S-1/A

As filed with the Securities and Exchange Commission on May 6, 2005

Registration No. 333-123705

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

Under The Securities Act of 1933

HEMOSENSE, INC.

(Exact name of Registrant as specified in its charter)

Delaware	3841	77-0452938
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

HemoSense, Inc.

651 River Oaks Parkway

San Jose, California 95134

(408) 719-1393

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

James D. Merselis

President and Chief Executive Officer

HemoSense, Inc.

651 River Oaks Parkway

San Jose, California 95134

(408) 719-1393

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Michael J. Danaher David J. Saul David B. Crawford Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304 (650) 493-9300 David W. Pollak Owen S. Littman Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178 (212) 309-6000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨                     

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨                     

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨                     

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)(2)		Amount of Registration Fee(3)
Common Stock, $0.001 par value	$	38,870,000	$	4,575	(3)

(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number of shares being registered and the proposed maximum offering price per share are not included in this table.

(2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(3) $4,061 was previously paid in connection with the initial filing of the Registration Statement on March 31, 2005.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED                         , 2005

			HemoSense, Inc. 2,600,000 Shares of Common Stock
This is our initial public offering and no public market currently exists for our shares. We expect that the public offering price will be between $9.00 and $13.00 per share.			OpenIPO®: The method of distribution being used by the underwriters in this offering differs somewhat from that traditionally employed in firm commitment underwritten public offerings. In particular, the public offering price and allocation of shares will be determined primarily by an auction process conducted by the underwriters and other securities dealers participating in this offering. The minimum size for any bid in the auction is 100 shares. A more detailed description of this process, known as an OpenIPO, is included in “Plan of Distribution” beginning on page 77.
THE OFFERING	PER SHARE	TOTAL
Public Offering Price	$	$
Underwriting Discount	$	$
Proceeds to HemoSense	$	$
We have granted the underwriters the right to purchase up to 390,000 additional shares from us within 30 days after the date of this prospectus to cover any over-allotments. The underwriters expect to deliver shares of common stock to purchasers on                 , 2005. Proposed Nasdaq National Market Symbol: HEMO
This offering involves a high degree of risk. You should purchase shares only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 6.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is                             , 2005

INSIDE FRONT COVER

[Picture of hand holding INRatio System meter with test strip inserted]

[Text on INRatio System meter screen with illustrative reading of data, including date, time, INR value, PT value and quality control check]

Actual size

TABLE OF CONTENTS

Prospectus Summary	1
Risk Factors	6
Special Note Regarding Forward-Looking Statements	23
Use of Proceeds	24
Dividend Policy	24
Capitalization	25
Dilution	27
Selected Financial Data	29
Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Business	40
Management	57
Related Party Transactions	67
Principal Stockholders	69
Description of Capital Stock	71
Shares Eligible for Future Sale	75
Plan of Distribution	77
Legal Matters	87
Experts	87
Where You Can Find Additional Information	87
Index to Financial Statements	F-1

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

i

PROSPECTUS SUMMARY

The items in the following summary should be read together with the more detailed information regarding our company and the common stock being sold in this offering. This summary provides an overview of selected information and does not contain all of the information you should consider before investing in our common stock. Please read the entire prospectus carefully.

Business of HemoSense

Overview

We develop, manufacture and sell easy-to-use, handheld blood coagulation monitoring systems for use by patients and healthcare professionals in the management of warfarin medication. Warfarin is an oral anticoagulation, or blood thinning, drug given to patients to prevent potentially lethal blood clots. Our product, the INRatio System, consists of a small, portable meter and disposable test strips and provides a quick and accurate measurement of a patient’s blood clotting time, known as a PT/INR value. The accurate measurement of the PT/INR value is critical to ensuring the safety and effectiveness of warfarin in maintaining a patient’s blood coagulation level “IN-Ratio,” or within a therapeutic range. We commercially launched the INRatio System in March 2003 in the United States and certain European markets. Tests performed using our INRatio System in the point-of-care setting are currently reimbursed by Medicare for all patients on warfarin as is self-testing by mechanical heart valve patients on warfarin. To date, we have sold more than 5,000 INRatio meters and more than one million INRatio test strips worldwide for professional use at the point-of-care and patient self-testing at home. We have established distribution agreements with several national and regional distributors of medical products, giving us access to over 1,000 U.S. sales representatives for the sale of the INRatio System. In addition, we have established international distribution agreements with 12 distribution partners covering 16 countries outside the United States. For the year ended September 30, 2004, our total revenue was $3.3 million.

Background and Market

Warfarin has been prescribed since the 1950s and is regarded as safe and effective when it is dosed correctly. It is the most widely prescribed oral anticoagulant besides aspirin. There are approximately three million people in the United States who take Warfarin daily. In 2003, there were over 20 million prescriptions for warfarin written in the United States, either in generic form, or under its brand name Coumadin. Based upon Medicare claims data, there were 18.3 million PT/INR tests conducted on U.S. Medicare patients in 2003, comprised of approximately 13.4 million clinical laboratory tests and 4.9 million point-of-care or patient self-tests. By contrast, there were 13.8 million tests performed in 2000, consisting of 12.1 million clinical laboratory tests, and 1.7 million point-of-care tests. The total number of PT/INR tests increased by more than 30% over this three-year period, with 11% growth in the laboratory testing market, as compared with 190% growth in the point-of-care and patient self-testing markets. We believe that similar trends have occurred with private insurance payors and in countries outside of the United States. In Germany, where reimbursement was established in 1996, more than 100,000 patients are performing PT/INR self-testing.

The U.S. Centers for Medicare & Medicaid Services, or CMS, has observed that monthly PT/INR testing is inadequate for the majority of patients on chronic warfarin therapy. More frequent testing helps maintain patients within their therapeutic range and may minimize adverse events, such as dangerous blood clots or serious bleeding, associated with insufficient or excessive anticoagulation. Numerous studies reviewed by CMS showed that frequent self-testing through the use of a home PT/INR monitor improves a patient’s time in therapeutic range. CMS approved Medicare coverage for weekly home PT/INR monitoring of patients with mechanical heart valves on warfarin in 2002. Similar

1

to the shift that has occurred in the standard of care for management of diabetes and blood glucose monitoring, we believe that the Medicare coverage decision and growing physician and patient awareness of the benefits of weekly PT/INR patient self-testing signal a shift in the standard of care for PT/INR testing from the clinical laboratory to point-of-care testing and, ultimately, patient self-testing.

The HemoSense Solution

We believe that the INRatio System represents a new generation of PT/INR testing devices designed specifically for use both in patient self-testing and by healthcare professionals at the point-of-care. We believe that physicians generally will not prescribe patient self-testing unless the physician is confident that the patient will be able to comply with the testing requirements. Many patients on warfarin are Medicare patients, some of whom may have limited manual dexterity and may be challenged by complex test instructions and training. We believe that we offer a unique combination of factors that make our INRatio System a simple and straightforward patient self-testing PT/INR measurement device. These features also enable busy healthcare professionals to quickly train their patients in the use of our system as a tool for monitoring their warfarin therapy. Specifically, these features include:

• patient-friendly, fast and easy-to-use meter and disposable test strips;

• integrated quality control tests;

• straightforward patient training;

• test strips that may be stored up to one year at room temperature; and

• proprietary, reliable electrochemical technology.

Our Strategy

Our objective is to become the leading provider of PT/INR patient self-testing and point-of-care testing systems for the monitoring of patients on warfarin. We seek to improve therapeutic outcomes while dramatically reducing the need for inconvenient visits by patients to healthcare professionals for routine testing. To achieve these objectives, we are pursuing the following strategies:

• increasing awareness among physicians and patients of the advantages of the INRatio System and the benefits of weekly PT/INR testing;

• leveraging our established and growing network of distributors worldwide;

• utilizing and expanding reimbursement opportunities;

• pursuing reimbursement for new and additional indications for PT/INR patient self-testing; and

• developing product improvements.

Risks Affecting Us

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. We have a limited operating history and may

2

be unable to accurately predict our future performance. We are dependent on the success of a single product, our INRatio System, and our product may not be accepted by the market. From our inception through March 31, 2005 we generated total revenue of $7.1 million and as of March 31, 2005 had an accumulated deficit of $41.4 million and may never achieve profitability. We believe that the net proceeds of this offering will be sufficient to fund our operations as currently conducted and as proposed to be conducted for at least the next 12 months. We expect that we will have to raise additional funds in the future to support our operations. Our future success depends upon the growth of the emerging PT/INR patient self-testing market and on favorable future reimbursement decisions both in the United States and internationally. Compared to our current competitors, we have far less brand recognition, as well as less experience and resources in manufacturing, sales and marketing, and research and development.

Corporate Information

We were incorporated in Delaware in March 1997 as CardioSense, Inc. We changed our name to HemoSense, Inc. in January 1998. Our principal executive offices are located at 651 River Oaks Parkway, San Jose, California 95134. Our telephone number is (408) 719-1393. Our website is located at www.hemosense.com. The information contained on our website is not a part of this prospectus.

HemoSense^® and INRatio^® are registered trademarks of our company. Other service marks, trademarks and trade names referred to in this prospectus, such as Coumadin and Exanta, are the property of their respective owners. OpenIPO^® is a registered service mark of WR Hambrecht + Co, LLC.

3

The Offering

Common stock we are offering 2,600,000 shares

Common stock to be outstanding immediately after this offering 8,633,764 shares

Use of proceeds We intend to use the net proceeds of this offering as follows: approximately $12.0 million for sales and marketing initiatives, $4.0 million for research and development activities, $1.5 million for loan repayment and the remainder for working capital and general corporate purposes. See “Use of Proceeds.”

Proposed Nasdaq National Market symbol HEMO

Risk factors See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.

The number of shares of common stock that will be outstanding immediately after this offering is based upon 6,033,764 shares outstanding as of March 31, 2005. The number of shares to be outstanding immediately after this offering excludes:

• 45,000 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price of $0.80 per share;

• 126,977 shares of common stock issuable upon the exercise of outstanding warrants for Series C-3 preferred stock at an exercise price of $6.32 per share;

• 998,750 shares of common stock issuable upon the exercise of options outstanding under our 1997 Stock Plan at a weighted average exercise price of approximately $0.82 per share;

• 27,272 shares of common stock issuable upon the exercise of outstanding warrants at an assumed exercise price of $11.00 per share, the mid-point of the range on the front cover of this prospectus;

• 38,799 shares of common stock reserved for future issuance upon exercise of options available for grant under our 1997 Stock Plan; and

• 50,000 shares of common stock reserved for future issuance upon the exercise of options available for grant under our 2005 Equity Incentive Plan.

Unless otherwise indicated, all information in this prospectus reflects a 1-for-4 reverse split of our common stock which was effectuated on May 4, 2005 and assumes:

• the conversion, in accordance with our certificate of incorporation, of all our outstanding shares of preferred stock into 5,489,045 shares of our common stock;

• the underwriters do not exercise their over-allotment option; and

• the filing of our amended and restated certificate of incorporation and bylaws.

4

SUMMARY FINANCIAL DATA

The summary financial data set forth below should be read in conjunction with our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	Fiscal years ended September 30,									Six months ended March 31,
	2002			2003			2004			2004			2005
							(restated)
	(in thousands, except per share data)
Statement of operations data:
Revenue	$	—		$	427		$	3,250		$	1,267		$	3,417
Cost of goods sold		—			(1,519	)		(5,065	)		(1,909	)		(4,339	)
Gross profit (loss)		—			(1,092	)		(1,815	)		(642	)		(922	)
Operating expenses:
Research and development		3,354			1,681			1,398			708			540
Sales and marketing		745			3,186			5,206			2,266			3,200
General and administrative		711			912			1,499			815			872
Total operating expenses		4,810			5,779			8,103			3,789			4,612
Loss from operations		(4,810	)		(6,871	)		(9,918	)		(4,431	)		(5,534	)
Interest income		142			39			16			10			10
Interest and other expense		(40	)		(78	)		(359	)		(77	)		(441	)
Net loss	$	(4,708	)	$	(6,910	)	$	(10,261	)	$	(4,498	)	$	(5,965	)
Net loss per share:
Basic and diluted	$	(14.27	)	$	(20.69	)	$	(30.45	)	$	(13.35	)	$	(14.76	)
Pro forma basic and diluted							$	(1.75	)				$	(0.96	)
Shares used in computing net loss per share:
Basic and diluted		330			334			337			337			404
Pro forma basic and diluted								5,850						6,190

The following table presents a summary of our balance sheet as of September 30, 2002, 2003 and 2004. In addition, it presents a summary of our balance sheet as of March 31, 2005:

• on an actual basis;

• on a pro forma basis to give effect to the automatic conversion of all our outstanding preferred stock into 5,489,045 shares of our common stock upon completion of this offering; and

• on a pro forma as adjusted basis to give effect to the sale of shares of common stock by us in this offering at an assumed initial public offering price of $11.00 per share, the mid-point of the range on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses to be paid by us.

	As of September 30,									As of March 31, 2005
	2002			2003			2004			Actual			Pro Forma			Pro Forma As Adjusted
							(restated)
	(in thousands)
Balance sheet data:
Cash and cash equivalents	$	5,276		$	5,445		$	433		$	2,094		$	2,094		$	27,392
Working capital		5,909			5,800			1,072			1,973			1,973			27,271
Total assets		7,518			9,458			6,202			8,846			8,846			34,144
Long term liabilities		83			736			2,946			5,775			5,775			5,775
Redeemable convertible preferred stock		25,183			32,751			36,679			34,116			—			—
Accumulated deficit		(18,269	)		(25,179	)		(35,440	)		(41,405	)		(41,405	)		(41,405	)
Total stockholders’ deficit		(18,174	)		(24,959	)		(35,220	)		(35,158	)		(1,042	)		24,256

5

RISK FACTORS

An investment in our common stock offered by this prospectus involves a substantial risk of loss. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide to purchase shares of our common stock. The occurrence of any of the following risks could harm our business. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

We have limited operating experience and a history of net losses. Unless we are able to significantly increase our revenue and reduce our costs, we may never achieve or maintain profitability.

We have a limited history of operations and have incurred net losses in each year since our inception. We received regulatory clearance to market our INRatio System in 2002 and began commercial sales in early 2003. During the past five fiscal years, we incurred net losses of $4.7 million in 2000, $4.0 million in 2001, $4.7 million in 2002, $6.9 million in 2003 and $10.3 million in 2004. As of December 31, 2004, we had an accumulated deficit of $38.3 million. We expect that following this proposed initial public offering our operating expenses will increase as we expand our business, devote additional resources to our sales and marketing efforts and incur the costs of being a public company.

We will be unable to achieve profitability unless we increase revenue and decrease the cost of manufacturing our test strips.

Currently, we are operating at a negative gross margin, primarily due to the cost of manufacturing our test strips. We will need to both significantly increase the revenue we receive from sales of our product and, to the extent possible, reduce our costs in order to achieve profitability. It is possible that we will never generate sufficient revenue to achieve profitability. Our failure to achieve and maintain profitability would negatively affect our business and financial condition and the trading price of our common stock.

We may be unable to accurately predict our future performance, which could harm our stock price.

As a public company, we will be asked to predict future operating performance and our stock price will be based, in part, upon those predictions. It will be difficult for us to accurately predict our operating performance each quarter, and we believe that our quarterly results will fluctuate as a result of many factors outside of our control, such as:

• demand for our product;

• timing of orders and shipments;

• the performance of our distributors on our behalf;

• our mix of sales between our distributors and our direct sales force;

• foreign currency fluctuations;

• new product introductions by our competitors; and

• the timing and uncertainty of U.S. and foreign reimbursement decisions.

6

Our stock price would decline if we are unable to meet or exceed our predicted performance.

We depend upon a single product. If our INRatio System fails to gain market acceptance our business will suffer.

The INRatio System is our only product. Sales of this product will account for substantially all of our revenue for the foreseeable future. We cannot be sure that we will be successful in convincing patients and healthcare professionals to use our product. Certain competitors have products that are established in our target markets, and we may not be able to convince users of those products to switch to the INRatio System. Healthcare professionals may be hesitant to recommend our product to their patients given our short operating history and the fact that we are a relatively small company. If our product fails to gain acceptance in the point-of-care and patient self-testing markets, our business will be harmed.

The performance of our product may not be perceived as being comparable with established laboratory methods, which may limit the market acceptance of our product.

In the United States, the majority of PT/INR testing has historically been and continues to be performed by large hospital or commercial laboratories. Healthcare professionals responsible for managing patients on warfarin therapy have experience with and confidence in the results generated by these large laboratories. In addition, these professionals influence many treatment decisions, including aspects critical to our business such as how often testing is to be performed, who is to perform the testing, and where testing is to be performed. In some instances, these decision makers may determine that our INRatio System test results lack the clinical history and reliability of large laboratories. If we are unable to demonstrate to physicians’ satisfaction that the performance of our INRatio System closely matches the results produced by these laboratories, market acceptance of our product will be limited.

The success of our business is largely dependent upon the growth of the PT/INR patient self-testing market. If that market fails to develop as we anticipate, our results will be adversely affected.

Our business plan is targeted at the emerging PT/INR patient self-testing market and our product has been designed to address that market. We cannot be sure that this market will grow as we anticipate. Such growth will require greater advocacy of patient self-testing from both healthcare professionals and patients than currently exists. Future research and clinical data may not sufficiently support patient self-testing as a safe or effective alternative to clinical laboratory testing or point-of-care testing, which could inhibit adoption of patient self-testing. If healthcare professionals fail to advocate self-testing for their patients or if patients do not become comfortable with it, self-testing may fail to become the standard practice for PT/INR measurement. If patient self-testing fails to be adopted at the rate we expect, our anticipated growth will be adversely affected and our results will suffer.

We operate in a highly competitive market and face competition from large, well-established medical device manufacturers with significant resources. If we fail to compete effectively, our business will suffer.

The market for point-of-care and patient self-testing PT/INR measurement systems is intensely competitive, subject to rapid change, new product introductions and other activities of industry participants. We currently compete directly against Roche Diagnostics, the largest diagnostic company in the world, and International Technidyne Corporation, a division of Thoratec. Together these two companies currently account for substantially all of the point-of-care and patient self-testing PT/INR measurement market. Several other companies, including Inverness Medical Innovations, have announced that they are developing new products that would compete directly against us, and we expect one or more new products to become available this year. In addition, other companies,

7

including Johnson & Johnson and Beckman Coulter, have developed or acquired directly competitive products for the PT/INR market in the past, and while they are not current competitors, they could re-enter the market at any time. Additionally, these and other potential competitors hold intellectual property rights that could allow them to develop or sell the right to develop new products that could compete effectively with our INRatio System. All of these companies are larger than us and enjoy several competitive advantages, including:

• significantly greater name recognition;

• established relationships with healthcare professionals, patients and insurance providers;

• large, direct sales forces and established independent distribution networks;

• additional product lines and the ability to offer rebates, bundled products, and higher discounts or incentives;

• greater experience in conducting research and development, manufacturing and marketing activities; and

• greater financial and human resources for product development, sales and marketing and patent litigation.

We may not be able to compete effectively against these companies or their products and, if we fail to do so, our business will be harmed.

If alternative drugs or other treatments reduce the need for warfarin, the market for our product will be limited.

Our INRatio System is used to measure the rate of blood coagulation in patients using warfarin. As a result, the size of our market is directly dependent upon the number of warfarin users. If a new drug or other anticoagulation treatment that does not require regular monitoring of PT/INR levels is successfully developed, approved and adopted, the size of the market for our product will be adversely affected.

While warfarin is a widely prescribed drug, it is known to have certain deficiencies which cause many physicians to be reluctant to prescribe it regularly, or at all. Aspirin is a safer blood thinning drug than warfarin and it does not require monitoring. Aspirin has been shown to be an effective alternative to warfarin for certain chronic conditions, such as blocked brain arteries. Warfarin’s narrow therapeutic range creates the need for frequent monitoring of patient blood coagulation levels. Warfarin is known to have adverse interactions with other drugs and is sensitive to changes in diet and other factors. We are aware that pharmaceutical companies are researching and developing potential alternatives to warfarin. For example, AstraZeneca has developed an anticoagulant called Exanta. While the U.S. Food and Drug Administration, or FDA, did not grant approval for its use in the United States, some European countries have approved it for certain indications.

Advances in the treatment of underlying conditions could also affect the use of warfarin. For example, improvements in replacement tissue heart valves have reduced, and may in the future further reduce, the use of mechanical heart valves, one of the leading indications for chronic warfarin use. Additionally, several companies are pursuing new surgical procedures to treat atrial fibrillation, another leading indication for warfarin use and monitoring. Any development that renders warfarin obsolete or diminishes the need for PT/INR testing by patients in our target markets would negatively affect our business and prospects.

8

Our ability to successfully market and sell our product is dependent on the availability of adequate reimbursement from Medicare and other insurance providers.

In the United States, purchasers of medical devices, including our INRatio System, generally rely on Medicare and other insurance providers to cover all or part of the cost of the product. However, Medicare currently only reimburses PT/INR self-testing for the approximately 400,000 mechanical heart valve patients on warfarin, which represents approximately 15% of three million U.S. patients taking warfarin on a daily basis. Whether Medicare expands reimbursement for PT/INR patient self-testing for other indications, such as atrial fibrillation, will be partially dependent on the outcome of ongoing and future clinical studies that we do not participate in or have any direct control over. Coverage and reimbursement determinations are subject to change over time and we cannot assure you that Medicare will not reduce or change coverage and reimbursement policies.

Although many other insurance providers follow Medicare coverage determinations, Medicare coverage does not and will not guarantee widespread coverage by other insurance providers. These organizations are not required to offer the same level of coverage as Medicare, or any coverage at all, and their coverage policies are determined on a regional basis, carrier-by-carrier, so that obtaining nationwide coverage from all the major insurance providers will be a time-consuming process. We cannot assure you that adequate coverage, if any, will be obtained. Further, coverage decisions for individual patients may be made on a case-by-case basis and may require the patient to seek and obtain prior authorization before being provided access to our product. Future legislation, regulation or reimbursement policies of insurance providers may adversely affect the demand for our product or our ability to sell our product on a profitable basis. The lack of insurance coverage or the inadequacy of reimbursement could have a material adverse effect on our business, financial condition and results of operations.

Reimbursement and healthcare payment systems in international markets vary significantly by country and include both government-sponsored healthcare and private insurance. Obtaining international approvals is a lengthy process, and reimbursement policies may limit the marketability of our product in certain countries. International reimbursement approvals may not be obtained in a timely manner, if at all, or may provide for inadequate reimbursement levels. Our failure to receive international reimbursement approvals could have a material adverse effect on market acceptance of our product in the markets in which those approvals are sought.

If we are unable to establish sufficient sales and marketing capabilities or enter into and maintain appropriate arrangements with third parties to sell, market and distribute our product, our business will be harmed.

We have limited experience as a company in the sale, marketing and distribution of our INRatio System. We maintain a relatively small sales and marketing team which is currently comprised of 28 people and expect to depend heavily on third parties to sell our product both in the United States and internationally for the foreseeable future. To achieve commercial success, we must further develop our sales and marketing capabilities and enter into and maintain successful arrangements with others to sell, market and distribute our product.

We currently have agreements with four national and three regional distributors in the United States. We also have agreements with 12 international distributors of our product. We have only recently entered into these relationships with most of our distributors, which makes it difficult for us to predict their future success. Some of our distribution agreements allow either party to terminate the relationship on short notice and without fault. Additionally, we may be unable to renew a distribution agreement upon its expiration on favorable terms, or at all. Distribution partners may fail to commit the necessary resources to market and sell our product to the level of our expectations. In particular, several of our distribution partners also distribute the products of our competitors, and as a result, we compete for the attention of these distributors against the experienced and well funded efforts of our

9

competitors. If in the future our distribution partners elect to focus on selling the products of our competitors rather than our products, our sales efforts will be seriously compromised. If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate product revenue and may not become profitable. If our current or future partners do not perform adequately, or we are unable to locate or retain partners, as needed, in particular geographic areas or in particular markets, our ability to achieve our expected revenue growth rate will be harmed.

If our commercial partners fail to provide customer service on our behalf, our business will be harmed.

In the United States, Independent Diagnostic Testing Facilities, or IDTFs, are intermediary parties that provide our INRatio meters and test strips to patients and are often responsible for communicating patient results back to the prescribing physician and for monitoring patient compliance with the prescribed testing plan. As such, our success is tied to how well our IDTF partners can:

• convince prescribing physicians of the benefit of weekly PT/INR testing;

• ensure patient compliance; and

• provide timely, quality customer service to patients and physicians.

Since self-testing is relatively new, IDTFs will play a critical role in the acceptance of home testing among patients and physicians and the creation of awareness of our INRatio System. If our IDTF partners are not successful in performing their role, our business will be adversely affected.

We have limited test strip manufacturing capabilities and personnel. If we cannot produce an adequate supply of test strips, our growth will be limited and our business will be harmed.

The primary components of the INRatio System are the INRatio meter and INRatio disposable test strips. We manufacture INRatio test strips at our facility, and we contract with an electronic manufacturing services supplier to manufacture the INRatio meter. Our cost to manufacture our test strips currently exceeds the price at which we can sell them. To be successful, we must manufacture our test strips in substantial quantities and at acceptable costs. We currently have limited experience manufacturing our test strips, and no experience manufacturing in the quantities that we anticipate we will need in the foreseeable future. There are technical challenges to increasing our manufacturing capacity in a significant manner, including:

• maintaining the consistency of our incoming raw materials;

• equipment design and automation;

• material procurement;

• production yields; and

• quality control and assurance.

Developing high volume manufacturing facilities will require us to invest substantial additional funds and to hire and retain additional management and technical personnel who have the necessary manufacturing qualifications and experience. We may not successfully complete any required increase in manufacturing capacity in a timely manner or at all. If we are unable to manufacture a sufficient supply of our product, 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 or improve our sales growth sufficiently to achieve profitability.

10

Because of our limited experience, we have in the past manufactured, and may in the future manufacture, defective test strips that have to be discarded, which increases our costs of operations and may delay shipment of product to customers.

We manufacture our test strips in large lots that must be tested with blood from warfarin patients in order to determine if our product has acceptable performance. There are many elements to manufacturing each lot of strips that can cause variability in PT/INR measurement beyond acceptable limits. Variability is not detected until the entire lot is complete and selected strips are tested with patient blood samples. If the performance is not acceptable, we discard the entire lot after we have incurred substantially all the material and labor costs required to manufacture the test strips in the lot. In order to manufacture test strips that will produce PT/INR measurement results that are sufficiently calibrated to clinical laboratory equipment, we are dependent upon our suppliers to deliver various components in conformity with our specifications. We have in the past had to, and may in the future have to, discard lots because they fail to meet specifications. Costs relating to discarded lots were $0 in fiscal 2003, $740,000 in 2004 and $166,000 for the six months ended March 31, 2005.

We depend on clinical sites to assist us in verifying the calibration of our test strips, and if they fail in that role we may be unable to produce test strips in a timely manner.

We must calibrate each lot of test strips that we manufacture using blood samples from patients who are taking therapeutic levels of warfarin as well as from individuals who are not on anticoagulant therapy. We have contracts in place with clinical sites that give us access to their patients on a regular basis to permit us to perform the testing we need to complete our manufacturing process. If these clinical sites fail to enroll a sufficient number of patients for our calibration requirements or if they fail to ensure that the patients meet the inclusion criteria we specify in our protocols, our ability to properly calibrate our product may be compromised and we may be unable to produce our test strips in a timely manner.

Our product could be misused or produce inaccurate results, which could lead to injury to the patient and potential liability for us.

We expect our product to be used by patients without direct physician supervision. Many users will be elderly Medicare patients, who may have difficulty following the instructions for the use of our product. Additionally, in the point-of-care setting, practitioners familiar with competitors’ products that function differently may fail to follow our directions and misuse our product. For example, we are aware of a few situations in which practitioners have applied blood drawn from a vein using a syringe rather than capillary blood using a finger stick, which caused inaccurate readings. Warfarin management is complex, and there are many drugs, diseases and other factors that may affect warfarin metabolism and the ability of our test to perform as intended in the presence of these factors. Additionally, there may be biologic variations and clinical conditions that exist in some patients that may have an adverse effect on the performance of our product. We have in the past taken, and may in the future take, corrective action in our manufacturing procedure in order to respond to complaints that our test strips were producing inaccurate results. If our product is misused or otherwise produces an incorrect reading, a patient could be either underdosed or overdosed with warfarin, which could lead to serious injury or death and expose us to potential liability.

