RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risks, as well as all of the other information contained in this prospectus, before investing in our common stock. If any of the following possible events actually occur, our business, business prospects, cash flow, results of operations or financial condition could be harmed. In this case, the trading price of our common stock could decline, and you might lose all or part of your investment in our common stock. In assessing these risks, you should also refer to the other information contained in this prospectus, including our financial statements and related notes. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our operations.

Risks Related to Our Business

We have a limited history of operations and a history of net losses, and we may not be able to achieve profitability even if we are able to generate significant revenue.

We were incorporated in November 2000 and have a limited operating history upon which you can evaluate our business. We commercialized our first product, the EndoSure Wireless AAA Pressure Measurement System, or EndoSure system, in 2005. We incurred net losses in each year since our inception, including net losses of $3.3 million in 2003, $5.1 million in 2004, $8.8 million in 2005 and $20.7 million in 2006. As of December 31, 2006, we had an accumulated deficit of approximately $132.1 million. We have financed our operations primarily through private placements of our equity securities and have devoted substantially all of our resources to research and development of our proprietary wireless sensing and communication technology and the commercialization of our initial product, the EndoSure system. We expect our operating expenses to continue to increase as we expand our direct sales force and manufacturing capabilities to meet anticipated increased demand for our EndoSure system. We also expect research and development expenses to increase in connection with our clinical trials and other development activities related to our products under development, including our heart failure and hypertension sensors. If we receive approval from the U.S. Food and Drug Administration, or the FDA, to market our heart failure and hypertension sensors, we expect to incur significant additional sales and marketing expenses and manufacturing expenses as we commence the commercial launch of those products. Additionally, if we complete this initial public offering, we expect that our general and administrative expenses will increase due to additional operational and regulatory burdens associated with being a public company. As a result, we expect to continue to incur significant operating losses for the foreseeable future, and we cannot assure you that we will be able to achieve or sustain profitability even if we are able to generate significant revenue.

We currently rely on a single product, our EndoSure system, for all of our revenue. If we are unable to obtain regulatory approval for our heart failure and hypertension sensors or other products under development, our ability to generate significant revenue will be limited, our business will be harmed and we may never become profitable.

All of our current revenue comes from sales of our sole product offering, our EndoSure system. We have leveraged the technology in our EndoSure system to develop other products, including wireless sensors that are designed to enable the treatment of heart failure patients and hypertensive patients. We anticipate that our ability to generate significant revenue will depend on the successful development, regulatory approval and commercialization of our heart failure and hypertension sensors. We do not have the necessary regulatory approval to market our heart failure or hypertension sensors or any of our other products in development in the United States or any foreign market. The regulatory approval processes for our heart failure and hypertension sensors involve, among other things, successfully completing clinical trials and obtaining premarket approvals from the FDA. The premarket approval process requires us to demonstrate the safety and efficacy of our heart failure and hypertension sensors to the FDA’s satisfaction. This process can be expensive and uncertain, requires detailed and comprehensive scientific and human clinical data, generally takes one to three years after a

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premarket approval application is filed and may never result in the FDA granting such an application. The FDA can delay, limit or deny approval of our premarket approval applications for many reasons, including:

In addition, even if we receive FDA approval of our heart failure or hypertension sensors, the FDA may not approve our sensors for the indications that are necessary or desirable for commercialization of our heart failure or hypertension systems. We may not obtain regulatory approval to market our heart failure and hypertension sensors in the United States or anywhere else. Any delay in, or failure to receive or maintain, approval of our heart failure or hypertension sensors could prevent us from generating significant revenue or achieving profitability.

Our EndoSure system and, if approved, our heart failure and hypertension sensors, may never achieve market acceptance.

Our EndoSure system and, if they receive regulatory approval, our heart failure and hypertension sensors or any other wireless sensor that we may develop, may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any of our wireless sensors will depend on a number of factors, including:

Currently there is only limited clinical data on our products with which to assess their safety and efficacy in any procedure, including the treatment of patients with aortic abdominal aneurysms, or AAA, or with heart failure or hypertension. If longer-term or more extensive clinical studies performed by us or others indicate that procedures using our products are not safe and effective, physicians may choose not to use our products. Furthermore, unsatisfactory outcomes or patient injury could cause negative publicity for our products. Physicians may be slow to adopt our products if they perceive liability risks arising from the use of these new products. It is also possible that as our products become more widely used, latent defects could be identified, creating negative publicity and liability problems for us, thereby adversely affecting demand for our products. If our EndoSure system and our heart failure and hypertension sensors, to the extent they receive regulatory approval, do not achieve an adequate level of acceptance by physicians, we may not generate sufficient revenue and may never become profitable.

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The medical device industry is highly competitive, and if our competitors are able to develop and market products that are safer and more effective than any products that we may develop, our commercial opportunity will be reduced or eliminated.

The medical device industry is highly competitive and subject to rapid and profound technological change. We face potential competition from established medical device companies, academic institutions, government agencies and private and public research institutions in the United States and abroad. Most of our principal competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. For example, Medtronic, Inc., or Medtronic, a company with significantly greater financial and marketing resources than we possess, is developing a competing wired sensor monitoring system for patients with heart failure named Chronicle which may be further ahead in the FDA regulatory clearance process than our competing heart failure sensor. Other companies such as St. Jude Medical, Inc., Proteus Biomedical, Inc. and Remon Medical Technologies, Inc., or Remon Medical, are also developing new approaches and products for the heart failure patient monitoring market. Our heart failure sensor will also face competition from existing products and monitoring techniques, including the Swan-Ganz catheter. We are aware that Remon Medical is also developing a wireless sensing technology for use in AAA patients that, if commercialized, will compete with our EndoSure system. In addition, we expect to face significant competition for our hypertension sensor from well-established alternative products and techniques, including relatively inexpensive blood pressure monitoring systems developed by companies such as Roche Diagnostics, a division of F. Hoffmann-La Roche Ltd., and LifeScan, Inc., a division of Johnson & Johnson, and various other manufacturers worldwide. If we are unable to compete successfully with these companies on the basis of cost or effectiveness, our revenue will suffer. Our competitors may:

The industry in which we operate has undergone, and is expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technical advances are made. Our competitors may develop and commercialize sensor monitoring systems that are safer or more effective, have fewer side effects or are less expensive than any products that we develop. We also compete with our competitors in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business. Because our products often have long development and regulatory approval cycles, we must anticipate changes in the marketplace and the direction of technological innovation and customer demands.

