We believe
    the ability to accurately diagnose which of these women are
    truly at high risk for preterm birth is currently beyond the
    scope of traditional evaluation methods. Women who are
    inaccurately identified as low-risk are excluded
    from the potential benefits of existing interventions. If these
    women could be accurately identified as high-risk by
    periodic testing, their pregnancies potentially could be
    prolonged with appropriate medical treatment and lifestyle
    changes. These treatments could result in substantial medical
    benefits to the mother and infant, as well as significant cost
    savings.                                                                                                                                                                                                                                                                                                                                                                                                                                                 



| |                                                       
| | ------------------------------------------------------
| | Current treatments and interventions for preterm birth





3



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##### Table of Contents







| |            
| | -----------
| | Infertility







| |                   
| | ------------------
| | Induction of labor







| |                          
| | -------------------------
| | Oncology  bladder cancer



4



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##### Table of Contents





FETAL FIBRONECTIN OVERVIEW






THE ADEZA SOLUTION


IQ


IQ




| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | Objective result  Instrument provides a
    positive or negative result;                                                                     
|
| |  | Low-cost instrument  Minimal cost is incurred
    to acquire the instrument;                                                                 
|
| |  | Rapid turnaround  Produces a result in less
    than 25 minutes;                                                                             
|
| |  | Easy to use  Simple and convenient test
    procedure and instrument user interface;                                                         
|
| |  | Established reimbursement  Reimbursement
    provided by large US health plans; and                                                          
|
| |  | Significant cost savings opportunity  Reduces
    hospital admissions, eliminates unnecessary transports and
    avoids costly interventions.



5



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PRODUCTS




|                  |  |                                             |  |                                                                                                                      |  |                       
|----------------- |  | ------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|                  |  | Product                                     |  | Use                                                                                                                  |  | Status                
|                  |  |                                             |  |                                                                                                                      |  |                       
|Marketed products |  |                                             |  |                                                                                                                      |  |                       
|Preterm birth     |  | Fetal Fibronectin Test for the TLi IQSystem |  | Prediction of preterm birth
     Women with signs and symptoms
     Women at high-risk
     Women at low-risk |  | Commercially available
|Infertility       |  | E-tegrity Test                              |  | Uterine receptivity                                                                                                  |  | Commercially available

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|                           |  |                                                 |  |                               |  |                          
|-------------------------- |  | ----------------------------------------------- |  | ----------------------------- |  | -------------------------
|                           |  | Product                                         |  | Use                           |  | Status                   
|                           |  |                                                 |  |                               |  |                          
|Products under development |  |                                                 |  |                               |  |                          
|Other pregnancy products   |  |                                                 |  |                               |  |                          
|Induction of labor         |  | Fetal Fibronectin Test for the TLi IQSystem     |  | Successful induction of labor |  | FDA review pending       
|Preterm birth              |  | SalEst Test                                     |  | Prediction of preterm birth   |  | In commercial development
|Delivery date              |  | Fetal Fibronectin Test/SalEst Test              |  | Prediction of delivery date   |  | In development           
|Oncology products          |  |                                                 |  |                               |  |                          
|Bladder cancer             |  | Oncofetal fibronectin test for the TLi IQSystem |  | Monitoring and screening      |  | In development           





| |                  
| | -----------------
| | Marketed products



| |                       
| | ----------------------
| | Preterm birth products

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TLiIQ System. IQ IQ IQ




| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | A keypad which is used to enter patient and user identification
    information;                                          
|
| |  | A display which provides simple on-screen commands to guide the
    user through the testing sequence;                    
|
| |  | A fiber-optic scanner that is contained inside the instrument,
    which creates a digitized image of the test result; and
|
| |  | Sophisticated technology that analyzes each Fetal Fibronectin
    Test cassette.                                          

IQ


Fetal Fibronectin Test cassette.


Test procedure. IQ IQ IQ


7



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| |                     
| | --------------------
| | Infertility products

E-tegrity Test.






| |                           
| | --------------------------
| | Products under development



| |                   
| | ------------------
| | Pregnancy products



| |                   
| | ------------------
| | Induction of labor

Fetal Fibronectin Test.




| |              
| | -------------
| | Preterm birth

SalEst Test.




| |              
| | -------------
| | Delivery date

Fetal Fibronectin Test/ SalEst Test.


8



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| |                  
| | -----------------
| | Oncology products





| |               
| | --------------
| | Bladder cancer



SALES AND MARKETING






| |                       
| | ----------------------
| | US sales and marketing

IQ






9



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| |                                  
| | ---------------------------------
| | International sales and marketing





MANUFACTURING


IQ




IQ




RESEARCH AND DEVELOPMENT




GOVERNMENT REGULATION


United States






| |                                                        
| | -------------------------------------------------------
| | FDAs premarket clearance and approval
    requirements



10



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| |                         
| | ------------------------
| | 510(k) clearance pathway







| |                           
| | --------------------------
| | Premarket approval pathway

in vitro






11



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| |                                    
| | -----------------------------------
| | In vitro diagnostic medical devices





| |                          
| | -------------------------
| | Continuing FDA regulation





| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | QSR which requires manufacturers to follow design, testing,
    control, documentation and other quality assurance procedures
    during the manufacturing process, otherwise known as Good
    Manufacturing Practices or GMPs;                                                                      
|
| |  | labeling regulations, which prohibit the promotion of products
    for unapproved or off-label uses and impose other
    restrictions on labeling; and                                                                                                                                              
|
| |  | medical device reporting regulations, which require that
    manufacturers report to the FDA if their device may have caused
    or contributed to a death or serious injury or malfunctioned in
    a way that would likely cause or contribute to a death or
    serious injury if it were to recur.





| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | fines, injunctions, and civil penalties;                                            
|
| |  | recall or seizure of our products;                                                  
|
| |  | operating restrictions, partial suspension or total shutdown of
    production;     
|
| |  | refusing our request for 510(k) clearance or premarket approval
    of new products;
|
| |  | withdrawing 510(k) clearance or PMAs that are already
    granted; and              
|
| |  | criminal prosecution.                                                               





| |              
| | -------------
| | International



12



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INTELLECTUAL PROPERTY






IQ






| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 28 issued US patents;                                                                                                                                                              
|
| |  | 8 US non-provisional patent applications;                                                                                                                                          
|
| |  | 5 US provisional patent applications;                                                                                                                                              
|
| |  | 102 issued foreign patents;                                                                                                                                                        
|
| |  | 13 foreign patent applications that are in various national
    stages of prosecution, which means that the applications have
    been filed in specific foreign jurisdictions; and
|
| |  | 1 foreign patent application not at the national stage.                                                                                                                            





|                         |  |            |    |  |                 |  |    |                 |  |  |                      |  |  |  |    | 
|------------------------ |  | ---------- | -- |  | --------------- |  | -- | --------------- |  |  | -------------------- |  |  |  | -- | 
|                         |  | US Patents |    |  | US Applications |  |    | Foreign Patents |  |  | Foreign Applications | 
|Category                 |  | Granted    |    |  | Filed           |  |    | Granted         |  |  | Filed                | 
|                         |  |            |    |  |                 |  |    |                 |  |  |                      | 
|Methods of Use           |  |            | 14 |  |                 |  | 7  |                 |  |  | 54                   |  |  |  | 7  | 
|Detection Systems        |  |            | 8  |  |                 |  | 3  |                 |  |  | 46                   |  |  |  | 3  | 
|Platforms/ Other Devices |  |            | 6  |  |                 |  | 3  |                 |  |  | 2                    |  |  |  | 4  | 
|Total                    |  |            | 28 |  |                 |  | 13 |                 |  |  | 102                  |  |  |  | 14 | 

IQ IQ


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IQ IQ


LICENSE AND OTHER AGREEMENTS












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COMPETITION










EMPLOYEES




FACTORS THAT MAY AFFECT FUTURE RESULTS


In addition to other information in this Form 10-K, the
following factors should be considered carefully in evaluating
the company. If any of the risks or uncertainties described in
this Form 10-K actually occurs, our business, results of
operations or financial condition could be materially adversely
affected. The risks and uncertainties described in this
Form 10-K are not the only ones facing the company.
Additional risks and uncertainties of which we are unaware or
currently deem immaterial may also become important factors that
may harm our business.


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RISKS RELATING TO OUR BUSINESS




| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because our revenues and financial results depend
    significantly on a limited product line, if we are unable to
    manufacture or sell our products in sufficient quantities and in
    a timely manner, our business will suffer.

IQ IQ




| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | If our products do not achieve and sustain market
    acceptance, we may fail to generate sufficient revenue to
    maintain our business.

IQ IQ IQ








| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | evidence of clinical utility;                                         
|
| |  | convenience and ease of use;                                          
|
| |  | availability of alternative and competing diagnostic products;        
|
| |  | cost-effectiveness;                                                   
|
| |  | effectiveness of marketing, distribution and pricing
    strategy; and
|
| |  | publicity concerning these products or competitive products.          



16



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| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly revenues and operating results are subject
    to significant fluctuations, and our stock price may decline if
    we do not meet the expectations of investors and
    analysts.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to increase market acceptance of womens health
    diagnostics generally and of our products in particular, as
    discussed under Factors that may affect future
    results  if our products do not achieve and sustain
    market acceptance, we may fail to generate sufficient revenue to
    maintain our business;                                                                                                                     
|
| |  | our need and ability to generate and manage growth as discussed
    under Factors that may affect future results 
    if we fail to properly manage our anticipated growth in the
    United States or abroad, we may incur significant additional
    costs and expenses and our operating results may suffer;                                                                                                                                            
|
| |  | delays in, or failure of, delivery of components by our
    suppliers as more fully described in Factors that may
    affect future results  we rely on a limited number of
    suppliers, and if these suppliers fail or are unable to perform
    in a timely and satisfactory manner, we may be unable to
    manufacture our products or satisfy product demand in a timely
    manner, which could delay the production or sale of these
    products;
|
| |  | the seasonal nature of our business and quarterly variations in
    demand for our products based on procurement cycles of our
    customers;                                                                                                                                                                                                                                                                                                                 
|
| |  | changes in the manner in which our operations are regulated;                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | increases in the length of our sales cycle;                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | fluctuations in gross margins; and                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | difficult political and economic conditions.                                                                                                                                                                                                                                                                                                                                                                                                                  







| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If third-party payors do not adequately reimburse our
    customers, market acceptance of our products may be impaired,
    which may adversely affect our revenues and our operating
    results.



17



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| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to properly manage our anticipated growth in
    the US or abroad, we may incur significant additional costs and
    expenses and our operating results may suffer.





18



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| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We will need to devote considerable resources to comply
    with federal, state and foreign regulations and, if we are
    unable to fully comply, we could face substantial
    penalties.





| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Federal Food, Drug and Cosmetic Act, which regulates the
    design, testing, manufacture, labeling, marketing, distribution
    and sale of medical devices;                                                         
|
| |  | the Federal Anti-Kickback Law, which prohibits the illegal
    inducement of referrals for which payment may be made under
    federal healthcare programs such as the Medicare and Medicaid
    Programs; and            
|
| |  | Medicare laws and regulations that prescribe the requirements
    for coverage and payment, including the amount of such payment,
    and laws prohibiting false claims for reimbursement under
    Medicare and Medicaid.





| |                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to maintain our existing regulatory
    approvals and clearances for our existing products, or obtain
    new regulatory approvals and clearances for our product
    candidates, our ability to commercially distribute our products
    and our business may be significantly harmed.



IQ


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| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fines, injunctions and civil penalties;                                                                                                               
|
| |  | recall or seizure of our products;                                                                                                                    
|
| |  | restrictions on our products or manufacturing processes,
    including operating restrictions, partial suspension or total
    shutdown of production;
|
| |  | denial of requests for 510(k) clearances or PMAs of product
    candidates;                                                                           
|
| |  | withdrawal of 510(k) clearances or PMAs already granted;                                                                                              
|
| |  | disgorgement of profits; and                                                                                                                          
|
| |  | criminal prosecution.                                                                                                                                 









| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we modify our marketed products, we may be required to
    obtain new 510(k) clearances or PMAs, or we may be required to
    cease marketing or recall the modified products until clearances
    are obtained.