We are currently responding to an inquiry from a European regulatory agency into the accuracy of readings produced from our test strips. Our failure to adequately respond could lead to restrictions or withdrawal of our product from the U.K. market.

We are currently responding to an inquiry from the United Kingdom’s Medicines and Healthcare products Regulatory Agency, or MHRA, regarding two reported instances where our test strips failed to produce accurate readings. We believe that these misreadings were the result of misuse of our test strips at the point-of-care, caused by the use of blood from a vein rather than blood from a

11

finger stick; however, we cannot be certain that MHRA will agree with our assessment. MHRA may instead find that these misreadings resulted from failures within our manufacturing processes. While we completed a voluntary exchange of our test strips in April 2005, we have not yet received a response from MHRA closing the matter. MHRA may make observations to which we would be required to adequately respond. Lack of an adequate response by us could lead to restrictions or withdrawal of our product from the U.K. market.

Our manufacturing operations are dependent upon several single source suppliers, making us vulnerable to supply disruption, which could harm our business.

Currently, we have three single source suppliers: Dade Behring, which produces a reagent used in our test strips, Haematologic Technologies, which produces our control reagents, and Plexus, which manufactures our meters. Our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow our protocols and procedures, failure to comply with applicable regulations, or equipment malfunction, 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 may not be able to obtain an adequate supply of quality raw materials or component parts in a timely manner or on commercially reasonable terms;

• suppliers may make errors in manufacturing components that could negatively affect the performance of our product, cause delays in shipment of our product or lead to returns;

• significant lot-to-lot variation in our test strips could negatively affect the performance of our product or cause delays in shipment of our product;

• we may have difficulty locating and qualifying on a timely basis alternative suppliers for our single-sourced supplies;

• switching components may require product redesign and new submissions to the FDA, either of which could significantly delay production;

• our suppliers manufacture products for a range of customers, and fluctuations in demand for the products these suppliers manufacture for others may affect their ability to deliver components to us in a timely manner; and

• our suppliers may encounter financial hardships either related or unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements.

Any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which would harm our business.

If we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our product, our product could be subject to restrictions or withdrawal from the market.

Our product and facilities are subject to continual review and periodic inspections by the FDA and other regulatory bodies. In particular, we and our suppliers are required to comply with quality system regulations, or QSR, and other regulations, which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage, shipping and post

12

market surveillance of our product. The FDA enforces the QSR through unannounced inspections. Our failure or our suppliers’ failure to comply with regulations administered by the FDA and other regulatory bodies, or failure to respond promptly to any observations, could result in, among other things, any of the following actions:

• warning letters;

• fines and civil penalties;

• unanticipated expenditures;

• delays in clearing or approving modifications to our product;

• withdrawal of approval by the FDA or other regulatory bodies;

• product recall or seizure;

• interruption of production;

• operating restrictions;

• injunctions; or

• criminal prosecution.

If any of these actions were to occur, it would harm our reputation and cause our product sales and profitability to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements.

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

Our business exposes us to the risk of product liability claims that are inherent in the testing, manufacturing and marketing of medical devices, including those which may arise from the misuse or malfunction of, or design flaws in, our product. We may be subject to such claims if our product causes, or merely appears to have caused, an injury. Claims may be made by patients, healthcare providers or others selling our product.

In addition, we may be subject to claims even if the apparent injury is due to the actions of others. For example, we rely on the expertise of physicians to determine if a patient is capable of performing patient self-testing. We similarly rely on IDTFs and other medical personnel to properly train patients to test themselves using our device. If these professionals are not properly trained or are negligent, our product may be used improperly or the patient may suffer critical injury, which may subject us to liability. These liabilities could prevent or interfere with our product commercialization efforts. Defending a lawsuit, regardless of merit, could be costly, could divert management attention and might result in adverse publicity, which could result in the withdrawal of, or reduced acceptance of, our product in the market.

Although we have product liability insurance that we believe is adequate, this insurance is subject to deductibles and coverage limitations. If we are unable to obtain insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may harm our business. A product liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could result in significant costs and significant harm to our business.

13

The FDA has the authority to require the recall of our product in the event of material deficiencies, defects in design, manufacture or labeling, or other product problems that could cause serious adverse health consequences or death. Comparable governmental entities in other countries have similar authority. Even where product problems do not present a risk of serious adverse health consequences or death, we may need to conduct a voluntary recall, if our product presents a risk to health. A government mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects. Any recall would divert managerial and financial resources and harm our reputation with customers.

We face the risk that modifications to our device may require new 510(k) clearance which may not be obtained.

We may be forced to make modifications to our product as a result of:

• obsolescence of a key single-sourced component;

• termination of a key supplier relationship;

• identification of a critical product defect;

• intellectual property issues; or

• enforcement action by a regulatory agency.

The FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance; however, the FDA can review a manufacturer’s decision. Any modifications to an FDA-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use would require a new 510(k) clearance or possibly a premarket approval. We may not be able to obtain additional 510(k) clearances or premarket approvals for new products, product modifications, or new indications for our product in a timely fashion, or at all. Delays in obtaining required future clearances would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. We have made modifications to our INRatio 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. If the FDA disagrees and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing the INRatio System as modified, which would harm our operating results and require us to redesign the INRatio System. In these circumstances, we may be subject to significant enforcement actions.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and, if we are unable to or have not fully complied with such laws, could face substantial penalties.

Our operations may be directly or indirectly affected by various broad state and federal healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, which prohibit any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing or arranging for an item or service, for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs. If our past or present operations, including, but not limited to, our consulting arrangements with physicians, or our promotional or discount programs, are found to be in violation of these laws, we or our officers may be subject to civil or criminal penalties, including large monetary penalties, damages, fines, imprisonment and exclusion from Medicare and Medicaid program participation.

14

We may be subject to false claims laws which could result in substantial penalties.

Because our customers will most likely file claims for reimbursement with government programs such as Medicare and Medicaid, we may be subject to the federal False Claims Act if we knowingly “cause” the filing of false claims. Violations of the Act may lead to government enforcement actions resulting in substantial civil penalties, including treble damages. The federal False Claims Act also contains provisions that allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the government. Various states have enacted laws modeled after the federal False Claims Act. We are unable to predict whether we could be subject to actions under the federal False Claims Act, or the impact of such actions. However, the costs of defending claims under the False Claims Act, as well as sanctions imposed under the Act, could significantly harm our operations.

Our financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm our stock price and Nasdaq listing.

As discussed in Note 2 to our financial statements, we have had to restate our financial results for the fiscal year ended September 30, 2004 to reflect certain adjustments. The restatement arose, in part, to defer the recognition of revenue on certain shipments made prior to fiscal year end for which title transfer to the customer did not occur until the subsequent period, as well as to correct the accounting for a significant license and settlement agreement. Certain other accounting adjustments were also identified and made. As a result of these errors, we have determined that our internal controls over financial reporting were not effective as of September 30, 2004. In connection with the restatement of our financial statements our independent auditors identified a material weakness in our internal controls and procedures related to inadequate resources in the finance function. As a public company, we will require greater financial resources than we have had as a private company. We only recently hired a member of our finance department, a controller, with SEC reporting experience. We cannot provide you with assurance that our finance department has or will maintain adequate resources to ensure that we will not have any future material weakness in our system of internal controls. The effectiveness of our controls and procedures may in the future be limited by a variety of factors including:

• faulty human judgment and simple errors, omissions or mistakes;

• fraudulent action of an individual or collusion of two or more people;

• inappropriate management override of procedures; and

• the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.

If we fail to have effective controls and procedures for financial reporting in place, we could be unable to provide timely and accurate financial information and be subject to Nasdaq delisting, Securities and Exchange Commission, or SEC, investigation, and civil or criminal sanctions.

Our ability to continue as a going concern is dependent on our ability to raise additional capital, including from this offering.

We believe that the net proceeds of this offering will be sufficient to fund our operations as currently conducted and as proposed to be conducted over at least the next 12 months. As disclosed in Note 1 to our financial statements, we do not currently have sufficient capital to fund our operations through 2005. The opinion we have received from our independent auditors regarding our 2004 financial statements contains an explanatory paragraph as to our ability to continue as a going

15

concern. If the proceeds from this offering are inadequate to fund our operations through 2006, we may also receive a going concern qualification on our 2005 financial statements. If doubts are raised about our ability to continue as a going concern following this offering, our stock price could drop and our ability to raise additional funds, to obtain credit on commercially reasonable terms, or to remain in compliance with covenants that we have in place with current lenders may be adversely affected. Additionally, potential customers may not buy our product if they believe that we may not have a viable business. Any of these outcomes would be detrimental to our operations.

We may have warranty claims that exceed our reserves, which could adversely affect our operating results.

The INRatio meter carries a product warranty against defects in materials and workmanship. We have established a warranty reserve based on anticipated failure and return rates for our product. Unforeseen changes in factors affecting our estimates could occur and adversely affect our operating results.

Our inability to adequately protect our intellectual property could allow our competitors and others to produce products based on our technology, which could substantially impair our ability to compete.

Our success and ability to compete is dependent, in part, upon our ability to protect the INRatio System through our intellectual property rights. We rely on a combination of patent, copyright and trademark law, trade secrets and nondisclosure agreements to protect our intellectual property. However, such methods may not be adequate to protect us or permit us to gain or maintain a competitive advantage. Our European patent application, or any future U.S. or foreign application, may not issue as a patent or may issue as a patent in a form that may not be advantageous to us. Our issued patents, and those that may issue in the future, may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products.

To protect our proprietary rights, we may in the future need to assert claims of infringement or misappropriation against third parties. The outcome of litigation to enforce our intellectual property rights in patents, copyrights, trade secrets or trademarks is highly unpredictable, could result in substantial costs and diversion of resources, and could have a material adverse effect on our financial condition and results of operations regardless of the final outcome of such litigation. In the event of an adverse judgment, a court could hold that some or all of our asserted intellectual property rights are not infringed, invalid or unenforceable, and could award attorney fees to these third parties.

Despite our efforts to safeguard our unpatented and unregistered intellectual property rights, we may not be successful in doing so or the steps taken by us in this regard may not be adequate to detect or deter misappropriation of our technology or to prevent an unauthorized third party from copying or otherwise obtaining and using our product, technology or other information that we regard as proprietary. Additionally, third parties may be able to design around our patents. Furthermore, the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of the United States. Our inability to adequately protect our intellectual property could allow our competitors and others to produce products based on our technology, which could substantially impair our ability to compete.

We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could be costly and harm our business.

Third parties have in the past asserted, and could in the future assert, infringement or misappropriation claims against us with respect to our current or future products. Whether a product

16

infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Therefore, we cannot be certain that we have not infringed the intellectual property rights of others. Our competitors may assert that our product or the methods we employ in the use or manufacture of our product are covered by U.S. or foreign patents held by them. This risk is exacerbated by the fact that there are numerous issued patents and pending patent applications related to our business that are held by others. For example, in April 2003, Inverness Medical Innovations filed suit against us, alleging that disposable test strips for our INRatio System infringed certain of its patent rights. Inverness sought monetary damages and injunctive relief. In July 2004, we entered into a settlement and mutual release agreement with Inverness pursuant to which we received a license to the patent rights in exchange for a product royalty and a lump sum payment.

Because patent applications may take years to issue, there may be applications now pending of which we are unaware that may later result in issued patents that our product infringes. There could also be existing patents of which we are unaware that one or more components of our system may inadvertently infringe. As the number of competitors in the market for point-of-care and patient self-testing systems grows, the possibility of inadvertent patent infringement by us, or a patent infringement claim against us, increases.

Any infringement or misappropriation claim, with or without merit, could cause us to strain our financial resources, divert management’s attention from our business and harm our reputation. If a third party patent were upheld as valid and enforceable and we were found to infringe such patent, we could be prohibited from selling our product unless we could obtain a license to the patent or were able to design around the patent. We may be unable to obtain such a license on terms acceptable to us, if at all, and we may not be able to redesign our product to avoid infringement. A court could also order us to pay compensatory damages for such infringement, plus prejudgment interest and could, in addition, treble the compensatory damages and award attorney fees. These damages could be substantial and could harm our reputation, business, financial condition and operating results. A court also could enter orders that temporarily, preliminarily or permanently enjoin us and our customers from making, using, selling, offering to sell or importing our product, or could enter an order mandating that we undertake certain remedial activities. Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties.

The prosecution and enforcement of patents licensed to us by third parties are not within our control, and without these technologies, our product may not be successful and our business would be harmed if the patents were infringed or misappropriated without action by such third parties.

We have obtained licenses from Dade Behring for a reagent and, as part of a settlement of an infringement claim, from Inverness Medical Innovations for a material used in our INRatio test strips. These licenses allow us to use these third parties’ technologies in our product. We do not control the maintenance, prosecution, enforcement or strategy for the licensed patents and as such are dependent on our licensors to maintain their viability. Without access to these technologies, our ability to conduct our business would be impaired significantly.

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

Many of our employees were previously employed at other diagnostic companies, including our competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying monetary

17

damages, 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 market existing or new products, which could severely harm our business.

We have potential exposure to environmental liabilities, including liability for contamination or other harm caused by materials that we use, generate, dispose of, release or discharge.

Our research and development and clinical processes involve the use of potentially harmful biological materials as well as hazardous materials. We are subject to federal, state and local laws and regulations governing the use, handling, storage, labeling, discharge, release and disposal of hazardous and biological materials and we incur expenses relating to compliance with these laws and regulations. Certain of these laws require us to obtain and operate under permits and authorizations that are subject to periodic renewal or modification. We have evaluated our environmental health and safety practices to determine where deficiencies exist and plan to apply proceeds from this offering to improve our compliance efforts. We could be held liable for damages, penalties and costs of investigation and remedial actions in connection with violations of environmental, health and safety laws or permits. We are also subject to potential liability for the investigation and clean up of any contamination at properties that we currently or formerly owned, operated or leased and off-site locations where we disposed of or arranged for disposal of hazardous materials. Liability for any such contamination can be joint, strict and several without regard to comparative fault under certain environmental laws. We may also be subject to related claims by private parties alleging property damage and/or personal injury due to exposure to hazardous materials at or in the vicinity of such properties. These expenses or this liability could have a significant negative impact on our financial condition. We may violate or have liability under environmental, health and safety laws in the future as a result of human error, equipment failure, or other causes.

Environmental laws or permit conditions could become more stringent over time, imposing greater compliance costs, including capital investments, and increasing risks and penalties associated with violations. For example, the European Parliament has recently finalized the Waste Electrical and Electronic Equipment Directive, or WEEE Directive, which makes producers of electrical goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. As a producer of electronic equipment, we will incur financial responsibility for the collection, recycling, treatment or disposal of products covered under the WEEE Directive. We expect to incur increased costs to comply with future legislation which implements this Directive and potentially other related Directives, but we cannot currently estimate the extent of such increased costs. However, to the extent that such cost increases or delays are substantial, our operating results could be materially adversely affected. In addition, similar legislation may be enacted in other countries, including the United States. We are also subject to potentially conflicting and changing regulatory agendas of political, business, and environmental groups. Changes to or restrictions on permitting requirements or processes, hazardous or biological material storage or handling might require us to make an unplanned capital investment or relocation.

All of our operations are conducted at a single location. Any disruption at our facility could adversely affect our operations and increase our expenses.

All of our operations are conducted at a single location in San Jose, California. We take precautions to safeguard our facility, including insurance, health and safety protocols. However, a natural disaster, such as a fire, flood or earthquake, could cause substantial delays in our operations, damage or destroy our manufacturing equipment or inventory, and cause us to incur additional expenses. The insurance we maintain against fires, floods, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.

18

Our success will depend on our ability to attract and retain key personnel, particularly members of management and scientific staff.

We believe our future success will depend upon our ability to attract and retain employees including scientists, members of management and other highly skilled personnel. Our employees may terminate their employment with us at any time and are generally not subject to employment contracts. Hiring qualified scientific and management personnel will be difficult due to the limited number of qualified professionals and the fact that competition for these types of employees is intense. If we fail to attract and retain key personnel, we may not be able to execute our business plan.

Risks Related to this Offering

Our common stock has not been publicly traded, and we expect that the price of our common stock will fluctuate substantially.

Prior to this offering, there has been no public market for shares of our common stock. An active public trading market may not develop following completion of this offering or, if developed, may not be sustained. We will determine the initial public offering price of the shares of common stock sold in this offering with the underwriters. This price may not be the price at which the common stock will trade after the offering. The market price for our common stock following this offering will be affected by a number of factors, including:

• our quarterly operating performance;

• changes in earnings estimates or recommendations by securities analysts;

• changes in the availability of reimbursement in the United States or other countries;

• the announcement of new products or product enhancements by us or our competitors;

• announcements of technological or medical innovations in PT/INR monitoring or anticoagulation treatment;

• our ability to develop, obtain regulatory clearance for, and market, new and enhanced products on a timely basis;

• product liability claims or other litigation;

• changes in governmental regulations or in our approvals or applications; and

• general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

A large number of shares may be sold in the market following this offering which may cause the price of our common stock to decline.

After this offering, we will have approximately 8,633,764 shares of common stock outstanding, or 9,023,764 shares if the underwriters’ over-allotment is exercised in full. The 2,600,000 shares sold in this offering, or 2,990,000 shares if the underwriters’ over-allotment is exercised in full, will be freely tradable without restriction or further registration under the federal securities laws unless purchased by our affiliates. The remaining 6,033,764 shares of common stock outstanding after this offering and

19

1,197,999 shares issuable upon exercise of outstanding options and warrants to purchase shares of common stock, will be available for sale in the public market as follows:

Number of Shares	Date of Availability for Sale
	Immediately after the date of this prospectus
	180 days after the effective date of the registration statement containing this prospectus, subject to extension, and in some cases, volume and other limitations as further described in “Plan of Distribution”
	At various times after 180 days following the effective date of the registration statement containing this prospectus

The above table assumes the effectiveness of the lock-up agreements with the underwriters under which holders of substantially all of our common stock have agreed not to sell or otherwise dispose of their shares of common stock and assumes the exercise of warrants for 27,272 shares of common stock at an assumed exercise price of $11.00 per share, the mid-point of the range on the front cover of this prospectus. Approximately          million of the shares that will be available for sale after the expiration of the lock-up period will be subject to volume restrictions because they are held by our affiliates or have been held for less than two years. In addition, the underwriters of our offering may waive these lock-up restrictions prior to the expiration of the lock-up period without prior notice.

If our common stockholders sell substantial amounts of common stock in the public market, or the market perceives that these sales may occur, the market price of our common stock could fall. After this offering, the holders of approximately 5,616,022 shares of common stock issued upon conversion of our preferred stock, and upon exercise of outstanding warrants will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Furthermore, if we were to include in a company-initiated registration statement shares held by those holders pursuant to the exercise of their registration rights, those sales could impair our ability to raise needed capital by depressing the price at which we could sell our common stock.

Purchasers in this offering will experience immediate and substantial dilution.

We expect the initial public offering price of our shares to be substantially higher than the net tangible book value per share of the outstanding common stock. Accordingly, investors purchasing shares of common stock in this offering will:

• pay a price per share that substantially exceeds the value of our assets after subtracting liabilities; and

• contribute 42% of the total amount invested to date to fund us, but will own only 30% of the shares of common stock outstanding. To the extent outstanding stock options or warrants are exercised, there will be further dilution to new investors.

Our principal stockholder will own a significant percentage of our stock, and as a result, can take actions that may be adverse to your interests.

MPM Capital and its affiliates will own approximately 41% of our common stock following this offering. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. This stockholder will have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, it could

20

dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.

Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of your stock.

Our amended and restated certificate of incorporation and bylaws will contain provisions that could delay or prevent a change in control of our company. Some of these provisions:

• authorize the issuance of preferred stock which can be created and issued by the board of directors without prior stockholder approval, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;

• prohibit stockholder actions by written consent; and

• provide for a classified board of directors.

In addition, we are governed by the provisions of Section 203 of Delaware General Corporate Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These and other provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

Risks Relating to the Auction Process

Potential investors should not expect to sell our shares for a profit shortly after our common stock begins trading.

Prior to the offering, there has been no public market for our common stock. We will determine the initial public offering price for the shares sold in the offering through an auction conducted by us and our underwriters. We believe the auction process will reveal a clearing price for the shares of our common stock offered in the offering. The clearing price is the highest price at which all of the shares offered, including the shares subject to the underwriters’ over-allotment option, may be sold to potential investors. Although we and our underwriters may elect to set the initial public offering price below the auction clearing price, the public offering price may be at or near the clearing price. If there is little to no demand for our shares at or above the initial public offering price once trading begins, the price of our shares would decline following the offering. You may not be able to resell your shares at or above the initial public offering price. If your objective is to make a short-term profit by selling the shares you purchase in the offering shortly after trading begins, you should not submit a bid in the auction.

Some bids made at or above the initial public offering price may not receive an allocation of shares.

Our underwriters may require that bidders confirm their bids before the auction for the offering closes. If a bidder is requested to confirm a bid and fails to do so within a required time frame, that bid will be rejected and will not receive an allocation of shares even if the bid is at or above the initial public offering price. In addition, we, in consultation with our underwriters, may determine, in our sole discretion, that some bids that are at or above the initial public offering price are manipulative and disruptive to the bidding process or are not creditworthy, in which case such bids may be reduced or rejected. For example, in previous transactions for other issuers in which the auction process was used, the underwriters have rejected or reduced bids when the underwriters, in their sole discretion,

21

deemed the bids not creditworthy or had reason to question the bidder’s intent or means to fund its bid. In the absence of other information, an underwriter or participating dealer may assess a bidder’s creditworthiness based solely on the bidder’s history with the underwriter or participating dealer. The underwriters have also reduced or rejected bids that they deemed, in their sole discretion, to be potentially manipulative or disruptive or because the bidder had a history of alleged securities law violations. Eligibility standards and suitability requirements of participating dealers may vary. As a result of these varying requirements, a bidder may have its bid rejected by a participating dealer while another bidder’s identical bid is accepted.

Potential investors may receive a full allocation of the shares they bid for if their bids are successful and should not bid for more shares than they are prepared to purchase.

If the initial public offering price is at or near the clearing price for the shares offered in the offering, the number of shares represented by successful bids will equal or nearly equal the number of shares offered by this prospectus. Successful bidders may therefore be allocated all or nearly all of the shares that they bid for in the auction. Therefore, we caution investors against submitting a bid that does not accurately represent the number of shares of our common stock that they are willing and prepared to purchase.

22

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, principally in the sections entitled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Generally, you can identify these statements because they include words and phrases like “expect,” “estimate,” “anticipate,” “predict,” “believe,” “plan,” “will,” “should,” “intend” and similar expressions and variations. These statements are only predictions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy, and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which cannot be foreseen. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, among others, the risks we face that are described in the previous section entitled “Risk Factors” and elsewhere in this prospectus.

We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are unable to predict accurately or over which we have no control. The risk factors listed on the previous pages, as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in the previous risk factors and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price.

23

USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of 2,600,000 shares of our common stock in this offering will be approximately $25.3 million, or approximately $29.3 million if the underwriters fully exercise their over-allotment option, in each case based on an assumed initial public offering price of $11.00 per share, the mid-point of the range on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Of the net proceeds we will receive in this offering, we expect to use approximately:

• $12.0 million of the net proceeds for sales and marketing initiatives to support the ongoing commercialization of our INRatio System;

• $4.0 million for research and development activities, including support of product development, regulatory and clinical study initiatives; and

• $1.5 million for repayment of outstanding principal and interest due from promissory notes held by affiliates, plus accrued interest. See “Related Party Transactions.”

We intend to use the remainder of our net proceeds for working capital and general corporate purposes. We believe that the net proceeds of this offering will be sufficient to fund our operations as currently conducted and as proposed to be conducted over at least the next 12 months. The amounts and timing of our actual expenditures may vary significantly depending upon numerous factors, including the progress of our research, development and commercialization efforts, and our operating costs and capital expenditures. Accordingly, we will retain broad discretion in the allocation of the net proceeds of this offering, and we reserve the right to change the specific allocation of use of these proceeds within the categories described above as a result of contingencies such as the progress and results of our research and development activities, the results of our commercialization efforts, competitive developments and our manufacturing requirements. Pending use of the net proceeds from this offering, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. The declaration of dividends is subject to the discretion of our board of directors and will depend on various factors, including our results of operations, financial condition, future prospects and any other factors deemed relevant by our board of directors. In addition, the terms of any current or future debt or credit facility may preclude us from paying dividends on our common stock.

24

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2005:

• on an actual basis;

• on a pro forma basis to give effect to the automatic conversion of all outstanding shares of our preferred stock into 5,489,045 shares of common stock; and

• on a pro forma as adjusted basis to give further effect to the sale by us of 2,600,000 shares of common stock at an assumed initial public offering price of $11.00 per share, the mid-point of the range on the front cover of this prospectus, less the underwriting discounts and commissions and estimated offering expenses to be paid by us.

You should read this table together with the section of this prospectus under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

	Actual (unaudited)			Pro Forma (unaudited)			Pro Forma As Adjusted (unaudited)
	(in thousands, except share data)
Long term liabilities	$	5,775		$	5,775		$	5,775
Redeemable convertible preferred stock, $0.001 par value; 53,385,560 shares authorized, 21,956,251 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted		34,116			—			—
Stockholders’ deficit:
Common stock, $0.001 par value; 9,500,000 shares authorized, actual, pro forma and pro forma as adjusted; and 544,719 shares issued and outstanding, actual; 6,033,764 shares issued and outstanding, pro forma; and 8,633,764 shares issued and outstanding pro forma as adjusted		1			6			9
Additional paid-in capital		6,246			40,357			65,652
Accumulated deficit		(41,405	)		(41,405	)		(41,405	)
Total stockholders’ equity (deficit)		(35,158	)		(1,042	)		24,256
Total capitalization	$	4,733		$	4,733		$	30,031

The table above excludes, as of March 31, 2005:

• 45,000 shares of common stock issuable upon the exercise of outstanding warrants at $0.80 per share;

• 126,977 shares of common stock issuable upon the exercise of outstanding warrants for Series C-3 preferred stock at an exercise price of $6.32 per share;

• 998,750 shares of common stock issuable upon the exercise of options outstanding under our 1997 Stock Plan at a weighted average exercise price of approximately $0.82 per share;

• 27,272 shares of common stock issuable upon the exercise of outstanding warrants at an assumed exercise price of $11.00 per share, the mid-point of the range on the front cover of this prospectus;

25

• 38,799 shares of common stock reserved for issuance upon the exercise of options available for grant under our 1997 Stock Plan; and

• 50,000 shares of common stock reserved for issuance upon the exercise of options available for grant under our 2005 Equity Incentive Plan.

26

DILUTION

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the assumed initial public offering price of $11.00 per share of our common stock, the midpoint of the range on the front cover of this prospectus, and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Our net tangible book value as of March 31, 2005 was approximately $(36.1) million or $(66.20) per share of common stock. Pro forma net tangible book value as of March 31, 2005 was approximately $(1.9) million or $(0.32) per share of common stock. Pro forma net tangible book value gives effect to the conversion of all of our outstanding redeemable convertible preferred stock into 5,489,045 shares of our common stock, immediately prior to the closing of this offering.

Dilution per share to new investors represents the difference between the amount per share paid by new investors who purchase shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering. Giving effect to the sale of shares of our common stock offered by us at the assumed initial public offering price of $11.00 per share, the mid-point of the range on the front cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of March 31, 2005 would have been approximately $23.4 million. This amount represents an immediate increase in pro forma net tangible book value of $3.03 per share to our existing stockholders, and an immediate dilution in pro forma as adjusted net tangible book value of $8.29 per share to new investors purchasing shares of our common stock in this offering. The following table illustrates this dilution:

Assumed initial public offering price per share				$	11.00
Net tangible book value per share as of March 31, 2005	$	(66.20	)
Increase per share due to conversion of all shares of preferred stock		65.88
Pro forma net tangible book value per share as of March 31, 2005		(0.32	)
Increase per share to existing investors		3.03
Pro forma as adjusted net tangible book value per share after the offering					2.71
Dilution per share to new investors				$	8.29

The following table sets forth, on a pro forma as adjusted basis, as of March 31, 2005, the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering, before deducting underwriting discounts and commissions and estimated expenses at an assumed initial public offering price of $11.00 per share.