If we fail to obtain and maintain necessary FDA clearances or approvals for our products and indications or if clearances or approvals for future products and indications are delayed or not issued, our business will be harmed.

Our products are classified as medical devices and are subject to extensive regulation in the United States by the FDA and other federal, state and local authorities. These regulations relate to the design, development, testing, manufacturing, labeling, sale, promotion, distribution, importing and exporting and shipping of our products. In the United States, before we can market a new medical device, or a new use of, or claim for, or significant modification to, an existing product, we must first receive either 510(k) clearance or approval of a premarket approval application from the FDA, unless an exemption applies. In the 510(k) clearance process, the FDA must determine that the proposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing. Clinical data is sometimes required to support substantial equivalence. The premarket approval pathway requires an applicant to demonstrate the safety and effectiveness of the device

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based, in part, on data obtained in clinical trials. Both of these processes can be expensive and lengthy and entail significant user fees, unless exempt. The FDA’s 510(k) clearance process usually takes from three to 12 months, but it can last longer. The premarket approval pathway is much more costly and uncertain than the 510(k) clearance process. It generally takes from one to three years, or even longer, from the time the premarket approval application is submitted to the FDA until an approval is obtained.

Our products when indicated for heart failure and hypertension will be required to obtain a premarket approval. Such approvals may not be obtained in a timely fashion or at all. We will request a humanitarian use designation for our heart failure sensor when indicated for pulmonary hypertension, which if granted would allow us to seek approval of a humanitarian designation exemption. A humanitarian designation exemption is a somewhat abbreviated premarket approval that allows a manufacturer to market a humanitarian use designation without collecting the effectiveness data necessary to support a premarket approval. The FDA may not grant a humanitarian use designation or approve a humanitarian designation exemption application in a timely fashion or at all.

Although we believe the FDA will allow the less burdensome 510(k) pathway for pressure measurement after the AAA repair procedure and cardiac surgery indications for heart failure, the FDA may ultimately impose the burdensome premarket approval process on these and other indications for which we may seek clearance or approval. An indication for pressure measurement after the AAA repair procedure is likely to require a significant clinical study. We have a 510(k) pending for our next generation EndoSure system for pressure measurement during the AAA repair procedure. There is no assurance that any or all of the required clearances and approvals can be obtained in a timely fashion or at all.

Our current and planned clinical trials may not begin on time, or at all, and may not be completed on schedule, or at all.

In order to obtain premarket approval and, in some cases, a 510(k) clearance, a product sponsor must conduct well controlled clinical trials designed to test the safety and effectiveness of the product. Conducting clinical trials generally entails a long, expensive and uncertain process that is subject to delays and failure at any stage. The data obtained from clinical trials may be inadequate to support approval or clearance of a submission. In addition, the occurrence of unexpected findings in connection with clinical trials may prevent or delay obtaining approval or clearance.

The FDA is requiring our products to undergo clinical study. We rely on clinical investigators and clinical sites to enroll subjects in our clinical trials and other third parties to manage the trial and to perform related data collection and analysis. However, we may not be able to control the amount and timing of resources that clinical sites may devote to our clinical trials. If these clinical investigators and clinical sites fail to enroll a sufficient number of subjects in our clinical trials or fail to ensure compliance by subjects with clinical protocols, we will be unable to complete these trials or may obtain invalid or inadequate data, which could prevent us from obtaining regulatory clearances and approvals for our products. Our agreements with clinical investigators and clinical sites for clinical testing place substantial responsibilities on these parties and, if these parties fail to perform as expected, our trials could be delayed or terminated. If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to the FDA’s good clinical practice regulations or our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory clearances and approvals for, or successfully commercialize, our future products.

The commencement or completion of any of our clinical trials may be delayed or halted for numerous reasons, including, but not limited to, the following:

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The results of pre-clinical studies do not necessarily predict future clinical trial results, and predecessor clinical trial results may not be repeated in subsequent clinical trials. Additionally, the FDA may disagree with our interpretation of the data from our pre-clinical studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to prove safety or efficacy, and may require us to pursue additional pre-clinical studies or clinical trials, which could further delay the clearance or approval of our products. If we are unable to demonstrate the safety and efficacy of our products in our clinical trials, we will be unable to obtain regulatory approval to market our products. The data we collect from our current clinical trials, our pre-clinical studies and other clinical trials may not be sufficient to support FDA approval. If we are unsuccessful in either filing a premarket approval application or receiving premarket approval for our heart failure or hypertension sensors, our business strategy may have to be altered to rely solely on our EndoSure system.

We may fail to obtain timely FDA approval to conduct our planned U.S. pivotal clinical trial for our heart failure sensor, which could significantly increase our development costs and lengthen the time to possible approval.

Before we can commence our planned U.S. pivotal clinical trial for our heart failure sensor, an investigational device exemption application must be approved by the FDA. Although we have received approval of our investigational device exemption application for our heart failure sensor from the FDA, the FDA’s approval of our investigational device exemption application allows us to begin only a pilot study with limited enrollment in our pilot study for the heart failure sensor. We are required to provide data from the pilot study to the FDA, which the FDA will review to determine whether to grant approval of our pivotal trial. We cannot assure you that the FDA will view the results of our pilot study as sufficiently favorable to allow us to proceed with a pivotal clinical trial on a timely basis or at all.

Our development costs will increase if we have material delays in our clinical trials or if we need to perform more or larger clinical trials than planned. Adverse events during a clinical trial could cause us to repeat a trial, terminate a trial or cancel our entire heart failure program. The FDA or the Institutional Review Board with authority over a clinical trial may also terminate the trial at any time if it believes continuation of the trial presents an unreasonable risk to the study subjects. The FDA’s grant of permission to proceed with the trials does

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not constitute a binding commitment that the FDA will consider the trial design adequate to support approval. There can be no assurance that the data generated during the pivotal trials will meet the safety and effectiveness endpoints we ultimately choose or otherwise produce results that will lead the FDA to grant marketing approval.

If we fail to obtain an adequate level of coverage and reimbursement by third-party payors for our EndoSure system or other products under development, the markets for our products may be much smaller than expected.