20



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| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we or any of our third-party manufacturers do not
    operate in accordance with Quality System Regulations, we could
    be subject to FDA enforcement actions, including the seizure of
    our products and the halt of our production.







| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we experience delays in the development of new products
    or delays in planned improvements to our products, our
    commercial opportunities will be reduced and our future
    competitive position may be adversely affected.





| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If other companies develop and market technologies or
    diagnostic products faster than we do, or if those products are
    more cost effective or useful than our products, our commercial
    opportunities will be reduced or eliminated.



21



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| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | pursue acquisitions, joint ventures or other collaborations;                    
|
| |  | license proprietary technologies that are competitive with our
    technologies;
|
| |  | attract funding; and                                                            
|
| |  | attract and hire scientific and other talent.                                   





| |                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on a limited number of suppliers, and if these
    suppliers fail or are unable to perform in a timely and
    satisfactory manner, we may be unable to manufacture our
    products or satisfy product demand in a timely manner, which
    could delay the production or sale of these products.

IQ






| |                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on distributors to market and sell our products
    in overseas markets, and if our foreign distributors fail in
    their efforts or are unwilling or unable to devote sufficient
    resources to market and sell our products, our ability to
    effectively market our products and our business will be
    harmed.



22



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| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The regulatory approval process outside the United States
    varies depending on foreign regulatory requirements and may
    limit our ability to develop, manufacture and sell our products
    internationally.





| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our products do not perform as expected, we may
    experience reduced revenue, delayed or reduced market acceptance
    of our products, increased costs and damage to our
    reputation.





| |   |                                                         
| | - | --------------------------------------------------------
| |  | failure of our products to perform as expected;         
|
| |  | a perception that our products are difficult to use; and
|
| |  | litigation concerning the performance of our products.  





| |                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If product liability suits or other claims and product
    field actions are initiated against us, we may be required to
    engage in expensive and time-consuming litigation, pay
    substantial damages, face increased insurance rates and sustain
    damage to our reputation, which would significantly impair our
    financial condition.



23



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| |                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on the services of key personnel to implement
    our strategy, and if we lose key management or scientific
    personnel, scientific collaborators or other advisors or are
    unable to attract and retain other qualified personnel, we may
    be unable to execute our business plan and our operations and
    business would suffer.





| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Most of our operations are currently conducted at a single
    location that may be at risk from earthquakes and other natural
    or unforeseen disasters.





| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | If we use biological and hazardous materials in a manner
    that causes injury, we could be liable for damages.



24



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| |                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Potential business combinations could require significant
    management attention and prove difficult to integrate with our
    business, which could distract our management, disrupt our
    business, dilute stockholder value and adversely affect our
    operating results.





| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | failure to integrate management information systems, personnel,
    research and development and marketing, operations, sales and
    support;
|
| |  | potential loss of key current employees or employees of the
    other company;                                                                
|
| |  | disruption of our ongoing business and diversion of
    managements attention from other business concerns;                                  
|
| |  | potential loss of the other companys customers;                                                                                              
|
| |  | failure to develop further the other companys technology
    successfully;                                                                   
|
| |  | unanticipated costs and liabilities; and                                                                                                      
|
| |  | other accounting consequences.                                                                                                                





| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to obtain necessary funds for our operations,
    we will be unable to continue to develop and commercialize new
    products and technologies and we would need to downsize or halt
    our operations.





| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | the level of research and development investment required to
    maintain and improve our technology position; 
|
| |  | costs of filing, prosecuting, defending and enforcing patent
    claims and other intellectual property rights;
|
| |  | the success of our product sales and related collections;                                                      
|
| |  | our need or decision to acquire or license businesses, products
    or technologies or acquire businesses;     
|
| |  | maintaining or expanding our manufacturing or commercialization
    capacity;                                  

25



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##### Table of Contents





| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | competing technological and market developments; and                                    
|
| |  | costs relating to changes in regulatory policies or laws that
    affect our operations.



RISKS RELATING TO OUR INTELLECTUAL PROPERTY




| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | If we are unable to protect our proprietary rights, we may
    not be able to compete effectively.

IQ IQ






| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our rights to use technologies and patents licensed to us
    by third parties are not within our control, and we may not be
    able to commercialize our products without these
    technologies.



26



---



##### Table of Contents











| |                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the use of our technologies conflicts with the
    intellectual property rights of third parties, we may incur
    substantial liabilities, and we may be unable to commercialize
    products based on these technologies in a profitable manner, if
    at all.









| |   |                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may become involved in time-consuming and expensive
    litigation, even if the claim is without merit;                                                                                                                                                                                      
|
| |  | we may become liable for substantial damages for past
    infringement if a court decides that our technologies infringe
    upon a competitors patent;                                                                                                                                        
|
| |  | a court may prohibit us from selling or licensing our product
    without a license from the patent holder, which may not be
    available on commercially acceptable terms, if at all, or which
    may require us to pay substantial royalties or grant
    cross-licenses to our patents; and
|
| |  | we may have to redesign our product so that it does not infringe
    upon others patent rights, which may not be possible or
    could require substantial funds or time.                                                                                                                      



27



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##### Table of Contents





| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are involved in intellectual property claims and
    litigation, the proceedings may divert our resources and subject
    us to significant liability for damages, substantial litigation
    expense and the loss of our proprietary rights.







| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | divert existing management, scientific and financial resources;                                                                      
|
| |  | subject us to significant liabilities;                                                                                               
|
| |  | allow our competitors to market competitive products without
    obtaining a license from us;                                        
|
| |  | cause product shipment delays and lost sales;                                                                                        
|
| |  | require us to enter into royalty or licensing agreements, which
    may not be available on terms acceptable to us, if at
    all; or
|
| |  | force us to discontinue selling or modify our products, or to
    develop new products.                                              



| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be subject to damages resulting from claims that we
    or our employees have wrongfully used or disclosed alleged trade
    secrets of their former employers.





| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we cannot obtain additional licenses to intellectual
    property owned by third parties that we desire to incorporate
    into new products we plan to develop, we may not be able to
    develop or commercialize these future products.



RISKS RELATED TO OUR COMMON STOCK




| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to timely satisfy new regulatory
    requirements relating to internal controls, our stock price
    could suffer.



28



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| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our principal stockholders, executive officers and
    directors choose to act together, they may be able to control
    our management and operations, which may prevent us from taking
    actions that may be favorable to our stockholders.





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The future sale of our securities could dilute our common
    stockholders investments and negatively affect our stock
    price.







| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | The price and volume of our common stock experience
    fluctuations, that could lead to costly litigation for
    us.





| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | media reports and publications and announcements about
    womens health and cancer diagnostic products or new cancer
    treatments or innovations that could compete with our products;                                                          
|
| |  | new regulatory pronouncements, changes in regulatory guidelines,
    such as adverse changes in reimbursement for womens health
    and cancer diagnostic products, and timing of regulatory
    approvals concerning the products in our pipeline;
|
| |  | market conditions or trends related to the medical devices and
    diagnostic products industries or the market in general;                                                                                                                         
|
| |  | changes in financial estimates or recommendations by securities
    analysts;                                                                                                                                                                       

29



---



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| |   |                                                   
| | - | --------------------------------------------------
| |  | the seasonal nature of our revenues and expenses; 
|
| |  | variations in our quarterly operating results; and
|
| |  | changes in accounting principles.                 





| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Anti-takeover provisions in our certificate of
    incorporation and bylaws and under Delaware law may inhibit a
    change in control or a change in management that our
    stockholders consider favorable.





| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorizing the issuance without further approval of blank
    check preferred stock that could be issued by our board of
    directors to increase the number of outstanding shares and
    thwart a takeover attempt;
|
| |  | prohibiting cumulative voting in the election of directors,
    which would otherwise allow less than a majority of stockholders
    to elect director candidates;                                                       
|
| |  | limiting the ability to remove directors;                                                                                                                                                                                
|
| |  | limiting the ability of stockholders to call special meetings of
    stockholders;                                                                                                                                       
|
| |  | prohibiting stockholder action by written consent, thereby
    requiring all stockholder actions to be taken at a meeting of
    stockholders; and                                                                       
|
| |  | establishing advance notice requirements for nominations for
    election to the board of directors or for proposing matters that
    can be acted upon by stockholders at stockholder meetings.                         





| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We do not expect to pay dividends in the foreseeable
    future. As a result, our stockholders must rely on stock
    appreciation for any return on their investment



ADDITIONAL INFORMATION


http://www.adeza.com http://www.ffntest.com.


30



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|        |           
|------- | ----------
|Item 2. | Properties








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



EXECUTIVE OFFICERS




|                          |  |     |    |  |             |                                                                           
|------------------------- |  | --- | -- |  | ----------- | --------------------------------------------------------------------------
|Name                      |  | Age |    |  | Position(s)
|                          |  |     |    |  |            
|Emory V. Anderson         |  |     | 51 |  |             | President, Chief Executive Officer and Director                           
|Mark D. Fischer-Colbrie   |  |     | 48 |  |             | Vice President, Finance and Administration and Chief Financial
    Officer
|Durlin E. Hickok, MD, MPH |  |     | 56 |  |             | Vice President, Medical Affairs                                           
|Robert O. Hussa, PhD      |  |     | 63 |  |             | Vice President, Research and Development                                  
|Marian E. Sacco           |  |     | 50 |  |             | Vice President, Sales and Marketing                                       

Emory V. Anderson


Mark D. Fischer-Colbrie


Durlin E. Hickok, MD, MPH,


Robert O. Hussa, PhD,


31



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##### Table of Contents





Marian E. Sacco





PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|     |  |             |     |  |           |  |     |           |  |  |           |  |  |   |       | 
|---- |  | ----------- | --- |  | --------- |  | --- | --------- |  |  | --------- |  |  | - | ----- | 
|     |  | Fiscal 2004 |    
|     |  |             |    
|     |  | Quarter 1   |     |  | Quarter 2 |  |     | Quarter 3 |  |  | Quarter 4 | 
|     |  |             |     |  |           |  |     |           |  |  |           | 
|High |  |             | N/A |  |           |  | N/A |           |  |  | N/A       |  |  | $ | 19.70 | 
|Low  |  |             | N/A |  |           |  | N/A |           |  |  | N/A       |  |  | $ | 17.10 | 







| |                                            
| | -------------------------------------------
| | Proceeds from Sale of Registered Securities



|                                       |  |   |       | 
|-------------------------------------- |  | - | ----- | 
|Legal fees and expenses                |  | $ | 1,067 | 
|Accounting fees and expenses           |  |   | 757   | 
|Printing and engraving                 |  |   | 224   | 
|Miscellaneous                          |  |   | 144   | 
|Nasdaq National Market entry fee       |  |   | 95    | 
|SEC registration fee                   |  |   | 9     | 
|NASD filing fee                        |  |   | 7     | 
|Nasdaq National Market application fee |  |   | 2     | 
|                                       |  |   |      
|Total                                  |  | $ | 2,305 | 
|                                       |  |   |      