	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent
Existing stockholders	6,033,764	70	%	$	40,024,091	58	%	$	6.63
New investors	2,600,000	30			28,600,000	42		$	11.00
Total	8,633,764	100	%	$	68,624,091	100	%

Assuming the exercise in full of all options and warrants outstanding as of March 31, 2005, the number of shares purchased by existing stockholders would be increased by 1,170,727 shares to 7,204,491 shares, total consideration paid by them would be increased by approximately $1,659,901 to $41,683,992 and the average price per share paid by them would be decreased by $0.84 per share to $5.79 per share.

27

If the underwriters exercise their over-allotment option in full, the percentage of shares of common stock held by existing stockholders will decrease to approximately 67% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will be increased to 2,990,000, or approximately 33% of the total number of shares of our common stock outstanding after this offering.

The tables above exclude, as of March 31, 2005:

• 45,000 shares of common stock issuable upon the exercise of outstanding warrants at $0.80 per share;

• 126,977 shares of common stock issuable upon the exercise of outstanding warrants for Series C-3 preferred stock at an exercise price of $6.32 per share;

• 998,750 shares of common stock issuable upon the exercise of options outstanding under our 1997 Stock Plan at a weighted average exercise price of approximately $0.82 per share;

• 27,272 shares of common stock issuable upon the exercise of outstanding warrants at an assumed exercise price of $11.00 per share, the mid-point of the range on the front cover of this prospectus;

• 38,799 shares of common stock reserved for issuance upon the exercise of options available for grant under our 1997 Stock Plan; and

• 50,000 shares of common stock reserved for issuance upon the exercise of options available for grant under our 2005 Equity Incentive Plan.

The exercise of options and warrants, all of which have an exercise price less than the assumed initial public offering price, would increase the dilution to new investors an additional $0.16 per share, to $8.45 per share.

28

SELECTED FINANCIAL DATA

The selected financial data set forth below are derived from our financial statements. The statement of operations data for the years ended September 30, 2002, 2003 and 2004 and the balance sheet data at September 30, 2003 and 2004 are derived from our audited financial statements which are included elsewhere in this prospectus. The statement of operations data for the years ended September 30, 2000 and 2001 and the balance sheet data at September 30, 2000, 2001 and 2002 are derived from our financial statements which are not included in this prospectus. The selected financial data at March 31, 2005 and for the six months ended March 31, 2004 and 2005 are derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited selected financial data include, in the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary for a fair presentation of the financial position and the results of operations for the interim unaudited periods. Historical results are not necessarily indicative of future results. The following selected financial data should be read in conjunction with our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The selected financial data in this section is not intended to replace the financial statements. As discussed in Note 2 to the financial statements, the results as of September 30, 2004 and for the year then ended have been restated.

	Fiscal years ended September 30,															Six months ended March 31,
	2000			2001			2002			2003			2004			2004			2005
													(restated)
	(in thousands, except per share data)
Statement of operations data:
Revenue	$	—		$	—		$	—		$	427		$	3,250		$	1,267		$	3,417
Cost of goods sold		—			—			—			(1,519	)		(5,065	)		(1,909	)		(4,339	)
Gross profit (loss)		—			—			—			(1,092	)		(1,815	)		(642	)		(922	)
Operating expenses:
Research and development		3,223			3,008			3,354			1,681			1,398			708			540
Sales and marketing		416			762			745			3,186			5,206			2,266			3,200
General and administrative		958			739			711			912			1,499			815			872
Total operating expenses		4,597			4,509			4,810			5,779			8,103			3,789			4,612
Loss from operations		(4,597	)		(4,509	)		(4,810	)		(6,871	)		(9,918	)		(4,431	)		(5,534	)
Interest income		62			605			142			39			16			10			10
Interest and other expense		(122	)		(46	)		(40	)		(78	)		(359	)		(77	)		(441	)
Net loss	$	(4,657	)	$	(3,950	)	$	(4,708	)	$	(6,910	)	$	(10,261	)	$	(4,498	)	$	(5,965	)
Net loss per share:
Basic and diluted	$	(13.16	)	$	(11.52	)	$	(14.27	)	$	(20.69	)	$	(30.45	)	$	(13.35	)	$	(14.76	)
Pro forma basic and diluted													$	(1.75	)				$	(0.96	)
Shares used in computing net loss per share:
Basic and diluted		354			343			330			334			337			337			404
Pro forma basic and diluted														5,850						6,190

	As of September 30,															As of March 31, 2005
	2000			2001			2002			2003			2004
													(restated)
	(in thousands)
Balance sheet data:
Cash and cash equivalents	$	1,295		$	10,414		$	5,276		$	5,445		$	433		$	2,094
Working capital		(3,050	)		10,427			5,909			5,800			1,072			1,973
Total assets		2,570			12,180			7,518			9,458			6,202			8,846
Long term liabilities		160			120			83			736			2,946			5,775
Redeemable convertible preferred stock		7,508			25,183			25,183			32,751			36,679			34,116
Accumulated deficit		(9,611	)		(13,561	)		(18,269	)		(25,179	)		(35,440	)		(41,405	)
Total stockholders’ deficit		(9,573	)		(13,498	)		(18,174	)		(24,959	)		(35,220	)		(35,158	)

29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion of our financial conditions and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this prospectus. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements. As discussed in Note 2 to the financial statements the results as of September 30, 2004 and for the year then ended have been restated.

Overview

We develop, manufacture and sell easy-to-use, handheld blood coagulation monitoring systems for use by patients and healthcare professionals in the management of warfarin medication. Our product, the INRatio System, measures the patient’s blood clotting time to ensure that patients with a propensity to form clots are maintained within the therapeutic range with the proper dosage of oral anticoagulant therapy. Our system is 510(k) cleared by the FDA for use by healthcare professionals as well as for patient self-testing. Our system is also CE marked in Europe. The INRatio System is targeted to both the professional, or point-of-care, market as well as the patient self-testing market, the latter being an opportunity that has emerged primarily following the establishment of Medicare reimbursement in 2002 for mechanical heart valve patients. From our product launch in March 2003 through March 2005, we sold over 5,000 meters and one million disposable test strips on a worldwide basis.

We believe the key factors underlying our past and anticipated future revenue growth include:

• the ease of use and reliability of our INRatio System with quality controls integrated into the test strip;

• continued and expanded reimbursement by insurance companies and Medicare;

• our network of national, regional and international distribution partners;

• our field sales personnel and marketing programs;

• placing additional meters worldwide in the point-of-care environment;

• rapid development of a patient self-testing market;

• adoption of the INRatio System by patients and their treating physicians; and

• the continual improvement of our technology.

Currently, Medicare and private payors reimburse PT/INR testing in the point-of-care environment for all indications. Medicare reimburses patient self-testing only for patients with mechanical heart valves, while reimbursement policies among private payors vary. Our revenue growth is dependent on such reimbursement continuing without any significant erosion in the reimbursement amounts. We believe that there is a significant opportunity in patient self-testing for other indications, such as atrial fibrillation, in the event that reimbursement is expanded. If Medicare reimbursement for patient self-testing by atrial fibrillation patients is not established in a timely fashion or at all, our revenue growth will be substantially limited.

30

Our cost of goods sold represents the cost of manufacturing our products. Our meters are manufactured for us by an electronics manufacturing service company, and we incur direct labor costs to assemble meters into packaged kits at our facility. Our cost of goods sold for the meter also includes an allowance for product warranty obligations. Our disposable test strips are manufactured by us at our facility, and our cost of goods sold is comprised of cost of materials, direct labor, associated overhead, yield losses and lot rejects, royalties on sales, and license fee costs. Included in royalties on sales is a royalty payable in connection with our settlement with Inverness. While this royalty does not become payable until July 2006, we capitalized a portion of the settlement amount as prepaid royalties and are expensing that amount through 2009, the term of the royalty, as a cost of goods sold and do not believe that our obligation to pay royalties in 2006 will have an adverse effect on our results of operations.

While we have a positive margin on meters, until higher production volume is realized in test strip manufacturing to absorb the manufacturing overhead, the manufacturing cost per test strip will be high and in excess of our worldwide average selling price. For the year ended September 30, 2004 and the six months ended March 31, 2005, the gross profit on meters and accessories was 51% and 57%, respectively, while we experienced a negative gross margin on test strips of 161% and 102%, respectively. The manufacturing cost structure for our test strips currently includes a large component of fixed costs which is being spread over production that has not been maximized. Increases in production volume will be a significant factor for cost reduction for our test strips. We anticipate that this, along with other cost reduction efforts under way, will generate positive gross margins.

Results of Operations

Six months ended March 31, 2005 as compared to six months ended March 31, 2004

Revenue. Our revenue is derived from sales of our INRatio System. Revenue increased by $2.1 million, or 170%, from $1.3 million in the six months ended March 31, 2004 to $3.4 million in the six months ended March 31, 2005. Approximately 68% of the growth in revenue was derived from the United States and approximately 32% from outside the United States. Revenue for meters and accessories increased by $1.1 million, or 203%, from $531,000 in the six months ended March 31, 2004 to $1.6 million in the six months ended March 31, 2005. Revenue for test strips increased by $1.1 million, or 146%, from $736,000 in the six months ended March 31, 2004 to $1.8 million in the six months ended March 31, 2005. The increase in U.S. revenue was primarily attributable to the addition of two national distributors and increased field personnel. The increase in international revenue was primarily attributable to the addition of five distributors. We expect our revenue to increase as we continue to add distributors, expand our sales force and penetrate the market worldwide.

Cost of goods sold. Our cost of goods sold represents the cost of manufacturing our products. Cost of goods sold increased by $2.4 million, or 127%, from $1.9 million in the six months ended March 31, 2004 to $4.3 million in the six months ended March 31, 2005. Cost of goods sold for meters and accessories increased by $455,000, or 197%, from $231,000 in the six months ended March 31, 2004 to $685,000 in the six months ended March 31, 2005. Cost of goods sold for test strips increased by $1.9 million, or 118%, from $1.7 million in the six months ended March 31, 2004 to $3.6 million in the six months ended March 31, 2005. The aggregate increase of $2.4 million was primarily due to the increase in number of meters and test strips sold. Also, royalties and amortization of technology licenses increased by $257,000, from $92,000 in the six months ended March 31, 2004 to $349,000 in the six months ended March 31, 2005, due to the increase in strip sales and two technology licenses obtained in 2004. As a percentage of revenue, cost of goods sold decreased from 151% of sales in the six months ended March 31, 2004 to 127% in the same period in 2005. We expect cost of goods sold to continue to decrease as a percentage of revenue as we implement cost reduction initiatives, including manufacturing process improvements, and benefit from economies of scale.

31

Research and development expenses. Our research and development costs consist of expenses incurred for company-sponsored research and development activities. Research and development expenses decreased by $168,000, or 24%, from $708,000 in the six months ended March 31, 2004 to $540,000 in the six months ended March 31, 2005. The decrease was primarily attributable to the reduction in payroll costs and consultant expenses as certain personnel and other resources in research and development in 2004 were transferred to manufacturing in 2005. As a percentage of revenue, research and development expenses were 16% in the six months ended March 31, 2005 compared to 56% in the same period in 2004. In future periods, we expect research and development expenses to grow in absolute terms but decrease as a percentage of revenue.

Sales and marketing expenses. Sales and marketing expenses consist primarily of sales and marketing personnel compensation, marketing consultant expenses, travel, and marketing programs. Sales and marketing expenses increased by $934,000, or 41%, from $2.3 million in the six months ended March 31, 2004 to $3.2 million in the six months ended March 31, 2005. The increase was primarily attributable to $693,000 of payroll and travel expenses for additional personnel, $80,000 for demonstration meters and $144,000 for promotion programs. As a percentage of revenue, sales and marketing expenses were 94% in the six months ended March 31, 2005 compared to 179% in the same period in 2004. In future periods, we expect sales and marketing expenses to grow in absolute terms but decrease as a percentage of revenue as we continue to leverage our expanding distribution network.

General and administrative expenses. Our general and administrative expenses consist of personnel and consultant expenses for corporate administration functions, professional fees and travel. General and administrative expenses increased by $57,000, or 7%, from $815,000 in the six months ended March 31, 2004 to $872,000 in the six months ended March 31, 2005. The increase was primarily attributable to $236,000 in expenses for administrative personnel and $189,000 in independent accountants fees for review and audit expenses in conjunction with the filing of this registration statement, offset by a decrease in legal expenses of $265,000 related to the settlement of an intellectual property infringement action. As a percentage of revenue, general and administrative expenses were 26% in the six months ended March 31, 2005 compared to 64% in the same period in 2004. In the short term, we expect general and administrative expenses to grow in absolute terms as a result of expenses associated with becoming and being a public company.

Interest and other expense, net. We recognized interest expense of $450,000 for the six months ended March 31, 2005, an increase of $376,000 from $74,000 for the same period in 2004. The increase was attributable to interest expense on amounts drawn down against a debt line of $7.5 million which was put in place in March 2004, as well as interest expense related to a note payable.

Year ended September 30, 2004 as compared to year ended September 30, 2003

Revenue. Revenue increased by $2.8 million, or 661%, from $427,000 in 2003 to $3.3 million in 2004. Approximately 76% of the growth in revenue was derived from the United States and approximately 24% from outside the United States. Revenue for meters and accessories increased by $1.3 million, or 453%, from $292,000 in 2003 to $1.6 million in 2004. Revenue for test strips increased by $1.6 million, or 1,114%, from $135,000 in 2003 to $1.7 million in 2004. We started selling our products in March 2003. The increase in U.S. revenue was primarily attributable to the addition of two national distributors and increased field personnel. The increase in international revenue was primarily attributable to the addition of nine distributors.

Cost of goods sold. Cost of goods sold increased by $3.5 million, or 233%, from $1.6 million in 2003 to $5.1 million in 2004. Cost of goods sold for meters and accessories increased by $649,000, or 446%, from $145,000 in 2003 to $794,000 in 2004. Cost of goods sold for test strips increased by $2.9

32

million, or 211%, from $1.4 million in 2003 to $4.3 million in 2004. The increase of $2.1 million was primarily due to the increase in number of meters and test strips sold. In addition, due to manufacturing scale up problems, several test strip lots and subassemblies with a manufacturing cost of $1.0 million were rejected and written-off in 2004. Also, royalties and amortization of technology licenses increased by $369,000, from $8,000 in 2003 to $377,000 in 2004 due to the increase in test strip sales and two technology licenses obtained in 2004. As a percentage of revenue, cost of goods sold decreased from 356% of sales in the year ended September 30, 2003 to 156% in the same period in 2004.

Research and development expenses. Research and development expenses decreased by $283,000, or 17%, from $1.7 million in 2003 to $1.4 million in 2004. The decrease was primarily attributable to the full year impact in 2004 of resources in research and development that were transferred to manufacturing in the middle of 2003. As a percentage of revenue, research and development expenses were 43% in the year ended September 30, 2004 compared to 394% in the same period in 2003.

Sales and marketing expenses. Sales and marketing expenses increased by $2.0 million, or 63%, from $3.2 million in 2003 to $5.2 million in 2004. The increase was primarily attributable to $1.7 million of payroll and travel expenses for additional personnel, $256,000 for marketing consultants and $110,000 for promotion programs. As a percentage of revenue, sales and marketing expenses were 160% in the year ended September 30, 2004 compared to 746% in the same period in 2003.

General and administrative expenses. General and administrative expenses increased by $587,000, or 64%, from $912,000 in 2003 to $1.5 million in 2004. The increase of $319,000 was primarily attributable to increased administrative personnel and consultants, legal expenses of $125,000 related to an intellectual property infringement action, and $83,000 for increased coverages for liability and business insurance. As a percentage of revenues, general and administrative expenses were 46% in the year ended September 30, 2004 compared to 214% in the same period in 2003.

Interest and other expense, net. We recognized interest expense of $318,000 for the year ended September 30, 2004, an increase of $251,000 from $67,000 for the same period in 2003. The increase was attributable to interest expense on amounts drawn down against a debt line of $7.5 million which was put in place in March 2004, as well as interest expense related to a note payable.

Year ended September 30, 2003 as compared to year ended September 30, 2002

Revenue. Revenue for the year ended September 30, 2003 was $427,000 consisting of $292,000 for meters and accessories and $135,000 for test strips. There was no revenue for the year ended September 30, 2002, as we did not begin selling our product until March 2003. Product sales in the United States accounted for approximately 75% of revenue in fiscal year 2003.

Cost of goods sold. Cost of goods sold for the year ended September 30, 2003 was $1.5 million consisting of $145,000 for meters and accessories and $1.4 million for test strips. There was no cost of goods sold for the year ended September 30, 2002 since there were no product sales. In addition to $1.3 million for the cost to manufacture meters and test strips, cost of goods sold included approximately $223,000 in lower of cost or market adjustments for test strips due to average selling price being lower than manufacturing cost. As a percentage of revenue, cost of goods sold was 356% of sales for the year ended September 30, 2003.

Research and development expenses. Research and development expenses decreased by $1.7 million, or 50%, from $3.4 million in 2002 to $1.7 million in 2003. The decrease was primarily attributable to research and development resources in 2002 which were transferred to manufacturing in 2003. As a percentage of revenue, research and development expenses were 394% in the year ended September 30, 2003.

33

Sales and marketing expenses. Sales and marketing expenses increased by $2.4 million, or 328%, from $745,000 in 2002 to $3.2 million in 2003. The increase was primarily attributable to $1.3 million of payroll and travel expenses for additional personnel, $214,000 for marketing consultants and $312,000 for promotion programs. As a percentage of revenue, sales and marketing expenses were 746% in the year ended September 30, 2003.

General and administrative expenses. General and administrative expenses increased by $201,000, or 28%, from $711,000 in 2002 to $912,000 in 2003. The increase was primarily attributable to a $225,000 increase due to additional administrative personnel and legal expenses of $67,000 related to an intellectual property infringement action. As a percentage of revenues, general and administrative expenses were 214% for the year ended September 30, 2003.

Interest and other expense, net. We recognized interest expense of $67,000 for the year ended September 30, 2003, an increase of $48,000 from $19,000 for the same period in 2002. The increase was attributable to interest expense on amounts drawn down against a bank equipment financing credit line of $1.75 million in fiscal 2003.

Liquidity and Capital Resources

Since our inception, our operations have been primarily financed through private equity capital, bank equipment financing loans, debt capital and capital leases. As of March 31, 2005, our cash and cash equivalents were $2.1 million. All of our cash equivalents have original maturities of three months or less.

During the six months ended March 31, 2005, our operating activities used cash of approximately $5.7 million, compared to approximately $4.6 million for the six months ended March 31, 2004, an increase of $1.1 million. The increase in cash used was due primarily to an increase in the net loss by approximately $1.5 million offset by $307,000 in adjustments for non-cash items and $121,000 in changes in assets and liabilities. The major components of the changes in assets and liabilities were in inventories and accounts receivable. The change in inventories was $864,000 for the six months ended March 31, 2005, an increase of $165,000 from $699,000 for the same period in 2004, which was due to an increase in our sales. The change in accounts receivable was $80,000 for the six months ended March 31, 2005, a decrease of $295,000 from $375,000 for the same period in 2004, which was due to September 30, 2004 accounts receivable being high as a result of a new distribution agreement being signed in September 2004, with a large initial order included in accounts receivable. We expect future increases in revenue to result in increases in the need for working capital due to increases of accounts receivable and inventories.

Our investing activities used cash of approximately $108,000 during the six months ended March 31, 2005 compared to $293,000 for the six months ended March 31, 2004. Investing activities in 2004 and 2003 comprised of acquisition of equipment.

Cash provided by financing activities was approximately $7.4 million for the six months ended March 31, 2005 compared to $51,000 used in financing activities for the six months ended March 31, 2004. The increase in cash provided was primarily due to $4.6 million of proceeds from draw downs against a debt line facility and $3.3 million in preferred stock proceeds during the six months ended March 31, 2005.

For the year ended September 30, 2004, our operating activities used cash of approximately $9.5 million. This was an increase of $2.8 million from the cash used in operating activities of $6.7 million for the year ended September 30, 2003. This change was primarily due to a loss of $10.3 million in the year ended September 30, 2004 compared to a loss of $6.9 million in 2003. Offsetting the

34

loss were adjustments for non-cash items which reduced cash used in operations in the year ended September 30, 2004 by $915,000 compared to $270,000 in 2003. The change in accounts receivable was $773,000 for the year ended September 30, 2004, an increase of $639,000 from $134,000 for the same period in 2003, which was related to an increase in our sales. The change in inventories was $319,000 for the year ended September 30, 2004, an increase of $173,000 from $146,000 for the same period in 2003, which was due to an increase in our sales. During fiscal year 2003 we did not purchase any meters as we had a sufficient number in inventory. We did not commence purchasing meters again until the second quarter of fiscal year 2004.

For the year ended September 30, 2004, our investing activities used cash of approximately $429,000. This was an increase of $32,000 from cash used in investing activities of $397,000 for the year ended September 30, 2003 due to acquisitions of equipment.

For the year ended September 30, 2004, our financing activities provided $4.9 million. This was a decrease of $2.3 million from cash provided by financing activities of $7.2 million for the year ended September 30, 2003. The decrease was primarily due to proceeds from equity financing of $3.0 million for the year ended September 30, 2004 compared to $6.4 million for the year ended September 30, 2003. This decrease was offset by loan proceeds of $2.0 million, net of repayment of previous loans outstanding, for the year ended September 30, 2004 compared to $886,000 for the year ended September 30, 2003. In March 2004, we obtained a debt line from Lighthouse Capital Partners in the amount of $7.5 million to be drawn down over a 12-month period. During the draw down period interest-only payments were required to be made monthly on amounts drawn down and a usage fee was payable quarterly on unused amounts. As of March 1, 2005, we had drawn down the full amount of $7.5 million which is being amortized monthly over 36 months with a final payment of $937,500 due at the end of the term. In conjunction with the loan, we issued warrants to purchase Series C-3 preferred stock, which upon completion of this offering, will be exercisable for 118,670 shares of common stock at an exercise price of $6.32 per share. Upon receiving this credit line, we used the first draw down of $907,000 in March 2004 to repay the amount outstanding on the loans payable to Silicon Valley Bank. The Silicon Valley Bank loans were drawn down under a $1.75 million equipment financing line of credit obtained by us in July 2003. The Silicon Valley Bank loans amortized over a 36-month term and also had warrants to purchase Series C-3 preferred stock, which upon completion of this offering, will be exercisable for 8,307 shares of common stock at an exercise price of $6.32 per share.

As of September 30, 2004, we had a long-term loan, a long-term note payable, capital lease obligations, commitments under a facility operating lease, and non-cancellable purchase commitments. We had no other off-balance sheet items or commitments. Future payments under these obligations are included in the table below for each of the fiscal years ending September 30 (in thousands):

	2005		2006		2007		2008		2009		Total
Loan payable	$	732	$	1,097	$	1,097	$	729	$	—	$	3,655
Note payable		—		—		—		—		1,150		1,150
Capital leases		51		46		40		17		—		154
Facility lease		123		143		153		162		90		671
Non-cancellable purchase commitments		442		—		—		—		—		442
Total	$	1,348	$	1,286	$	1,290	$	908	$	1,240	$	6,072

In addition, as of September 30, 2004, we had cancellable purchase commitments totaling $1.3 million.

As of March 31, 2005, we had drawn down an additional $4.6 million on the loan payable. These draw downs resulted in us fully utilizing the debt line of $7.5 million that was available. In addition, in April 2005, we received $1.5 million in unsecured debt financing from certain preferred stockholders and in connection with that transaction issued those stockholders warrants exercisable for shares of our common stock.

35

Our cash as of March 31, 2005 combined with our April 2005 financing is expected to be used by the end of June 2005. We believe that the estimated proceeds from this offering, $25.3 million, along with our existing cash and cash equivalents and cash generated from product sales, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. Our future capital requirements are difficult to forecast and will depend on many factors, including:

• success of our product sales and related collections;

• future expenses to expand and support our sales and marketing activities;

• maintaining and expanding our manufacturing capacity and capabilities;

• costs relating to changes in regulatory policies or laws that affect our operations;

• the level of investment in research and development to maintain and improve our competitive edge and our technology position as well as broaden our technology platform;

• costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; and

• our need or decision to acquire or license complementary products, technologies or businesses.

If at any time sufficient capital is not available, either through existing capital resources or through raising additional funds, we may be required to delay, reduce the scope of, eliminate or divest one or more of our research and development programs, sales and marketing programs or our entire business. We may raise additional funds through public or private offerings, debt financings, capital leases, corporate collaborations or other means. Due to the uncertainty of financial markets, financing may not be available to us when we need it on acceptable terms or at all. Therefore, we may raise additional capital from time to time when market conditions are favorable, or if strategic considerations require us to do so, even if we have sufficient funds for planned operations.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are as follows:

Revenue Recognition. We recognize revenue from product sales when there is persuasive evidence that an arrangement exists, title has transferred to our customers, the price is fixed and determinable and collection is reasonably assured. Provisions for discounts to customers, returns or other adjustments are recorded as a reduction of revenue and provided for in the same period that the related product sales are recorded based upon analysis of historical discounts and returns. When terms of sale are Freight on Board, or FOB, shipping point, revenue is recognized at time of shipment and when the terms of sale are FOB receiving point, revenue is recognized when the products have reached the destination point and other criteria for revenue recognition have been met. Shipping and

36

handling charges are invoiced to customers based on the amount of products sold. Shipping and handling fees are recorded as revenue and the related expense as cost of goods sold.

We offer an early payment discount to certain customers. We provide certain customers product return rights in limited circumstances. To date, we have experienced no product returns and have determined that a reserve for product returns is not necessary. Future changes in our experience with product returns may cause us to make changes in our reserve for product returns. Our inability to accurately estimate product returns in the future may cause us to defer recognition of revenue. We will, from time to time, provide free products to customers. The cost of these free products are charged to cost of goods sold.

Allowance for Doubtful Accounts. While we have not had material bad debts written-off in the past, we analyze the collectibility of our accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends, and changes in customer payment terms in evaluating whether an allowance needs to be made during the period.

Valuation of Inventory. Inventories are stated at the lower of cost or market, cost being determined under a standard cost method, which approximates first-in, first-out basis. The manufacturing cost of test strips currently exceeds their selling price. As a result, we record a charge to cost of goods sold for test strips equal to the amount by which the manufacturing cost exceeds the average market selling price.

Our inventories are evaluated and any non-usable inventory is written-off. In addition, we reserve for any inventory that may be potentially non-usable. Charges for such write-offs and reserves are recorded as a component of cost of goods sold. We have had write-offs and reserves of $1.0 million in the year ended September 30, 2004 for rejected subassemblies and test strip lots. Changes in demand in the future could cause us to have additional write-offs and reserves.

Product Warranty. We record an accrual for estimated warranty costs when revenue is recognized. Warranty covers replacement costs of defective meters and related test strips. The warranty period for meters is one year. We have processes in place to estimate accruals for meter warranty exposure based upon estimated failure rates and replacement costs. Although we believe we have the ability to reasonably estimate warranty expenses, unforeseen changes in factors affecting the estimate for warranty could occur and such changes could cause a material change in our warranty accrual estimate. Such a change would be recorded in the period in which the change was identified.

Impairment of Long-lived Assets. We review long-lived assets, including property and equipment and intangibles, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. We consider various valuation factors, principally discounted cash flows, to assess the fair values of long-lived assets. To date, we have not recorded any impairment losses.

Intangible Assets. Intangible assets are comprised of licensed technologies, carried at cost less accumulated amortization. Amortization is computed using a straight-line method over the shorter of the estimated useful lives or the term of the license agreements.

Accounting for Income Taxes. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowances recorded against our net deferred tax assets. We have historically had net losses and not been

37

required to provide for income tax liabilities. We have established a valuation allowance with respect to all of our deferred tax assets. Changes in our estimates of future taxable income may cause us to reduce the valuation allowance and require us to report income tax expense in amounts approximating the statutory rates.

Stock-Based Compensation. We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees. Our policy is to grant options with an exercise price equal to the estimated fair value of our stock on the grant date as determined by our board of directors. In the preparation of our financial statements, our management is responsible for determining the fair value of our common stock. Based on a review of a variety of factors including: sales of our preferred stock, preferences granted to our preferred stockholders, our current liquidity and capital needs and a valuation performed by an independent valuation specialist firm in February 2005, management has determined that the value of our common stock was equal to the valuation determined by our Board of Directors. Accordingly, no compensation expense has been recognized in our statement of operations for employee stock options. We provide additional pro forma disclosures as required under Statement of Financial Accounting Standard, or, SFAS, No. 123 Accounting for Stock-Based Compensation, as amended.

Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the estimated fair value of our stock and the exercise price. SFAS No. 123 defines a “fair value” based method of accounting for an employee stock option or similar equity instrument.

We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instruments vest.

Under generally accepted accounting principles, companies are permitted to use an alternative method of valuing stock options which is based on the fair value of the stock option on the date of grant. This method generally results in the recording of a greater expense related to stock options. Recent changes to the accounting rules require all companies to use a fair value method to record compensation expense related to stock options. We are required to adopt this change in the fourth quarter of fiscal 2005.

As of March 31, 2005, the value of outstanding employee stock options, based on the mid-point of the proposed offering price range of $11.00 was as follows:

Vested	$	4,459,000
Unvested		5,706,000
	$	10,165,000

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board, or FASB issued SFAS No. 151, Inventory Costs, an amendment of Accounting Research Bulletin, or ARB, No. 43, Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 is effective for inventory costs incurred during fiscal years

38

beginning after June 15, 2005. We do not believe the adoption of SFAS No. 151 will have a material effect on our financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which will replace SFAS No. 123 and supersede APB 25. SFAS No. 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Under SFAS No. 123R, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25, but will be required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of earnings. SFAS No. 123R is effective at the beginning of fiscal 2006. We have not yet determined which fair-value method and transitional provision we will follow and have not yet determined the impact on our financial statements of SFAS No. 123R.

Quantitative and Qualitative Disclosures About Market Risk

While we invoice our international distributors in U.S. dollars, the selling prices are adjusted based on fluctuations in the local country currency exchange rate. As a result, we have foreign currency exposure with respect to our revenues from fluctuations in foreign currency exchange rates. We hold no derivative financial instruments and do not currently engage in hedging activities.

Our exposure to interest rate risk is related to the investment of our excess cash into highly liquid financial investments with original maturities of three months or less. We invest in marketable securities with the primary objectives to preserve principal, maintain proper liquidity to meet operating needs and maximize yields while meeting specific credit quality standards for our investments. Due to the short term nature of our investments, we have assessed that there is no material exposure to changes in interest rates.

39

BUSINESS

Overview

We develop, manufacture and sell easy-to-use, handheld blood coagulation monitoring systems for use by patients and healthcare professionals in the management of warfarin medication. Warfarin is an oral anticoagulation, or blood thinning, drug given to patients to prevent potentially lethal blood clots. Our product, the INRatio System, consists of a small, portable meter and disposable test strips and provides a quick and accurate measurement of a patient’s blood clotting time, known as a PT/INR value. The accurate measurement of the PT/INR value is critical to ensuring the safety and effectiveness of warfarin in maintaining a patient’s blood coagulation level within a therapeutic range. The INRatio System represents an alternative to the current laboratory-based standard of care, which generally involves monthly or less frequent testing and delayed results. The U.S. Centers for Medicare & Medicaid Services, or CMS, has observed that monthly testing is inadequate for the majority of patients on chronic warfarin therapy. More frequent testing helps maintain patients within their therapeutic range and may minimize adverse events, such as dangerous blood clots or serious bleeding, associated with insufficient or excessive anticoagulation. Numerous studies reviewed by CMS showed that frequent self-testing through the use of a home PT/INR monitor improves a patient’s time in therapeutic range. CMS approved Medicare coverage for weekly home PT/INR monitoring of patients with mechanical heart valves on warfarin. This decision went into effect in 2002 and, in the latter half of 2003, reimbursement payments began to reach service providers. Similar to the shift that has occurred in the standard of care for management of diabetes and blood glucose monitoring, we believe that the Medicare coverage decision and growing physician and patient awareness of the benefits of weekly PT/INR patient self-testing signal a shift in the standard of care for PT/INR testing from the clinical laboratory to point-of-care testing and, ultimately, patient self-testing.

Warfarin has been prescribed since the 1950s and is regarded as safe and effective when it is dosed correctly. It is the most widely prescribed oral anticoagulant besides aspirin. There are approximately three million people in the United States who take warfarin daily. In 2003, there were over 20 million prescriptions for warfarin written in the United States, either in generic form, or under its brand name Coumadin. Based upon Medicare claims data, there were 18.3 million PT/INR tests conducted on U.S. Medicare patients in 2003, comprised of approximately 13.4 million clinical laboratory tests and 4.9 million point-of-care or patient self-tests. By contrast, there were 13.8 million tests performed in 2000, consisting of 12.1 million clinical laboratory tests, and 1.7 million point-of-care tests. The total number of PT/INR tests increased by more than 30% over this three-year period, with 11% growth in the laboratory testing market, as compared with 190% growth in the point-of-care and patient self-test markets. We believe that similar trends have occurred with private insurance payors and in countries outside of the United States. In Germany, where reimbursement was established in 1996, more than 100,000 patients are performing PT/INR self-testing. As the global population ages and develops disorders requiring management of blood coagulation, and as weekly patient self-testing gains wider acceptance, we expect these trends in PT/INR testing to accelerate. We believe our INRatio System is well positioned to gain a meaningful share of the global market for PT/INR patient self-testing and point-of-care testing.

We have designed our INRatio System to address the needs of the emerging PT/INR patient self-testing and point-of-care markets. Our proprietary system requires one drop of blood from a patient’s finger to quickly and reliably determine the rate at which their blood coagulates by measuring changes in the blood’s electrical properties during the coagulation process. For ease of use, the INRatio System integrates into each disposable test strip clinical laboratory-like quality controls designed to ensure test-by-test accuracy. These controls are designed to verify the accuracy of each PT/INR test without the need for additional costly and time consuming steps requiring separate chemicals and test strips. Unlike test strips offered by competitors, our test strips can be stored for up to one year at room temperature rather than requiring refrigeration for long-term storage.

40

After receiving U.S. and European regulatory clearances in 2002, we commercially launched the INRatio System in March 2003 in the U.S. and certain European markets. Tests performed using our INRatio System in the point-of-care setting are currently reimbursed by Medicare for all patients on warfarin as is self-testing by mechanical heart valve patients on warfarin. To date, we have sold more than 5,000 INRatio meters and more than one million INRatio test strips worldwide for professional use at the point-of-care and patient self-testing at home. We have established distribution agreements with several national and regional distributors of medical products, giving us access to over 1,000 U.S. sales representatives for the sale of the INRatio System. We are dependent upon these distributors for a substantial portion of our revenue, and the loss of any key distributors would have a material adverse effect on our business. In addition, we have established international distribution agreements with 12 distribution partners covering 16 countries outside the United States. We own five issued U.S. patents, one issued European patent, and one pending European application. Three of the issued U.S. patents cover, and the pending European application relates to, the INRatio System and its method of measuring blood coagulation by monitoring changes in the electrical properties of the blood sample as it clots.

Background and Market

Blood Clotting Disorders

The formation of a blood clot, or thrombus, is a desirable and essential response to a wound, preventing a simple injury from becoming a potentially fatal bleeding event. However, blood clots can have unwanted effects when they block normal blood flow in the body. Both heart attacks and strokes occur when a vessel that supplies blood is blocked by a blood clot. Heart disease is the leading cause of death in the United States today with heart attacks as the most publicized outcome. Stroke is the third-leading cause and the leading cause of serious, long-term disability.

There are two types of patients requiring medication for potential blood clots; those with acute conditions requiring short-term therapy and those with chronic conditions requiring long-term therapy, often for life. Acute risks of blood clots can result from accidents or from certain surgical procedures, like knee or hip replacements. Typically, these patients are initially treated at a hospital with combinations of intravenous drugs that dissolve blood clots and blood thinning drugs. Often, these patients will continue treatment with an oral anticoagulant, such as warfarin, for several weeks following a hospital stay, until the blood clot risk has diminished. Long-term risks of blood clots result from chronic conditions and are typically treated with oral anticoagulation medications, including warfarin and aspirin. The most common chronic uses of warfarin are for patients with mechanical heart valves and patients with atrial fibrillation.

• Mechanical Heart Valves. A faulty heart valve can be surgically replaced with a mechanical valve. Mechanical heart valves are designed to last for the life of the patient, but they can lead to blood clots as a reaction to the presence of this foreign body. According to CMS, there are approximately 400,000 patients in the United States with mechanical heart valves, all of whom require warfarin. The American Heart Association, or AHA, indicates that there were approximately 93,000 heart valve replacement surgeries in the United States during 2002, which we believe included more than 25,000 mechanical valve implants.

• Atrial Fibrillation. Atrial fibrillation is an irregular, fluttering heartbeat that may cause blood to pool within the upper chambers of the heart, leading to blood clots that can cause a heart attack or stroke. According to the AHA’s Heart Disease and Stroke Statistics—2005 Update, there are approximately 2.2 million patients in the United States with atrial fibrillation. The 2005 Update estimates that atrial fibrillation is responsible for approximately 105,000 to 140,000 strokes, or 15% to 20% of all strokes in the United

41

States annually. According to a 2004 publication in Clinical Cardiology, research to date shows that warfarin provides a major potential benefit to patients with atrial fibrillation, reducing the risk of stroke by approximately 68%. However, fewer than 50% of eligible patients are treated because of fear of brain hemorrhage. To reduce this risk, careful monitoring of warfarin dosage is critical.

While our INRatio System is primarily marketed to physicians treating and patients suffering from these two chronic conditions, it is also sold to physicians for the management of warfarin dosage in patients with an acute need for the medication.

Importance of Monitoring and Managing Warfarin Dosage

The safety and effectiveness of warfarin depends on maintaining the blood’s ability to coagulate within a narrow therapeutic range, which can be challenging if not actively managed. If there is too much warfarin in a patient’s bloodstream, there is a risk of hemorrhage, or uncontrolled internal or external bleeding, which can be fatal. If there is too little warfarin in the bloodstream, it will be ineffective in reducing the risks associated with blood clots from the underlying condition, such as a stroke or heart attack.

A patient’s warfarin dosage typically is managed by first giving a small starting dose and measuring the patient’s blood clotting time, adjusting the dose and measuring again, and so on, until the patient’s proper therapeutic dosage is achieved. When the correct dosage has been achieved, the anticoagulation effect of the drug will be within a safe and effective therapeutic range. The effectiveness of warfarin can vary between patients and within the same patient, depending upon a number of factors. Changes in diet, alcohol consumption, interaction with other drugs, a patient’s overall health and environmental factors can all affect the degree of anticoagulation caused by warfarin. These factors make it important for patients on warfarin to measure their blood clotting ability frequently to provide their physicians with the information necessary to maintain an appropriate level of warfarin. Prothrombin time, or PT, is an expression of the time it takes for blood to clot and reflects the anticoagulation effect of warfarin. The internationally recognized measurement standard for clotting time is known as PT/INR. INR is the International Normalized Ratio, which expresses PT in a common scale established by the World Health Organization. Higher PT/INR values indicate the blood will take more time to clot, whereas lower values indicate the blood will clot more quickly.

Clinical Laboratory and Point-of-Care PT/INR Testing and their Limitations

Clinical Laboratory Testing. PT/INR measurements have traditionally been and are mostly still performed and analyzed in a clinical laboratory using sophisticated and costly high-volume screening equipment. Clinical laboratory tests accounted for 73% of all PT/INR tests performed in 2003 on Medicare patients. Clinical laboratory testing methods for PT/INR measurement are precise; however, these methods are inconvenient for the patient and the physician, and therefore not conducive to compliance. Clinical laboratory test results typically are not available until the following day, which could prevent a physician from properly advising a patient during their visit. In addition to being inconvenient for the patient, the delay in obtaining test results creates inefficiencies because the physician or nurse practitioner must perform patient call backs in order to advise patients of changes needed to their warfarin dosages.

Point-of-Care Testing. Handheld devices for PT/INR point-of-care measurement have existed since 1987. However, we believe that physician adoption of these devices was limited due to mixed clinical results regarding their precision and accuracy. In contrast to PT/INR tests performed in a clinical laboratory, point-of-care PT/INR tests can use capillary blood from a finger stick and produce quick results because tests are performed using a real time PT/INR measurement device directly at the patient point-of-care, such as at a physician’s office, anticoagulation clinic or nursing home. The ability

42

to obtain a quick PT/INR test result is valuable because it allows the healthcare professional to adjust warfarin dosage and suggest lifestyle changes with the patient during the same office visit. In addition, point-of-care PT/INR testing reduces time required and costs associated with the use of clinical laboratories that are not in close proximity to the physicians and patients. These costs include sample collection and processing steps, transportation costs, and the time spent by a physician or nurse practitioner performing patient call backs.

CMS reimburses both clinical laboratory and point-of-care PT/INR tests. However, as CMS has observed in its September 2001 National Coverage Decision Memorandum regarding PT/INR self-testing, clinical laboratory tests are generally performed only once every four to six weeks, due in large part to practical constraints of access and labor-intensiveness. In the Decision Memorandum, CMS indicated that monthly testing is inadequate for the majority of patients on chronic warfarin therapy, because the medication is highly individualized and affected by common variables like diet. More frequent testing helps to improve the time that patients spend within their therapeutic PT/INR range, which may minimize adverse events, such as dangerous blood clots or serious bleeding, associated with inadequate or excessive anticoagulation. CMS evaluated 11 clinical studies published in peer-reviewed journal articles, all of which found patients using home PT/INR monitors performed favorably compared to control groups treated at a medical facility. Seven of the eight studies that measured statistical significance showed statistically significant better time in therapeutic range, or TTR, for the patient self-testing group than for the group that received either usual care from a hospital or commercial laboratory, or point-of-care testing, regardless of testing frequency.

CMS Decision Memorandum Observations

	Usual Care	Point-of-Care	Patient Self-Testing
General observations
Current site of patient testing	< 80%	≈20%	< 5%
Testing intervals	4-6 weeks	2-3 weeks	Weekly
Adverse event rates	> 15%	< 8%	Lowest
Observations based on specific studies
Time in therapeutic range, TTR	32-68%	32-68%	56-92%

The studies described by CMS consistently showed that the more frequently a patient was tested the more time that patient spent in their therapeutic range, leading CMS to observe “in order to achieve time in therapeutic range of greater than 90%, a patient most likely needs to be tested once a week.” CMS went on to note that “increased TTR leads to improved clinical outcomes, with reductions in thromboembolic and hemorrhagic events.”

The Emergence of a Patient Self-Testing Market

The confluence of improved technology, approval of reimbursement coverage and increased physician and patient awareness has led to the emergence of a patient self-testing market for warfarin users. By early 2000, the FDA had cleared three monitors for patient self-testing, but each instrument had limitations. Studies have demonstrated that the accuracy and reliability of newer devices for patient self-testing compared well with clinical laboratory testing. The patient self-testing market has emerged as government and private payors have begun to provide reimbursement. Medicare reimbursement for up to weekly PT/INR monitoring of anticoagulation management for warfarin patients with mechanical heart valves went into effect in 2002 following publication of the CMS

43

Decision Memorandum. Several European countries have also implemented national reimbursement coverage of home PT/INR testing for chronic warfarin patients, including Germany, the United Kingdom, Denmark and the Netherlands.

Medicare reimburses for services provided to patients who perform PT/INR self-testing, similar to the Medicare reimbursement procedure for patients on pacemakers and Holter monitors. Our meters and test strips are distributed to Medicare patients without charge through a Medicare licensed facility known as an Independent Diagnostic Testing Facility, or IDTF, which may also monitor patient compliance and convey test results to the treating physician. Medicare provides a one-time reimbursement of $252 per patient for the cost associated with training patients in the proper use of our INRatio System. Medicare also provides for an annual total of over $2,000 per patient for physician review, monitoring service and the testing device. If all of the approximately 400,000 U.S. mechanical heart valve patients on warfarin performed weekly PT/INR self-testing, Medicare reimbursement for this population would be in excess of $800 million annually.

The Department of Veterans Affairs has sponsored a clinical study known as The Home INR Study, or THINRS, to evaluate weekly PT/INR patient self-testing for patients with atrial fibrillation or a mechanical heart valve. THINRS is a randomized, open-label, active control outcome study designed to compare weekly patient self-testing with conventional monthly monitoring in the clinic. This study commenced in 2003 and is expected to be completed in 2006. It is anticipated that 3,200 patients will be enrolled at 32 sites. The study participants must have atrial fibrillation or mechanical heart valves and be scheduled to receive warfarin for at least two years. Participants are assigned into either a weekly patient self-testing group or monthly conventional monitoring group. The study evaluates adverse event rates, time to first adverse event, time in therapeutic range for anticoagulation intensity, and total healthcare cost and utilization. We expect that results from this study will be influential in Medicare’s decision regarding reimbursement for PT/INR patient self-testing in atrial fibrillation. If Medicare were to commence reimbursement for PT/INR patient self-testing for the approximately 1.2 million atrial fibrillation patients currently on chronic warfarin, this will significantly increase the PT/INR patient self-testing market.

As more physicians, insurance providers and patients become aware of the healthcare benefits derived from more frequent PT/INR testing and the availability of simple and convenient PT/INR testing devices designed specifically for the patient self-testing market, we expect the PT/INR patient self-testing market to grow significantly.

The HemoSense Solution

We believe that the INRatio System represents a new generation of PT/INR testing devices designed specifically for use in both patient self-testing and by healthcare professionals at the point-of-care. We believe that physicians generally will not prescribe patient self-testing unless the physician is confident that the patient will be able to comply with the testing requirements. Many patients needing warfarin are Medicare patients, some of whom may have limited manual dexterity and may be challenged by complex test instructions and training. We believe that we offer a unique combination of factors that make our INRatio System a simple and straightforward patient self-testing PT/INR measurement device. These features also enable busy healthcare professionals to quickly train their patients in the use of our system as a tool for monitoring their warfarin therapy. Specifically, these features include:

• Patient-friendly, fast and easy-to-use meter and test strips. Our INRatio System weighs less than a pound, is handheld, battery-operated and provides test results generally in two minutes or less. Results are displayed on an easy to read screen and stored in memory. A typical test requires a finger stick to provide one drop of blood, which is then deposited onto a disposable test strip that has been inserted into the INRatio meter.

44

• Integrated quality control tests. Our INRatio System’s fully integrated, on-board quality controls are designed to ensure the accuracy of each test and to help simplify patient self- testing by eliminating the need to perform separate quality control tests. Each time a PT/INR test is conducted, the INRatio System automatically performs two laboratory-like quality control tests within the same single disposable test strip. The integrated quality controls and self-tests built into the meter serve as additional safeguards against misuse. These tests are designed to confirm that the test strip has not been damaged, that the patient is using the system correctly and that the meter is performing as intended. In some competing PT/INR testing systems, the quality control tests are not fully integrated and must be performed manually using additional test strips and separate containers of control solution.

• Straightforward patient training. Our INRatio System’s features result in a clear-cut training procedure that we believe is easy for a patient to understand and remember and that we believe will encourage more patients to self-test. Unlike some competing products, our training is so simple that it can be done by phone or online, rather than in person. With the INRatio System’s simple user interface, the meter guides the patient through a few intuitive steps. Error messages appear on the screen in the event that proper procedures are not followed. There is no need to learn how to use quality controls that require additional test strips, special handling and precise timing steps.

• Test strips that may be stored up to one year at room temperature. Our INRatio System’s disposable test strips do not require refrigeration, which provides additional convenience to patients and significant storage and handling cost savings to distributors and resellers. The test strips can be stored at room temperature for up to one year, compared to only 30 to 60 days for test strips used in other currently available PT/INR devices. Refrigerated test strips must be warmed by a patient to room temperature prior to use, requiring patients and healthcare professionals to plan ahead in order to allow time for acclimation to occur.

• Proprietary, reliable electrochemical technology. The INRatio System is the only PT/INR testing device that utilizes electrochemical technology to determine a patient’s PT/INR value. Our proprietary electrochemical technology generates rapid results and does not rely on mechanical moving parts. The sensors used in our system are small and allow us to measure a patient’s PT/INR value and two levels of quality control with a single drop of blood.

The ability of patients to home test with our INRatio System reduces the time and inconvenience required to manage warfarin by reducing or eliminating trips to the laboratory or doctor’s office for testing, both for the patient and, often, for the caregiver. In addition, the INRatio System’s patient-friendly design and functionality helps minimize the burden of PT/INR self-testing for patients. With PT/INR patient self-testing, patients play an active role in management of their warfarin dosage, which we believe encourages optimal patient compliance.

Our Strategy

Our objective is to become the leading provider of PT/INR patient self-testing and point-of-care testing systems and related products for the monitoring of patients on warfarin. We seek to improve therapeutic outcomes while dramatically reducing the need for inconvenient visits by patients to healthcare professionals for routine testing. To achieve these objectives, we are pursuing the following strategies:

• Increase awareness among physicians and patients of the advantages of the INRatio System and the benefits of weekly PT/INR testing. Our goal is to establish the INRatio

45

System as the leading ease of use PT/INR testing device and the new standard of care. We continue to create awareness among patients and healthcare professionals of the advantages of the INRatio System for weekly patient self-testing and point-of-care testing. Because the INRatio System is easy to use, we intend to establish the INRatio System as the standard of care for PT/INR testing by patients in their homes and by healthcare professionals and caregivers in clinics, physicians’ offices, hospitals and long-term care facilities.

• Leverage our established and growing network of distributors worldwide. Our target market can be broken down into several key segments, including anticoagulation clinics, physician office practices, hospitals, long-term care facilities, home healthcare and patient self-testing. We are establishing relationships with nationally recognized partners to optimize our distribution to each of these market segments. Our sales force assists our distributors in developing and maintaining relationships with leading medical professionals in order to facilitate the adoption of the INRatio System. We intend to expand our distribution internationally in order to gain access to new markets, such as Asia, and to bolster our presence in Europe.

• Utilize and expand reimbursement opportunities. Clinical studies are currently underway to evaluate weekly PT/INR patient self-testing specifically for patients with atrial fibrillation. As data from these studies becomes available, we plan to campaign actively, both independently and in conjunction with our competitors as well as various healthcare professional associations, for reimbursement coverage of weekly PT/INR self-testing for patients with atrial fibrillation in both the United States and Europe. In addition, we plan to participate in efforts and discussions that support reimbursement for weekly patient self-testing and point-of-care testing for other indications.

• Pursue reimbursement for new and additional indications for PT/INR patient self-testing. Our focus initially is on increasing the use of the INRatio System in the monitoring of patients on long-term warfarin, such as patients with implanted mechanical heart valves or those with atrial fibrillation. We also intend to address the PT/INR testing needs of patients on short-term warfarin therapy, such as patients at risk of blood clots resulting from accidents or surgeries.

• Develop product improvements. We intend to develop improvements to our INRatio System with a focus on assuring that our products continue to be easy to use and convenient for our end-users.

Our Products

Our INRatio System is an easy-to-use testing system designed specifically for patient self-testing that provides PT/INR test results using one small drop of blood from the patient’s finger. The INRatio System consists of a small, handheld meter and disposable test strips with integrated, laboratory-like quality control tests that are designed to assure the accuracy of PT/INR test results. We shipped our first commercial INRatio System in March 2003.

INRatio Meter

The INRatio meter contains a heater, digital user interface, and electronic components that measure the changes in resistance or impedance in a blood sample during the coagulation process. To ensure the proper functioning of its components, the INRatio meter performs a series of self-diagnostic tests every time the device is turned on. The meter has three buttons that control all of its functions and has a prominent, easy to read screen on which instructions and results are clearly displayed. The

46

meter has the ability to store up to 60 PT/INR test results and contains a data port for interfacing with an optional printer. The meter is powered by four AA batteries and has an optional external A/C adapter. The user can choose to display messages in any of ten languages programmed into the meter.

INRatio Disposable Test Strips

The INRatio disposable test strips use our proprietary electrochemical technology to measure a patient’s PT/INR value and perform two laboratory-like quality control tests on a single test strip with a single drop, or approximately 15 microliters, of blood. The two quality control tests confirm standard PT/INR readings for the normal lower range, or low control, and the therapeutic upper range, or high control. This helps ensure that the meter and test strip are functioning properly and that the patient’s PT/INR test result will be accurate. The meter and a single test strip automatically perform all three tests each time a patient’s blood sample is applied to a test strip that has been inserted into the meter. When the INRatio meter detects an unacceptable quality control test result, it does not display a potentially incorrect PT/INR test result, but rather alerts the user to the error. We designed our proprietary test strips with on-board quality control tests and our meter with built-in electronic diagnostic tests to help ensure the accuracy of test results and to simplify the process by eliminating the need to use specialized control test liquids and additional test strips to obtain quality control test measurements. Our test strips do not require refrigeration and can be shipped and stored at room temperature for one year, which provides distribution advantages and improves patient convenience. INRatio test strips can only be used with the INRatio meter.

INRatio Accessories

We include all accessories needed for the use of the INRatio System in the patient self-testing and point-of-care environments, such as lancets.

Our Technology Platform

The INRatio System utilizes an electrochemical sensor to detect and measure changes in electrical impedance of a blood sample as it coagulates. The change is then recorded by the meter and converted to a PT/INR reading. When the meter is turned on, it performs an electronic diagnostic check, the first of a number of quality control tests performed by the INRatio System. Once the test strip is inserted into the meter, it is warmed to normal body temperature, and the meter alerts the user to apply the blood sample. After a drop of blood is applied to the sample well on the test strip, it is drawn by capillary action across the surface of the test strip and into the test area where it mixes with reagents that cause coagulation. The blood sample contacts separate electrodes which measure changes in impedance that occur during coagulation. As the reaction progresses, the electrical impedance increases and then gradually drops as the clotting process is completed. The elapsed time, in seconds, until the endpoint is reached is the raw PT time, which is then used to calculate the INR of the sample. The meter displays the patient’s PT/INR results generally within two minutes or less after the blood sample is applied.

Sales and Marketing

The market for the INRatio System includes patient self-testing, physician office practices, anticoagulation clinics, hospitals, long-term care facilities, nursing homes and home healthcare providers. We currently sell our INRatio meter and disposable test strips through distribution agreements in the United States and internationally. In the United States, our distribution agreements provide us with access to more than 1,000 sales representatives.

47

U.S. Distribution

We have agreements with four national medical device distribution companies: Quality Assured Services, Cardinal Health, Raytel and Medline. We also have agreements with three regional distribution companies.

• Quality Assured Services. We entered into a distribution agreement with QAS in March 2003. QAS is a specialized healthcare sales, service, marketing and distribution company that focuses on new and evolving, easy-to-use medical diagnostics and related products for patient home care and professional office use. We believe that QAS is unique in the market due to its combination of medical diagnostics distribution, telehealth services, disease management, health insurance adjudication, training, and market development services. The term of our agreement with QAS runs through February 2007 and will be automatically renewed for one-year periods unless terminated by either party in the 60-day period preceding the end of any term. We are obligated to indemnify QAS in certain circumstances, including claims against us for malfeasance.

• Cardinal Health. We entered into a distribution agreement with Cardinal Health in December 2003. Cardinal Health is one of the largest medical supply companies in the United States and has over 500 sales and service specialists that focus on marketing to physician office practices and hospitals. Our agreement with Cardinal Health provides us with broad geographic coverage of the physician and hospital market segments. The term of our agreement with Cardinal Health runs through April 2007 and may be renewed for successive one-year terms. Either party may terminate the agreement without cause upon 90 days written notice.

• Raytel. We entered into a distribution agreement with Raytel in April 2004. Raytel is the market leader in contracted services for pacemaker and Holter monitoring, and employs a U.S. field sales force of 25 sales representatives. Our agreement with Raytel is focused on the PT/INR patient self-testing market and provides us with exposure to the patient base of St. Jude Medical, the largest manufacturer of mechanical heart valves. Raytel is the exclusive IDTF for St. Jude Medical’s marketing of PT/INR patient self-testing in conjunction with its mechanical heart valve product. As an IDTF, Raytel focuses on managing and monitoring these patients and has significant resources to handle claims processing and the logistics of product supply.

• Medline. We entered into a distribution agreement with Medline in June 2004. Medline is the largest privately-held national manufacturer and distributor of medical supplies in the United States and has over 700 dedicated sales representatives nationwide, and 29 distribution centers in North America. Our distribution agreement with Medline provides access to the long-term care, nursing home and home healthcare market segments and is exclusive to Medline in those areas. The term of our agreement with Medline runs through December 2007 and may be renewed for additional one year periods. We are obligated to indemnify Medline in certain circumstances, including for intellectual property infringement claims, breaches of the agreement or our negligence.