The availability and levels of reimbursement by governmental and other third-party payors directly affect the market for our EndoSure system and other products under development. The ability of our hospital customers and physicians to obtain adequate coverage and reimbursement from third-party payors therefore impacts the success of our products. In addition, third-party payors continue to scrutinize the prices of products and services for which payments are made, particularly for new products and services. Therefore, the efficacy, safety, performance and cost-effectiveness of our products and of any competing products will determine the availability and level of reimbursement. Reimbursement and healthcare payment systems in international markets vary significantly by country and include both government sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in some countries, we may be required to produce clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness of our products to other available therapies. We may not obtain reimbursement or pricing approvals in a timely manner, if at all. Our failure to receive reimbursement or pricing approvals would negatively impact market acceptance of our EndoSure system and our other products under development in the United States and in the international markets in which those approvals are sought.

Under current Medicare policies, hospitals implanting our EndoSure sensor generally are reimbursed for the device and for the endovascular abdominal aortic aneurysm repair surgery during which our devices are implanted under a single payment, typically based on a diagnosis-related group for major cardiovascular procedures. The diagnosis-related group payment rates include all devices and services that are provided during the repair surgery, regardless of the actual costs of such services. Separate payments currently are not made for the EndoSure sensor.

Physicians may receive a separate payment for their professional services performed in connection with the EndoSure sensor. Physicians submit bills for these services under the following Category III Current Procedural Terminology, or CPT, billing codes. One of these CPT codes relates to monitoring after a sensor is implanted. Since the monitoring is not part of an FDA clearance for the EndoSure system, we may not promote this use, although that does not prevent physicians from making their own determination to provide and bill for the monitoring service. We are pursuing this monitoring indication with the FDA, but we may not be able to obtain the indication needed to allow us to market the use of the EndoSure system for subsequent monitoring.

The applicable Category III codes do not have established national payment levels, and local Medicare contractors make independent determinations of payment levels for these codes for their specific geographic areas. This has resulted in wide variances in physician payment levels, and some local Medicare contractors have determined not to cover physician services billed under the pertinent CPT codes 0153T and 0154T, asserting that the technology at issue is investigational or experimental in nature. We are unaware of the extent of the volume of denials based upon these non-coverage decisions. The inability for physicians to receive adequate reimbursement for these codes could negatively impact market acceptance of our EndoSure system.

Applications have been made with the American Medical Association for Category I CPT codes that would describe physician services performed in connection with the implantation and monitoring of the EndoSure system and would replace the current Category III codes. If the applications are approved, we expect that physicians would begin to bill for their services using these Category I codes and that the Medicare program would develop federal reimbursement rates for these Category I codes for January 2008. In the event Category I

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codes are implemented, it is uncertain whether reimbursement under such codes could be adequate or set at lower levels than what physicians are currently receiving under the Category III CPT codes. However, the availability of national payment levels may simplify the process of submitting claims for payment. As of now, it is not possible to assess the full impact of new Category I codes on our business or results of operations. If such new codes were adopted, and the levels of reimbursement for physicians were considered to be inadequate, our business and results of operations may be harmed and our stock price could decline.

We also plan on pursuing coverage and reimbursement for services performed in connection with the implantation and monitoring of our heart failure and hypertension sensors. We expect to seek coverage and reimbursement and new codes for hospital services, including the hospital outpatient setting, and for physician professional services for these indications. Generally, any coverage and payment policies for a new procedure does not occur until after FDA approval of the product used in the surgery. It is possible that we may not prevail in our applications or that the extent of coverage or the reimbursement rates established for any new codes may be limited in scope or amount or otherwise insufficient to permit broad acceptance of our products by physicians and hospitals.

If we are unable to expand our sales and marketing capabilities, enter into and maintain arrangements with third parties to continue the commercialization of our EndoSure system or sell and market any other products that may be approved for sale, our business may be harmed.

We have limited experience as a company in the sale, marketing and distribution of our EndoSure system and any other products we may sell in the future. As of December 31, 2006, we had 37 employees engaged in sales and marketing activities. If our heart failure or hypertension sensors are approved for marketing, we will need to expand our sales force significantly to reach our target markets. Developing a sales force is expensive and time consuming and could delay or limit the success of any product launch. Thus, we may not be able to expand our sales and marketing capabilities on a timely basis or at all. If we are unable to establish these capabilities, we will need to contract with third parties to market and sell our EndoSure system or heart failure or hypertension sensors and any other product that we may develop. To the extent that we enter into arrangements with third parties to perform sales, marketing and distribution services on our behalf in the United States or internationally, our product revenues could be lower than if we directly marketed and sold our EndoSure system or heart failure or hypertension sensors and any other products that we may develop. Furthermore, to the extent that we enter into co-promotion or other marketing and sales arrangements with other companies, any revenues received will depend on the skills and efforts of others, and we do not know whether these efforts will be successful. Some of our distributors may have current products or products under development that compete with ours, and they may have an incentive not to devote sufficient efforts to marketing our products.

If we are unable to manufacture our products efficiently in significant volumes, we may continue to incur losses.

We are currently manufacturing our EndoSure system in commercial quantities. However, we have limited resources, facilities and experience in commercially manufacturing our products. If we receive regulatory approval of our heart failure or hypertension sensors, we will need to increase our manufacturing capacity by a significant factor over current levels. We have no experience manufacturing our products in the volume that we anticipate will be required if we receive regulatory approval for our heart failure or hypertension sensors. To date, we have focused primarily on research and development and very low volume manufacturing of our EndoSure system. As a result, we may not be able to develop and implement efficient, low-cost manufacturing capabilities and processes that will enable us to manufacture our EndoSure system or heart failure or hypertension sensors and other products that we may develop in significant volumes, while meeting the legal, regulatory, quality, price, durability, engineering, design and production standards required to market our products successfully. If we fail to develop and implement these manufacturing capabilities and processes, we may be unable to sell our EndoSure system and any future products at a profit because the per unit cost of our products is highly dependent upon production volumes and the level of automation in our manufacturing processes. There are technical challenges to

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increasing manufacturing capacity, including equipment design and automation, material procurement, problems with production yields, and quality control and assurance. Developing commercial-scale manufacturing facilities will require the investment of substantial additional funds and the hiring and retaining of additional management and technical personnel who have the necessary manufacturing experience. We may not successfully complete any required increase in manufacturing capacity in a timely manner or at all. Even if our heart failure or hypertension sensors receive regulatory approval, if we are unable to manufacture a sufficient supply of sensors, maintain control over expenses or otherwise adapt to anticipated growth, or if we underestimate growth, we may not have the capability to satisfy market demand and our business will suffer.