32



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |        |         |   |   |        |         |  
|----------------------------------------------------- | -------------------------- | ------------------------ | ------ | ---------- | ---- | - | ------ | ---------- |  | - | ------ | ------- | - | ---- | ------ | ------- | - | - | ------ | ------- | -
|                                                      |                            | Years Ended December 31, |       
|Statement of                                          |                            |                          |       
|Operations Data:                                      |                            | 2004                     |        |            | 2003 |   |        | 2002       |  |   | 2001   |         |   | 2000 |       
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|Product sales                                         |                            | $                        | 33,596 |            |      | $ | 26,499 |            |  | $ | 14,277 |         |   | $    | 6,742  |         |   | $ | 3,404  |        
|Cost of product sales(1)                              |                            |                          | 2,195  |            |      |   | 6,087  |            |  |   | 3,715  |         |   |      | 2,521  |         |   |   | 2,023  |        
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|Gross profit                                          |                            |                          | 31,401 |            |      |   | 20,412 |            |  |   | 10,562 |         |   |      | 4,221  |         |   |   | 1,381  |        
|Contract revenues                                     |                            |                          |       |            |      |   |       |            |  |   | 1,059  |         |   |      | 811    |         |   |   | 515    |        
|Operating costs and expenses:                         |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |        |         |   |   |        |        
|                                                      | Selling and marketing      |                          |        | 15,907     |      |   |        | 12,259     |  |   |        | 7,819   |   |      |        | 6,437   |   |   |        | 5,337   |  
|                                                      | General and administrative |                          |        | 3,997      |      |   |        | 2,730      |  |   |        | 2,069   |   |      |        | 2,033   |   |   |        | 1,641   |  
|                                                      | Research and development   |                          |        | 2,451      |      |   |        | 2,001      |  |   |        | 2,047   |   |      |        | 2,145   |   |   |        | 1,893   |  
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|Total operating costs and expenses                    |                            |                          | 22,355 |            |      |   | 16,990 |            |  |   | 11,935 |         |   |      | 10,615 |         |   |   | 8,871  |        
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|Income (loss) from operations                         |                            |                          | 9,046  |            |      |   | 3,422  |            |  |   | (314   | )       |   |      | (5,583 | )       |   |   | (6,975 | )      
|Other expenses, net                                   |                            |                          | (6     | )          |      |   | (33    | )          |  |   | (8     | )       |   |      | (21    | )       |   |   | (17    | )      
|Interest income (expense), net                        |                            |                          | 239    |            |      |   | (19    | )          |  |   | (7     | )       |   |      | (85    | )       |   |   | (646   | )      
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|Income (loss) before income taxes                     |                            |                          | 9,279  |            |      |   | 3,370  |            |  |   | (329   | )       |   |      | (5,689 | )       |   |   | (7,638 | )      
|Provision for income taxes                            |                            |                          | 410    |            |      |   | 135    |            |  |   |       |         |   |      |       |         |   |   |       |        
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|Net income (loss)                                     |                            | $                        | 8,869  |            |      | $ | 3,235  |            |  | $ | (329   | )       |   | $    | (5,689 | )       |   | $ | (7,638 | )      
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|Net income (loss) per share:                          |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |        |         |   |   |        |        
|                                                      | Basic                      |                          | $      | 8.05       |      |   | $      | 17.78      |  |   | $      | (1.82   | ) |      | $      | (36.27  | ) |   | $      | (45.75  | )
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|                                                      | Diluted                    |                          | $      | 0.65       |      |   | $      | 0.26       |  |   | $      | (1.82   | ) |      | $      | (36.27  | ) |   | $      | (45.75  | )
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|Shares used in computing net income (loss) per share: |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |        |         |   |   |        |        
|                                                      | Basic                      |                          |        | 1,102,078  |      |   |        | 181,965    |  |   |        | 181,188 |   |      |        | 156,857 |   |   |        | 166,942 |  
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       
|                                                      | Diluted                    |                          |        | 13,648,954 |      |   |        | 12,515,063 |  |   |        | 181,188 |   |      |        | 156,857 |   |   |        | 166,942 |  
|                                                      |                            |                          |        |            |      |   |        |            |  |   |        |         |   |      |       

33



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|                                     |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------ |  | ------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                     |  | As of December 31, |        
|                                     |  |                    |        
|Balance Sheet Data:                  |  | 2004               |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                     |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |        
|Cash and cash equivalents            |  | $                  | 80,118  |   |      | $ | 12,092  |      |  | $ | 10,751  |   |  | $    | 16,674  |   |  | $ | 6,515   |  
|Working capital                      |  |                    | 81,267  |   |      |   | 9,653   |      |  |   | 6,195   |   |  |      | 7,094   |   |  |   | (1,888  | )
|Total assets                         |  |                    | 88,128  |   |      |   | 18,716  |      |  |   | 15,731  |   |  |      | 17,714  |   |  |   | 8,234   |  
|Convertible preferred stock          |  |                    |        |   |      |   | 61,484  |      |  |   | 60,984  |   |  |      | 60,984  |   |  |   | 45,637  |  
|Accumulated deficit                  |  |                    | (44,768 | ) |      |   | (53,637 | )    |  |   | (56,872 | ) |  |      | (56,543 | ) |  |   | (50,854 | )
|Total stockholders equity (deficit) |  |                    | 81,711  |   |      |   | (51,279 | )    |  |   | (54,537 | ) |  |      | (54,217 | ) |  |   | (48,540 | )






|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cost of product sales for the year ended December 31,
    2004 includes a one-time reduction of accrued royalties and
    related royalty costs of $2.7 million.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements discussion and analysis of financial
    condition and results of operations

The following discussion of our financial condition and
results of operations should be read in conjunction with our
financial statements and the notes to those financial statements
appearing elsewhere in this Form 10-K. This discussion
contains forward-looking statements that involve significant
risks and uncertainties. As a result of many factors, such as
those set forth under Factors that may affect future
results and elsewhere in this Form 10-K, our actual
results may differ materially from those anticipated in these
forward-looking statements.


OVERVIEW


IQ IQ IQ


IQ IQ




| |              
| | -------------
| | Product sales

IQ




| |                      
| | ---------------------
| | Cost of product sales



34



---



##### Table of Contents







| |                               
| | ------------------------------
| | Selling and marketing expenses





| |                                    
| | -----------------------------------
| | General and administrative expenses





| |                                  
| | ---------------------------------
| | Research and development expenses



CRITICAL ACCOUNTING POLICIES AND ESTIMATES






| |                    
| | -------------------
| | Revenue recognition



35



---



##### Table of Contents







| |                       
| | ----------------------
| | Valuation of inventory





| |                                
| | -------------------------------
| | Allowance for doubtful accounts





| |                                 
| | --------------------------------
| | Stock-based compensation expense





| |                      
| | ---------------------
| | Cost of product sales



36



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##### Table of Contents







| |             
| | ------------
| | Income taxes







RESULTS OF OPERATIONS




| |                                                                                 
| | --------------------------------------------------------------------------------
| | Year ended December 31, 2004 as compared to the year
    ended December 31, 2003



| |              
| | -------------
| | Product sales





| |                      
| | ---------------------
| | Cost of product sales



37



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##### Table of Contents







| |             
| | ------------
| | Gross profit





| |                               
| | ------------------------------
| | Selling and marketing expenses





| |                                    
| | -----------------------------------
| | General and administrative expenses





| |                                  
| | ---------------------------------
| | Research and development expenses





| |                          
| | -------------------------
| | Interest income (expense)





| |                           
| | --------------------------
| | Provision for income taxes



38



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##### Table of Contents











| |                                                                             
| | ----------------------------------------------------------------------------
| | Year ended December 31, 2003 as compared to year
    ended December 31, 2002



| |              
| | -------------
| | Product sales





| |                      
| | ---------------------
| | Cost of product sales





| |             
| | ------------
| | Gross profit





| |                  
| | -----------------
| | Contract revenues



39



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##### Table of Contents





| |                               
| | ------------------------------
| | Selling and marketing expenses





| |                                    
| | -----------------------------------
| | General and administrative expenses





| |                                  
| | ---------------------------------
| | Research and development expenses





| |                          
| | -------------------------
| | Interest income (expense)





| |                           
| | --------------------------
| | Provision for income taxes



LIQUIDITY AND CAPITAL RESOURCES








40



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|                        |  |                 |       |  |      |   |       |      |  |   |      |  |  |      |    |  |      |   |    |            |  |  |   |  |  |  |   | 
|----------------------- |  | --------------- | ----- |  | ---- | - | ----- | ---- |  | - | ---- |  |  | ---- | -- |  | ---- | - | -- | ---------- |  |  | - |  |  |  | - | 
|                        |  | Payments Due in |      
|                        |  |                 |      
|Contractual Obligations |  | Total           |       |  | 2005 |   |       | 2006 |  |   | 2007 |  |  | 2008 |    |  | 2009 |   |    | After 2009 | 
|                        |  |                 |       |  |      |   |       |      |  |   |      |  |  |      |    |  |      |   |    |            | 
|Operating leases        |  | $               | 267   |  |      | $ | 187   |      |  | $ | 31   |  |  | $    | 28 |  |      | $ | 21 |            |  |  |  |  |  |  |  | 
|Royalties accrued       |  | $               | 1,007 |  |      |   | 1,007 |      |  |   |     |  |  |      |   |  |      |   |   |            |  |  |  |  |  |  |  | 
|                        |  |                 |       |  |      |   |       |      |  |   |      |  |  |      |    |  |      |   |    |            | 
|Total                   |  | $               | 1,274 |  |      | $ | 1,194 |      |  | $ | 31   |  |  | $    | 28 |  |      | $ | 21 |            |  |  |  |  |  |  |  | 
|                        |  |                 |       |  |      |   |       |      |  |   |      |  |  |      |    |  |      |   |    |            | 







| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | success of our product sales and related collections;                                                                                
|
| |  | future expenses to expand and support our sales and marketing
    activities;                                                        
|
| |  | costs relating to changes in regulatory policies or laws that
    affect our operations;                                             
|
| |  | maintaining and expanding our manufacturing capacity;                                                                                
|
| |  | the level of investment in research and development and clinical
    trials required to maintain and improve our technology position;
|
| |  | costs of filing, prosecuting, defending and enforcing patent
    claims and other intellectual property rights; and                  
|
| |  | our need or decision to acquire or license complementary
    businesses, products or technologies.                                   



41



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| |                                 
| | --------------------------------
| | Recent accounting pronouncements

Share-Based
Payment






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk












|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of disclosure controls and procedures.


Changes in internal controls.


42



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##### Table of Contents



Limitations on Effectiveness of Disclosure Controls.




|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

www.adeza.com www.ffntest.com









|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions



43



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|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services






PART IV







|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and Reports on
    Form 8-K



Financial Statements.


|                                                                                 |  |      |    | 
|-------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                 |  | Page |   
|                                                                                 |  |      |   
|Report of Independent Registered Public
    Accounting Firm                      |  |      | 46 | 
|Balance Sheets                                                                   |  |      | 47 | 
|Statements of Operations                                                         |  |      | 48 | 
|Statements of Convertible Preferred Stock
    and Stockholders Equity (Deficit) |  |      | 49 | 
|Statements of Cash Flows                                                         |  |      | 50 | 
|Notes to Financial Statements                                                    |  |      | 51 | 

Financial Statement Schedules:


Exhibits


|        |    |        |             |                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ------ | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        |            
|Number  |    |        | Description
|        |    |        |            
|        | 3  | .1(1)  |             | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                                  
|       
|        | 3  | .2(1)  |             | Form of Amended and Restated Bylaws to be effective upon the
    completion of the offering.                                                                                                                                                                                                                                                                        
|       
|        | 4  | .1(1)  |             | Specimen Stock Certificate.                                                                                                                                                                                                                                                                                                                                         
|       
|        | 10 | .1(1)* |             | 1995 Stock Option and Restricted Stock Plan.                                                                                                                                                                                                                                                                                                                        
|       
|        | 10 | .2(2)* |             | 2004 Equity Incentive Plan.                                                                                                                                                                                                                                                                                                                                         
|       
|        | 10 | .3(1)  |             | Exclusive License Agreement, dated August 12, 1992, between
    Adeza and the Fred Hutchinson Cancer Research Center, together
    with the First Amendment to Exclusive License Agreement and
    Consent dated May 9, 1996 and Amendment No. 1 to
    Exclusive License Agreement dated April 30, 1998.                                                          
|       
|        | 10 | .4(1)  |             | Investors Rights Agreement, dated September 19, 2001,
    between Adeza and certain Stockholders of Adeza.                                                                                                                                                                                                                                                         
|       
|        | 10 | .5(1)  |             | License Agreement, dated July 25, 1997, between Adeza and
    the Trustees of the University of Pennsylvania.                                                                                                                                                                                                                                                      
|       
|        | 10 | .6(1)  |             | Agreement and Release, dated March 3, 1998, between Adeza
    and Matria Healthcare, Inc.                                                                                                                                                                                                                                                                          
|       
|        | 10 | .7(1)  |             | Net Industrial Space Lease, dated July 7, 1999, between
    Adeza and Tasman V, LLC.                                                                                                                                                                                                                                                                                
|       
|        | 10 | .8(1)  |             | Service Agreement, dated as of March 31, 1999, between
    Adeza and Ventiv Health U.S. Sales LLC (formerly known as
    Snyder Healthcare Sales Inc.), together with First Amendment to
    Service Agreement dated March 8, 2002, Second Amendment to
    Service Agreement dated July 22, 2002, and Third Amendment
    to Service Agreement dated May 15, 2004.
|       
|        | 10 | .9(1)  |             | Warrant to Purchase Shares of Series 3 Preferred Stock, dated
    March 23, 1999, between Adeza and Transamerica Business
    Credit Corporation and its assignees.                                                                                                                                                                                                 
|       
|        | 10 | .10(1) |             | Warrant to Purchase Shares of Series 3 Preferred Stock, dated
    March 31, 2000, between Adeza and TBCC Funding
    Trust II and its assignees.                                                                                                                                                                                                                    