International Distribution

We currently have 12 distribution agreements covering 16 countries internationally. These agreements generally provide that each distributor can sell into the professional and home-use markets within a country. Germany, as an exception, has two distributors covering the country. Our distribution agreements internationally include those with MicroMedical and InaBattke KG in Germany;

48

as well as agreements with distributors covering Australia, Austria, Belgium, Denmark, Finland, Holland, Israel, Luxembourg, Norway, Spain, Sweden, Switzerland and the United Kingdom. Germany is a particularly important international market for us because its medical and patient communities have been leaders in the adoption of patient self-testing. We intend to continue to enter into distribution agreements in other select countries where PT/INR patient self-testing and point-of-care testing are established medical practices. In emerging markets such as Asia, we intend to identify strategic partners as distributors of our product.

Sales and Marketing Organization

We intend to use a variety of marketing tools to build market awareness, drive product adoption, ensure continued usage and establish brand loyalty for the INRatio System by:

• creating awareness of the benefits of the INRatio System with distributors, physicians, nurse practitioners, educators and patients;

• providing strong educational and training programs to healthcare providers and patients to ensure the understanding of the ease of use, safety and effectiveness of the INRatio System;

• establishing a readily-accessible telephone and web-based technical and customer support infrastructure for our distribution partners, healthcare providers and patients; and

• building upon our network of leading distributors to sell our products to physician office laboratories and directly to the patients.

We currently employ 28 people in sales and marketing. Fifteen salespeople are located in key locations throughout the United States working with distribution partners and healthcare providers. We employ five product specialists in the field that focus on training and product troubleshooting for large accounts. The seven remaining employees are located in the corporate office, including four within marketing and three in customer and technical service. We also employ a director of international business development in Europe to support our international distribution partners and healthcare providers.

Competition

The market for PT/INR patient self-testing and point-of-care diagnostics is intensely competitive, subject to rapid changes and new product introductions. We believe that two companies, Roche Diagnostics and International Technidyne Corporation, a division of Thoratec, currently account for over 90% of the worldwide sales of PT/INR point-of-care and patient self-testing devices. Both of these competitors use a meter and disposable strips or cartridges, to test blood obtained by lancing the finger or drawing blood from a vein. Both of these competitors are focused on expanding their presence in the patient self-testing market.

In addition to our current competitors, we expect to encounter new entrants to the market, particularly if increased reimbursement drives the adoption of patient self-testing and increased testing volume. Specifically, Inverness Medical Innovations has announced that it plans to introduce its own warfarin anticoagulation monitoring device later this year.

Our competitors enjoy several competitive advantages, including:

• significantly greater name recognition;

• established relationships with healthcare professionals, patients and third-party payors;

49

• established distribution networks;

• additional product lines and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage;

• greater experience in conducting research and development, manufacturing, obtaining regulatory approval for products and marketing; and

• greater financial and human resources for product development, sales and marketing and patent litigation.

We believe the principal competitive factors in our market include:

• reliability and ease of use;

• technological leadership and superiority;

• improved patient outcomes and reduced overall time to manage therapy; and

• effective marketing and distribution.

Emerging Oral Anticoagulation Therapies

A number of pharmaceutical companies are working on the development of a new class of oral direct thrombin inhibitors, or DTIs, to replace older anticoagulants such as warfarin. In theory, these new oral DTIs should have very few drug/non-drug interactions and should not require the same level of monitoring that warfarin requires. One goal of current research in this area is the elimination of the need for PT/INR testing, which if successful could render our device obsolete. One oral DTI, AstraZeneca’s Exanta, is approved in Europe for preventing blood clots in connection with knee and hip replacements. However, in the fourth quarter of 2004, the FDA did not grant approval based on Exanta’s dangerous side effects to patients’ livers. As of yet, it is unknown whether oral DTIs will be approved in the United States or perform as well as warfarin, especially for the chronic user.

Manufacturing

The primary components of the INRatio System are the INRatio meter and the INRatio disposable test strips. We manufacture the INRatio test strips at our California headquarters and we contract with an electronic manufacturing services supplier to manufacture the INRatio meter. We offer other accessories as part of the INRatio System such as lancets, blood collection devices, power supplies, and printers. These supplies and accessories are manufactured by third parties and are not customized for the INRatio System.

Both the INRatio meter and test strips are manufactured using components and assemblies that have been supplied by outside vendors. The test strip manufacturing process includes reagent dispensing and drying steps, mechanical assembly, packaging and calibration. Plastic film substrates are purchased from outside vendors that perform printing, die cutting and laminating operations according to specifications we have established. These printed and cut films are shipped to our manufacturing facility where we perform an incoming quality control check prior to test strip assembly. The meter is manufactured by an electronic manufacturing services company that is responsible for procuring materials, assembly, and testing of the device according to our specifications. The meters are shipped to our manufacturing facility where we perform calibration, packaging and labeling.

We use contract manufacturing relationships to minimize our capital investment, help control costs, and take advantage of the expertise these third parties have in the production of these

50

assemblies. We also purchase certain components and materials from single sources due to constraints resulting from intellectual property requirements, quality or cost reasons. Currently, those single sources are Dade Behring, which produces a reagent used in our test strips, Haematologic Technologies, which produces the control reagents and Plexus, which manufactures our meters. We have supply agreements in place with these single source suppliers that provide for notification and termination periods; however, because of the custom nature of the components and the FDA requirements for validation and verification of significant changes, a supply interruption from any of these suppliers would limit our ability to produce our systems and could have a material adverse effect on our business. Our agreement with Dade Behring is terminable upon 90 days notice. Prior to the expiration of the agreement in March 2007, we have the option to extend the term until the date of the last expiring patent covered by the agreement by making a lump sum payment. Our agreement with Haematalogic Technologies is terminable upon 18 months notice and our agreement with Plexus is terminable upon 180 days notice.

Research and Development

We are at the concept development stage for a new version of the INRatio meter that we believe would make our system even more attractive for the PT/INR patient self-testing market. The system design of the new version plans for a device that is smaller in size than our current INRatio meter. We expect this new product to utilize the current architecture of the INRatio disposable test strip and deliver the same patient-friendly feature set as the current INRatio meter. We believe that our next generation INRatio System could potentially be attractive for patients who are only on warfarin for a short period of time.

In addition, based on our initial specifications, we expect the new version could reduce our per-unit manufacturing costs at comparable volumes, using the same manufacturing technologies as the current INRatio System. Beyond investing in the design of a future version, we intend to continue developing a number of product enhancements for the current INRatio System. We are also developing an integrated communications capability for use in the professional setting that will provide an automated means to interface the INRatio meter to a data management system. Product development efforts related to the current INRatio System are focused on manufacturing process enhancements aimed at cost reduction and quality improvements, as well as functional enhancements. Specifically, we are designing process development and automation projects for our disposable test strip production line that we believe will significantly increase manufacturing capacity and reduce our costs.

We believe that our electrochemical technology has applications in other tests beyond the measurement of PT/INR values for patients on warfarin. We plan to conduct feasibility studies for additional coagulation parameters including APTT, or activated partial thromboplastin time, and ACT, or activated clotting time.

We have had research and development expenses of $3.4 million, $1.7 million and $1.6 million in fiscal 2002, 2003 and 2004, respectively.

Intellectual Property

Protection of our intellectual property is a priority for us. We plan to pursue and maintain patent protection in both the United States and Europe. We rely on a combination of patents, copyrights, trade secrets and nondisclosure agreements to protect our proprietary rights. Currently, we have five issued U.S. patents and one issued European patent, which has been validated in certain member states of the European Patent Convention, including Germany and Austria. In addition, we have one pending European patent application. Three of the issued U.S. patents cover the INRatio System and its method of measuring blood coagulation. They expire in 2017. Similarly, the pending European application contains claims that would cover our INRatio System and its method of measuring blood

51

coagulation if it were to issue in its present form. The pending European application, if issued, would expire in 2018.

The medical device industry is characterized by the existence of a large number of patents and frequent litigation based on assertions of patent infringement. Together, our patents, patent application and licenses of patents protect aspects of our technologies. We believe that our patent and license position will provide us with sufficient rights to develop, sell and protect our product.

We also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information and other intellectual property by generally requiring our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure agreements on commencement of their employment or engagement.

In April 2003, Inverness Medical Innovations filed suit against us, alleging that disposable test strips for our INRatio System infringed certain patents held by Inverness. In July 2004, we entered into a settlement and mutual release agreement with Inverness pursuant to which we received a non-exclusive, perpetual, non-transferable worldwide license to the patent rights in exchange for a product royalty, which is subject to a cap, that begins to accrue in July 2006 and the issuance to Inverness of a $1.0 million secured subordinated promissory note.

Government Regulation

Our products are medical devices subject to extensive regulation by the FDA and other regulatory bodies. FDA regulations govern, among other things, the following activities that we perform and will continue to perform to ensure that medical products distributed domestically and exported internationally are safe and effective for their intended uses:

• product design and development;

• product testing;

• product manufacturing;

• product safety;

• product labeling;

• product storage;

• recordkeeping;

• premarket clearance or approval;

• advertising and promotion; and

• product sales and distribution.

FDA’s Premarket Clearance and Approval Requirements

Unless an exemption applies, each medical device we wish to commercially distribute in the United States will require either prior 510(k) clearance or prior premarket approval from the FDA. The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risk to the patient are placed in either class I or II, which requires the manufacturer to submit a premarket

52

notification requesting permission for commercial distribution. This process is known as 510(k) clearance. Most class I devices are exempted from this requirement. Devices deemed by FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device or a pre-amendment class III device for which premarket approval applications, or PMAs, have not been required by the FDA, are placed in class III, requiring premarket approval. All of our current products are class II devices.

510(k) Clearance Pathway. To obtain 510(k) clearance, we must submit a premarket notification demonstrating that the proposed device is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of PMAs. By statute and regulation, the FDA is required to clear, deny, or request additional information on a 510(k) premarket notification within 90 days of submission of the application. As a practical matter, 510(k) clearance often takes significantly longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence.

We received 510(k) clearance for our INRatio System for professional use in May 2002, and for use in patient self-testing in October 2002. The components of our system include the meter, test strips, blood lancets, blood collection device and power supplies. A printer, manufactured by a third-party, is available as an accessory.

Product Modifications

After a device receives 510(k) clearance, any modification 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 could require a premarket approval. The FDA requires each manufacturer to make this determination initially, but the FDA can review any of these decisions. We have modified various aspects of our INRatio System since receiving regulatory clearance, but we believe that new 510(k) clearances are not required for these modifications. If the FDA disagrees with our determination not to seek new 510(k) clearances, the FDA may require us to seek 510(k) clearance or premarket approval. The FDA also can require us to cease marketing and/or recall the modified device until 510(k) clearance or premarket approval is obtained. Also, in these circumstances, we may be subject to warning letters, significant regulatory fines or penalties, seizure or injunctive action, or criminal prosecution.

Premarket Approval Pathway. If the FDA denies 510(k) clearance for one of our products or if one of our products is not eligible for 510(k) clearance, we must follow the premarket approval pathway for that product before marketing commences. A PMA requires reasonable assurance of the safety and effectiveness of the device to the FDA’s satisfaction. A PMA must provide extensive pre-clinical and clinical trial data and also information about the device and its components, including, among other things, device design, manufacturing and labeling. After approval of a PMA, a new premarket approval or premarket approval supplement is required in the event of a significant modification to the device, its labeling or its manufacturing process. The premarket approval pathway is much more costly, lengthy and uncertain than 510(k) clearance. It generally takes from one to three years or even longer from submission of a complete application to PMA approval.

No device that we have developed has required premarket approval, nor do we currently expect that any future device or indication will require premarket approval.

Pervasive and Continuing FDA Regulation

After a device is placed on the market, numerous regulatory requirements apply. These include:

• quality system regulations, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;

53

• labeling regulations, which prohibit the promotion of products for uncleared, unapproved or “off-label” uses;

• medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur;

• correction and removal regulations, which require that manufacturers report to the FDA any corrections to, or removals of, distributed devices that are made to reduce a risk to health; and

• post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.

We will need to continue to invest significant time and other resources to ensure ongoing compliance with FDA quality system regulations and other postmarket regulatory requirements.

Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include the following sanctions:

• warning letters;

• fines, injunctions and civil penalties;

• recall or seizure of our products;

• operating restrictions, partial suspension or total shutdown of production;

• refusing our request for 510(k) clearance or premarket approval of new products;

• withdrawing 510(k) clearance or premarket approvals that are already granted; and

• criminal prosecution.

We are subject to unannounced inspections by the FDA and the Food and Drug Branch of the California Department of Health Services, and these inspections may include the manufacturing facilities of our subcontractors. Our most recent inspections by these agencies resulted in no observations.

CLIA waiver. The Clinical Laboratory Improvement Amendments, or CLIA, is intended to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel qualifications, administration, participation in proficiency testing, patient test management, quality control, quality assurance and inspections. The regulations promulgated under CLIA establish three levels of diagnostic tests: waiver, moderately complex and highly complex, and the standards applicable to a clinical laboratory depend on the level of tests it performs. A CLIA waiver is available to clinical laboratory test systems if they meet certain requirements established by the statute. Waived tests are exempt from quality standards and are defined as simple tests having an insignificant risk of an erroneous result. Following the 510(k) clearance of our self-testing submission, we applied for a CLIA waiver for professional use of our INRatio System and received that waiver in December 2002. For patient self-testing, the INRatio System was waived under a CLIA provision that provides that tests approved by the FDA for home use automatically qualify for CLIA waiver.

54

International

International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ.

The primary regulatory environment in Europe is that of the European Union, which consists of 25 countries encompassing most of the major countries in Europe. Other countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting for medical devices. Devices that comply with the requirements of a relevant directive will be entitled to bear CE conformity marking, indicating that the device conforms with the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout Europe. The method of assessing conformity varies depending on the class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a “Notified Body.” This third-party assessment may consist of an audit of the manufacturer’s quality system and specific testing of the manufacturer’s product. An assessment by a Notified Body in one country within the European Union is required in order for a manufacturer to commercially distribute the product throughout the European Union. In November 2002, our INRatio System was certified by TÜV Rhineland Product Safety of Cologne, Germany, a Notified Body, under the European Union In-Vitro Diagnostic Directive allowing the CE conformity marking to be applied and marketing to commence throughout the European Union.

Third Party Reimbursement

Healthcare providers that purchase medical devices, such as the INRatio System, generally rely on third party payors, including Medicare and Medicaid programs and private payors, such as indemnity insurers, employer group health insurance programs and managed care plans, to reimburse all or part of the cost of the products and services they provide to patients. The INRatio System will be sold principally to independent diagnostic testing facilities, or IDTFs, anticoagulation clinics, and physician practices that receive reimbursement from these third parties. As a result, demand for the INRatio System is dependent in part on the coverage and reimbursement policies of these payors.

Medicare Coverage and Reimbursement for Anticoagulation Self-Testing

Medicare published a National Coverage Decision, or NCD, memorandum in May 2002, which provided certain coverage for Medicare beneficiaries with mechanical heart valves. This determination covered anticoagulation self-testing as a diagnostic testing service paid under the Physician Fee Schedule through IDTF and physician services.

To qualify for coverage under Medicare, the NCD requires patients with mechanical heart valves to have been on anticoagulation therapy for a minimum of three months, to undergo training on anticoagulation management and on the use of the self-monitoring device, and to perform tests according to the prescribing physician’s order, but no more frequently than once a week.

For eligible beneficiaries, Medicare provides reimbursement for training the beneficiary on anticoagulation management and proper use of the self-testing device, physician review of the test results and the equipment and supplies required to perform the test.

Medicare Point-of-Care Reimbursement

Reimbursement for testing in a physician’s office has been covered as outpatient services and reimbursed under Current Procedural Terminology codes. These codes cover all in-vitro diagnostic

55

tests regardless of how the test is performed. Additionally, the physician can bill for an office visit in conjunction with performing the test.

Government reimbursement encourages point-of-care over central laboratory testing by paying for patient evaluation and management when done in the physician office or an anticoagulation clinic under the supervision of a physician. Evaluation and management services include reviewing the patient history, examining the patient, reading and interpreting the test results, determining if dosage change is necessary, and counseling the patient. In contrast, if the physician’s staff or anticoagulation clinic does a venous draw, sends the sample to the lab and calls the patient with the results and advice, no evaluation and management reimbursement is allowed.

Private Payors

Many third party private payors, including indemnity insurers, employer group health insurance programs and managed care plans, presently provide coverage for the patient’s purchase or health professional’s use of medical equipment which may include our INRatio System. The scope of coverage and payment policies varies among third party payors and may vary by region for certain private payors. To date, only a few of these payors have issued a coverage decision for any warfarin monitoring indication. Despite this, many private payors have been reimbursing individual patients on warfarin based on the medical necessity when provided by their physician. The possibility exists that coverage policies of individual third party payors may change unpredictably over time.

International

Point-of-care testing and reimbursement in the international marketplace is in various stages of approval and penetration. Point-of-care reimbursement outside the United States differs country by country, with the most advanced coverage of home testing established in 1996 for the German market. In Germany, both meters and test strips are provided to the patients through mechanical heart valve patient training centers or pharmacies. The Nordic region and the Netherlands work similar modes through thrombosis centers, while the UK government only covers the supplies and not the meter.

Employees

As of March 31, 2005, we had 73 full-time equivalent employees, including 37 engaged in manufacturing operations and quality assurance, three in research and development, 28 in sales and marketing and five in general and administrative functions. None of our employees is represented by a labor union or is covered by a collective bargaining agreement. We have never experienced any employment-related work stoppages and consider our employee relations to be good.

Facilities

We maintain our headquarters in San Jose, California in a 15,250 square foot facility, which includes manufacturing, research and development, marketing and general administrative functions. The lease for this facility expires in April 2009. We have the option to extend this lease for an additional five years, and a right of first offer for an adjacent facility as space becomes available in that facility. We believe our existing facility is adequate to meet our needs through the initial lease term, and that suitable additional space will be available in the future on commercially reasonable terms.

Legal Proceedings

We are not party to any material pending or threatened litigation.

56

MANAGEMENT

Executive Officers and Directors

The following table sets forth, as of April 30, 2005, information about our executive officers and directors:

Name	Age	Position
James D. Merselis	51	President, Chief Executive Officer and Director
Paul Balsara	61	Vice President, Finance and Chief Financial Officer
Michael R. Acosta	46	Vice President, Quality Assurance and Regulatory Affairs
Maria C. Navarro	46	Executive Vice President, Operations and Research and Development
Timothy I. Still	39	Executive Vice President, Sales and Marketing
Edward F. Brennan, Ph.D.(1)(2)(3)	53	Chairman of the Board of Directors
Gregory M. Ayers, M.D., Ph.D.(1)	43	Director
Robert D. Ulrich, Ph.D.(1)(2)(3)	59	Director
Kurt C. Wheeler(2)	52	Director

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

(3) Member of the Nominating and Governance Committee.

James D. Merselis has served as our President, Chief Executive Officer and a member of our board of directors since June 2002. From June 1998 to March 2002, Mr. Merselis served as President and Chief Executive Officer at Micronics, a provider of custom lab card design, development and production services on behalf of clients worldwide. Mr. Merselis began his career in marketing and sales at Boehringer Mannheim, now Roche Diagnostics, where over the course of 22 years he held several senior management positions, including Senior Vice President, General Manager, and member of the board of directors. Mr. Merselis holds a B.S. in Biology from Nebraska Wesleyan University and completed the Advanced Management Program at Harvard Business School.

Paul Balsara has served as our Vice President, Finance and Chief Financial Officer since April 2004. From November 1999 to March 2004, Mr. Balsara served as a part-time Chief Financial Officer and financial consultant for several privately-held companies, including serving as our part-time Vice President of Finance and Chief Financial Officer from April 2000 to April 2001 and financial consultant from May 2001 to March 2004. Mr. Balsara has more than 25 years of experience in various accounting and financial management positions for healthcare companies. Mr. Balsara holds a Bachelor of Commerce degree in Accounting from the University of Calcutta, India and is a Certified Public Accountant licensed in California.

Michael R. Acosta has served as our Vice President, Quality Assurance and Regulatory Affairs since March 1999. From December 1996 to March 1999, Mr. Acosta served as Director, Quality Assurance, Quality Control and Regulatory Affairs at Aerogen, formerly Fluid Propulsion Technologies, a manufacturer of medical devices for drug delivery. From May 1995 to December 1996, Mr. Acosta served as Director, Quality Assurance and Quality Control at Orquest, a developer of biologically-based implants for orthopedics and spine surgery. Mr. Acosta holds a B.S. degree in Microbiology from the California State University, Long Beach.

Maria C. Navarro has served as our Executive Vice President, Operations since June 2004 and was appointed our Executive Vice President, Operations and Research and Development in April 2005. From January 2004 to June 2004, Ms. Navarro served as a principal consultant at SayAgain Corp., a healthcare and technology consulting firm, and currently serves as a member of its board of directors. From January 1999 to January 2004, Ms. Navarro served as a principal consultant at

57

MCNavarro Consulting, a healthcare consulting firm. From 1988 to 1999, Ms. Navarro held the position of Site Manager and Head of Operations for the California-based coagulation business unit of Roche Diagnostics. Ms. Navarro holds a B.S. in Chemistry from the University of Southern California and a M.S. in Chemical Engineering from the Massachusetts Institute of Technology.

Timothy I. Still has served as our Executive Vice President, Sales and Marketing since June 2004. From October 1999 to May 2004, Mr. Still served as Vice President of Sales and Marketing at Cholestech, a manufacturer of point-of-care in vitro diagnostic equipment. Mr. Still joined Cholestech as Senior Director of Marketing in December 1997. Mr. Still was a Director of Global Marketing and Business Development for Boehringer Mannheim, now Roche Diagnostics, from 1992 to 1997. Mr. Still holds a B.S. in Biological Sciences from the University of California, Davis and an M.B.A. from the University of Southern California.

Gregory M. Ayers, M.D., Ph.D. has served as a member of our board of directors since October 2000 and served as our interim Chief Executive Officer from April 2001 to July 2002 while a venture partner at MPM Capital. Since April 2001, Dr. Ayers has served as a general manager of Innovative Medical Products GmbH, a consulting firm. In August 2000, Dr. Ayers founded CryoCor, a manufacturer of medical products for the treatment of cardiac rhythm disorders and since that time has served as a member of its board and as its President and Chief Executive Officer. From June 2000 to July 2002, Dr. Ayers was a venture partner at MPM Capital, a venture capital firm specializing in investing in healthcare related companies. Dr. Ayers is a member-manager of Ayers Medical Consulting, a medical device consulting firm, which he founded in January 2000. Dr. Ayers holds a B.S. and Ph.D. in Biomedical Engineering from Purdue University and an M.D. from Indiana University and currently serves on several university advisory committees.

Edward F. Brennan, Ph.D. has served as a member of our board of directors since October 2000 and has been Chairman of our board of directors since October 2003. From January 2001 to June 2002, Dr. Brennan served as our interim Executive Vice President, Regulatory and Quality Affairs. Since January 2005, Dr. Brennan has served as the Chief Operating Officer of CryoCor. From January 2001 to December 2003, Dr. Brennan was a managing director at Perennial Ventures, a venture capital firm. From January 2000 to December 2001, Dr. Brennan was a managing director at Tredegar Investments, an investment subsidiary of Tredegar Corporation, a manufacturer of plastic films and aluminum extrusions. Dr. Brennan currently serves on the board of a publicly-held company, Kilroy Realty Corporation, a real estate investment trust, as well as on the boards of several privately-held companies. Dr. Brennan holds a B.A. in Biology and Chemistry and a Ph.D. in Biology from the University of California, Santa Cruz.

Robert D. Ulrich, Ph.D. has served as a member of our board of directors since November 1997. Since October 1995, Dr. Ulrich has been a general partner at Vanguard Ventures, a venture capital firm. Dr. Ulrich currently serves on the boards of several privately-held companies. Dr. Ulrich holds a B.A. in Physics from Claremont Men’s College, now Claremont McKenna College, and an M.S. and a Ph.D. in Polymer Science and Engineering from the University of Massachusetts.

Kurt C. Wheeler has served as a member of our board of directors since January 2002. Since February 2000, Mr. Wheeler has been a general partner at MPM Capital. Mr. Wheeler currently serves on the boards of several privately-held medical device and biotechnology companies. Mr. Wheeler holds a B.A. in Economics from Brigham Young University and an M.B.A. from Northwestern University, where he currently serves on the Kellogg Alumni Advisory Board.

Medical Advisory Board

The members of our medical advisory board, none of whom are our officers or employees, consult with us to provide advice, assistance and consultation in the field of blood coagulation testing

58

and hemostasis. We consider our advisory board members to be opinion leaders in their respective fields, and they offer us advice and feedback regarding the following:

• unmet needs and opportunities;

• clinical feedback on existing products;

• assessment of new technologies and their applications; and

• assessment of new clinical applications.

As of April 30, 2005, the following individuals are members of our Medical Advisory Board:

Name	Position and Affiliation
Jack E. Ansell, M.D.	Vice Chairman of Clinical Affairs and Director of Anticoagulation Services, Boston University Medical Center; Professor of Medicine, Boston University School of Medicine
Henry Bussey, Pharm.D.	Professor of Pharmacy, University of Texas Health Science Center at San Antonio, Texas
Alan Jacobson, M.D.	Director, Anticoagulation Clinic, Veterans Affairs Medical Center, Loma Linda, California
Douglas Triplett, M.D.	Professor of Pathology and Assistant Dean, Indiana University School of Medicine; Director, Midwest Hemostasis and Thrombosis Laboratories, Muncie, Indiana; Director of Hematology, Indiana School of Medicine
Ann K. Wittkowsky, Pharm.D., CACP, FASHP	Director, Anticoagulation Services, University of Washington Medical Center; Clinical Professor, Department of Pharmacy, University of Washington School of Pharmacy
Franz-Josef Wittstamm, M.D.	Doctor of Cardiology, Kliniken Essen-Mitte

We have entered into a consulting agreement with each member of our medical advisory board. Our advisory board members are reimbursed for certain of their out-of-pocket expenses, including expenses incurred in connection with attending medical advisory board meetings. We pay $1,500 to each advisory board member for each medical advisory board meeting attended, with the exception of Dr. Wittstamm whom we pay $3,000 per meeting. In 2000 we granted to four of our advisory board members for their services stock options to purchase 1,250 shares of our common stock.

Board of Directors

We currently have six authorized directorships. In accordance with the terms of our amended and restated certificate of incorporation, the terms of office of the directors are divided into three classes:

• Class I, whose term will expire at the annual meeting of stockholders to be held in 2006;

• Class II, whose term will expire at the annual meeting of stockholders to be held in 2007; and

• Class III, whose term will expire at the annual meeting of stockholders to be held in 2008.

59

The Class I directors are Dr. Ulrich and Mr. Wheeler, the Class II directors are Dr. Ayers and Dr. Brennan and the Class III director is Mr. Merselis. At each annual meeting of stockholders, or special meeting in lieu thereof, after the initial classification of the board of directors, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election or special meeting held in lieu thereof. The authorized number of directors may be changed only by resolution of the board of directors or a vote by the holders of at least 66 ²/3% of our then outstanding common stock. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management.

Board Committees

Our audit committee consists of Drs. Ayers, Brennan and Ulrich. The audit committee reviews and monitors our financial statements and internal accounting procedures, makes recommendations to our board of directors regarding the selection of independent accountants and consults with and reviews the services provided by our independent accountants.

Our compensation committee consists of Dr. Brennan, Dr. Ulrich and Mr. Wheeler. The compensation committee reviews and recommends to the board of directors the compensation and benefits of our executive officers and administers our stock plans and employee benefit plans.

Our nominating and governance committee is comprised of Drs. Brennan and Ulrich. The function of the nominating and governance committee is to assist the board of directors with membership selection, evaluation of overall effectiveness of the board of directors and the review of developments in corporate governance practices.

Compensation Committee Interlocks and Insider Participation

Prior to establishing the compensation committee, the board of directors as a whole performed the functions delegated to the compensation committee. No member of the board of directors or the compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Director Compensation

We reimburse our non-employee directors for their expenses incurred in connection with attending board and committee meetings but do not compensate them for their services as board or committee members. We have in the past granted non-employee directors options to purchase our common stock pursuant to the terms of our 1997 Stock Plan, and our board continues to have the discretion to grant options to new and continuing non-employee directors.