Our manufacturing operations are dependent upon third-party suppliers, including single source suppliers, making us vulnerable to supply problems and price fluctuations, which could cause us to fail to meet the demands of our customers and adversely affect our ability to commercialize our EndoSure system or heart failure or hypertension sensors and any other products that we may develop.

We rely on single source suppliers to provide certain components of our wireless sensors and substantially all of the components that are used to manufacture our external electronics modules. We purchase these components on a purchase order basis. If we overestimate our component requirements, we could have excess inventory, which would increase our costs and result in write-downs harming our operating results. If we underestimate our requirements, we may not have an adequate supply, which could interrupt manufacturing of our EndoSure system or heart failure or hypertension sensors and any other products that we may develop and result in delays in shipments and revenue. We are dependent on these suppliers to provide us with materials in a timely manner that meet our quality, quantity and cost requirements. Our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction and environmental factors, any of which could delay or impede their ability to meet our demand. Our reliance on these outside suppliers also subjects us to other risks that could harm our business, including:

We currently do not have long-term supply contracts with our component suppliers, and they are not required to supply us with products for any specified periods, in any specified quantities or at any set price, except as may be specified in a particular purchase order. We have no reason to believe any of our current suppliers is the sole source for the components they supply us. However, if we lost one of these suppliers and were unable to obtain an alternate source on a timely basis or on terms acceptable to us, our production schedules could be delayed and we could fail to meet our customers’ demands. Our customers rely upon our ability to meet committed delivery dates, and any disruption in the supply of key components would adversely affect our ability to meet these dates and could result in legal action by our customers, cause loss of customers or harm our ability to attract new customers, any of which could decrease our revenue and negatively impact our growth. In addition, to the extent that our suppliers use technology or manufacturing processes that are proprietary, we may be unable to obtain comparable materials or components from alternative sources.

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We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved, or off-label, uses.

Our EndoSure system is currently approved for measuring intrasac pressure during an endovascular AAA repair. With this clearance, we are not allowed to market our EndoSure system for use by physicians after the procedure. We believe, however, that physicians might use the EndoSure system in this manner. Although we believe our promotional materials and training methods regarding physicians are conducted in compliance with regulations of the FDA and other applicable regulations, if the FDA determines that our promotional materials or training constitutes promotion of off-label use, it could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider promotional or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

We face the risk of product liability claims and may not be able to obtain adequate insurance.

Our business exposes us to a risk of product liability claims that is inherent in the testing, manufacturing and marketing of medical devices. We may be subject to product liability claims if our EndoSure sensor or heart failure or hypertension sensors or any other products we develop or sell, causes, or appears to have caused, an injury. Claims may be made by consumers, healthcare providers, third-party strategic collaborators or others selling our products. We currently have $10.0 million of product liability insurance, which covers the sale of our EndoSure system and the use of our other products in development in clinical trials, which amount we believe is appropriate. Our current product liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, the coverage may not be adequate to protect us against any future product liability claims. If we are unable to obtain insurance at an acceptable cost and on acceptable terms for an adequate coverage amount or otherwise to protect against potential product liability claims, we could be exposed to significant liabilities, which may harm our business. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could harm our business. These liabilities could prevent or interfere with our product sale and commercialization efforts. Defending a suit, regardless of merit, could be costly, could divert management attention and might result in adverse publicity, which could result in the withdrawal of, or inability to recruit, clinical trial volunteers or result in reduced acceptance of our EndoSure system, or any other products we sell, in the market.

The medical device industry has historically been subject to extensive litigation over product liability claims. We may be subject to product liability claims even if it appears that the claimed injury is due to the actions of others. For example, we rely on the expertise of surgeons, other physicians, therapists and other associated medical personnel to perform the medical procedure to implant our EndoSure sensor and to conduct related patient monitoring sessions where our EndoSure system is used. If these medical personnel are not properly trained or are negligent, any and all positive effects of our EndoSure system, or any other products we sell, may be diminished or the patient may suffer critical injury, which may subject us to liability. In addition, an injury that is caused by the negligence of one of our suppliers in supplying us with a defective component that injures a patient could be the basis for a claim against us. A product liability claim, regardless of its merit or eventual outcome could result in:

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Software defects may be discovered in our products, which could harm our reputation and reduce our revenue.

Our external electronics modules incorporate computer software which can contain errors, especially when first introduced. Because our products are designed to be used to perform complex calculations and measurements, we expect that physicians and hospitals will have an increased sensitivity to the potential for software defects. We cannot assure you that our software will not experience errors or performance problems in the future. If we experience software errors or performance problems, we would likely also experience:

We may be unable to complete the development and commercialization of our EndoSure system and our heart failure and hypertension sensors and other products under development without additional funding.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts on research and development, including conducting clinical trials for our heart failure and hypertension sensors. In 2005, our net cash used in operating activities was $8.2 million and was $18.9 million in 2006. We expect that our cash used by operations will increase significantly in each of the next several years, and we may need additional funds to continue to commercialize our recently-introduced EndoSure system, and to complete the development and commercialization of our heart failure and hypertension sensors and our other products under development. Additional financing may not be available on a timely basis on terms acceptable to us, or at all. Any additional financing may be dilutive to stockholders or may require us to grant a lender a security interest in our assets. The amount of funding we will need will depend on many factors, including:

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If adequate funds are not available, we may have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support or other resources devoted to our products. Any of these factors could harm our financial condition.

We depend on clinical investigators and clinical sites to enroll patients in our clinical trials and on other third parties to manage the trials and to perform related data collection and analysis, and, as a result, we may face costs and delays that are outside of our control.