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|        |    |         |             |                                                                                                                                                      
|------- | -- | ------- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |         |            
|Number  |    |         | Description
|        |    |         |            
|       
|        | 10 | .11(1)  |             | Warrant to Purchase Shares of Series 3 Preferred Stock, dated
    March 23, 1999, between Adeza and MMC/GATX Partnership No.
    I and its assignees.
|       
|        | 10 | .12(1)  |             | Form of Indemnification Agreement for Directors and Officers.                                                                                        
|       
|        | 10 | .13(1)  |             | Agreement, dated December 24, 1998, between Adeza and
    Unilever PLC.                                                                             
|       
|        | 10 | .14(1)  |             | Second Amendment to Lease, dated October 12, 2004, between
    Adeza and Tasman V, LLC.                                                              
|       
|        | 10 | .15(1)* |             | Management Continuity Agreement, dated October 21, 2004,
    between Adeza and Emory Anderson.                                                       
|       
|        | 10 | .16(1)* |             | Management Continuity Agreement, dated October 21, 2004,
    between Adeza and Mark Fischer-Colbrie.                                                 
|       
|        | 10 | .17(1)* |             | Form of Management Continuity Agreement, dated October 21,
    2004, between Adeza and Durlin Hickok, Robert Hussa and Marian
    Sacco.             
|       
|        | 23 | .1      |             | Consent of independent registered public accounting firm.                                                                                            
|       
|        | 24 | .1      |             | Powers of Attorney (included on signature page).                                                                                                     
|       
|        | 31 | .1      |             | Certification pursuant to Rule 13a-14(a) under the
    Securities Exchange Act of 1934 of Emory V. Anderson.                                         
|       
|        | 31 | .2      |             | Certification pursuant to Rule 13a-14(a) under the
    Securities Exchange Act of Mark D. Fischer-Colbrie.                                           
|       
|        | 32 | .1      |             | Certification pursuant to 18 U.S.C. Section 1350 of
    Emory V. Anderson.                                                                           
|       
|        | 32 | .2      |             | Certification pursuant to 18 U.S.C. Section 1350 of
    Mark D. Fischer-Colbrie.                                                                     






|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the registrants Registration
    Statement on Form S-1 (Registration No. 333-118012)
    initially filed with the Securities and Exchange Commission on
    August 6, 2004.
|   
|(2) | Incorporated by reference to the registrants Registration
    Statement on Form S-8 (Registration No. 333-122430)
    filed with the Securities and Exchange Commission on
    January 31, 2005.        



| |   |                                         
| | - | ----------------------------------------
| | * | Management compensatory plan or contract



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Confidential Treatment granted. Omitted material for which
    confidential treatment has been granted has been filed
    separately with the Securities and Exchange Commission.

45



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Report of Independent Registered Public Accounting Firm














| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP





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Adeza Biomedical Corporation





BALANCE SHEETS


|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |   |         |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ------ | ------- | ---- | - | ------- | ------- | -
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         | December 31,          |       
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |       
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         | 2004                  |        |         | 2003 |  
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |  
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         | (In thousands, except |       
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         | share and per share   |       
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         | information)          |       
|ASSETS                                                                                                                                                                                                                                                                                             
|Current assets:                                                                                                                                                                                                                                                                                     |                                                                                                                                                                         |                       |        |         |      |   |         |        
|                                                                                                                                                                                                                                                                                                    | Cash and cash equivalents                                                                                                                                               |                       | $      | 80,118  |      |   | $       | 12,092  |  
|                                                                                                                                                                                                                                                                                                    | Accounts receivable, net of allowance of $315 and $264 at
    December 31, 2004 and 2003, respectively                                                                  |                       |        | 6,628   |      |   |         | 5,294   |  
|                                                                                                                                                                                                                                                                                                    | Inventories                                                                                                                                                             |                       |        | 667     |      |   |         | 590     |  
|                                                                                                                                                                                                                                                                                                    | Prepaid and other current assets                                                                                                                                        |                       |        | 271     |      |   |         | 188     |  
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |  
|Total current assets                                                                                                                                                                                                                                                                                |                                                                                                                                                                         |                       | 87,684 |         |      |   | 18,164  |        
|Property and equipment, net                                                                                                                                                                                                                                                                         |                                                                                                                                                                         |                       | 268    |         |      |   | 252     |        
|Note receivable-related party                                                                                                                                                                                                                                                                       |                                                                                                                                                                         |                       |       |         |      |   | 76      |        
|Intangible assets, net                                                                                                                                                                                                                                                                              |                                                                                                                                                                         |                       | 176    |         |      |   | 224     |        
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |  
|Total assets                                                                                                                                                                                                                                                                                        |                                                                                                                                                                         | $                     | 88,128 |         |      | $ | 18,716  |        
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |  
|                                                                                                                                                                                                                                                                                                   
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                                                                                     
|Current liabilities:                                                                                                                                                                                                                                                                                |                                                                                                                                                                         |                       |        |         |      |   |         |        
|                                                                                                                                                                                                                                                                                                    | Accounts payable                                                                                                                                                        |                       | $      | 2,750   |      |   | $       | 2,428   |  
|                                                                                                                                                                                                                                                                                                    | Accrued compensation                                                                                                                                                    |                       |        | 1,863   |      |   |         | 1,675   |  
|                                                                                                                                                                                                                                                                                                    | Accrued royalties                                                                                                                                                       |                       |        | 1,007   |      |   |         | 3,449   |  
|                                                                                                                                                                                                                                                                                                    | Other accrued liabilities                                                                                                                                               |                       |        | 752     |      |   |         | 545     |  
|                                                                                                                                                                                                                                                                                                    | Deferred revenue                                                                                                                                                        |                       |        | 45      |      |   |         | 414     |  
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |  
|Total current liabilities                                                                                                                                                                                                                                                                           |                                                                                                                                                                         |                       | 6,417  |         |      |   | 8,511   |        
|Convertible preferred stock, $0.001 par value; issuable in
    series; 16,516,335 and 5,000,000 shares authorized at
    December 31, 2004 and 2003, respectively; no shares issued
    and outstanding at December 31, 2004;
    15,409,062 shares issued and outstanding at
    December 31, 2003 |                                                                                                                                                                         |                       |       |         |      |   | 61,484  |        
|Commitments (Note 7)                                                                                                                                                                                                                                                                                |                                                                                                                                                                         |                       |        |         |      |   |         |        
|Stockholders equity (deficit):                                                                                                                                                                                                                                                                     |                                                                                                                                                                         |                       |        |         |      |   |         |        
|                                                                                                                                                                                                                                                                                                    | Common stock, $0.001 par value; 100,000,000 shares
    authorized; 16,461,390 and 182,160 shares issued and
    outstanding at December 31, 2004 and 2003, respectively |                       |        | 16      |      |   |         |        |  
|                                                                                                                                                                                                                                                                                                    | Additional paid-in capital                                                                                                                                              |                       |        | 129,695 |      |   |         | 2,358   |  
|                                                                                                                                                                                                                                                                                                    | Deferred compensation                                                                                                                                                   |                       |        | (3,232  | )    |   |         |        |  
|                                                                                                                                                                                                                                                                                                    | Accumulated deficit                                                                                                                                                     |                       |        | (44,768 | )    |   |         | (53,637 | )
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |  
|Total stockholders equity (deficit)                                                                                                                                                                                                                                                                |                                                                                                                                                                         |                       | 81,711 |         |      |   | (51,279 | )      
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |  
|Total liabilities and stockholders equity (deficit)                                                                                                                                                                                                                                                |                                                                                                                                                                         | $                     | 88,128 |         |      | $ | 18,716  |        
|                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                         |                       |        |         |      |  



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Adeza Biomedical Corporation





STATEMENTS OF OPERATIONS


|                                                           |                            |                                           |            |        |      |   |            |        |  |   |         |       | 
|---------------------------------------------------------- | -------------------------- | ----------------------------------------- | ---------- | ------ | ---- | - | ---------- | ------ |  | - | ------- | ----- | 
|                                                           |                            | Years Ended December 31,                  |           
|                                                           |                            |                                           |           
|                                                           |                            | 2004                                      |            |        | 2003 |   |            | 2002   | 
|                                                           |                            |                                           |            |        |      |   |            |        | 
|                                                           |                            | (In thousands, except share and per share |           
|                                                           |                            | information)                              |           
|Product sales                                              |                            | $                                         | 33,596     |        |      | $ | 26,499     |        |  | $ | 14,277  |      
|Cost of product sales                                      |                            |                                           | 2,195      |        |      |   | 6,087      |        |  |   | 3,715   |      
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Gross profit                                               |                            |                                           | 31,401     |        |      |   | 20,412     |        |  |   | 10,562  |      
|Contract revenues                                          |                            |                                           |           |        |      |   |           |        |  |   | 1,059   |      
|Operating costs and expenses:                              |                            |                                           |            |        |      |   |            |        |  |   |         |      
|                                                           | Selling and marketing      |                                           |            | 15,907 |      |   |            | 12,259 |  |   |         | 7,819 | 
|                                                           | General and administrative |                                           |            | 3,997  |      |   |            | 2,730  |  |   |         | 2,069 | 
|                                                           | Research and development   |                                           |            | 2,451  |      |   |            | 2,001  |  |   |         | 2,047 | 
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Total operating costs and expenses                         |                            |                                           | 22,355     |        |      |   | 16,990     |        |  |   | 11,935  |      
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Income (loss) from operations                              |                            |                                           | 9,046      |        |      |   | 3,422      |        |  |   | (314    | )    
|Interest income                                            |                            |                                           | 239        |        |      |   | 112        |        |  |   | 212     |      
|Interest expense                                           |                            |                                           |           |        |      |   | (131       | )      |  |   | (219    | )    
|Other expenses, net                                        |                            |                                           | (6         | )      |      |   | (33        | )      |  |   | (8      | )    
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Income (loss) before income taxes                          |                            |                                           | 9,279      |        |      |   | 3,370      |        |  |   | (329    | )    
|Provision for income taxes                                 |                            |                                           | 410        |        |      |   | 135        |        |  |   |        |      
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Net income (loss)                                          |                            | $                                         | 8,869      |        |      | $ | 3,235      |        |  | $ | (329    | )    
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Basic net income (loss) per share                          |                            | $                                         | 8.05       |        |      | $ | 17.78      |        |  | $ | (1.82   | )    
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Diluted net income (loss) per share                        |                            | $                                         | 0.65       |        |      | $ | 0.26       |        |  | $ | (1.82   | )    
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Shares used to compute basic net income (loss) per share   |                            |                                           | 1,102,078  |        |      |   | 181,965    |        |  |   | 181,188 |      
|                                                           |                            |                                           |            |        |      |   |            |        | 
|Shares used to compute diluted net income (loss) per share |                            |                                           | 13,648,954 |        |      |   | 12,515,063 |        |  |   | 181,188 |      
|                                                           |                            |                                           |            |        |      |   |            |        | 