In March 2005, our stockholders approved our 2005 Equity Incentive Plan, the terms of which include the automatic grant of stock options to directors who are not our officers or employees. The 2005 Equity Incentive Plan provides that such directors will automatically receive:

• one-time option grants of 11,250 shares vesting annually over three years from the date of joining the board which are to be granted on such date at an exercise price equal to the fair market value of our common stock on the date of grant; and

• annual option grants of 3,750 shares vested in full on the third anniversary of the date of grant which are to be granted on the date of each annual stockholder meeting following the closing of this offering at an exercise price equal to the fair market value of our common

60

stock on the date of grant, provided that such grant will only be made to non-employee directors that have been members of the board for at least six months at the time of such annual stockholder meeting.

Executive Compensation

The following table sets forth summary information concerning compensation earned for services rendered to us in all capacities by our chief executive officer and each of our other four most highly compensated executive officers whose total annual salary and bonus exceeded $100,000 as of the last fiscal year ended September 30, 2004. We refer to these persons as our named executive officers.

Summary 2004 Compensation Table

	Annual Compensation								Long Term Compensation
Name and Principal Positions	Salary			Bonus		Other			Securities Underlying Options (#)
James D. Merselis President and Chief Executive Officer	$	233,909		$	55,000	$	38,869	(1)	—
Paul Balsara Vice President, Finance and Chief Executive Officer		171,048	(2)		13,449		—		65,000
Gary E. Hewett Former Executive Vice President, Research and Development(3)		187,188			36,188		—		—
Dale Clendon Former Vice President, Sales(4)		179,566			28,028		—		—
Michael R. Acosta Vice President, Quality Assurance and Regulatory Affairs		148,617			12,700		—		—

(1) Consists of $29,495 for temporary living expenses and $9,374 for insurance premiums.

(2) Mr. Balsara’s employment with us began in April 2004 at an annual salary of $180,000. Prior to that time, Mr. Balsara was our financial consultant. Includes $81,048 in consulting fees paid to Mr. Balsara prior to April 2004.

(3) Mr. Hewett resigned in March 2005.

(4) Mr. Clendon resigned in October 2004.

2004 Option Grants

The following table sets forth information concerning the stock option grant to Mr. Balsara during fiscal year 2004. No other grants of stock options were made to any of the other executive officers named in the summary compensation table during fiscal year 2004.

	Individual Grants						Potential Realizable Value at Assumed Annual Rates of Stock Appreciation for Option Term ($)
	Number of Securities Underlying Options Granted	Percent of Total Options Granted to Employees During Period (%)		Exercise Price Per Share ($)		Expiration Date
Name							5%		10%
James D. Merselis	—	—			—	—		—		—
Paul Balsara	65,000	20.7	%	$	0.80	3/30/2014	$	1,084,850	$	1,718,600
Gary E. Hewett	—	—			—	—		—		—
Dale Clendon	—	—			—	—		—		—
Michael R. Acosta	—	—			—	—		—		—

61

The option granted to Mr. Balsara was granted under the 1997 Stock Plan. This option vests at the rate of 25% after one year of service from the vesting commencement date of April 1, 2002, and monthly thereafter in equal amounts over 36 additional months. However, the vesting of this option will fully accelerate upon the occurrence of a change of control. This option has a term of 10 years, but may terminate before its expiration date if Mr. Balsara’s status as our employee is terminated, or upon his death or disability. See “—Benefit Plans— 1997 Stock Plan.” The percent of the total options granted to Mr. Balsara as set forth above is based on an aggregate of 313,500 options granted to our employees during fiscal year 2004. This option was granted at fair market value as determined by our board of directors on the date of grant.

With respect to the amount disclosed in the column captioned “Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term,” potential realizable value represents hypothetical gains that could be achieved for the option if exercised at the end of the option term assuming that the initial public offering price of our common stock appreciates at 5% and 10% over the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock price. The potential realizable value is calculated based on an assumed initial public offering price of $11.00 per share, the midpoint of the range on the front cover of this prospectus, and assume that the common stock appreciates at the indicated rate for the entire term of the option, and that the option is exercised at the exercise price and sold on the last day of the option term of the option at the appreciated price. Actual gains, if any, on stock option exercises are dependant on the future performance of our common stock and overall stock market conditions. The amounts reflected in the table may not necessarily be realized.

Aggregate Option Exercises and Option Values

The following table sets forth information concerning exercisable and unexercisable stock options held by the executive officers named in the summary compensation table as of September 30, 2004. No options were exercised by the named executive officers as of September 30, 2004. The amount described in the column captioned “Value of Unexercised In-the-Money Options at September 30, 2004” represents the positive spread between the exercise price of stock options and the fair market value of the options, which is based upon on an initial offering price of $11.00 per share, the midpoint of the range on the front cover of this prospectus, minus the actual exercise price per share. All options were granted under our 1997 Stock Plan.

	Number of Securities Underlying Unexercised Options at September 30, 2004 (#)		Value of Unexercised In-the-Money Options at September 30, 2004 ($)
Name	Exercisable	Unexercisable	Exercisable		Unexercisable
James D. Merselis	114,750	54,375	$	1,170,450	$	554,625
Paul Balsara.	41,645	26,355		424,779		268,821
Gary E. Hewett.	58,150	14,350		593,130		146,370
Dale Clendon(1)	52,265	20,235		493,103		206,397
Michael R. Acosta	20,062	188		203,932		1,917

(1) Following Mr. Clendon’s resignation in October 2004, these options were subsequently returned to our 1997 Stock Plan and are no longer exercisable.

Employment Agreement

We have entered into an employment agreement with James Merselis, our President and Chief Executive Officer. That agreement provides that in the event that Mr. Merselis is terminated without cause or constructively terminated he will receive salary continuation and payment of group

62

healthcare premiums for a period of nine months. In the event that he is terminated without cause or constructively terminated prior to a change of control, he will also receive accelerated vesting of all then unvested shares subject to outstanding stock options. In the event that he is terminated without cause or constructively terminated following a change of control, he will receive accelerated vesting as to 50% of any then unvested shares subject to outstanding options.

Benefit Plans

1997 Stock Plan

Our board of directors adopted and our stockholders approved the 1997 Stock Plan in November 1997. Our board of directors will not grant any additional options under the plan following the effective date of this offering. However, the plan will continue to govern the terms and conditions of the outstanding options previously granted under the plan.

A total of 1,137,500 shares of our common stock are authorized for issuance under the 1997 Stock Plan. As of March 31, 2005, options to acquire a total of 998,750 shares of our common stock were issued and outstanding, and a total of 99,947 shares of our common stock had been issued upon the exercise of options granted under the plan that had not been repurchased by us.

The plan provides for the grant of nonstatutory stock options to our employees and consultants, and for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code to our employees. Our board of directors administers the 1997 Stock Plan. The administrator has the authority to determine the terms and conditions of the options granted under the plan.

Generally, in the event of a “change of control,” the successor corporation will assume each outstanding option or replace such options with equivalent rights that preserve the spread between the strike price and fair market value associated with such option. If the outstanding options are not assumed, or if the successor corporation does not replace such options with equivalent rights, the outstanding options will become fully exercisable immediately prior to such change of control and will terminate upon the consummation of the change of control. Generally, if options are assumed in connection with the change of control and an optionee’s employment is terminated as the result of an “involuntary termination” within 12 months of the change of control, the options held by such optionee will immediately vest in full.

2005 Equity Incentive Plan

Our board of directors and our stockholders adopted our 2005 Equity Incentive Plan in March 2005. Our 2005 Equity Incentive Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to our employees and our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock purchase rights, restricted stock, restricted stock units, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants.

As of March 2005, a total of 50,000 shares of our common stock were reserved for issuance pursuant to the 2005 Equity Incentive Plan, of which no options were issued and outstanding as of that date. The 2005 Equity Incentive Plan will become effective on the day prior to the completion of this offering. In addition, the shares reserved for issuance under our 2005 Equity Incentive Plan include (a) shares reserved but unissued under the 1997 Stock Plan as of the effective date of this offering, (b) shares returned to the 1997 Stock Plan as the result of termination of options or the repurchase of shares issued under such plan, and (c) annual increases in the number of shares available for issuance on the first day of each fiscal year beginning with our 2006 fiscal year, equal to the least of:

• 5% of the outstanding shares of common stock on the first day of our fiscal year;

63

• 1,250,000 shares; or

• an amount our board may determine.

Our board of directors or a committee of our board administers our 2005 Equity Incentive Plan. In the case of options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, the committee will consist of two or more “outside directors” within the meaning of Section 162(m) of the Code. The administrator has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each such award, the exercisability of the awards and the form of consideration, if any, payable upon exercise. The administrator also has the authority to institute an exchange program by which outstanding awards may be surrendered in exchange for awards with a lower exercise price.

The administrator determines the exercise price of options granted under our 2005 Equity Incentive Plan, but with respect to nonstatutory stock options and stock appreciation rights intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code and all incentive stock options, the exercise price must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator determines the term of all other options.

No participant may be granted an option to purchase more than 187,500 shares in any fiscal year. However, in connection with his or her initial service, a participant may be granted an additional option to purchase up to 312,500 shares.

After termination of an employee, director or consultant, he or she may exercise his or her option for the period of time stated in the option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, the option will generally remain exercisable for three months. However, an option generally may not be exercised later than the expiration of its term.

Stock appreciation rights may be granted under our 2005 Equity Incentive Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. The administrator determines the terms of stock appreciation rights, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof.

Restricted stock may be granted under our 2005 Equity Incentive Plan. Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any participant. The administrator may impose whatever conditions to vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.

Restricted stock units may be granted under the 2005 Equity Incentive Plan. Restricted stock units will vest in accordance with terms and conditions established by the administrator. Restricted stock units may be granted at the sole discretion of the administrator. The administrator may impose whatever conditions to vesting it determines to be appropriate including the participant’s continued employment with us and the achievement of company-wide, business unit or other individual goals.

64

Earned restricted stock units may be paid out in cash, shares of common stock or any combination hereof at the sole discretion of the administrator.

Performance units and performance shares may be granted under our 2005 Equity Incentive Plan. Performance units and performance shares are awards that will result in a payment to a participant generally only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. Performance units shall have an initial dollar value established by the administrator prior to the grant date. Performance shares shall have an initial value equal to the fair market value of our common stock on the grant date.

Our 2005 Equity Incentive Plan also provides for the automatic grant of options to our non-employee directors. Each non-employee director appointed or elected to the board after the completion of this offering will receive an initial option to purchase 11,250 shares upon such appointment or election, except for those directors who become non-employee directors by ceasing to be employee directors. In addition, beginning in 2006, non-employee directors who have been directors for at least six months will receive a subsequent option to purchase 3,750 shares following each annual meeting of our stockholders. All options granted under the automatic grant provisions have a term of ten years and an exercise price equal to fair market value on the date of grant. Each initial option becomes exercisable as to one-third of the shares subject to such option on each anniversary of the date of grant, provided the non-employee director remains a service provider on such dates. Each subsequent option becomes exercisable as to all of the shares subject to such option on the third anniversary of the date of grant, provided the non-employee director remains a service provider through such date.

Our 2005 Equity Incentive Plan generally does not allow for the transfer of awards and generally only the recipient of an award may exercise an award during his or her lifetime.

Our 2005 Equity Incentive Plan provides that in the event of our “change of control” the administrator will determine how awards granted thereunder will be treated, including without limitation that the successor corporation will assume or substitute an equivalent award for each award. If there is no assumption or substitution of outstanding awards, unless the administrator provides otherwise, all stock options and stock appreciation rights will become exercisable as to all shares subject to such awards, all restrictions on restricted stock and restricted stock units will lapse, and, with respect to performance shares and performance units, all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. If awards are not assumed by the successor corporation, the award will terminate upon the expiration of such period as the administrator determines. With respect to awards granted to an outside director that are assumed or substituted for, if such outside director is terminated on or following a change in control, other than pursuant to a voluntary resignation, his or her awards will fully vest.

Our 2005 Equity Incentive Plan will automatically terminate in 2015, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate the 2005 Equity Incentive Plan provided such action does not impair the rights of any participant.

401(k) Plan

Effective January 1, 2001, we adopted a Retirement Savings and Investment Plan, the 401(k) Plan, covering our employees located in the United States who have a minimum of three months of service. The 401(k) Plan is intended to qualify under Section 401(k) of the Internal Revenue Code, so that contributions to the 401(k) Plan by employees or by us, and the investment earnings thereon, are

65

not taxable to the employees until withdrawn. If our 401(k) Plan qualifies under Section 401(k) of the Internal Revenue Code, our contributions will be deductible by us when made. Our employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit of $14,000 if under 50 years old and $18,000 if over 50 years old in 2005 and to have those funds contributed to the 401(k) Plan.

Change of Control Severance Arrangements

Employment with us is at-will. We have entered into agreements with Mr. Balsara, Ms. Navarro and Mr. Still pursuant to which each of them will receive a lump-sum cash severance payment equal to 50% of their annual base salary in the event they are terminated without cause or resign for good reason within 12 months of a change of control transaction. For purposes of our agreements with these executive officers:

• “change of control” includes our merger or combination with or into a third party or the sale or disposition of all or substantially of our assets;

• “termination without cause” means a termination for reasons other than an act of material dishonesty in performing the officer’s duties, a felony conviction, gross misconduct or a willful failure to substantially perform the officer’s duties; and

• “resignation for good reason” means a reduction in the officer’s base compensation, a material reduction in responsibilities, perquisites or benefits or a relocation to more than 50 miles from our current facility.

66

RELATED PARTY TRANSACTIONS

We describe below transactions and series of similar transactions, that have occurred this year or during our last three fiscal years, to which we were a party or will be a party, in which:

• the amounts involved exceeded or will exceed $60,000; and

• a director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

Preferred Stock Issuances

Over the past three years, we sold shares of our preferred stock in private financings at a price of $1.58 per share as follows:

• 4,903,526 shares of Series C-1 preferred stock in May 2003;

• 2,286,267 shares of Series C-2 preferred stock in June 2004; and

• 2,124,218 shares of Series C-3 preferred stock in February 2005.

The investors in these financings included the following directors and holders of more than 5% of our securities and their affiliated entities:

Investor	Series C-1	Series C-2	Series C-3
Funds affiliated with MPM Capital(1)	2,653,456	1,265,823	1,368,930
Vanguard V, L.P.(2)	523,406	237,530	270,646
W Capital Partners Ironworks, L.P.	519,701	235,849	268,730
GC Technology Fund L.P. and MGVF III, Ltd	221,520	—	—

(1) Kurt Wheeler, one of our directors, is an investment manager of MPM Asset Management II, LLC, the general partner of MPM Asset Management II, L.P., the general partner of the funds affiliated with MPM Capital which purchased these shares of our preferred stock.

(2) Robert Ulrich, one of our directors, is a member of Vanguard Venture Partners, LLC, the general partner of Vanguard V, L.P.

Each share of preferred stock will convert automatically into 0.25 shares of common stock immediately prior to the closing of this offering. The purchasers of these shares of preferred stock are entitled to certain registration rights. See “Description of Capital Stock—Registration Rights.”

Debt Financing

In April 2005, we issued an aggregate of $1.5 million of unsecured promissory notes to three of our existing stockholders which are large institutional accredited investors, including affiliates MPM Capital and W Capital Partners Ironworks. The notes accrue interest at 6% annually and are to be repaid on the earlier of October 31, 2005 or upon the occurrence of a “liquidation event.” A liquidation event is defined to mean our liquidation, dissolution or winding up or a merger, acquisition or sale of voting control or substantially all of our assets. The notes can be prepaid at any time following our initial public offering. We also issued to these investors warrants to purchase shares of our common stock. The number of shares issuable upon exercise of the warrants is calculated by dividing 20% of the principal amount of the notes by the warrant exercise price per share. The warrant exercise price per share will be set at the price per share paid by the investors in our next equity financing, whether public or private. The warrants will terminate five years from their date of issuance.

67

Management Retention Plan

We have a management retention plan that provides that in the event that we are acquired or sell substantially all of our assets in a transaction in which the net proceeds exceed a specified threshold, a portion of the proceeds will be reserved for distribution to our employees. The determination as to the allocation of such distributions will be made by our board of directors. Our executive officers are likely to be recipients of such distributions. Our management retention plan will automatically terminate upon the completion of this offering with no payment required to be made thereunder.

Relationships with Entities Affiliated with a Director

Innovative Medical Products GmbH, or IMed Pro, has provided us with consulting and distribution services in Germany pursuant to a consulting agreement entered into in May 2002 and a non-exclusive sales representative and services agreement entered into in November 2002. The consulting agreement provided for IMed Pro’s assistance with running clinical trials involving our product. The sales representative and services agreement provided for IMed Pro to act as our non-exclusive sales representative in Germany. Dr. Gregory Ayers, one of our directors, is a general manager of IMed Pro. During the past three fiscal years, we made payments to IMed Pro of approximately $156,000 in 2002, $436,000 in 2003 and $560,000 in 2004 for consulting and distribution services. The agreements between us and IMed Pro were terminated effective January 1, 2005. Since January 2005, I-Med-Partner GmbH has served as a distributor in Germany and purchased $185,000 of our product. IMed Pro is a shareholder of I-Med-Partner GmbH.

Consulting Agreements with Officers and Directors

Prior to becoming our Vice President, Finance and Chief Financial Officer in April 2004, Paul Balsara provided financial consulting services to us. During the past three fiscal years, we made payments to Mr. Balsara of $76,365 in 2002, $111,200 in 2003 and $81,048 in 2004 for these consulting services.

Edward Brennan, Ph.D., one of our directors, has provided consulting services to us not directly related to his service as a board member. During the past three fiscal years, we made payments to Dr. Brennan of $15,000 in 2003 and $58,750 in 2004 for these consulting services.

Indemnification Agreements of Officers and Directors

Our amended and restated certificate of incorporation and bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Further, we have entered into indemnification agreements with each of our directors and officers. For further information, see “Description of Capital Stock—Limitations of Liability and Indemnification Matters.”

68

PRINCIPAL STOCKHOLDERS

The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of March 31, 2005 and as adjusted to reflect the sale of common stock offered hereby by:

• each stockholder known by us to own beneficially more than five percent of our common stock;

• each of the named executive officers listed in the Summary Compensation Table on page 61;

• each of our directors; and

• all of our directors and the named executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of March 31, 2005 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. Except as otherwise indicated, the address of each of the persons in this table is c/o HemoSense, Inc., 651 River Oaks Parkway, San Jose, California 95134.

	Beneficial Ownership (#)			Percentage of Shares Outstanding (%)
Name and Address of Beneficial Owner	Shares		Options and Warrants Exercisable Within 60 Days	Before the Offering(1)	After the Offering
Holders of More Than 5%
Funds affiliated with MPM Capital 111 Huntington Ave., 31st Floor Boston, MA 02199	3,537,359	(2)	—	58.6	41.0
Vanguard V, L.P. 1330 Post Oak Boulevard, Suite 1550 Houston, TX 77056	699,357	(3)	—	11.6	8.1
W Capital Partners Ironworks, L.P. 245 Park Ave., 39th Floor New York, NY 10167	694,407	(4)	—	11.5	8.0
GC Technology Fund L.P. and MGVF III, Ltd. 777 Post Oak Blvd., Suite 250 Houston, TX 77056	403,762	(5)	—	6.7	4.7
Named Executive Officers and Directors
James D. Merselis	—		158,214	2.6	1.8
Paul Balsara	—		57,979	*	*

69

	Beneficial Ownership (#)				Percentage of Shares Outstanding (%)
Name and Address of Beneficial Owner	Shares		Options and Warrants Exercisable Within 60 Days		Before the Offering(1)	After the Offering
Gary E. Hewett	—		68,776		1.1	*
Dale Clendon(6)	—		—		—	—
Michael R. Acosta	—		20,250		*	*
Edward F. Brennan, Ph.D.	—		21,999		*	*
Gregory M. Ayers, M.D., Ph.D.	—		92,152	(7)	1.5	1.1
Robert D. Ulrich, Ph.D.	699,357	(3)	—		11.6	8.1
Kurt C. Wheeler	3,537,359	(2)	—		58.6	41.0
All named executive officers and directors as a group (9 persons)	4,236,716		419,370		72.2	51.4

* Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock, after giving effect to the conversion of all of our preferred stock into shares of our common stock.

(1) Percentage of beneficial ownership is based upon 6,033,764 shares of our common stock outstanding as of March 31, 2005, after giving effect to the conversion of all of our preferred stock into shares of our common stock.

(2) Includes 838,354 shares held by MPM Bio Ventures GmbH & Co. Parallel-Beteiligungs KG, 262,825 shares held by MPM Bio Ventures II, L.P., 2,381,352 shares held by MPM Bio Ventures II-QP, L.P. and 54,828 shares held by MPM Asset Management Investors 2000 B LLC. MPM Asset Management II, LLC is the general partner of MPM Asset Management II, L.P, the general partner of MPM Bio Ventures GmbH & Co. Parallel-Beteiligungs KG, MPM Bio Ventures II, L.P. and MPM Bio Ventures II-QP, L.P. Ansbert Gadicke, Michael Steinmetz, Luke Evnin, Nicholas Galakatos and Kurt Wheeler, as investment managers of MPM Asset Management II, LLC, the general partner of MPM Asset Management II, L.P., and MPM Asset Management Investors 2000 B LLC, share voting and investment power with respect to shares held by MPM Bio Ventures GmbH & Co. Parallel-Beteiligungs KG, MPM Bio Ventures II, L.P., MPM Bio Ventures II-QP, L.P. and MPM Asset Management Investors 2000 B LLC. Mr. Wheeler disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest therein.

(3) Includes 699,357 shares held by Vanguard V, L.P. Dr. Ulrich is a member of Vanguard V Venture Partners, LLC, the general partner of Vanguard V., L.P., and shares voting and investment power with respect to shares held by Vanguard V, L.P. with Jack M. Gill, Clifford H. Higgerson and Curtis K. Myers, the other members of Vanguard V Venture Partners, LLC. Dr. Ulrich disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest therein.

(4) WCP I, L.L.C. is the general partner of W Capital Partners Ironworks, L.P. David S. Wachter, Stephen Wertheimer and Robert J. Migliorino, as managing members of WCP I, L.L.C, share voting and investment power with respect to shares held by W Capital Partners Ironworks, L.P.

(5) Includes 261,079 shares held by GC Technology Fund L.P. and 142,683 shares held by MGVF III, Ltd. Shares held by GC Technology Fund L.P. and MGVF III, Ltd. are being aggregated for purposes of determining beneficial ownership of 5% or more of our common stock because Marc Geller is both a general partner of GCV Management LLC, the general partner of GC Technology Fund L.P., and a managing director of MGVF III, Ltd. Mr. Geller shares voting and investment power with Marc Cellier, the other general partner of GCV Management LLC, with respect to shares held by GC Technology Fund L.P. Mr. Geller has sole voting and dispositive power over shares held by MGVF III, Ltd.

(6) Mr. Clendon resigned in October 2004 and as such, does not hold any stock options which become exercisable within 60 days of March 31, 2005.

(7) Includes 45,000 shares issuable upon the exercise of outstanding warrants held by Innovative Medical Product Consultants, GmbH, of which Dr. Ayers, along with Knut-Michael Scharnberger, are partners. Dr. Ayers and Mr. Scharnberger share investment power with respect to the warrants held by Innovative Medical Product Consultants, GmbH. Dr. Ayers disclaims beneficial ownership of these securities, except to the extent of his pecuniary interest therein.

70

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, our authorized capital stock, after giving effect to the conversion of all outstanding preferred stock into common stock and the amendment of our certificate of incorporation, will consist of 50 million shares of common stock, $0.001 par value, and 10 million shares of preferred stock, $0.001 par value. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description you should refer to our certificate of incorporation and bylaws, effective upon completion of this offering, copies of which have been filed as exhibits to the registration statement of which the prospectus is a part.

Common Stock

As of March 31, 2005, there were 6,033,764 shares of common stock outstanding held by 33 stockholders of record, assuming the automatic conversion of each outstanding share of preferred stock into one share of common stock immediately prior to the closing of this offering. After this offering, there will be 8,633,764 shares of our common stock outstanding, or 9,023,764 shares if the underwriters exercise their over-allotment option in full.

The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and do not have cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared by the board of directors out of legally available funds. Upon our liquidation, dissolution or winding up, the holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities of our company, subject to the prior rights of any preferred stock then outstanding. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking funds provisions applicable to the common stock. All outstanding shares of common stock are, and the common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

Preferred Stock

As of March 31, 2005, there were 21,956,251 shares of preferred stock outstanding held by 16 stockholders of record. Immediately prior to the closing of this offering, each outstanding share of preferred stock will be converted into 0.25 shares of common stock. Following the conversion, our certificate of incorporation will be amended and restated to delete all references to the prior series of preferred stock, and 10 million shares of undesignated preferred stock will be authorized.

The board of directors will have the authority, without further action by the stockholders, to issue from time to time the preferred stock in one or more series and to fix the number of shares, designations, preferences, powers, and relative, participating, optional or other special rights and the qualifications or restrictions thereof. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions, and purchase funds and other matters. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to holders of common stock or adversely affect the rights and powers, including voting rights, of the holders of common stock, and may have the effect of delaying, deferring or preventing a change in control of our company.

71

Warrants

As of March 31, 2005, the following warrants were outstanding:

• Warrants to purchase an aggregate of 45,000 shares of common stock at an exercise price of $0.80 per share. These warrants may be exercised at any time prior to the earlier of May 17, 2005 as to 12,500 shares, May 21, 2007 as to 16,250 shares and September 12, 2007 as to 16,250 shares, or our merger or acquisition with or into another company.

• Warrants to purchase shares of Series C-3 preferred stock at an exercise price of $1.58 per share. These warrants may be exercised at any time prior to the earlier of July 21, 2010 as to 33,228 shares and March 5, 2011 as to 474,684 shares, or our merger or acquisition with or into another company. Assuming conversion of all of our preferred stock into common stock immediately prior to the closing of this offering, these warrants to purchase Series C-3 preferred stock will be exercisable for 8,307 and 118,671 shares, respectively, of common stock at $6.32 per share.

Registration Rights

In addition, after this offering, the holders of shares of preferred stock convertible into 5,489,045 shares of common stock and warrants exercisable for an aggregate of 126,977 shares of common stock will be entitled to rights to cause us to register the sale of such shares under the Securities Act. These shares are referred to as registrable securities. Specifically, commencing 180 days after the effective date of the registration statement of which this prospectus is a part, a holder or holders of at least 30% of the registrable securities may require us to prepare and file a registration statement under the Securities Act at our expense covering registrable securities, provided that the shares to be included in such registration will generate anticipated aggregate net proceeds of at least $250,000. Under these demand registration rights, we are required to use our best efforts to cause the shares requested to be included in the registration statement, subject to customary conditions and limitations. We are not obligated to effect more than two of these stockholder-initiated registrations. Once we become eligible to file a registration statement on Form S-3, the holders of registrable securities may require us to register all or a portion of their securities on a registration statement on Form S-3 and may participate in a Form S-3 registration by us, subject to specific conditions and limitations. Registration rights terminate no later than five years after this offering. Registration of these shares under the Securities Act would result in these shares, other than shares purchased by our affiliates, becoming freely tradable without restriction under the Securities Act.

Anti-Takeover Effects of Provisions of our Amended and Restated Certificate of Incorporation and Bylaws and Delaware Law

Some provisions of Delaware law and our amended and restated certificate of incorporation and bylaws contain provisions that could make the following transactions more difficult:

• acquisition of us by means of a tender offer;

• acquisition of us by means of a proxy contest or otherwise; or

• removal of our incumbent officers and directors.

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or

72

unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because negotiation of such proposals could result in an improvement of their terms.

Undesignated Preferred Stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

Stockholder Meetings. Our charter documents provide that a special meeting of stockholders may be called only by our board of directors, chairman of the board, chief executive officer or president (in the absence of a chief executive officer).

Requirements for Advance Notification of Stockholder Nominations and Proposals. Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

Elimination of Stockholder Action by Written Consent. Our certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.

Election and Removal of Directors. Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see the section entitled “Management—Board of Directors.” This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us because it generally makes it more difficult for stockholders to replace a majority of the directors.

Delaware Anti-Takeover Statute. We are subject to Section 203 of the Delaware General Corporation Law which prohibits persons deemed “interested stockholders” from engaging in a “business combination” with a Delaware corporation for three years following the date these persons become interested stockholders. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.

Amendment of Charter Provisions. The amendment of any of the above charter provisions would require approval by holders of at least 66 ²/3% of our then outstanding common stock.

The provisions of Delaware law and our amended and restated certificate of incorporation and bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. Such provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.