We rely on clinical investigators and clinical sites to enroll patients in our clinical trials and other third parties to manage the trial and to perform related data collection and analysis. However, we may not be able to control the amount and timing of resources that clinical sites may devote to our clinical trials. If these clinical investigators and clinical sites fail to enroll a sufficient number of patients in our clinical trials or fail to ensure compliance by patients with clinical protocols, we will be unable to complete these trials, which could prevent us from obtaining regulatory approvals for our products. Our agreements with clinical investigators and clinical sites for clinical testing place substantial responsibilities on these parties and, if these parties fail to perform as expected, our trials could be delayed or terminated. If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, the FDA’s good clinical practice regulations or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for, or successfully commercialize, our future products.

The loss of any of our executive officers or the failure to attract or retain specialized technical and management personnel could impair our ability to grow our business.

We are highly dependent on our senior management, especially Jay S. Yadav, M.D., our Chairman and Chief Executive Officer. Our success will depend on our ability to retain our current management and to attract and retain qualified personnel in the future, including scientists, clinicians, engineers and other highly skilled personnel. Competition for senior management personnel, as well as scientists, clinicians and engineers, is intense and we may not be able to retain our personnel. The loss of the services of members of our senior management, scientists, clinicians or engineers could negatively impact the implementation and completion of our objectives, including the development and introduction of our products. The loss of a member of our senior management or our professional staff would require the remaining executive officers to divert immediate and substantial attention to seeking a replacement. Each of our officers may terminate their employment at any time without notice and without cause or good reason. We do not carry “key person” insurance covering any members of our senior management.

Our future success will depend, in part, on our ability to attract and retain qualified management and technical personnel, many of whom must be relocated from other regions in the United States or other countries. We may not be successful in hiring or retaining qualified personnel. Our inability to hire qualified personnel on a timely basis, or the departure of key employees, could harm our business.

We may have difficulty managing the growth, if any, of our operations, which could harm our business.

We continue to undergo rapid change in the scope and breadth of our operations as we seek to grow our business. Our potential growth will place a significant strain on our senior management team and other resources. We will be required to make significant investments in our engineering, logistics, financial and management information systems. We expect to relocate our manufacturing, research and development and administrative offices to a new location in the greater Atlanta area in 2007. Continued growth presents numerous additional challenges, including:

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Any failure to effectively manage our growth could impede our ability to successfully develop, market and sell our products and our business will be harmed.

If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.

In connection with the audit of our financial statements for the year ended December 31, 2005 our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our management and independent registered public accounting firm did not perform an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act. Had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional control deficiencies may have been identified by management or our independent registered public accounting firm, and those control deficiencies could have also represented one or more material weaknesses.

Our independent registered public accounting firm identified material weaknesses related to a lack of appropriate financial management and reporting infrastructure to accurately and properly record and provide comprehensive financial information in accordance with U.S. generally accepted accounting principles. As a result, audit adjustments to our financial statements were identified during the course of the audit. In an effort to remediate these weaknesses, we retained a new chief financial officer in August 2006 and retained a new controller and assistant controller in November 2006. We also promoted our former controller to the position of director, finance. We intend to further develop and document our accounting policies and financial reporting procedures prior to the closing of this offering. These actions were taken in part to address our material weaknesses, and there were no material weaknesses noted in connection with the audit of our financial statements for the year ended December 31, 2006. However, we cannot assure you that we have identified all or that we will not in the future have additional material weaknesses.

The standards required for a Section 404 assessment under the Sarbanes-Oxley Act will require us to implement additional corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. These stringent standards require that our audit committee be advised and regularly updated on management’s review of internal controls. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to us as a public company. If we fail to staff our accounting and finance function adequately or maintain internal controls adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial results accurately or in a timely manner and our business and stock price may suffer.

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Risks Related to Our Intellectual Property

If we are unable to protect the intellectual property contained in our products from use by third parties, our ability to compete in the market will be harmed.

Our commercial success will depend in part on obtaining patent and other intellectual property protection for the technologies contained in our products, and on successfully defending our patents and other intellectual property against third-party challenges. We expect to incur substantial costs in obtaining patents and, if necessary, defending our proprietary rights. The patent positions of medical device companies, including ours, can be highly uncertain and involve complex and evolving legal and factual questions. We do not know whether we will obtain the patent protection we seek, or that the protection we do obtain will be found valid and enforceable if challenged. We also do not know whether we will be able to develop additional patentable proprietary technologies. If we fail to obtain adequate protection of our intellectual property, or if any protection we obtain is reduced or eliminated, others could use our intellectual property without compensating us or we could be stopped from preventing other parties from developing products like ours, in either case, resulting in harm to our business. We may also determine that it is in our best interests to voluntarily challenge a third-party’s products or patents in litigation or administrative proceedings, including patent interferences or reexaminations. In the event that we seek to enforce any of our owned or exclusively licensed patents against an infringing party, it is likely that the party defending the claim will seek to invalidate the patents we assert, which, if successful could result in the loss of the entire patent or the relevant portion of our patent, which would not be limited to any particular party. Any litigation to enforce or defend our patent rights is very uncertain. Moreover, even if we were to prevail, such litigation could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. Our competitors may independently develop similar or alternative technologies or products without infringing any of our patent or other intellectual property rights, or may design around our proprietary technologies.

We cannot assure you that we will obtain the patent protection we seek, that any protection we do obtain will be found valid and enforceable if challenged or that it will confer any significant commercial advantage. U.S. patents and patent applications may also be subject to interference proceedings and U.S. patents may be subject to reexamination proceedings in the U.S. Patent and Trademark Office, and foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent offices, which proceedings could result in either loss of a patent or denial of a patent application, or loss or reduction in the scope of one or more of the claims of, a patent or patent application. In addition, such interference, reexamination and opposition proceedings may be costly. Some of our technology was, and continues to be, developed in conjunction with certain third parties, and thus there is a risk that such third parties may claim rights in our intellectual property. Thus, any patents that we own or license from others may provide limited or no protection against competitors. Our pending patent applications, those we may file in the future, or those we may license from third parties, may not result in patents being issued. If issued, they may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Additionally, we are aware of a company in Germany with a registered trademark on the name “CardioMEM.” We believe this may prevent us from doing business in Germany, and possibly throughout the European Union, using our current name. As a result, we may have to change our company name or market our products in Germany, and possibly throughout the EU, under a different name, either of which could result in loss of brand recognition and significant expense.

Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may result in loss of patents or patent rights important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of a patent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States, particularly in the field of medical products and procedures.