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Adeza Biomedical Corporation





STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND


STOCKHOLDERS EQUITY (DEFICIT)


|                                                                                       |  |                                                        |             |   |        |              |         |   |            |  |  |            |  |       |             |               |  |              |   |         |         |  |   |           |   |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | ----------- | - | ------ | ------------ | ------- | - | ---------- |  |  | ---------- |  | ----- | ----------- | ------------- |  | ------------ | - | ------- | ------- |  | - | --------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                       |  | Convertible                                            |             |   |        |              |         |   |            |  |  |            |  | Total |            
|                                                                                       |  | Preferred Stock                                        |             |   |        | Common Stock |         |   | Additional |  |  |            |  |       |             | Stockholders | 
|                                                                                       |  |                                                        |             |   |        |              |         |   | Paid-In    |  |  | Deferred   |  |       | Accumulated |               |  | Equity       |  
|                                                                                       |  | Shares                                                 |             |   | Amount |              |         |   | Shares     |  |  | Amount     |  |       | Capital     |               |  | Compensation |   |         | Deficit |  |   | (Deficit) |  
|                                                                                       |  |                                                        |             |   |        |              |         |   |            |  |  |            |  |       |             |               |  |              |   |         |         |  |   |           |  
|                                                                                       |  | (In thousands, except share and per share information) |            
|Balances at December 31, 2001                                                          |  |                                                        | 15,218,803  |   |        | $            | 60,984  |   |            |  |  | 178,542    |  |       | $           |              |  |              | $ | 2,326   |         |  | $ |          |   |  | $ | (56,543 | ) |  | $ | (54,217 | )
|Exercise of stock options at $0.97 to $3.33 per share for
    cash                     |  |                                                        |            |   |        |              |        |   |            |  |  | 2,838      |  |       |             |              |  |              |   | 4       |         |  |   |          |   |  |   |        |   |  |   | 4       |  
|Stock-based compensation related to stock options issued to
    nonemployees           |  |                                                        |            |   |        |              |        |   |            |  |  |           |  |       |             |              |  |              |   | 5       |         |  |   |          |   |  |   |        |   |  |   | 5       |  
|Net and comprehensive loss                                                             |  |                                                        |            |   |        |              |        |   |            |  |  |           |  |       |             |              |  |              |   |        |         |  |   |          |   |  |   | (329    | ) |  |   | (329    | )
|                                                                                       |  |                                                        |             |   |        |              |         |   |            |  |  |            |  |       |             |               |  |              |   |         |         |  |   |           |  
|Balances at December 31, 2002                                                          |  |                                                        | 15,218,803  |   |        |              | 60,984  |   |            |  |  | 181,380    |  |       |             |              |  |              |   | 2,335   |         |  |   |          |   |  |   | (56,872 | ) |  |   | (54,537 | )
|Exercise of Series 3 preferred stock warrants for cash at
    $2.63 per share          |  |                                                        | 190,259     |   |        |              | 500     |   |            |  |  |           |  |       |             |              |  |              |   |        |         |  |   |          |   |  |   |        |   |  |   |        |  
|Stock-based compensation related to stock options issued to
    nonemployees           |  |                                                        |            |   |        |              |        |   |            |  |  |           |  |       |             |              |  |              |   | 23      |         |  |   |          |   |  |   |        |   |  |   | 23      |  
|Exercise of stock options at $0.32 per share for cash                                  |  |                                                        |            |   |        |              |        |   |            |  |  | 780        |  |       |             |              |  |              |   |        |         |  |   |          |   |  |   |        |   |  |   |        |  
|Net and comprehensive income                                                           |  |                                                        |            |   |        |              |        |   |            |  |  |           |  |       |             |              |  |              |   |        |         |  |   |          |   |  |   | 3,235   |   |  |   | 3,235   |  
|                                                                                       |  |                                                        |             |   |        |              |         |   |            |  |  |            |  |       |             |               |  |              |   |         |         |  |   |           |  
|Balances at December 31, 2003                                                          |  |                                                        | 15,409,062  |   |        |              | 61,484  |   |            |  |  | 182,160    |  |       |             |              |  |              |   | 2,358   |         |  |   |          |   |  |   | (53,637 | ) |  |   | (51,279 | )
|Deferred compensation related to stock options issued to
    employees                 |  |                                                        |            |   |        |              |        |   |            |  |  |           |  |       |             |              |  |              |   | 3,625   |         |  |   | (3,625    | ) |  |   |        |   |  |   |        |  
|Stock-based compensation related to stock options issued to
    nonemployees           |  |                                                        |            |   |        |              |        |   |            |  |  |           |  |       |             |              |  |              |   | 356     |         |  |   |          |   |  |   |        |   |  |   | 356     |  
|Amortization of deferred compensation related to stock options
    issued to employees |  |                                                        |            |   |        |              |        |   |            |  |  |           |  |       |             |              |  |              |   |        |         |  |   | 393       |   |  |   |        |   |  |   | 393     |  
|Exercise of stock options at $0.32 to $10.00 per share for
    cash                    |  |                                                        |            |   |        |              |        |   |            |  |  | 9,408      |  |       |             |              |  |              |   | 23      |         |  |   |          |   |  |   |        |   |  |   | 23      |  
|Shares issued in initial public offering, net of offering costs
    of $7,135          |  |                                                        |            |   |        |              |        |   |            |  |  | 4,312,500  |  |       |             | 5             |  |              |   | 61,860  |         |  |   |          |   |  |   |        |   |  |   | 61,865  |  
|Conversion of preferred stock to common stock                                          |  |                                                        | (15,409,062 | ) |        |              | (61,484 | ) |            |  |  | 11,957,322 |  |       |             | 11            |  |              |   | 61,473  |         |  |   |          |   |  |   |        |   |  |   | 61,484  |  
|Net and comprehensive income                                                           |  |                                                        |            |   |        |              |        |   |            |  |  |           |  |       |             |              |  |              |   |        |         |  |   |          |   |  |   | 8,869   |   |  |   | 8,869   |  
|                                                                                       |  |                                                        |             |   |        |              |         |   |            |  |  |            |  |       |             |               |  |              |   |         |         |  |   |           |  
|Balance at December 31, 2004                                                           |  |                                                        |            |   |        | $            |        |   |            |  |  | 16,461,390 |  |       | $           | 16            |  |              | $ | 129,695 |         |  | $ | (3,232    | ) |  | $ | (44,768 | ) |  | $ | 81,711  |  
|                                                                                       |  |                                                        |             |   |        |              |         |   |            |  |  |            |  |       |             |               |  |              |   |         |         |  |   |           |  



49



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Adeza Biomedical Corporation





STATEMENTS OF CASH FLOWS


|                                                                                                       |                                              |                           |        |     |        |   |        |      |        |   |        |     |        |  
|------------------------------------------------------------------------------------------------------ | -------------------------------------------- | ------------------------- | ------ | --- | ------ | - | ------ | ---- | ------ | - | ------ | --- | ------ | -
|                                                                                                       |                                              | Years Ended December 31,  |       
|                                                                                                       |                                              |                           |       
|                                                                                                       |                                              | 2004                      |        |     | 2003   |   |        | 2002 |       
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|                                                                                                       |                                              | (In thousands)            |       
|Operating activities                                                                                   |                                              |                           |        |     |        |   |        |      |        |   |        |    
|Net income (loss)                                                                                      |                                              | $                         | 8,869  |     |        | $ | 3,235  |      |        | $ | (329   | )  
|Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities: |                                              |                           |        |     |        |   |        |      |        |   |        |    
|                                                                                                       | Depreciation and amortization                |                           |        | 169 |        |   |        | 142  |        |   |        | 129 |       
|                                                                                                       | Stock based compensation expense             |                           |        | 749 |        |   |        | 23   |        |   |        | 5   |       
|                                                                                                       | Other non-cash charges                       |                           |        | 7   |        |   |        | (25  | )      |   |        |    |       
|                                                                                                       | Non-cash interest expense                    |                           |        |    |        |   |        | 131  |        |   |        | 204 |       
|                                                                                                       | Changes in operating assets and liabilities: |                           |        |     |        |   |        |      |        |   |        |     |       
|                                                                                                       |                                              | Accounts receivable       |        |     | (1,334 | ) |        |      | (1,252 | ) |        |     | (3,919 | )
|                                                                                                       |                                              | Inventories               |        |     | (77    | ) |        |      | (77    | ) |        |     | 22     |  
|                                                                                                       |                                              | Prepaid and other assets  |        |     | (7     | ) |        |      | (116   | ) |        |     | (34    | )
|                                                                                                       |                                              | Accounts payable          |        |     | 322    |   |        |      | 712    |   |        |     | 206    |  
|                                                                                                       |                                              | Accrued compensation      |        |     | 188    |   |        |      | 253    |   |        |     | 491    |  
|                                                                                                       |                                              | Accrued royalties         |        |     | (2,442 | ) |        |      | 1,966  |   |        |     | 1,483  |  
|                                                                                                       |                                              | Other accrued liabilities |        |     | 207    |   |        |      | 324    |   |        |     | (312   | )
|                                                                                                       |                                              | Deferred revenue          |        |     | (369   | ) |        |      | 196    |   |        |     | (1,854 | )
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Net cash provided by (used in) operating activities                                                    |                                              |                           | 6,282  |     |        |   | 5,512  |      |        |   | (3,908 | )  
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Investing activities                                                                                   |                                              |                           |        |     |        |   |        |      |        |   |        |    
|Purchase of intangible assets                                                                          |                                              |                           |       |     |        |   | (240   | )    |        |   |       |    
|Purchases of property and equipment                                                                    |                                              |                           | (144   | )   |        |   | (125   | )    |        |   | (140   | )  
|Proceeds from sales of property and equipment                                                          |                                              |                           |       |     |        |   |       |      |        |   | 2      |    
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Net cash used in investing activities                                                                  |                                              |                           | (144   | )   |        |   | (365   | )    |        |   | (138   | )  
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Financing activities                                                                                   |                                              |                           |        |     |        |   |        |      |        |   |        |    
|Payments on capital lease obligations                                                                  |                                              |                           |       |     |        |   | (3     | )    |        |   | (38    | )  
|Payments of notes payable                                                                              |                                              |                           |       |     |        |   | (4,303 | )    |        |   | (1,843 | )  
|Net proceeds from issuances of common stock                                                            |                                              |                           | 61,888 |     |        |   |       |      |        |   | 4      |    
|Net proceeds from the issuance of convertible preferred stock                                          |                                              |                           |       |     |        |   | 500    |      |        |   |       |    
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Net cash provided by (used in) financing activities                                                    |                                              |                           | 61,888 |     |        |   | (3,806 | )    |        |   | (1,877 | )  
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Net increase (decrease) in cash and cash equivalents                                                   |                                              |                           | 68,026 |     |        |   | 1,341  |      |        |   | (5,923 | )  
|Cash and cash equivalents at beginning of year                                                         |                                              |                           | 12,092 |     |        |   | 10,751 |      |        |   | 16,674 |    
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Cash and cash equivalents at end of year                                                               |                                              | $                         | 80,118 |     |        | $ | 12,092 |      |        | $ | 10,751 |    
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Supplemental cash flow information                                                                     |                                              |                           |        |     |        |   |        |      |        |   |        |    
|Cash paid for interest                                                                                 |                                              | $                         |       |     |        | $ |       |      |        | $ | 48     |    
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Cash paid for income taxes                                                                             |                                              | $                         | 312    |     |        | $ | 15     |      |        | $ |       |    
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       
|Supplemental schedule of noncash investing and financing
    activities                                |                                              |                           |        |     |        |   |        |      |        |   |        |    
|Conversion of deferred revenue to notes payable upon termination
    of distributor contract           |                                              | $                         |       |     |        | $ |       |      |        | $ | 5,498  |    
|                                                                                                       |                                              |                           |        |     |        |   |        |      |       



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Adeza Biomedical Corporation