Limitations of Liability and Indemnification Matters

We have adopted provisions in our amended and restated certificate of incorporation that limit the liability of our directors for monetary damages for breaches of their fiduciary duties, except for

73

liability that cannot be eliminated under the Delaware General Corporation Law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breaches of their fiduciary duties as directors, except liability for any of the following:

• any breach of their duty of loyalty to the corporation or the stockholder;

• acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

• unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

• any transaction from which the director derived an improper personal benefit.

This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

Our amended and restated certificate of incorporation and bylaws also provide that we shall indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether our bylaws would permit indemnification.

We have entered into separate indemnification agreements with our directors and executive officers, in addition to indemnification provided for in our charter documents. These agreements among other things, will provide for indemnification of our directors and executive officers for expenses, judgments, fines and settlement amounts incurred by any such person in any action or proceeding arising out of such person’s services as a director or executive officer or at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

Nasdaq National Market Listing

We have reserved the symbol “HEMO” for trading on The NASDAQ Stock Market.

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is             .

74

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering there has been no public market for our common stock, and no predictions can be made regarding the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after the restrictions lapse, or the perception that such sales may occur, could adversely affect the prevailing market price.

Sale of Restricted Shares and Lock-Up Agreements

Upon completion of this offering, we will have an aggregate of 8,633,764 outstanding shares of common stock, or 9,023,764 shares if the underwriters exercise the over-allotment option in full. As of March 31, 2005, we had:

• outstanding stock options held by employees, consultants and directors for the purchase of an aggregate of 998,750 shares of common stock;

• outstanding warrants to purchase 45,000 shares of common stock; and

• outstanding warrants to purchase 126,977 shares of Series C-3 preferred stock which will automatically convert into warrants to purchase an equal number of shares of common stock immediately prior to the completion of this offering.

The 2,600,000 shares of common stock being sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by affiliates of our company, as that term is defined in Rule 144 of the Securities Act. All remaining shares were issued and sold by us in private transactions and are eligible for public sale if registered under the Securities Act or sold in accordance with Rule 144 or Rule 701 thereunder.

Eligibility of Restricted Shares for Sale in the Public Market

All of our officers and directors and substantially all of our stockholders have signed lock-up agreements under which they will agree not to transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, for a period of 180 days after the date of this prospectus. Transfers or dispositions can be made sooner with the prior written consent of WR Hambrecht + Co and Roth Capital Partners, LLC, as representatives of the underwriters.

Following the expiration of the lock-up period, approximately 7,204,491 shares of common stock, including shares issuable upon the exercise of outstanding options and warrants, will be available for sale in the public market subject to compliance with Rule 144, Rule 144(k) or Rule 701.

Rule 144

In general, under Rule 144, a person or persons whose shares are aggregated who has beneficially owned restricted securities for at least one year, including the holding period of any holder who is not an affiliate, and who files a Form 144 with respect to such sale, is entitled to sell within any three-month period commencing 90 days after the date of this prospectus a number of shares of common stock that does not exceed the greater of:

• 1% of the then outstanding shares of our common stock, or approximately                  shares immediately after this offering; or

• the average weekly trading volume during the four calendar weeks preceding such sale.

75

Sales under Rule 144 are also subject to restrictions relating to manner of sale, notice and the availability of current public information about us. We cannot estimate the number of shares that will be sold under Rule 144, as this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors. Prior to this offering, there has been no public market for our common stock, and a significant public market for our common stock may never develop or be sustained after this offering. Any future sale of substantial amounts of our common stock in the open market may adversely affect the market price of our common stock.

Rule 144(k)

A person who is not deemed to have been our affiliate at any time during the three months immediately preceding a sale and who has beneficially owned his or her shares for at least two years, including the holding period of any prior owner who is not an affiliate, is entitled to sell these shares of common stock pursuant to Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information or notice requirements of Rule 144. Affiliates must always sell pursuant to Rule 144, even after the applicable holding periods have been satisfied.

Rule 701

Rule 701 may be relied upon with respect to the resale of securities originally purchased from us by our employees, directors, officers, consultants or advisers prior to the closing of this offering and pursuant to written compensatory benefit plans or written contracts relating to the compensation of such persons. In addition, the SEC has indicated that Rule 701 will apply to stock options granted by us before this offering, along with the shares acquired upon exercise of such options. Securities issued in reliance on Rule 701 are deemed to be restricted securities and, beginning 90 days after the date of this prospectus, may be sold by persons other than affiliates subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with the holding period requirements. As of March 31, 2005, 99,947 of our outstanding shares of common stock had been issued in reliance on Rule 701 as a result of exercise of stock options, and all of these shares are subject to 180-day lock-up agreements.

Stock Options

We intend to file a registration statement on Form S-8 under the Securities Act for shares of our common stock subject to options outstanding or reserved for issuance under our 1997 Stock Plan and 2005 Equity Incentive Plan. We expect to file this registration statement as soon as practicable after this offering. Shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with us or are otherwise subject to the contractual restrictions described above.

Registration Rights

After this offering, the holders of 5,489,045 shares of common stock issued upon conversion of our preferred stock and 126,977 shares of common stock issued upon exercise of outstanding warrants, will be entitled to certain rights with respect to the registration of these shares under the Securities Act. These holders may demand that we register their shares under the Securities Act, or if we file another registration statement under the Securities Act may elect to include their registrable securities in that registration, subject to various conditions. For additional information, see “Description of Capital Stock—Registration Rights.”

76

PLAN OF DISTRIBUTION

In accordance with the terms of the underwriting agreement between WR Hambrecht + Co, LLC and Roth Capital Partners, LLC, as representatives of the underwriters, and us, each underwriter has agreed to purchase from us that number of shares of common stock set forth opposite the underwriter’s name below at the public offering price less the underwriting discounts and commissions described on the cover page of this prospectus.

Underwriters	Number of Shares
WR Hambrecht + Co, LLC
Roth Capital Partners, LLC
Total	2,600,000

The underwriting agreement provides that the obligations of the underwriters are subject to conditions, including the absence of any material adverse change in our business, and the receipt of certificates, opinions and letters from us and counsel. Subject to those conditions, the underwriters are committed to purchase all of the shares of our common stock offered by this prospectus if any of the shares are purchased.

The underwriters propose to offer the shares of our common stock directly to the public at the offering price set forth on the cover page of this prospectus, as this price is determined by the OpenIPO process described below, and to certain dealers at this price less a concession not in excess of $         per share. The underwriters may allow, and dealers may reallow, a concession not to exceed $         per share on sales to other dealers. Any dealers that participate in the distribution of our common stock may be deemed to be underwriters within the meaning of the Securities Act, and any discount, commission or concession received by them and any provided by the sale of the shares by them may be deemed to be underwriting discounts and commissions under the Securities Act. After completion of the initial public offering of the shares, to the extent that the underwriters are left with shares that successful bidders have failed to pay for, the underwriters may sell those shares at a different price and with different selling terms.

The following table shows the per share and total underwriting discount to be paid to the underwriters by us in connection with this offering. The underwriting discount has been determined through negotiations between us and the underwriters, and has been calculated as a percentage of the offering price. These amounts are shown assuming both no exercise and full exercise of the over-allotment option.

	Per Share	No Exercise	Full Exercise
Public Offering Price	$	$	$
Underwriting Discount	$	$	$
Proceeds, before expenses, to us	$	$	$

The expenses of the offering payable by us, not including underwriting discounts and commissions, are estimated to be approximately $            , which include, among other things, our legal and accounting fees, printing expenses, expenses incurred in connection with meetings with potential investors, filing fees of the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., fees of our transfer agent and registrar and the listing fees of the Nasdaq National Market.

77

An electronic prospectus is available on the website maintained by WR Hambrecht + Co, and may also be made available on websites maintained by selected dealers and selling group members participating in this offering.

The OpenIPO Auction Process

The distribution method being used in this offering is known as the OpenIPO auction, which differs from methods traditionally used in underwritten public offerings. In particular, as described under the captions “Determination of the Public Offering Price” and “Allocation of Shares,” the public offering price and the allocation of shares are determined by an auction conducted by the underwriters and other factors as described below. All qualified individual and institutional investors may place bids in an OpenIPO auction, and investors submitting valid bids have an equal opportunity to receive an allocation of shares.

The following describes how the underwriters and some selected dealers conduct the auction process and confirm bids from prospective investors:

Prior to Effectiveness of the Registration Statement

Before the registration statement relating to this offering becomes effective, but after a preliminary prospectus is available, the auction will open and the underwriters and participating dealers will solicit bids from prospective investors through the Internet and by telephone and facsimile. The bids specify the number of shares of our common stock the potential investor proposes to purchase and the price the potential investor is willing to pay for the shares. These bids may be above or below the range set forth on the cover page of the prospectus. The minimum size of any bid is 100 shares.

The shares offered by this prospectus may not be sold, nor may offers to buy be accepted, prior to the time that the registration statement filed with the Securities and Exchange Commission is declared effective. A bid received by the underwriters or a dealer involves no obligation or commitment of any kind prior to the closing of the auction. Bids can be modified or revoked at any time prior to the closing of the auction.

Approximately two business days prior to the registration statement being declared effective, prospective investors receive, by e-mail, telephone or facsimile, a notice indicating the proposed effective date. Potential investors may at any time expressly request that all, or any specific, communications between them and the underwriters and participating dealers be made by specific means of communication, including e-mail, telephone and facsimile. The underwriters and participating dealers will contact the potential investors in the manner they request.

Effectiveness of the Registration Statement

After the registration statement relating to this offering has been declared effective, potential investors who have submitted bids to the underwriters or a dealer are contacted by e-mail, telephone or facsimile. Potential investors are advised that the registration statement has been declared effective and that the auction may close in as little as one hour following effectiveness. Bids will continue to be accepted in the time period after the registration statement is declared effective but before the auction closes. Bidders may also withdraw their bids in the time period following effectiveness but before the close of the auction.

Reconfirmation of Bids

The underwriters or participating dealers will require that bidders reconfirm the bids that they have submitted in the offering if any of the following events shall occur:

• More than 15 business days have elapsed since the bidder submitted his bid in the offering;

78

• There is a material change in the prospectus that requires recirculation of the prospectus by us and the underwriters; or

• The initial public offering price is more than 20% above the high end of the price range or below the low end of the price range. In this event, we will circulate a revised prospectus with our request for reconfirmation.

If a reconfirmation of bids is required, the underwriters or participating dealers will send an electronic notice (or communicate in an alternative manner as requested by a bidder) to everyone who has submitted a bid notifying them that they must reconfirm their bids by contacting the underwriters or participating dealers with which they have their brokerage accounts. Bidders will have a minimum of four hours to reconfirm their bids. Bidders will have the ability to cancel, modify or reconfirm their bids at any time until the auction closes. If bidders do not reconfirm their bids before the auction is closed (which will be no sooner than four hours after the request for reconfirmation is sent), we and the underwriters will disregard their bids in the auction, and they will be deemed to have been withdrawn. If appropriate, the underwriters or participating dealers may include the request for reconfirmation in a notice of effectiveness of the registration statement.

Changes in the Price Range Prior to Effectiveness of the Registration Statement

If, prior to the date on which the SEC declares our registration statement effective, there is a change in the price range or the number of shares to be sold in our offering, in each case in a manner that is not otherwise material to our offering, we and the underwriters or participating dealers will:

• provide notice on our offering web site of the revised price range or number of shares to be sold in our offering, as the case may be;

• issue a press release announcing the revised price range or number of shares to be sold in this offering, as the case may be; and

• send an electronic notice (or communicate in an alternative manner as requested by a bidder) to everyone who has submitted a bid notifying them of the revised price range or number of shares to be sold in this offering, as the case may be.

In these situations, the underwriters could accept an investor’s bid after the Securities and Exchange Commission declares the registration statement effective without requiring a bidder to reconfirm. However, the underwriters may decide at any time to require potential investors to reconfirm their bids, and if they fail to do so, unconfirmed bids will be invalid.

Closing of the Auction and Pricing

The auction will close and a public offering price will be determined after the registration statement is declared effective at a time agreed to by us and WR Hambrecht + Co, which we anticipate will be after the close of trading on the Nasdaq National Market on the same day on which the registration statement is declared effective. The auction may close in as little as one hour following effectiveness of the registration statement. However, the date and time at which the auction will close and a public offering price will be determined cannot currently be predicted and will be determined by us and WR Hambrecht + Co based on general market conditions during the period after the registration statement is declared effective. If we are unable to close the auction, determine a public offering price and file a final prospectus with the Securities and Exchange Commission within 15 days after the registration statement is initially declared effective, we will be required to file with the Securities and Exchange Commission and have declared effective a post-effective amendment to the registration statement before the auction may be closed and before any bids may be accepted.

79

Once a potential investor submits a bid, the bid remains valid unless subsequently withdrawn by the potential investor. Potential investors are able to withdraw their bids at any time before the close of the auction by notifying the underwriters or a participating dealer.

Following the closing of the auction, the underwriters determine the highest price at which all of the shares offered, including shares that may be purchased by the underwriters to cover any over-allotments, may be sold to potential investors. This price, which is called the “clearing price,” is determined based on the results of all valid bids at the time the auction is closed. The clearing price is not necessarily the public offering price, which is set as described in “Determination of Public Offering Price” below. The public offering price determines the allocation of shares to potential investors, with all valid bids submitted at or above the public offering price receiving a pro rata portion of the shares bid for.

You will have the ability to withdraw your bid at any time until the closing of the auction. The underwriters or participating dealers will accept successful bids by sending notice of acceptance after the auction closes and a public offering price has been determined, and bidders who submitted successful bids will be obligated to purchase the shares allocated to them regardless of (1) whether such bidders are aware that the registration statement has been declared effective and that the auction has closed or (2) whether they are aware that the notice of acceptance of that bid has been sent. The underwriters will not cancel or reject a valid bid after the notice of acceptance has been sent.

Once the auction closes and a clearing price is set as described below, the underwriters or a participating dealer accept the bids from those bidders whose bids are at or above the public offering price but may allocate to a prospective investor fewer shares than the number included in the investor’s bid, as described in “Allocation of Shares” below.

Determination of Public Offering Price

The public offering price for this offering is ultimately determined by negotiation between the underwriters and us after the auction closes and does not necessarily bear any direct relationship to our assets, current earnings, or book value or to any other established criteria of value, although these factors are considered in establishing the initial public offering price. Prior to the offering, there has been no public market for our common stock. The principal factor in establishing the public offering price is the clearing price resulting from the auction, although other factors are considered as described below. The clearing price is used by the underwriters and us as the principal benchmark, among other considerations described below, in determining the public offering price for the stock that will be sold in this offering.

The clearing price is the highest price at which all of the shares offered, including the shares that may be purchased by the underwriters to cover any over-allotments, may be sold to potential investors, based on the valid bids at the time the auction is closed. The shares subject to the underwriters’ over-allotment option are used to calculate the clearing price whether or not the option is actually exercised.

Depending on the outcome of negotiations between the underwriters and us, the public offering price may be lower, but will not be higher, than the clearing price. The bids received in the auction and the resulting clearing price are the principal factors used to determine the public offering price of the stock that will be sold in this offering. The public offering price may be lower than the clearing price depending on a number of additional factors, including general market trends or conditions, the underwriters’ assessment of our management, operating results, capital structure and business potential and the demand and price of similar securities of comparable companies. The underwriters and we may also agree to a public offering price that is lower than the clearing price in

80

order to facilitate a wider distribution of the stock to be sold in the offering. For example, the underwriters and we may elect to lower the public offering price to include certain institutional or retail bidders in the offering. The underwriters and we may also lower the public offering price to create a more stable post-offering trading price for our shares.

The public offering price always determines the allocation of shares to potential investors. Therefore, if the public offering price is below the clearing price, all valid bids that are at or above the public offering price receive a pro rata portion of the shares bid for. If sufficient bids are not received, or if we do not consider the clearing price to be adequate, or if the underwriters and we are not able to reach agreement on the public offering price, then the underwriters and we will either postpone or cancel this offering. Alternatively, we may file with the SEC a post-effective amendment to the registration statement in order to conduct a new auction.

The following simplified example illustrates how the public offering price is determined through the auction process:

Company X offers to sell 1,500 shares in its public offering through the auction process. The underwriters, on behalf of Company X, receive five bids to purchase, all of which are kept confidential until the auction closes.

The first bid is to pay $10.00 per share for 1,000 shares. The second bid is to pay $9.00 per share for 100 shares. The third bid is to pay $8.00 per share for 900 shares. The fourth bid is to pay $7.00 per share for 400 shares. The fifth bid is to pay $6.00 per share for 800 shares.

Assuming that none of these bids are withdrawn or modified before the auction closes, and assuming that no additional bids are received, the clearing price used to determine the public offering price would be $8.00 per share, which is the highest price at which all 1,500 shares offered may be sold to potential investors who have submitted valid bids. However, the shares may be sold at a price below $8.00 per share based on negotiations between Company X and the underwriters.

If the public offering price is the same as the $8.00 per share clearing price, the underwriters would accept bids at or above $8.00 per share. Because 2,000 shares were bid for at or above the clearing price, each of the three potential investors who bid $8.00 per share or more would receive approximately 75% (1,500 divided by 2,000) of the shares for which bids were made. The two potential investors whose bids were below $8.00 per share would not receive any shares in this example.

If the public offering price is $7.00 per share, the underwriters would accept bids that were made at or above $7.00 per share. No bids made at a price of less than $7.00 per share would be accepted. The four potential investors with the highest bids would receive a pro rata portion of the 1,500 shares offered, based on the 2,400 shares they requested, or 62.5% (1,500 divided by 2,400) of the shares for which bids were made. The potential investor with the lowest bid would not receive any shares in this example.

As described in “Allocation of Shares” below, because bids that are reduced on a pro rata basis may be rounded down to round lots, a potential investor may be allocated less than the pro-rata percentage of the shares bid for. Thus, if the pro-rata percentage was 75%, the potential investor who bids for 200 shares may receive a pro rata allocation of 100 shares (one-half of the shares bid for), rather than receiving a pro rata allocation of 150 shares (75% of the shares bid for).

81

The following table illustrates the example described above, after rounding down any bids to the nearest round lot in accordance with the allocation rules described below, and assuming that the initial public offering price is set at $8.00 per share. The table also assumes that these bids are the final bids, and that they reflect any modifications that have been made to reflect any prior changes to the offering range, and to avoid the issuance of fractional shares.

Initial Public Offering of Company X

	Bid Information				Auction Results
	Shares Requested	Cumulative Shares Requested	Bid Price		Shares Allocated	Approximate Allocated Requested Shares		Clearing Price		Amount Raised
	1,000	1,000	$	10.00	700	75	%	$	8.00	$	5,600
	100	1,100	$	9.00	100	75	%	$	8.00	$	800
Clearing Price	900	2,000	$	8.00	700	75	%	$	8.00	$	5,600
	400	2,400	$	7.00	0	0			–		–
	800	3,200	$	6.00	0	0			–		–
Total:					1,500					$	12,000

Allocation of Shares

Bidders receiving a pro rata portion of the shares they bid for generally receive an allocation of shares on a round-lot basis, rounded to multiples of 100 or 1,000 shares, depending on the size of the bid. No bids are rounded to a round lot higher than the original bid size. Because bids may be rounded down to round lots in multiples of 100 or 1,000 shares, some bidders may receive allocations of shares that reflect a greater percentage decrease in their original bid than the average pro rata decrease. Thus, for example, if a bidder has confirmed a bid for 200 shares, and there is an average pro rata decrease of all bids of 30%, the bidder may receive an allocation of 100 shares (a 50% decrease from 200 shares), rather than receiving an allocation of 140 shares (a 30% decrease from 200 shares). In addition, some bidders may receive allocations of shares that reflect a lesser percentage decrease in their original bid than the average pro rata decrease. For example, if a bidder has submitted a bid for 100 shares, and there is an average pro rata decrease of all bids of 30%, the bidder may receive an allocation of all 100 shares to avoid having the bid rounded down to zero.

Generally the allocation of shares in the offering will be determined in the following manner, continuing the first example above:

• Any bid with a price below the public offering price is allocated no shares.

• The pro-rata percentage is determined by dividing the number of shares offered (including the overallotment option) by the total number of shares bid at or above the public offering price. In our example, if there are 2,000 shares bid for at or above the public offering price, and 1,500 shares offered in the offering, then the pro-rata percentage is 75%.

• All of the successful bids are then multiplied by the pro-rata percentage to determine the allocations before rounding. For example, the three winning bids for 1,000 shares (Bid 1), 100 shares (Bid 2), and 900 shares (Bid 3) would initially be allocated 750 shares, 75 shares, and 675 shares, respectively, based on the pro rata percentage.

• The bids are then rounded down to the nearest 100 share round lot, so the bids would be rounded to 700, 0 and 600 shares, respectively. This creates a stub of 200 unallocated shares.

82

• The 200 stub shares are then allocated to the bids. Continuing the example above, because Bid 2 for 100 shares was rounded down to 0 shares, 100 of the stub shares would be allocated to Bid 2. If there were not sufficient stub shares to allocate at least 100 shares to Bid 2, Bid 2 would not receive any shares in the offering. After allocation of these shares, 100 unallocated stub shares would remain.

• Because Bid 3 for 900 shares was reduced, as a result of rounding, by more total shares then Bid 1 for 1,000 shares, Bid 3 would then be allocated the remaining 100 stub shares up to the nearest 100 round lot (from 600 shares to 700 shares).

If there are not sufficient remaining stub shares to enable a bid to be rounded up to a round lot of 100 shares, the remaining unallocated stub shares would be allocated to smaller orders that are below their bid amounts. The table below illustrates the allocations in the example above.

Initial Public Offering of Company X

	Initial Bid	Pro-Rata Allocation (75% of Initial Bid)	Initial Rounding	Allocation of Stub Shares	Final Allocation
Bid 1	1,000	750	700	0	700
Bid 2	100	75	0	100	100
Bid 3	900	675	600	100	700
Total	2,000	1,500	1,300	200	1,500

Requirements for Valid Bids

Valid bids are those that meet the requirements, including eligibility, account status and size, established by the underwriters or participating dealers. The underwriters, WR Hambrecht + Co, and Roth Capital Partners, LLC, will not have different requirements for valid bids in the offering. In order to open a brokerage account with WR Hambrecht + Co, a potential investor must deposit $2,000 in its account. This brokerage account will be a general account subject to WR Hambrecht + Co’s customary rules, and will not be limited to this offering. Other than the $2,000 described above, prospective investors are not required to deposit any money into their accounts until after the registration statement is declared effective. No funds will be transferred to WR Hambrecht + Co, and any amounts in excess of $2,000 may be withdrawn at any time until the auction closes and the bid is accepted. The auction may close in as little as one hour after the registration statement is declared effective. Of course, any potential bidder that decides not to participate in the auction may close its account at WR Hambrecht + Co and withdraw its funds at any time. The underwriters reserve the right, in their sole discretion to reject or reduce any bids that they deem manipulative or disruptive or not creditworthy in order to facilitate the orderly completion of the offering. For example, in previous transactions for other issuers in which the auction process was used, the underwriters have rejected or reduced bids when the underwriters, in their sole discretion, deemed the bids not creditworthy or had reason to question the bidder’s intent or means to fund its bid. In the absence of other information, an underwriter or participating dealer may assess a bidder’s creditworthiness based solely on the bidder’s history with the underwriter or participating dealer. The underwriters have also reduced or rejected bids that they deemed, in their sole discretion, to be potentially manipulative or disruptive or because the bidder had a history of alleged securities law violations. Eligibility and suitability standards of participating dealers may vary. As a result of these varying requirements, a bidder may have its bid rejected by the underwriters or a participating dealer while another bidder’s identical bid is accepted.

83

The Closing of the Auction and Allocation of Shares

The auction will close on a date and at a time estimated and publicly disclosed in advance by the underwriters on the websites of WR Hambrecht + Co at www.wrhambrecht.com and www.openipo.com. The auction may close in as little as one hour following effectiveness of the registration statement. The 2,600,000 shares offered by this prospectus, or 2,990,000 shares if the underwriters’ over-allotment option is exercised in full, will be purchased from us by the underwriters and sold through the underwriters and participating dealers to investors who have submitted valid bids at or higher than the public offering price.

The underwriters or a participating dealer will notify successful bidders by sending a notice of acceptance by e-mail, telephone, facsimile or mail (according to any preference indicated by a bidder) informing bidders that the auction has closed and that their bids have been accepted. The notice will indicate the price and number of shares that have been allocated to the successful bidder. Other bidders are notified that their bids have not been accepted.

Each participating dealer has agreed with the underwriters to sell the shares it purchases from the underwriters in accordance with the auction process described above, unless the underwriters otherwise consent. The underwriters do not intend to consent to the sale of any shares in this offering outside of the auction process. The underwriters reserve the right in their sole discretion to reject or reduce any bids that they deem manipulative or disruptive in order to facilitate the orderly completion of this offering, and they reserve the right, in exceptional circumstances, to alter this method of allocation as they deem necessary to ensure a fair and orderly distribution of the shares of our common stock. For example, large orders may be reduced to ensure a public distribution and bids may be rejected or reduced by the underwriters or participating dealers based on eligibility or creditworthiness criteria. Once the underwriters have accepted a bid and closed the auction, the allocation of shares sold in this offering will be made according to the process described in “Allocation of Shares” above, and no shares sold in this offering will be allocated on a preferential basis or outside of the allocation rules to any institutional or retail bidders. In addition, the underwriters or the participating dealers may reject or reduce a bid by a prospective investor who has engaged in practices that could have a manipulative, disruptive or otherwise adverse effect on the offering.

Some dealers participating in the selling group may submit firm bids that reflect indications of interest from their customers that they have received at prices within the initial public offering price range. In these cases, the dealer submitting the bid is treated as the bidder for the purposes of determining the clearing price and allocation of shares.

Price and volume volatility in the market for our common stock may result from the somewhat unique nature of the proposed plan of distribution. Price and volume volatility in the market for our common stock after the completion of this offering may adversely affect the market price of our common stock.

We have granted to the underwriters an option, exercisable no later than 30 days after the date of this prospectus, to purchase up to an aggregate of 390,000 additional shares of our common stock from us at the offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus. To the extent that the underwriters exercise this option, they will have a firm commitment to purchase the additional shares and we will be obligated to sell the additional shares to the underwriters. The underwriters may exercise the option only to cover over-allotments made in connection with the sale of shares offered.

We have agreed not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares of common stock, or any options or warrants to

84

purchase common stock other than the shares of common stock or options to acquire common stock issued under our stock incentive plans, for a period of 180 days after the date of this prospectus, except with the prior written consent of WR Hambrecht + Co. Each of our directors and executive officers and certain holders of our common stock, who collectively will hold approximately     % of our common stock following the offering, based on the number of shares outstanding at                 , 2005 and on the assumptions set forth under the table in “Capitalization,” have agreed to restrictions on their ability to sell, offer, contract or grant any option to sell, pledge, transfer or otherwise dispose of shares of our common stock for a period of 180 days after the date of this prospectus, without the prior written consent of WR Hambrecht + Co and Roth Capital Partners, LLC. The persons signing the lock-up agreements will be able to transfer their shares of common stock as a bona fide gift to immediate family members or to a trust or partnership or other business entity, or as a distribution without compensation to partners, members or shareholders of a business entity, subject to the transferees agreeing to enter into a lock-up agreement. In considering any request to release shares subject to a lock-up agreement, WR Hambrecht + Co and Roth Capital Partners, LLC will consider the possible impact of the release of the shares on the trading price of the stock sold in the offering.

The 180-day restricted period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the period the company issues an earnings release or announce material news or a material event; or (2) prior to the expiration of the period, the company announces that it will release earnings results during the 16-day period beginning on the last day of the period, in which case the relevant restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.

In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Any short sales made by the underwriters would be made at the public offering price. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from us in the offering. The underwriters may close out any covered short position by either exercising its option to purchase additional shares or purchasing shares in the open market. As described above, the number of shares that may be sold pursuant to the underwriters’ over-allotment option is included in the calculation of the clearing price. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. “Naked” short sales are any sales in excess of such option. To the extent that the underwriters engage in any naked short sales, the naked short position would not be included in the calculation of the clearing price. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because one underwriter has repurchased shares sold by or for the account of the other underwriter in stabilizing or short covering transactions.

These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that

85

otherwise might exist in the open market. If these activities are commenced, the underwriters may discontinue them at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise.

WR Hambrecht + Co and Roth Capital Partners, LLC currently intend to act as a market maker for the common stock following this offering. However, they are not obligated to do so and may discontinue any market making at any time.