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Our trade secrets, nondisclosure agreements and other contractual provisions to protect unpatented technology provide only limited and possibly inadequate protection of our rights. Our trade secrets may not be upheld and our nondisclosure agreements and other contractual provisions may not be enforced. As a result, third parties may be able to use our unpatented technology, and our ability to compete in the market would be reduced. In addition, employees, consultants and others who participate in developing our products or in commercial relationships with us may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach.

Because the medical device industry is characterized by competing intellectual property, we may be sued for violating the intellectual property rights of others.

Successfully commercializing our implantable sensor systems, and any other products we may develop, will depend in part on our not infringing patents held by third parties. It is possible that one or more of our products, including those that we have developed in conjunction with third parties, infringes existing patents. As competition in our market grows, the possibility of a patent infringement claim against us increases.

There may be existing patents which may be broad enough to cover aspects of our future technology. In addition, because patent applications in many countries such as the United States are maintained under conditions of confidentiality and can take many years to issue, there may be applications now pending of which we are unaware and which may later result in issued patents that our products infringe. We do not know whether any of these patents, if challenged, would be upheld as valid, enforceable and infringed by our products or technology. From time to time, we may receive letters from third parties accusing us of infringing their patents or inviting us to license their patents. We may be sued by, or become involved in an administrative proceeding with, one or more of these or other third parties. We cannot assure you that a court or administrative body would agree with any arguments or defenses we may present concerning the invalidity, unenforceability or non-infringement of any third-party patent. In addition to the issued patents of which we are aware, other parties may have filed, and in the future are likely to file, patent applications covering products that are similar or identical to ours. We cannot assure you that any patents issuing from applications will not cover our products or will not have priority over our own products and patent applications.

We may not be able to maintain or obtain all the licenses from third parties necessary for the use of our implantable sensor systems, which may cause our revenue to decline.

We rely on technology that we license from others, including technology that is integral to our implantable sensor systems, such as patents that we have exclusively licensed from Georgia Tech Research Corporation, or GTRC, an entity that owns all intellectual property arising from research conducted at the Georgia Institute of Technology, and the Massachusetts Institute of Technology, or MIT. We received the right to apply GTRC’s relevant patent in the field of medical diagnostic equipment, implants and prostheses, surgical and medical equipment, medical services and applications and medical therapeutic equipment. We received the right to apply MIT’s relevant patent in the field of any medical device, medical instrumentation or other medical product or medical process for which commercial sale in the United States is regulated under the jurisdiction of the FDA. To the extent that we develop capability outside the field of use covered by our respective licenses with GTRC and MIT, we would no longer have the patent protection and the freedom to operate which may be afforded by these licenses. If either GTRC or MIT asserts that we are infringing their patent rights, we may incur significant costs defending against such claims or seeking an additional license from GTRC or MIT, as the case may be, or be required to limit use of our recently-introduced EndoSure system or future products and technologies within our licensed field, any of which could harm our business. Moreover, if either GTRC or MIT asserts that we have breached the terms of our license and successfully terminates our license, and if we are unable to obtain another license from GTRC or MIT, as the case may be, we may be required to abandon use of our implantable sensor systems completely.

If we also fail to reach specified sales targets during the initial years following the launch of our EndoSure system as specified in our respective licenses with GTRC and MIT, our licenses may be converted into

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non-exclusive licenses. To the extent we do not generate significant revenue from our EndoSure system and do not receive marketing approval for our other products under development, we risk losing our exclusivity rights with respect to the licenses we have from GTRC and MIT. If we lose our exclusivity rights with respect to these licenses, our ability to maintain our competitive position and grow our business would be adversely affected.

In addition, as we develop additional features for, and interventional devices for use with, our implantable sensor systems, we may find it advisable or necessary to seek additional licenses from third parties who hold patents covering technology used in specific indications we are targeting. If we cannot obtain those licenses or if we fail to maintain our current licenses, we could be forced to design around those patents at additional cost or abandon our implantable sensor systems altogether, which could adversely affect our revenue, results of operations and cash flow. If we have to abandon any product, our ability to develop and grow our business in new directions and markets would be adversely affected.

The medical device industry is characterized by patent litigation and we could become subject to litigation that could be costly, result in the diversion of management’s attention and require us to pay damages and discontinue selling our products.

The medical device industry is characterized by frequent and extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often difficult to predict, and the outcome may be uncertain until the court has entered final judgment and all appeals are exhausted. Our competitors may assert that our products or the use of our products are covered by U.S. or foreign patents held by them. If such relevant patents are upheld as valid and enforceable and we are found to infringe, we could be prevented from selling our implantable sensors unless we can obtain a license to use technology or ideas covered by such patents or are able to redesign our products to avoid infringement. A license may not be available at all or on commercially reasonable terms, and we may not be able to redesign our products to avoid infringement.

Modification of our products or development of new products could require us to conduct additional clinical trials and to revise our filings with the FDA and other regulatory bodies, which would be time-consuming and expensive. If we are not successful in obtaining a license or redesigning our products, we may be unable to sell our implantable sensor systems and our business could suffer. In addition, our patents may be subject to various invalidity attacks, such as those based upon earlier filed patent applications, patents, publications, products or processes, which might invalidate or limit the scope of the protection that our patents afford.

Infringement actions, validity challenges and other intellectual property claims and proceedings, whether with or without merit, may cause us to incur substantial costs and could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation. We have incurred, and expect to continue to incur, substantial costs in obtaining patents and expect to incur substantial costs defending our proprietary rights. Incurring such costs could have a material adverse effect on our financial condition, results of operations and cash flow.

We cannot be certain that we will successfully assert our patents against infringers, defend our patents from claims of invalidity or unenforceability, or defend against allegations of infringement of third-party patents. In addition, any public announcements related to litigation or administrative proceedings initiated or threatened by us, or initiated or threatened against us, could cause our stock price to decline.

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

Many of our employees were previously employed at universities or other medical device companies, including our competitors or potential competitors. We could in the future be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary

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information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are essential to our products, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate technologies or features that are important or essential to our products would have a material adverse effect on our business, and may prevent us from selling our products. In addition, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, such litigation could result in substantial costs and be a distraction to management. Incurring such costs could have a material adverse effect on our financial condition, results of operations and cash flow.

Additional Risks Related to Regulatory Matters

If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business.