NOTES TO FINANCIAL STATEMENTS




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES



| |                          
| | -------------------------
| | Organization and business





| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The TLiIQ System and Fetal Fibronectin Test which are
    used to assess the risk of preterm birth in pregnant women.                                                           
|
| |  | The E-tegrity Test which is used to determine the feasibility of
    embryo implantation in patients with infertility who are
    candidates for in vitro fertilization (IVF).



| |                      
| | ---------------------
| | Basis of presentation





| |                 
| | ----------------
| | Use of estimates





| |                    
| | -------------------
| | Reverse stock split





| |                    
| | -------------------
| | Revenue recognition







51



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)










| |                
| | ---------------
| | Warranty policy



|                             |                                                      |                          |    |     |      |   |    |      |   |   |    |     |  
|---------------------------- | ---------------------------------------------------- | ------------------------ | -- | --- | ---- | - | -- | ---- | - | - | -- | --- | -
|                             |                                                      | Years Ended December 31, |   
|                             |                                                      |                          |   
|                             |                                                      | 2004                     |    |     | 2003 |   |    | 2002 |  
|                             |                                                      |                          |    |     |      |   |    |      |  
|Balance at beginning of year |                                                      | $                        | 16 |     |      | $ | 20 |      |   | $ | 56 |    
|                             | Charges to cost of product sales                     |                          |    | 12  |      |   |    | 8    |   |   |    | 4   |  
|                             | Warranty costs incurred                              |                          |    | (30 | )    |   |    | (12  | ) |   |    | (22 | )
|                             | Change in estimate related to accrued warranty costs |                          |    | 33  |      |   |    |     |   |   |    | (18 | )
|                             |                                                      |                          |    |     |      |   |    |      |  
|Balance at end of year       |                                                      | $                        | 31 |     |      | $ | 16 |      |   | $ | 20 |    
|                             |                                                      |                          |    |     |      |   |    |      |  



| |                         
| | ------------------------
| | Research and development





| |                       
| | ----------------------
| | Concentrations of risk



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                          
| | -------------------------
| | Cash and cash equivalents





| |                                 
| | --------------------------------
| | Derivative financial instruments





| |                       
| | ----------------------
| | Property and equipment





| |                  
| | -----------------
| | Intangible assets





| |                  
| | -----------------
| | Long-lived assets





| |             
| | ------------
| | Income taxes





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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                         
| | ------------------------
| | Stock-based compensation

Accounting for Stock-Based Compensation Accounting for Stock-Based
Compensation  Transition and Disclosure Accounting for
Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services,




|                         |  |                          |           |   |      |  |           |      |  |  |           |  
|------------------------ |  | ------------------------ | --------- | - | ---- |  | --------- | ---- |  |  | --------- | -
|                         |  | Years Ended December 31, |          
|                         |  |                          |          
|                         |  | 2004                     |           |   | 2003 |  |           | 2002 | 
|                         |  |                          |           |   |      |  |           |      | 
|Volatility factor        |  |                          | 85        | % |      |  | 85        | %    |  |  | 85        | %
|Risk-free interest rate  |  |                          | 3.3       | % |      |  | 3.4       | %    |  |  | 3.9       | %
|Dividend yield           |  |                          | 0         | % |      |  | 0         | %    |  |  | 0         | %
|Expected life of options |  |                          | 4.0 years |   |      |  | 4.0 years |      |  |  | 4.9 years |  



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                              |                                                                                                                              |                          |      |        |      |   |       |       |   |   |       |        |  
|--------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ---- | ------ | ---- | - | ----- | ----- | - | - | ----- | ------ | -
|                                              |                                                                                                                              | Years Ended December 31, |     
|                                              |                                                                                                                              |                          |     
|                                              |                                                                                                                              | 2004                     |      |        | 2003 |   |       | 2002  |  
|                                              |                                                                                                                              |                          |      |        |      |   |       |       |  
|Net income (loss):                            |                                                                                                                              |                          |      |        |      |   |       |       |   |   |       |       
|                                              | As reported                                                                                                                  |                          | $    | 8,869  |      |   | $     | 3,235 |   |   | $     | (329   | )
|                                              | Add: Total stock based employee and director compensation
    expense determined under intrinsic value method for all awards |                          |      | 393    |      |   |       |      |   |   |       |       |  
|                                              | Less: Total stock based employee and director compensation
    expense determined under fair value method for all awards     |                          |      | (2,512 | )    |   |       | (670  | ) |   |       | (916   | )
|                                              |                                                                                                                              |                          |      |        |      |   |       |       |  
|                                              | Pro forma                                                                                                                    |                          | $    | 6,750  |      |   | $     | 2,565 |   |   | $     | (1,245 | )
|                                              |                                                                                                                              |                          |      |        |      |   |       |       |  
|Reported basic net income (loss) per share    |                                                                                                                              | $                        | 8.05 |        |      | $ | 17.78 |       |   | $ | (1.82 | )     
|                                              |                                                                                                                              |                          |      |        |      |   |       |       |  
|Reported diluted net income (loss) per share  |                                                                                                                              | $                        | 0.65 |        |      | $ | 0.26  |       |   | $ | (1.82 | )     
|                                              |                                                                                                                              |                          |      |        |      |   |       |       |  
|Pro forma basic net income (loss) per share   |                                                                                                                              | $                        | 6.12 |        |      | $ | 14.10 |       |   | $ | (6.87 | )     
|                                              |                                                                                                                              |                          |      |        |      |   |       |       |  
|Pro forma diluted net income (loss) per share |                                                                                                                              | $                        | 0.49 |        |      | $ | 0.21  |       |   | $ | (6.87 | )     
|                                              |                                                                                                                              |                          |      |        |      |   |       |       |  



| |                                
| | -------------------------------
| | Allowance for doubtful accounts





|                             |                             |                          |     |    |      |   |     |      |   |   |    |    |  
|---------------------------- | --------------------------- | ------------------------ | --- | -- | ---- | - | --- | ---- | - | - | -- | -- | -
|                             |                             | Years Ended December 31, |    
|                             |                             |                          |    
|                             |                             | 2004                     |     |    | 2003 |   |     | 2002 |  
|                             |                             |                          |     |    |      |   |     |      |  
|Balance at beginning of year |                             | $                        | 164 |    |      | $ | 95  |      |   | $ | 5  |   
|                             | Charges to bad debt expense |                          |     | 75 |      |   |     | 112  |   |   |    |   |  
|                             | Bad debt costs incurred     |                          |     | (3 | )    |   |     | (43  | ) |   |    | (4 | )
|                             | Change in estimate          |                          |     |   |      |   |     |     |   |   |    | 94 |  
|                             |                             |                          |     |    |      |   |     |      |  
|Balance at end of year       |                             | $                        | 236 |    |      | $ | 164 |      |   | $ | 95 |   
|                             |                             |                          |     |    |      |   |     |      |  



|                             |                          |                          |     |     |      |   |     |      |   |   |     |     |  
|---------------------------- | ------------------------ | ------------------------ | --- | --- | ---- | - | --- | ---- | - | - | --- | --- | -
|                             |                          | Years Ended December 31, |    
|                             |                          |                          |    
|                             |                          | 2004                     |     |     | 2003 |   |     | 2002 |  
|                             |                          |                          |     |     |      |   |     |      |  
|Balance at beginning of year |                          | $                        | 100 |     |      | $ | 240 |      |   | $ |    |    
|                             | Charges to product sales |                          |     |    |      |   |     | 9    |   |   |     | 159 |  
|                             | Sales returns incurred   |                          |     |    |      |   |     | (4   | ) |   |     | (2  | )
|                             | Change in estimate       |                          |     | (20 | )    |   |     | (145 | ) |   |     | 83  |  
|                             |                          |                          |     |     |      |   |     |      |  
|Balance at end of year       |                          | $                        | 80  |     |      | $ | 100 |      |   | $ | 240 |    
|                             |                          |                          |     |     |      |   |     |      |  

55



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |            
| | -----------
| | Inventories





| |                    
| | -------------------
| | Advertising expense





| |                            
| | ---------------------------
| | Shipping and handling costs





| |                                 
| | --------------------------------
| | Recent accounting pronouncements

Share-Based
Payment




| |                            
| | ---------------------------
| | Net income (loss) per share



|                                                                                                                               |                                  |                             |            |            |            |   |            |            |            |   |         |   |   | 
|------------------------------------------------------------------------------------------------------------------------------ | -------------------------------- | --------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | - | ------- | - | - | 
|                                                                                                                               |                                  | Years Ended December 31,    |           
|                                                                                                                               |                                  |                             |           
|                                                                                                                               |                                  | 2004                        |            |            | 2003       |   |            | 2002       |           
|                                                                                                                               |                                  |                             |            |            |            |   |            |            |           
|Numerator:                                                                                                                     |                                  |                             |            |            |            |   |            |            |            |   |         |  
|Net income (loss)                                                                                                              |                                  | $                           | 8,869      |            |            | $ | 3,235      |            |            | $ | (329    | )
|                                                                                                                               |                                  |                             |            |            |            |   |            |            |           
|Denominator:                                                                                                                   |                                  |                             |            |            |            |   |            |            |            |   |         |  
|Denominator for basic earnings per share-weighted-average common
    shares outstanding                                        |                                  |                             | 1,102,078  |            |            |   | 181,965    |            |            |   | 181,188 |  
|                                                                                                                               | Effect of dilutive securities:   |                             |            |            |            |   |            |            |            |   |         |   |  
|                                                                                                                               |                                  | Stock options               |            |            | 1,120,408  |   |            |            | 500,988    |   |         |   |  | 
|                                                                                                                               |                                  | Warrants                    |            |            | 157,102    |   |            |            | 28,049     |   |         |   |  | 
|                                                                                                                               |                                  | Convertible preferred stock |            |            | 11,269,366 |   |            |            | 11,804,061 |   |         |   |  | 
|                                                                                                                               |                                  |                             |            |            |            |   |            |            |           
|                                                                                                                               | Dilutive potential common shares |                             |            | 12,546,876 |            |   |            | 12,333,098 |            |   |         |  |  
|                                                                                                                               |                                  |                             |            |            |            |   |            |            |           
|Denominator for diluted earnings per share-weighted-average
    common shares outstanding and dilutive potential common shares |                                  |                             | 13,648,954 |            |            |   | 12,515,063 |            |            |   | 181,188 |  
|                                                                                                                               |                                  |                             |            |            |            |   |            |            |           

