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Competition / Competitors High Frequency Chest Wall Oscillation (“HFCWO”) was first developed for CF patients at the University of Minnesota. The purpose of HFCWO is to provide more effective mucus clearance in a form that could be performed independently of a caregiver. The original technology was licensed to American Biosystems, Inc. (now Advanced Respiratory, Inc. (“ARI”), part of Hill-Rom Holdings, Inc., a publicly traded company) which, until the introduction of our original MedPulse Respiratory Vest System R in 2000, was the only manufacturer of this technology. All of ARI’s products use a two-hose, closed-loop system, in contrast to the single-hose, flow-through system that we designed, which we believe provides greater ease of use and patient comfort. In 2005, Respiratory Technologies, Inc., a privately held company doing business as RespirTech, received FDA clearance to market their inCourage system (the “inCourage System”), which includes a HFWCO vest. Like our SmartVest System, ARI’s The Vest and RespirTech’s inCourage System are cleared for market by the FDA. We believe we compete effectively with our competitors on the basis of product features and customer service. Alternative products for administering pulmonary therapy include: • Positive Expiratory Pressure (“PEP”) mask, which provides backpressure into the lungs on expiration to keep respiratory tracts open longer to drain; • The Flutter R (Scandipharm), a tube which vibrates on expiration; • Acapella R Vibratory PEP Therapy System (Smiths Medical), a handheld device that combines PEP with oscillations; • Intrapulmonary Percussive Ventilation Device, generally comprised of a ventilator that combines positive air pressure with nebulisation as appropriate; and • Traditional Chest Physical Therapy (“CPT”), which is usually performed one to four times per day. Reimbursement for the diverse patient populations for each of these pulmonary therapies varies greatly because a patient’s medical care costs are typically addressed by a combination of private insurance and government benefit schedules, as well as state health care policies and programs. Medicare reimburses many neuro-muscular conditions, in addition to bronchiectasis, but each case requires individual submittal of claims for benefits. HFCWO therapy is prescribed for the condition of “excess secretions” and is not limited to a particular condition, with the exception of CF, where secretion management is consistently demanded across the CF patient population. CPT and other therapies that require a less significant initial investment frequently have less restrictive reimbursement criteria. Physicians may prescribe a single product or treatment or a combination of products, depending on what they feel will best ensure patient compliance and well-being. We believe our primary competitive advantage over alternative treatments is patient comfort, ease of use, and the effectiveness of HFCWO treatment as compared to CPT and other alternative treatments. Because HFCWO is not “technique dependent,” as compared to most other pulmonary therapy products, therapy begins automatically once power is provided and remains consistent and controlled for the duration of the session. We strive to make the SmartVest System an increasingly attractive and comfortable form of HFCWO therapy. We believe that HFCWO therapy generally, and our SmartVest System in particular, produces less interference with daily activities, which increases the likelihood of regular use. We believe these advantages encourage physicians to prescribe and patients to request the SmartVest System for pulmonary therapy. From a clinical performance perspective, all HFCWO products meet a common standard of “substantial evidence.” As a result, features and benefits such as number of hoses required to deliver the therapy (one hose versus two hoses), construction quality, appearance of the generator, reputation for patient services, and sales effectiveness of field personnel have become key variables. We believe that the product features of our SmartVest System enable us to compete effectively, particularly when health care professionals, patients, and caregivers are provided with demonstrations of product choices prior to committing to a specific product. We often provide demonstration units to encourage such comparisons. Unlike our competitors’ products, the SmartVest System has a single-hose, flow-through system design and an adjustable vest made from soft, breathable and washable fabric. We use Velcro in our patented vest to provide a tailored fit, as opposed to an inflatable fit model. In addition to product features, our focus on providing exemplary customer training and service, along with our commitment to engage and retain highly motivated employees and contractors, many of whom are medical professionals, provides a valuable competitive advantage. Physicians who treat patients with respiratory difficulties are primarily concerned with maintaining the pulmonary capacity of their patients. Therefore, they will prescribe whatever product or combination of products they feel will best ensure patient compliance and well-being. The CF patient population is particularly unique in its knowledge of the disease, therapy options, and willingness to demand the best treatment possible. Patients may use some or all of these devices and techniques, depending upon their health status, severity of disease, compliance, or personal preference.