Our products and operations are subject to extensive regulation by the FDA and various other federal, state and foreign governmental authorities. Government regulations and foreign requirements specific to medical devices are wide ranging and govern, among other things:

The FDA, state, foreign and other governmental authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in governmental agencies or a court taking action, including any of the following:

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If we fail to obtain regulatory clearances in other countries for our EndoSure system and heart failure and hypertension sensors and other products under development, we will not be able to commercialize these products in those countries.

In order to market our products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA clearance. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA clearance in the United States. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects described above regarding FDA clearance in the United States.

For example, the European Union requires that medical products receive the right to affix the CE mark. The CE mark is an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. In order to obtain the right to affix the CE mark to our products, we will need to obtain certification that our processes meet European quality standards. These standards include certification that our product design and manufacturing facility complies with ISO 13485 quality standards. If we do not receive the right to affix the CE mark, we will be prohibited from selling our products in member countries of the European Union. We cannot be certain that we will be successful in meeting European quality standards or other certification requirements.

We may fail to comply with continuing post-market regulatory requirements of the FDA and other authorities and become subject to substantial penalties, or marketing experience may show that our EndoSure system or any subsequently approved product, if any, is unsafe, forcing us to recall or withdraw our products permanently from the market.

Even after product clearance or approval, we and our contract manufacturers must comply with continuing regulation by the FDA and other authorities, including the FDA’s Quality System Regulation requirements, which obligate manufacturers, including third-party contract manufacturers, to adhere to stringent design, testing, control, documentation and other quality assurance procedures during the design and manufacture of a device. We are subject to medical device reporting regulations, which require us to report to the FDA if our products may have caused or contributed to a death or serious injury or malfunction in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. We must report corrections and removals to the FDA where the correction or removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the federal Food, Drug, and Cosmetic Act caused by the device that may present a risk to health, and we must maintain records of other corrections or removals. The FDA closely regulates promotion and advertising and our promotional and advertising activities could come under scrutiny.

There have been implant procedures where there was no signal from our EndoSure sensor or the signal was weak or difficult to obtain. We responded with corrections to products in the field to improve signal reliability. Through our quality system, we are continuing to investigate and make product modifications to address this issue. Our Endosure system may experience future signal reliability issues and the FDA may not agree that we have appropriately established and maintained procedures for implementing corrective and preventive action as required under the FDA’s Quality System Regulation requirements. We have determined that these signal reliability issues and field corrections are not reportable to the FDA, because the signal reliability issues have not caused injuries and do not pose a risk to health. The FDA may not agree with our determination that such reports are not required. If the adverse event reports we file with the FDA regarding death, serious injuries or malfunctions indicate or suggest that our EndoSure system or any subsequently cleared or approved product, if any, presents an unacceptable risk to patients, including when used off-label by physicians, we may be forced to recall our product or withdraw it permanently from the market.

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Any failure to comply with continuing regulation by the FDA or other authorities could result in enforcement action that may include suspension or withdrawal of regulatory clearances or approvals, recalling products, ceasing product marketing, seizure and detention of products, paying significant fines and penalties, criminal prosecution and similar actions that could limit product sales, delay product shipment and harm our profitability.

In many foreign countries in which we intend to market our products, we will be subject to regulations affecting, among other things, product standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. Many of these regulations are similar to those of the FDA. In addition, in many countries the national health or social security organizations require our products to be qualified before procedures performed using our products become eligible for coverage and reimbursement. Failure to receive, or delays in the receipt of, relevant foreign qualifications could have a material adverse effect on our business, financial condition and results of operations. Due to the movement toward harmonization of standards in the European Union, we expect a changing regulatory environment in Europe characterized by a shift from a country-by-country regulatory system to a European Union-wide single regulatory system. The timing of this harmonization and its effect on us cannot currently be predicted. Adapting our business to changing regulatory systems could have a material adverse effect on our business, financial condition and results of operations. If we fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory clearances, product recalls, seizure of products, operating restrictions and criminal prosecution.

If we modify any product for which we receive FDA clearance, the FDA could retroactively determine that the modifications required clearance or approval and require us to stop marketing and recall the modified products.

Any modification to an FDA-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or a premarket approval from the FDA. We may be required to submit extensive preclinical and clinical data depending on the nature of the changes. The FDA requires each manufacturer to make this determination in the first instance, but the FDA may review any such decision. If the FDA disagrees with the manufacturer’s decision not to seek a new 510(k) clearance or premarket approval, the FDA may retroactively require the manufacturer to seek such clearance or approval, and may require the manufacturer to cease marketing and/or recall the modified device until clearance or approval is obtained. When required, we may not be able to obtain additional 510(k) clearances or premarket approvals from the FDA for modifications to, or additional indications for, our existing products in a timely fashion, or at all. Delays in obtaining future clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and operating results. We have made modifications to EndoSure system in the past, and may make additional modifications in the future that we believe do not or will not require additional clearances or approvals. For example, we made changes to the EndoSure system that were intended to improve signal reliability. We believe that these changes do not require the submission of a new 510(k) notice. If the FDA disagrees, and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing the modified EndoSure system, which could harm our operating results and require us to redesign our products.

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

While we do not provide health care services, control the referral of patients for healthcare services, or directly bill Medicare and Medicaid, due to the breadth of many healthcare laws and regulations, we cannot assure you that they will not apply to our business. We could be subject to healthcare fraud and abuse as well as patient privacy regulation and enforcement by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

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If our past or present operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from federal healthcare programs and/or the curtailment or restructuring of our operations. Similarly, if the physicians or other providers or entities with whom we do business are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation. Moreover, to achieve compliance with applicable federal and state privacy, security, and electronic transaction laws, we may be required to modify our operations with respect to the handling of patient information. Implementing these modifications may prove costly. At this time, we are not able to determine the full consequences to us, including the total cost of compliance, of these various federal and state laws.

Risks Related to this Offering and Ownership of Our Common Stock

Our common stock has not been publicly traded, and we expect that the price of our common stock will fluctuate substantially, possibly resulting in class action securities litigation.

Before this offering, there has been no public market for shares of our common stock. An active public trading market may not develop after the closing of this offering or, if developed, may not be sustained. The price of the shares of common stock sold in this offering will not necessarily reflect the market price of the common stock after this offering. The market price for the common stock after this offering will be affected by a number of factors, including:

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The stock prices of many companies in the medical device industry have experienced wide fluctuations that have often been unrelated to the operating performance of these companies. Following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Class action securities litigation, if instituted against us, could result in substantial costs and a diversion of our management resources, which could significantly harm our business.