56



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)


|                                                                                              |                             |                          |           |   |      |   |         |      |  |   |       |            | 
|--------------------------------------------------------------------------------------------- | --------------------------- | ------------------------ | --------- | - | ---- | - | ------- | ---- |  | - | ----- | ---------- | 
|                                                                                              |                             | Years Ended December 31, |          
|                                                                                              |                             |                          |          
|                                                                                              |                             | 2004                     |           |   | 2003 |   |         | 2002 | 
|                                                                                              |                             |                          |           |   |      |   |         |      | 
|Denominator for basic earnings per share                                                      |                             |                          | 1,102,078 |   |      |   | 181,965 |      |  |   |       |           
|Basic net income (loss) per share                                                             |                             | $                        | 8.05      |   |      | $ | 17.78   |      |  | $ | (1.82 | )         
|                                                                                              |                             |                          |           |   |      |   |         |      | 
|Diluted net income (loss) per share                                                           |                             | $                        | 0.65      |   |      | $ | 0.26    |      |  | $ | (1.82 | )         
|                                                                                              |                             |                          |           |   |      |   |         |      | 
|Weighted average common shares related to securities not
    included above as anti-dilutive: |                             |                          |           |   |      |   |         |      |  |   |       |           
|                                                                                              | Stock options               |                          |           |  |      |   |         |     |  |   |       | 1,145,449  | 
|                                                                                              | Warrants                    |                          |           |  |      |   |         |     |  |   |       | 355,465    | 
|                                                                                              | Convertible preferred stock |                          |           |  |      |   |         |     |  |   |       | 11,798,776 | 
|                                                                                              |                             |                          |           |   |      |   |         |      | 
|                                                                                              | Total                       |                          |           |  |      |   |         |     |  |   |       | 13,299,690 | 
|                                                                                              |                             |                          |           |   |      |   |         |      | 



|   |                                 
|-- | --------------------------------
|2. | ACQUISITION OF BIEX, INC. ASSETS





|                     |  |   |     | 
|-------------------- |  | - | --- | 
|Fixed assets         |  | $ | 10  | 
|Patents              |  |   | 240 | 
|                     |  |   |    
|Total purchase price |  | $ | 250 | 
|                     |  |   |    







|   |                     
|-- | --------------------
|3. | LICENSE ARRANGEMENTS



57



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                                                    
|-- | ---------------------------------------------------
|4. | MARKETING AND CO-PROMOTIONAL DISTRIBUTION AGREEMENT











|   |            
|-- | -----------
|5. | INVENTORIES



|                |  |              |     |  |      |   |     | 
|--------------- |  | ------------ | --- |  | ---- | - | --- | 
|                |  | December 31, |    
|                |  |              |    
|                |  | 2004         |     |  | 2003 |  
|                |  |              |     |  |      |  
|Raw materials   |  | $            | 297 |  |      | $ | 320 | 
|Work in process |  |              | 119 |  |      |   | 136 | 
|Finished goods  |  |              | 251 |  |      |   | 134 | 
|                |  |              |     |  |      |  
|                |  | $            | 667 |  |      | $ | 590 | 
|                |  |              |     |  |      |  



|   |                       
|-- | ----------------------
|6. | PROPERTY AND EQUIPMENT



|                                               |  |              |        |   |      |   |        |  
|---------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                               |  | December 31, |       
|                                               |  |              |       
|                                               |  | 2004         |        |   | 2003 |  
|                                               |  |              |        |   |      |  
|Laboratory and other equipment                 |  | $            | 2,207  |   |      | $ | 2,120  |  
|Furniture and fixtures                         |  |              | 156    |   |      |   | 152    |  
|Leasehold improvements                         |  |              | 131    |   |      |   | 130    |  
|                                               |  |              |        |   |      |  
|                                               |  |              | 2,494  |   |      |   | 2,402  |  
|Less accumulated depreciation and amortization |  |              | (2,226 | ) |      |   | (2,150 | )
|                                               |  |              |        |   |      |  
|Net property and equipment                     |  | $            | 268    |   |      | $ | 252    |  
|                                               |  |              |        |   |      |  

58



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                            
|-- | ---------------------------
|7. | COMMITMENTS AND OBLIGATIONS



| |       
| | ------
| | Leases



|                        |  |                 |     |  |      |   |     |      |  |   |      |  |  |      |    |  |      |   |    |            |  |  |   |  |  |  |   | 
|----------------------- |  | --------------- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | -- |  | ---- | - | -- | ---------- |  |  | - |  |  |  | - | 
|                        |  | Payments Due in |    
|                        |  |                 |    
|Contractual Obligations |  | Total           |     |  | 2005 |   |     | 2006 |  |   | 2007 |  |  | 2008 |    |  | 2009 |   |    | After 2009 | 
|                        |  |                 |     |  |      |   |     |      |  |   |      |  |  |      |    |  |      |   |    |            | 
|Operating leases        |  | $               | 267 |  |      | $ | 187 |      |  | $ | 31   |  |  | $    | 28 |  |      | $ | 21 |            |  |  |  |  |  |  |  | 







| |              
| | -------------
| | Notes payable







|   |                                           
|-- | ------------------------------------------
|8. | SELECTED QUARTERLY INFORMATION (UNAUDITED)

|                                    |  |        |       |  |       |   |        |        |  |   |       |  |  |        |       |  |       |   |       |        |  |   |       |  |  |   |       |  |  |   |       | 
|----------------------------------- |  | ------ | ----- |  | ----- | - | ------ | ------ |  | - | ----- |  |  | ------ | ----- |  | ----- | - | ----- | ------ |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                    |  | 2004   |       |  | 2003  |  
|                                    |  |        |       |  |       |  
|                                    |  | Fourth |       |  | Third |   |        | Second |  |   | First |  |  | Fourth |       |  | Third |   |       | Second |  |   | First | 
|                                    |  |        |       |  |       |   |        |        |  |   |       |  |  |        |       |  |       |   |       |        |  |   |       | 
|Total sales                         |  | $      | 9,191 |  |       | $ | 8,766  |        |  | $ | 8,396 |  |  | $      | 7,242 |  |       | $ | 7,314 |        |  | $ | 6,666 |  |  | $ | 6,917 |  |  | $ | 5,601 | 
|Gross profit                        |  |        | 7,892 |  |       |   | 11,215 |        |  |   | 6,680 |  |  |        | 5,615 |  |       |   | 5,848 |        |  |   | 5,103 |  |  |   | 5,219 |  |  |   | 4,241 | 
|Net income (loss)                   |  |        | 1,586 |  |       |   | 5,246  |        |  |   | 1,311 |  |  |        | 726   |  |       |   | 1,150 |        |  |   | 729   |  |  |   | 896   |  |  |   | 461   | 
|Basic net income (loss) per share   |  | $      | 0.41  |  |       | $ | 28.77  |        |  | $ | 7.20  |  |  | $      | 3.98  |  |       | $ | 6.31  |        |  | $ | 4.00  |  |  | $ | 4.91  |  |  | $ | 2.54  | 
|Diluted net income (loss) per share |  | $      | 0.11  |  |       | $ | 0.39   |        |  | $ | 0.10  |  |  | $      | 0.05  |  |       | $ | 0.09  |        |  | $ | 0.06  |  |  | $ | 0.07  |  |  | $ | 0.04  | 

59



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                                                                   
|-- | ------------------------------------------------------------------
|9. | CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFICIT)



| |                            
| | ---------------------------
| | Convertible preferred stock



|         |  |                   |            |        |             |  |            |             |  |   |        | 
|-------- |  | ----------------- | ---------- | ------ | ----------- |  | ---------- | ----------- |  | - | ------ | 
|         |  | December 31, 2003 |           
|         |  |                   |           
|         |  |                   |            | Shares |             |  |           
|         |  | Shares            |            |        | Issued and  |  |            | Liquidation | 
|         |  | Authorized        |            |        | Outstanding |  |            | Preference  | 
|         |  |                   |            |        |             |  |            |             | 
|Series 1 |  |                   | 1,880,572  |        |             |  | 1,654,719  |             |  | $ | 3,971  | 
|Series 2 |  |                   | 3,591,087  |        |             |  | 3,496,750  |             |  |   | 8,392  | 
|Series 3 |  |                   | 5,084,676  |        |             |  | 4,807,077  |             |  |   | 14,037 | 
|Series 4 |  |                   | 2,700,000  |        |             |  | 2,203,108  |             |  |   | 20,401 | 
|Series 5 |  |                   | 3,260,000  |        |             |  | 3,247,408  |             |  |   | 30,071 | 
|         |  |                   |            |        |             |  |            |             | 
|Total    |  |                   | 16,516,335 |        |             |  | 15,409,062 |             |  | $ | 76,872 | 
|         |  |                   |            |        |             |  |            |             | 



2 3




60



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)








| |         
| | --------
| | Warrants







| |             
| | ------------
| | Common stock



|                                                   |  |              |           |  |      |  |            | 
|-------------------------------------------------- |  | ------------ | --------- |  | ---- |  | ---------- | 
|                                                   |  | December 31, |          
|                                                   |  |              |          
|                                                   |  | 2004         |           |  | 2003 | 
|                                                   |  |              |           |  |      | 
|Options outstanding                                |  |              | 2,244,601 |  |      |  | 1,471,404  | 
|Shares reserved for future option grants           |  |              | 1,801,981 |  |      |  | 140,715    | 
|Convertible preferred stock issued and outstanding |  |              |          |  |      |  | 11,957,322 | 
|Warrants outstanding  convertible preferred stock |  |              | 196,915   |  |      |  | 196,915    | 
|                                                   |  |              |           |  |      | 
|                                                   |  |              | 4,243,497 |  |      |  | 13,766,356 | 
|                                                   |  |              |           |  |      | 



| |                   
| | ------------------
| | Stock option plans



| |                           
| | --------------------------
| | 2004 Equity Incentive Plan



61



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |                                            
| | -------------------------------------------
| | 1995 Stock Option and Restricted Stock Plan







|                             |                   |           |           |           |                 |  |           |                |   |   |      |       | 
|---------------------------- | ----------------- | --------- | --------- | --------- | --------------- |  | --------- | -------------- | - | - | ---- | ----- | 
|                             |                   | Options   |           |           | Options         |  |           | Weighted-      |  
|                             |                   | Available |           |           | Outstanding     |  |           | Average        |  
|                             |                   | for Grant |           |           | and Exercisable |  |           | Exercise Price |  
|                             |                   |           |           |           |                 |  |           |                |  
|Balance at December 31, 2001 |                   |           | 890,458   |           |                 |  | 712,677   |                |   | $ | 2.29 |      
|                             | Shares authorized |           |           | 6,251     |                 |  |           |               |   |   |      |       | 
|                             | Options granted   |           |           | (745,390  | )               |  |           | 745,390        |   |   | $    | 3.33  | 
|                             | Options exercised |           |           |          |                 |  |           | (2,838         | ) |   | $    | 1.44  | 
|                             | Options canceled  |           |           | 8,800     |                 |  |           | (8,800         | ) |   | $    | 2.92  | 
|                             |                   |           |           |           |                 |  |           |                |  
|Balance at December 31, 2002 |                   |           | 160,119   |           |                 |  | 1,446,429 |                |   | $ | 2.29 |      
|                             | Shares authorized |           |           | 6,351     |                 |  |           |               |   |   |      |      | 
|                             | Options granted   |           |           | (34,622   | )               |  |           | 34,622         |   |   | $    | 3.33  | 
|                             | Options exercised |           |           |          |                 |  |           | (780           | ) |   |      | 0.32  | 
|                             | Options canceled  |           |           | 8,867     |                 |  |           | (8,867         | ) |   | $    | 3.05  | 
|                             |                   |           |           |           |                 |  |           |                |  
|Balance at December 31, 2003 |                   |           | 140,715   |           |                 |  | 1,471,404 |                |   | $ | 2.32 |      
|                             | Shares authorized |           |           | 2,443,871 |                 |  |           |               |   |   |      |      | 
|                             | Options granted   |           |           | (800,776  | )               |  |           | 800,776        |   |   | $    | 10.87 | 
|                             | Options exercised |           |           |          |                 |  |           | (9,408         | ) |   | $    | 2.36  | 
|                             | Options canceled  |           |           | 18,171    |                 |  |           | (18,171        | ) |   | $    | 4.68  | 
|                             |                   |           |           |           |                 |  |           |                |  
|Balance at December 31, 2004 |                   |           | 1,801,981 |           |                 |  | 2,244,601 |                |   | $ | 5.35 |      
|                             |                   |           |           |           |                 |  |           |                |  

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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




|               |  |                                     |           |             |            |  |           |                |  |   |       | 
|-------------- |  | ----------------------------------- | --------- | ----------- | ---------- |  | --------- | -------------- |  | - | ----- | 
|               |  | Options Outstanding and Exercisable |          
|               |  |                                     |          
|               |  |                                     |           | Weighted-   |            |  |          
|               |  |                                     |           | Average     |            |  |          
|               |  |                                     |           | Remaining   |            |  |          
|               |  |                                     |           | Contractual |            |  | Weighted- |               
|               |  | Number                              |           |             | Life       |  |           | Average        | 
|Exercise Price |  | Outstanding                         |           |             | (In Years) |  |           | Exercise Price | 
|               |  |                                     |           |             |            |  |           |                | 
|$ 0.32         |  |                                     | 140,544   |             |            |  | 0.42      |                |  | $ | 0.32  | 
|$ 0.97         |  |                                     | 448,442   |             |            |  | 2.89      |                |  | $ | 0.97  | 
|$ 3.33         |  |                                     | 875,522   |             |            |  | 7.32      |                |  | $ | 3.33  | 
|$ 6.17         |  |                                     | 3,750     |             |            |  | 8.58      |                |  | $ | 6.17  | 
|$ 8.51         |  |                                     | 76,125    |             |            |  | 13.59     |                |  | $ | 8.51  | 
|$10.00         |  |                                     | 602,718   |             |            |  | 9.59      |                |  | $ | 10.00 | 
|$19.70         |  |                                     | 97,500    |             |            |  | 9.94      |                |  | $ | 19.70 | 
|               |  |                                     |           |             |            |  |           |                | 
|               |  |                                     | 2,244,601 |             |            |  | 6.94      |                |  | $ | 5.35  | 
|               |  |                                     |           |             |            |  |           |                | 







|    |             
|--- | ------------
|10. | INCOME TAXES



|         |       |                          |       |       |      |  |       |       |  |  |      |      |  
|-------- | ----- | ------------------------ | ----- | ----- | ---- |  | ----- | ----- |  |  | ---- | ---- | -
|         |       | Years Ended December 31, |      
|         |       |                          |      
|         |       | 2004                     |       |       | 2003 |  |       | 2002  | 
|         |       |                          |       |       |      |  |       |       | 
|Domestic |       |                          | 9,279 |       |      |  | 3,370 |       |  |  | (329 | )   
|         |       |                          |       |       |      |  |       |       | 
|         | Total |                          |       | 9,279 |      |  |       | 3,370 |  |  |      | (329 | )
|         |       |                          |       |       |      |  |       |       | 



|              |         |                          |     |     |      |   |     |      |  |   |   |   | 
|------------- | ------- | ------------------------ | --- | --- | ---- | - | --- | ---- |  | - | - | - | 
|              |         | Years Ended December 31,
|              |         |                         
|              |         | 2004                     |     |     | 2003 |   |     | 2002
|              |         |                          |     |     |      |   |     |     
|              |         | (In thousands)          
|Current:      |         |                          |     |     |      |   |     |      |  |   |   |  
|              | Federal |                          | $   | 210 |      |   | $   | 65   |  |   | $ |  | 
|              | State   |                          |     | 200 |      |   |     | 70   |  |   |   |  | 
|              |         |                          |     |     |      |   |     |      | 
|Total current |         | $                        | 410 |     |      | $ | 135 |      |  | $ |  |  
|              |         |                          |     |     |      |   |     |      | 

63



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                       |                                                  |                          |       |        |      |   |       |        |   |   |      |    | 
|------------------------------------------------------ | ------------------------------------------------ | ------------------------ | ----- | ------ | ---- | - | ----- | ------ | - | - | ---- | -- | 
|                                                       |                                                  | Years Ended December 31, |      
|                                                       |                                                  |                          |      
|                                                       |                                                  | 2004                     |       |        | 2003 |   |       | 2002   |  
|                                                       |                                                  |                          |       |        |      |   |       |        |  
|                                                       |                                                  | (In thousands)           |      
|U.S. federal taxes (benefit) at federal statutory rate |                                                  | $                        | 3,155 |        |      | $ | 1,146 |        |   | $ | (112 | ) 
|                                                       | State taxes, net of federal benefit              |                          |       | 132    |      |   |       | 46     |   |   |      |   | 
|                                                       | Net operating losses not benefitted (benefitted) |                          |       | (3,091 | )    |   |       | (1,132 | ) |   |      | 61 | 
|                                                       | Other individually immaterial items              |                          |       | 214    |      |   |       | 75     |   |   |      | 51 | 
|                                                       |                                                  |                          |       |        |      |   |       |        |  
|Total                                                  |                                                  | $                        | 410   |        |      | $ | 135   |        |   | $ |     |   
|                                                       |                                                  |                          |       |        |      |   |       |        |  



|                          |                                      |                |        |       |      |   |         |        | 
|------------------------- | ------------------------------------ | -------------- | ------ | ----- | ---- | - | ------- | ------ | 
|                          |                                      | December 31,   |       
|                          |                                      |                |       
|                          |                                      | 2004           |        |       | 2003 |  
|                          |                                      |                |        |       |      |  
|                          |                                      | (In thousands) |       
|Deferred tax assets:      |                                      |                |        |       |      |   |         |       
|                          | Net operating losses                 |                | $      | 6,450 |      |   | $       | 15,040 | 
|                          | Research credits                     |                |        | 1,480 |      |   |         | 1,740  | 
|                          | Capitalized research and development |                |        | 200   |      |   |         | 180    | 
|                          | Deferred revenue                     |                |        |      |      |   |         |       | 
|                          | Other, net                           |                |        | 1,140 |      |   |         | 380    | 
|                          |                                      |                |        |       |      |  
|Total deferred tax assets |                                      |                | 9,270  |       |      |   | 17,340  |       
|Valuation allowance       |                                      |                | (9,270 | )     |      |   | (17,340 | )     
|                          |                                      |                |        |       |      |  
|Net deferred tax assets   |                                      | $              |       |       |      | $ |        |       
|                          |                                      |                |        |       |      |  







64



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Adeza Biomedical Corporation


NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |             
|--- | ------------
|11. | BENEFIT PLAN





|    |                           
|--- | --------------------------
|12. | RELATED PARTY TRANSACTIONS



65



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##### Table of Contents



Signatures






| |                                 
| | --------------------------------
| | ADEZA BIOMEDICAL
    CORPORATION



| |     |                      
| | --- | ---------------------
| | By: | /s/ Emory V. Anderson

| |                                      
| | -------------------------------------
| |                                      
| | Emory V. Anderson                    
| | President and Chief Executive Officer

POWER OF ATTORNEY






|                                                           |  |                                                                                                                             |  | 
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | 
|Signature                                                  |  | Title(s)                                                                                                                   
|                                                           |  |                                                                                                                            
|                                                          
|/s/ Emory V. AndersonEmory
    V. Anderson                 |  | President, Chief Executive Officer and Director
    (principal executive officer)                                          
|                                                          
|/s/ Mark D.
    Fischer-ColbrieMark
    D. Fischer-Colbrie |  | Vice President, Finance and Administration and
    Chief Financial Officer (principal financial
    and accounting officer)
|                                                          
|/s/ Andrew E. Senyei,
    MDAndrew
    E. Senyei, MD       |  | Chairman of the Board                                                                                                      
|                                                          
|/s/ Nancy D. BurrusNancy
    D. Burrus                     |  | Director                                                                                                                   
|                                                          
|/s/ Craig C. TaylorCraig
    C. Taylor                     |  | Director                                                                                                                   
|                                                          
|/s/ Kathleen D. LaPorteKathleen
    D. LaPorte             |  | Director                                                                                                                   
|                                                          
|/s/ Michael P. DowneyMichael
    P. Downey                 |  | Director                                                                                                                   

66



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##### Table of Contents



Exhibit Index


|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1(1)       |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                                  
|        | 3  | .2(1)       |  | Form of Amended and Restated Bylaws to be effective upon the
    completion of the offering.                                                                                                                                                                                                                                                                        
|        | 4  | .1(1)       |  | Specimen Stock Certificate.                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .1(1)*      |  | 1995 Stock Option and Restricted Stock Plan.                                                                                                                                                                                                                                                                                                                        
|        | 10 | .2(2)*      |  | 2004 Equity Incentive Plan.                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .3(1)       |  | Exclusive License Agreement, dated August 12, 1992, between
    Adeza and the Fred Hutchinson Cancer Research Center, together
    with the First Amendment to Exclusive License Agreement and
    Consent dated May 9, 1996 and Amendment No. 1 to
    Exclusive License Agreement dated April 30, 1998.                                                          
|        | 10 | .4(1)       |  | Investors Rights Agreement, dated September 19, 2001,
    between Adeza and certain Stockholders of Adeza.                                                                                                                                                                                                                                                         
|        | 10 | .5(1)       |  | License Agreement, dated July 25, 1997, between Adeza and
    the Trustees of the University of Pennsylvania.                                                                                                                                                                                                                                                      
|        | 10 | .6(1)       |  | Agreement and Release, dated March 3, 1998, between Adeza
    and Matria Healthcare, Inc.                                                                                                                                                                                                                                                                          
|        | 10 | .7(1)       |  | Net Industrial Space Lease, dated July 7, 1999, between
    Adeza and Tasman V, LLC.                                                                                                                                                                                                                                                                                
|        | 10 | .8(1)       |  | Service Agreement, dated as of March 31, 1999, between
    Adeza and Ventiv Health U.S. Sales LLC (formerly known as
    Snyder Healthcare Sales Inc.), together with First Amendment to
    Service Agreement dated March 8, 2002, Second Amendment to
    Service Agreement dated July 22, 2002, and Third Amendment
    to Service Agreement dated May 15, 2004.
|        | 10 | .9(1)       |  | Warrant to Purchase Shares of Series 3 Preferred Stock, dated
    March 23, 1999, between Adeza and Transamerica Business
    Credit Corporation and its assignees.                                                                                                                                                                                                 
|        | 10 | .10(1)      |  | Warrant to Purchase Shares of Series 3 Preferred Stock, dated
    March 31, 2000, between Adeza and TBCC Funding
    Trust II and its assignees.                                                                                                                                                                                                                    
|        | 10 | .11(1)      |  | Warrant to Purchase Shares of Series 3 Preferred Stock, dated
    March 23, 1999, between Adeza and MMC/GATX Partnership No.
    I and its assignees.                                                                                                                                                                                                               
|        | 10 | .12(1)      |  | Form of Indemnification Agreement for Directors and Officers.                                                                                                                                                                                                                                                                                                       
|        | 10 | .13(1)      |  | Agreement, dated December 24, 1998, between Adeza and
    Unilever PLC.                                                                                                                                                                                                                                                                                            
|        | 10 | .14(1)      |  | Second Amendment to Lease, dated October 12, 2004, between
    Adeza and Tasman V, LLC.                                                                                                                                                                                                                                                                             
|        | 10 | .15(1)*     |  | Management Continuity Agreement, dated October 21, 2004,
    between Adeza and Emory Anderson.                                                                                                                                                                                                                                                                      
|        | 10 | .16(1)*     |  | Management Continuity Agreement, dated October 21, 2004,
    between Adeza and Mark Fischer-Colbrie.                                                                                                                                                                                                                                                                
|        | 10 | .17(1)*     |  | Form of Management Continuity Agreement, dated October 21,
    2004, between Adeza and Durlin Hickok, Robert Hussa and Marian
    Sacco.                                                                                                                                                                                                                            
|        | 23 | .1          |  | Consent of independent registered public accounting firm.                                                                                                                                                                                                                                                                                                           
|        | 24 | .1          |  | Powers of Attorney (included on signature page).                                                                                                                                                                                                                                                                                                                    
|        | 31 | .1          |  | Certification pursuant to Rule 13a-14(a) under the
    Securities Exchange Act of 1934 of Emory V. Anderson.                                                                                                                                                                                                                                                        
|        | 31 | .2          |  | Certification pursuant to Rule 13a-14(a) under the
    Securities Exchange Act of Mark D. Fischer-Colbrie.                                                                                                                                                                                                                                                          
|        | 32 | .1          |  | Certification pursuant to 18 U.S.C. Section 1350 of
    Emory V. Anderson.                                                                                                                                                                                                                                                                                          
|        | 32 | .2          |  | Certification pursuant to 18 U.S.C. Section 1350 of
    Mark D. Fischer-Colbrie.                                                                                                                                                                                                                                                                                    






|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the registrants Registration
    Statement on Form S-1 (Registration No. 333-118012)
    initially filed with the Securities and Exchange Commission on
    August 6, 2004.
|   
|(2) | Incorporated by reference to the registrants Registration
    Statement on Form S-8 (Registration No. 333-122430)
    filed with the Securities and Exchange Commission on
    January 31, 2005.        



| |   |                                         
| | - | ----------------------------------------
| | * | Management compensatory plan or contract



|  |                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Confidential Treatment granted. Omitted material for which
    confidential treatment has been granted has been filed
    separately with the Securities and Exchange Commission.