Securities analysts may not initiate coverage for our common stock or may issue negative reports, and this may have a negative impact on the market price of our common stock.

Securities analysts may elect not to provide research coverage of our common stock after the closing of this offering. If securities analysts do not cover our common stock after the closing of this offering, the lack of research coverage may adversely affect the market price of our common stock. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts who elects to cover us downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, recently-adopted rules mandated by the Sarbanes-Oxley Act and a global settlement reached in 2003 between the Securities and Exchange Commission, or SEC, other regulatory agencies and a number of investment banks have led to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms will be required to contract with independent financial analysts for their stock research. It may be difficult for companies such as ours, with smaller market capitalizations, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.

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Our principal stockholders, directors and management will continue to own a large percentage of our voting stock after this offering, which will allow them to exercise significant influence over matters subject to stockholder approval.

Our executive officers, directors and stockholders holding 5% or more of our outstanding common stock will beneficially own or control approximately         % of the outstanding shares of our common stock, after giving effect to the conversion of all outstanding preferred stock and the exercise of all outstanding options and the exercise of an outstanding warrant, following the closing of this offering. Accordingly, these executive officers, directors and principal stockholders, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. These stockholders may also delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain control of us, even if such a change of control would benefit our other stockholders. This significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our common stock.

We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could make it more difficult for a third-party to acquire us, even if doing so would benefit our stockholders. These provisions:

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any broad range of business combinations with any stockholder who owns, or at any time in the last three years owned, 15% or more of our outstanding voting stock for a period of three years following the date on which the stockholder became an interested stockholder. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.

Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that they may occur, may depress the market price of our common stock.

Sales of substantial amounts of our common stock in the public market following this offering, or the perception that substantial sales may be made, could cause the market price of our common stock to decline. These sales might also make it more difficult for us to sell equity securities at a time and price that we deem

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appropriate. The lock-up agreements delivered by our executive officers, directors and substantially all of our stockholders and option holders provide that Banc of America Securities LLC, on behalf of the underwriters, in its sole discretion, may release those parties, at any time or from time to time and without notice, from their obligation not to dispose of shares of common stock for a period of 180 days after the date of this prospectus, which period may be extended in certain limited circumstances. Banc of America Securities LLC does not have any pre-established conditions to waiving the terms of the lock-up agreements, and any decision by it to waive those conditions would depend on a number of factors, which may include market conditions, the performance of the common stock in the market and our financial condition at that time.

Based on the number of shares of common stock outstanding as of December 31, 2006, upon the closing of this offering,              shares of our common stock will be outstanding, assuming no exercise of the underwriters’ option to purchase additional shares and no exercise of options or our outstanding warrant. All of the shares sold in this offering will be freely tradable unless held by an affiliate of ours. Except as set forth below, the remaining 50,073,991 shares of common stock outstanding after this offering will be restricted as a result of securities laws or lock-up agreements. These remaining shares will generally become available for sale in the public market as follows:

As restrictions on resale end, the market price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them.

We intend to file a registration statement on Form S-8 to register the shares subject to outstanding options or reserved for issuance under our various stock option plans. The registration statement will become effective when filed, and, subject to applicable lock-up agreements, these shares may be resold without restriction in the public marketplace.

New investors in our common stock will experience immediate and substantial dilution after this offering.

The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of the outstanding common stock immediately after the offering. Based on an assumed initial public offering price of $             per share and our net tangible book value as of December 31, 2006, if you purchase our common stock in this offering you will pay more for your shares than the amounts paid by certain existing stockholders for their shares, and you will suffer immediate dilution of approximately $             per share in pro forma net tangible book value. In the past, we have issued options and a warrant to acquire common stock at prices significantly below the initial public offering price. As of December 31, 2006, 5,562,338 shares of our common stock were issuable upon exercise of currently outstanding stock options, at a weighted average exercise price of $0.27 per share, 17,578 shares of our common stock were issuable upon the exercise of an outstanding warrant, at an exercise price of $0.96 per common share, and up to 1,184,095 shares of our common stock were reserved for future issuance under our 2001 Equity Incentive Plan. In addition, 3,400,000 shares are reserved for issuance under our 2006 Equity Incentive Plan and our 2006 Employee Stock Purchase Plan, which will become effective immediately upon the signing of the underwriting agreement for this offering. Our 2006 Equity Incentive Plan also provides for annual increases in the number of shares that may be granted under that plan. If all currently outstanding stock options and our outstanding warrant were exercised, you would suffer additional dilution and pro forma as adjusted net tangible book value after this offering would be decreased to $             per share. As a result of this dilution, investors purchasing common stock in this offering may receive significantly less than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation.

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We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the NASDAQ Global Market, have imposed various new requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. As a result of our compliance with Section 404, we will incur substantial accounting expense and expend significant management efforts and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to ensure such compliance.

Changes to existing accounting pronouncements or taxation rules or practices may affect how we conduct our business and affect our reported results of operations.

A change in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. During the first quarter of fiscal 2006, we adopted the provisions of, and account for stock-based compensation in accordance with, the Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment , or SFAS No. 123(R), which revises Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation , or SFAS 123, and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Under the fair value recognition provisions of SFAS 123(R), stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The effective date of this new standard for our financial statements was January 1, 2006. Adoption of this statement could have a significant impact on our future financial statements, as we are now required to expense the fair value of our stock option grants and stock purchases under our equity benefit plans rather than disclose the impact on our net loss within our footnotes. The impact of SFAS No. 123(R) on our financial statements and related disclosures are expected to be material to our future results of operations. Our actual stock-based compensation expense in 2006 and in the future will be dependent on a number of factors, including the amount of awards granted and the fair value of those awards at the time of grant, as well as any changes in underlying assumptions used to determine fair value under our pricing model. Other new accounting pronouncements or taxation rules and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. Changes to existing rules, future changes, if any, or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.

We have broad discretion in the use of the net proceeds from this offering, and we may not use these proceeds effectively.

We have not determined the specific allocation of the net proceeds of this offering. Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business or financial condition, cause the price of our common stock to decline and delay product development.

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