Indemnity

The underwriting agreement contains covenants of indemnity between the underwriter and us against certain civil liabilities, including liabilities under the Securities Act, and liabilities arising from breaches of representations and warranties contained in the underwriting agreement.

86

LEGAL MATTERS

Various legal matters with respect to the validity of the common stock offered by this prospectus will be passed upon for us by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. An investment partnership comprised of current and former members of and persons associated with Wilson Sonsini Goodrich & Rosati, as well as one current member of Wilson Sonsini Goodrich & Rosati, own interests representing in the aggregate approximately 0.3% of the shares of our common stock after giving effect to the conversion of all of our preferred stock into shares of our common stock. Various legal matters relating to the offering will be passed upon for the underwriters by Morgan, Lewis & Bockius LLP, New York, New York.

EXPERTS

The financial statements as of September 30, 2004 and 2003 and for each of the three years in the period ended September 30, 2004 included in this Prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to the Company’s ability to continue as a going concern as described in Note 1 to the financial statements and an explanatory paragraph relating to the restatement of the financial statements as of and for the year ended September 30, 2004 to correct the accounting for an intellectual property litigation settlement and other matters as described in Note 2 to the financial statements) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed a registration statement on Form S-1 with the SEC for the stock we are offering by this prospectus. This prospectus does not include all of the information contained in the registration statement and its exhibits. We have included all material terms of the registration statement and the related exhibits and schedules that are referred to in this prospectus. You should refer to the registration statement and its exhibits for additional information. When we complete this offering, we will also be required to file annual, quarterly and special reports, proxy statements and other information with the SEC.

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s web site at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

87

HEMOSENSE, INC.

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Stockholders’ Deficit	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of HemoSense, Inc.

In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders’ deficit and of cash flows present fairly, in all material respects, the financial position of HemoSense, Inc. at September 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2004, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule appearing under Item 16(b) on page II-5 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses from operations since its inception and additional financing will be needed to enable the Company to fund its fiscal 2005 operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As described in Note 2 to the accompanying financial statements, the Company has restated its financial statements as of September 30, 2004 and for the year then ended to correct the accounting for an intellectual property litigation settlement and other matters.

/s/    PRICEWATERHOUSECOOPERS LLP

San Jose, California

March 30, 2005, except for Note 20,

as to which the date is May 4, 2005

F-2

HEMOSENSE, INC.

BALANCE SHEETS

(In thousands, except share data)

	September 30,						March 31, 2005			Pro Forma Stockholders’ Deficit at March 31, 2005
	2003			2004
				(restated)			(unaudited)			(unaudited)
Assets
Current assets
Cash and cash equivalents	$	5,445		$	433		$	2,094
Accounts receivable		134			907			987
Prepaid expenses and other current assets		63			230			281
Inventories		1,088			1,299			2,094
Deferred public offering costs		—			—			630
Total current assets		6,730			2,869			6,086
Property and equipment, net		1,231			1,113			841
Technology licenses and prepaid royalties		1,245			1,964			1,615
Other assets		252			256			304
Total assets	$	9,458		$	6,202		$	8,846
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities
Accounts payable	$	187		$	539		$	929
Accrued expenses and other liabilities		369			691			1,303
Capital lease, current portion		43			38			38
Borrowings, current portion		331			529			1,843
Total current liabilities		930			1,797			4,113
Capital lease, net of current portion		130			91			72
Borrowings, net of current portion		606			2,855			5,703
Total liabilities		1,666			4,743			9,888
Commitments (Note 8)
Redeemable convertible preferred stock, $0.001 par value Authorized: 21,382,752 at September 30, 2003 and 25,749,840 shares at September 30, 2004 and 53,385,560 shares at March 31, 2005 (unaudited); Issued and outstanding: 21,349,524 shares at September 30, 2003 and 23,635,791 shares at September 30, 2004 and 21,956,251 shares at March 31, 2005 (unaudited) and none pro forma
(Liquidation preference: $58,352 at September 30, 2003, $65,577 at September 30, 2004 and $63,269 at March 31, 2005 (unaudited)		32,751			36,679			34,116		$	—
Stockholders’ deficit
Common stock: $0.001 par value
Authorized: 9,500,000 shares
Issued and outstanding: 337,347 shares at September 30, 2003 and 2004, respectively, and 544,719 shares at March 31, 2005 (unaudited) and 6,033,764 shares pro forma (unaudited)		—			—			1			6
Additional paid-in capital		220			220			6,246			40,357
Accumulated deficit		(25,179	)		(35,440	)		(41,405	)		(41,405	)
Total stockholders’ deficit		(24,959	)		(35,220	)		(35,158	)	$	(1,042	)
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit	$	9,458		$	6,202		$	8,846

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

F-3

HEMOSENSE, INC.

STATEMENTS OF OPERATIONS

(In thousands, except share amounts)

	Years Ended September 30,									Six Months Ended March 31,
	2002			2003			2004			2004			2005
							(restated)			(unaudited)
Revenue	$	—		$	427		$	3,250		$	1,267		$	3,417
Cost of goods sold		—			(1,519	)		(5,065	)		(1,909	)		(4,339	)
Gross profit (loss)		—			(1,092	)		(1,815	)		(642	)		(922	)
Operating expenses
Research and development		3,354			1,681			1,398			708			540
Sales and marketing		745			3,186			5,206			2,266			3,200
General and administrative		711			912			1,499			815			872
Total operating expenses		4,810			5,779			8,103			3,789			4,612
Loss from operations		(4,810	)		(6,871	)		(9,918	)		(4,431	)		(5,534	)
Interest income		142			39			16			10			10
Interest and other expense		(40	)		(78	)		(359	)		(77	)		(441	)
Net loss	$	(4,708	)	$	(6,910	)	$	(10,261	)	$	(4,498	)	$	(5,965	)
Net loss per common share:
Basic and diluted	$	(14.27	)	$	(20.69	)	$	(30.45	)	$	(13.35	)	$	(14.76	)
Weighted-average number of shares used in per common share calculation:
Basic and diluted		330			334			337			337			404
Pro forma net loss per common share (unaudited) (Note 19):
Basic and diluted							$	(1.75	)				$	(0.96	)
Weighted-average number of shares used in per common share calculations (unaudited) (Note 19):
Basic and diluted								5,850						6,190

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

F-4

HEMOSENSE, INC.

STATEMENT OF STOCKHOLDERS’ DEFICIT

(in thousands)

	Common Stock					Additional Paid-In Capital		Accumulated Deficit			Total Stockholders’ Deficit
	Shares		Amount
Balance at October 1, 2001 as previously stated	1,305		$	1		$	62	$	(13,561	)	$	(13,498	)
Effect of stock split (Note 20)	(979	)		(1	)		1		—			—
Balance at October 1, 2001	326			—			63		(13,561	)		(13,498	)
Exercise of stock options	3			—			3		—			3
Issuance of common stock for services	3			—			2		—			2
Issuance of common stock warrants for services	—			—			3		—			3
Issuance of non-employee common stock options for services	—			—			24		—			24
Net loss	—			—			—		(4,708	)		(4,708	)
Balance at September 30, 2002	332			—			95		(18,269	)		(18,174	)
Exercise of stock options	1			—			—		—			—
Conversion of preferred stock into common stock	5			—			96		—			96
Common stock warrants for services	—			—			12		—			12
Issuance of non-employee common stock options for services	—			—			17		—			17
Net loss	—			—			—		(6,910	)		(6,910	)
Balance at September 30, 2003	338			—			220		(25,179	)		(24,959	)
Net loss (restated)	—			—			—		(10,261	)		(10,261	)
Balance at September 30, 2004 (restated)	338			—			220		(35,440	)		(35,220	)
Exercise of stock options (unaudited)	17			—			17		—			17
Conversion of preferred stock into common stock (unaudited)	190			1			6,009		—			6,010
Net loss (unaudited)	—			—			—		(5,965	)		(5,965	)
Balance at March 31, 2005 (unaudited)	545		$	1		$	6,246	$	(41,405	)	$	(35,158	)

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

F-5

HEMOSENSE, INC.

STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended September 30,									Six Months Ended March 31,
	2002			2003			2004			2004			2005
							(restated)			(unaudited)
Cash flows from operating activities
Net loss	$	(4,708	)	$	(6,910	)	$	(10,261	)	$	(4,498	)	$	(5,965	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		295			240			793			304			599
Amortization of debt issuance costs		—			1			64			29			85
Provision/write-off of inventories		—			89			109			230			69
Loss on disposal of fixed assets		17			—			—			—			—
Stock-based compensation expenses		29			29			—			—			—
Amortization of prepaid royalties		—			—			58			13			130
Changes in assets and liabilities
Accounts receivable		—			(134	)		(773	)		(375	)		(80	)
Prepaid expenses and other assets		178			(55	)		119			(149	)		(102	)
Inventories		(833	)		(146	)		(319	)		(699	)		(864	)
Accounts payable		48			71			352			97			156
Accrued expenses and other liabilities		53			134			322			411			250
Accrued interest on note payable		—			—			18			—			46
Net cash used in operating activities		(4,921	)		(6,681	)		(9,518	)		(4,637	)		(5,676	)
Cash flows from investing activities
Acquisition of property and equipment		(93	)		(397	)		(429	)		(293	)		(108	)
Net cash used in investing activities		(93	)		(397	)		(429	)		(293	)		(108	)
Cash flows from financing activities
Proceeds from issuance of common stock		3			—			—			—			17
Proceeds from issuance of preferred stock, net of issuance costs		—			6,395			3,008			—			3,331
Principal payments on capital lease obligation		(18	)		(34	)		(44	)		(22	)		(19	)
Proceeds from borrowings		—			991			2,907			1,059			4,593
Repayment of borrowings		(109	)		(105	)		(936	)		(1,088	)		(477	)
Net cash provided by (used in) financing activities		(124	)		7,247			4,935			(51	)		7,445
Net increase (decrease) in cash and cash equivalents		(5,138	)		169			(5,012	)		(4,981	)		1,661
Cash and cash equivalents at beginning of period		10,414			5,276			5,445			5,445			433
Cash and cash equivalents at end of period	$	5,276		$	5,445		$	433		$	464		$	2,094
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	19		$	68		$	318		$	74		$	450
Non-cash investing activities
Property and equipment acquired under capital leases	$	40		$	99		$	—		$	—		$	—
Non-cash financing activities
Issuance of preferred stock in exchange for supply and license agreement and prepaid royalties	$	—		$	1,245		$	565		$	—		$	—
Issuance of warrants in connection with debt	$	—		$	24		$	354		$	—		$	116
Conversion of preferred stock to common stock	$	—		$	95		$	—		$	—		$	6,010

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

F-6

1.     Formation and Business of the Company

The Company

HemoSense, Inc., (the “Company”) was incorporated in the state of Delaware on March 4, 1997 to develop, manufacture and sell easy-to-use, handheld blood coagulation monitoring systems for use by healthcare professionals and patients in the management of warfarin medication. The Company began selling its first product, the INRatio meter and related test strips, in March 2003. Prior to that date, the Company was in the development stage and had been primarily engaged in developing its product technology and raising capital.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred net losses and has had negative cash flows from operations during each period from inception through September 30, 2004 and has an accumulated deficit of $35.4 million at September 30, 2004. Management expects operating losses and negative cash flows to continue at least into 2006.

Management intends to raise additional funds through an initial public offering or other equity financing during fiscal 2005 to fund operations. Although management continues to pursue these plans, there is no assurance that they will be successful. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In January 2005 the Board of Directors authorized management of the Company to file a registration statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock to the public. If the initial public offering is closed under the terms presently anticipated, all of the redeemable convertible preferred stock outstanding will automatically convert into shares of common stock and all of the warrants for redeemable convertible preferred stock will convert into warrants to acquire shares of common stock.

2.    Restatement of fiscal year 2004 financial statements

The accompanying financial statements as of September 30, 2004 and for the year then ended have been restated from those previously issued. The impact on the results of operations and financial position were as follows (in thousands):

	As previously reported			As restated			Impact
Statement of Operations
Revenue	$	3,312		$	3,250		$	(62	)(a)
Cost of goods sold	$	(5,099	)	$	(5,065	)	$	34	(a)
Gross profit (loss)	$	(1,787	)	$	(1,815	)	$	(28	)
General and administrative	$	2,014		$	1,499		$	515	(b)
Interest and other expense	$	(372	)	$	(359	)	$	13	(a)
Net loss	$	(10,761	)	$	(10,261	)	$	500
Net loss per common share:
Basic and Diluted	$	(31.93	)	$	(30.45	)	$	1.48

Adjustments to the statement of operations included:

(a) Revenue and cost of goods sold were adjusted to defer the recognition of revenue on certain shipments made prior to year end for which title transfer to the customer did not occur until the subsequent period. Also adjustments were made to record the reclassification of freight cost on shipments to customers as a component of cost of goods sold rather than as a reduction of revenue and the reclassification of cash discounts to customers as a reduction of revenue rather than as a non-operating expense.

(b) General and administrative costs were adjusted to eliminate the cost of an intellectual property dispute settlement (Note 6), previously recorded as legal expense of $515,000.

F-7

	As previously reported			As restated			Impact
Balance Sheet
Accounts receivable	$	972		$	907		$	(65	)(c)
Inventory		1,235			1,299			64	(c)
Prepaid expenses and other assets		415			486			71	(e)
Technology license fees and prepaid royalties		1,847			1,964			117	(d)
Borrowings, net of current portion		3,239			2,855			(384	)(d)
Redeemable convertible preferred stock		36,608			36,679			71	(e)
Accumulated deficit		(35,940	)		(35,440	)		500	(f)

Adjustments to the balance sheet included:

(c) Accounts receivable and inventory were adjusted for the deferral of revenue described in (a) above.

(d) The recorded value of the below market rate note payable issued for the intellectual property dispute settlement (Note 6) has been adjusted by $393,000 to reflect the Company’s incremental borrowing rate. In addition $9,000 of discount has been accreted on the note resulting in a net decrease in borrowings of $384,000. As described in (b), of the $515,000 reduction in legal expenses, $393,000 was offset against the note adjustment, with the remaining amount of $122,000 recorded as the acquisition of intellectual property. Such intellectual property was amortized in the amount of $5,000 for a net impact of $117,000.

(e) Warrants issued in conjunction with the loan payable (Note 9) which are exercisable into a variable number of preferred shares based on the total amount of the borrowing have been recorded as additional loan issuance costs in other assets as additional shares become issuable due to incremental borrowings.

(f) The adjustment to accumulated deficit results from adjustments (a) and (b) above.

The impact of these adjustments were not material on the statements of cash flows.

3.    Summary of Significant Accounting Policies

Unaudited Interim Financial Data

The accompanying balance sheet as of March 31, 2005, statement of stockholders’ deficit for the six months ended March 31, 2005, and the statements of operations and of cash flows for the six months ended March 31, 2005 and 2004 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position and results of operations and cash flows for the six months ended March 31, 2005 and 2004. The financial data and other information disclosed in these notes to financial statements related to the six month periods are unaudited. The results for the six months ended March 31, 2005 are not necessarily indicative of the results to be expected for the year ending September 30, 2005 for any other interim period or for any future year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions include reserves and write-downs related to accounts receivables and inventories, the recoverability of long-lived assets, deferred tax assets and related valuation allowances and valuation of equity instruments.

Certain risk and uncertainties

Any products developed by the Company will require approval from the U.S. Food and Drug Administration (“FDA”) or foreign regulatory agencies prior to commercial sales and are subject to

F-8

continued regulations once approved. There can be no assurance that the Company’s future products will receive the necessary approvals. If the Company is denied such approvals or such approvals are delayed, it could have a material adverse effect on the Company.

A portion of the Company’s sales occur outside of the United States, principally in Europe. As a result, the Company must comply with a wide variety of foreign laws and regulations. In particular, the Company may be materially adversely affected by changes in the political, social and economic conditions in these countries, and by changes in government policies with respect to such matters as laws and regulations, method to address inflation, currency conversion and restrictions and rate and method of taxation.

The Company currently has three single source suppliers which produce reagents used in test strip manufacturing and meters. Because of the custom nature of the components and the FDA requirements for validation and verification of significant changes, any interruption or delay in the supply of these materials could impair the Company’s ability to meet the demand of customers and could have a material adverse effect on the Company, including the need to obtain additional regulatory approval.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase and money market funds to be cash equivalents.

Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities approximate fair values due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, the carrying value of the loan, debt payable and capital lease obligations approximate their fair values.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents and accounts receivable. The Company’s cash is invested in deposits with one financial institution. At times, cash deposits may be in excess of insured limits. Management believes that the financial institution which holds the Company’s cash and cash equivalents is financially sound and, minimal credit risk exists with respect to these investments.

Significant revenue concentration (in thousands):

	Years Ended September 30,								Six Months Ended March 31,
	2003				2004				2005
					(restated)				(unaudited)
	Revenue		Percent of Total Revenue		Revenue		Percent of Total Revenue		Revenue		Percent of Total Revenue
Customer A	$	178	42	%	$	1,008	31	%	$	831	24	%
Customer B		—	—		$	860	26	%	$	675	20	%
Customer C		—	—			—	—		$	507	15	%

F-9

Significant accounts receivable concentration (in thousands):

	September 30,								March 31,
	2003				2004				2005
					(restated)				(unaudited)
	Receivable Balance		Percent of Total Receivables		Receivable Balance		Percent of Total Receivables		Receivable Balance		Percent of Total Receivables
Customer A	$	53	40	%	$	279	31	%	$	408	41	%
Customer B		—	—			229	25	%		127	13	%
Customer C		—	—			126	14	%		101	10	%

The Company maintains an allowance for potential credit losses and such losses have been within the Company’s expectations.

Inventories

Inventories are stated at the lower of cost or market, cost being determined under a standard cost method, which approximates first-in, first-out basis.

The manufacturing cost of test strips currently exceeds their selling price. As a result, the Company records a charge to cost of goods sold on test strips inventory equal to the amount by which the manufacturing cost exceeds the average market selling price. For the years ended September 30, 2003, 2004 and for the six month period ended March 31, 2005, the Company increased its inventory reserve by $223,000, $284,000 and $52,000 (unaudited), respectively, for the cost of the test strips, which is recorded as a component of cost of goods sold.

Revenue Recognition

The Company recognizes revenue from product sales when there is persuasive evidence that an arrangement exists, title has transferred to its customers, the price is fixed or determinable and collection is reasonably assured. Provisions for discounts to customers, returns or other adjustments are recorded as a reduction of revenue and provided for in the same period that the related product sales are recorded based upon analysis of historical discounts and returns. When terms of sale are Freight on Board (“FOB”) shipping point, revenue is recognized at time of shipment and when the terms of sale are FOB receiving point, revenue is recognized when the products have reached the destination point and other criteria for revenue recognition have been met.

The Company offers an early payment discount to certain customers.

The Company provides certain customer product return rights in limited circumstances. To date, the Company has experienced no product returns and has determined that a reserve for product returns is not necessary.

Shipping and handling charges are invoiced to customers based on the amount of products sold. Shipping and handling fees are recorded as revenue and the related cost as cost of goods sold.

The Company will, from time to time, provide free products to customers. The cost of these free products is charged to cost of goods sold.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over their estimated useful lives, which

F-10

is generally three to five years. Amortization of leasehold improvements is computed using the straight- line method over the shorter of the useful life or remaining lease terms. Upon sale or retirement, the asset’s cost and related accumulated depreciation and amortization are removed from the accounts and any related gain or loss is reflected in statements of operations. Repairs and maintenance costs are charged to expenses as incurred.

Impairment of Long-lived Assets

The Company reviews long-lived assets, including property and equipment and intangibles, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. The Company considers various valuation factors, principally discounted cash flows, to assess the fair values of long-lived assets. To date, the Company has not recorded any impairment losses.

Intangible Assets

Intangible assets are comprised of licensed technologies, carried at cost less accumulated amortization. Amortization is computed using a straight-line method over the shorter of the estimated useful lives or the term of the license agreements.

Research and Development Costs

Research and development costs are charged to operations as incurred and consist primarily of personnel costs, consultants and supplies.

Advertising Expense

Advertising costs, included in sales and marketing expenses, are expensed as incurred. Advertising cost were $0, $186,000, $290,000 and $81,000 for the years ended September 30, 2002, 2003, 2004 and for the period ended March 31, 2005 (unaudited), respectively.

Income Taxes

The Company accounts for income taxes under the liability method. Under this method, deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Warranty

The Company records an accrual for estimated warranty costs when revenue is recognized. Warranty covers replacement costs of defective meters and related test strips. The warranty period is one year. The Company has processes in place to estimate accruals for warranty exposure. The processes include estimated failure rates and replacement costs, and known design changes. Although the Company believes it has the ability to reasonably estimate warranty expenses, unforeseen changes in factors impacting the estimate for warranty could occur and such changes could cause a material change in the Company’s warranty accrual estimate. Such a change would be recorded in the period in which the change was identified. Changes in the Company’s product warranty

F-11

liability during the fiscal year ended September 30, 2003 and 2004 and for the period end March 31, 2005 (unaudited) were as follows (in thousands):

Balance, October 1, 2002	$	—
Accruals for warranties issued during the year		2
Balance, September 30, 2003		2
Accruals for warranties issued during the year		11
Settlement made in kind during this year		(7	)
Balance, September 30, 2004		6
Accruals for warranties issued during the period (unaudited)		30
Settlement made in kind during this year (unaudited)		(25	)
Balance, March 31, 2005 (unaudited)	$	11

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of vested common shares outstanding during the period. Diluted net loss per common share is computed by giving effect to all potential dilutive common shares, including options, warrants and redeemable convertible preferred stock.

The following outstanding options, redeemable convertible preferred stock and warrants were excluded from the computation of diluted net loss per common share for the periods presented because including them would have had an antidilutive effect (in thousands):

	Years Ended September 30,			Six Months Ended March 31,
	2002	2003	2004	2004	2005
				(unaudited)
Redeemable convertible preferred stock (as if converted)	4,134	5,337	5,909	5,337	5,489
Options to purchase common stock	487	596	817	748	999
Warrants to purchase redeemable convertible preferred stock	—	8	98	85	127
Warrants to purchase common stock	13	45	45	45	45

Stock-Based Compensation

The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. The Company’s policy is to grant options with an exercise price equal to the estimated fair value of the Company’s stock on the grant date. Accordingly, no compensation cost has been recognized in the Company’s statement of operations for employee stock options. The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standard No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation.

Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the estimated fair value of the Company’s stock and the exercise price. SFAS No. 123 defines a “fair value” based method of accounting for an employee stock option or similar equity instrument.

F-12

Had compensation cost for options granted to employees under the Plan been determined based on the fair value of the options at the grant date for awards, under the provisions prescribed by SFAS No. 123, the Company’s net loss would have been as follows (in thousands):

	Years Ended September 30,									Six Months Ended March 31,
	2002			2003			2004			2004			2005
							(restated)			(unaudited)
Net loss	$	(4,708	)	$	(6,910	)	$	(10,261	)	$	(4,498	)	$	(5,965	)
Less: Total stock-based employee compensation expenses, determined under fair value based method for all awards		(44	)		(46	)		(56	)		(28	)		(25	)
Adjusted net loss	$	(4,752	)	$	(6,956	)	$	(10,317	)	$	(4,526	)	$	(5,990	)
Net loss per common share, basic and diluted
As reported	$	(14.27	)	$	(20.69	)	$	(30.45	)	$	(13.35	)	$	(14.76	)
As adjusted	$	(14.40	)	$	(20.83	)	$	(30.61	)	$	(13.43	)	$	(14.83	)

The fair value of each option grant has been estimated on the date of grant using the minimum value method with the following assumptions:

	Years Ended September 30,						Six Months Ended March 31,
	2002		2003		2004		2004		2005
							(unaudited)
Weighted average risk-free interest rate	4.08	%	2.36	%	4.89	%	4.21	%	4.45	%
Expected life (in years)	5		5		5		5		5
Dividend yield	0	%	0	%	0	%	0	%	0	%

The weighted average fair value of options granted during the years ended September 30, 2002, 2003 and 2004 and the six months ended March 31, 2005 (unaudited) was $0.08, $0.28, $0.28, and $0.28 per share, respectively. All stock option grants have exercise prices equal to the fair market value of the underlying stock as determined by the Board of Directors.

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instruments vest.

Subsequent to the Company’s initial filing with the Securities and Exchange Commission, options grants will be valued using the Black-Scholes model which requires an expected volatility factor. Accordingly, the above results are not representative of future results.

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (the “FASB” ) issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe the adoption of SFAS No. 151 will have a material effect on our financial position, results of operations or cash flows.

F-13

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which replaced SFAS No. 123 and superseded APB 25. SFAS No. 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the Company’s equity instruments or that may be settled by the issuance of such equity instruments. Under SFAS No. 123R, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25 but will be required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of earnings. SFAS No. 123R is effective at the beginning of fiscal 2006. The Company has not yet determined which fair-value method and transitional provision it will follow and has not yet determined the impact on the Company’s financial statements of SFAS No. 123R.

4.    Inventories

Inventories consisted of the following (in thousands):

	September 30,				March 31, 2005
	2003		2004
			(restated)		(unaudited)
Raw Materials	$	882	$	773	$	1,152
Work-in-process		167		292		569
Finished goods		39		234		373
	$	1,088	$	1,299	$	2,094

5.    Property and Equipment, net

Property and equipment consists of the following (in thousands):

	September 30,						March 31, 2005
	2003			2004
							(unaudited)
Lab equipment	$	295		$	326		$	326
Manufacturing equipment		779			1,881			1,960
Computer equipment		208			263			295
Furniture and equipment		178			210			217
Leasehold improvements		25			—			—
Equipment in progress		868			66			54
		2,353			2,746			2,852
Less: Accumulated depreciation and amortization		(1,122	)		(1,633	)		(2,011	)
	$	1,231		$	1,113		$	841

Included in property and equipment at March 31, 2005 (unaudited) and at September 30, 2004 and 2003 is equipment acquired under capital leases totaling $240,000, $240,000 and $240,000 and related accumulated amortization of $204,000, $177,000 and $115,000, respectively.

Depreciation expense for the six months ended March 31, 2005 (unaudited) was $380,000 and for the years ended September 30, 2002, 2003 and 2004 was $295,000, $239,000 and $546,000, respectively.

F-14

6.    Technology Licenses and Prepaid Royalties

Technology licenses consist of the following (in thousands):

	September 30,					March 31, 2005
	2003		2004
			(restated)			(unaudited)
Dade Behring License	$	1,245	$	1,245		$	1,245
Inverness License		—		122			122
		1,245		1,367			1,367
Less: Accumulated amortization		—		(247	)		(466	)
	$	1,245	$	1,120		$	901

The licenses are amortized over their contractual lives of approximately 3-4 years. Amortization expense was $0, $247,000 and $219,000 for the years ended September 30, 2003, September 30, 2004, and for the six month period ended March 31, 2005 (unaudited), respectively.

Estimated amortization of the technology licenses are $438,000, $438,000, $196,000, $23,000 and $25,000 for the years ended September 30, 2005, 2006, 2007, 2008 and 2009 and thereafter, respectively.

Prepaid royalties related to technology licenses consist of the following (in thousands):

	September 30,		March 31,
	2004		2005
	(restated)		(unaudited)
Dade Behring License	$	534	$	430
Inverness License		310		284
Total	$	844	$	714

In May 2003, the Company extended an existing non-exclusive Supply and License Agreement with Dade Behring Inc. (the “Dade Behring License”) in exchange for 787,919 shares of the Company’s Series C-1 preferred stock valued at $1.58 per share (Note 15). The Dade Behring License also provides for quarterly payment of royalties based on net revenue on certain product sales and expires in March 2007, unless extended.

In June 2004, the Company received a credit for prepayment of $1.0 million for future royalties under the Dade Behring License in exchange for 357,570 shares of the Company’s Series C-2 preferred stock valued at $564,961. The value of the preferred stock was capitalized as a royalty prepayment and will be amortized as revenues are generated, subject to the terms of the royalty agreement.

On April 29, 2003, Inverness Medical Switzerland GmbH (“Inverness”) filed a complaint in the United States District Court for the District of Massachusetts, alleging that disposable test strips for the Company’s INRatio System infringes certain issued patents. Inverness sought monetary damages and injunctive relief. On July 16, 2004, a settlement and mutual release agreement was signed between the Company and Inverness whereby the Company received a fully paid up license to the Inverness patent (the “Inverness License”), subject to a royalty to be accrued commencing July 16, 2006 and issued to Inverness a secured subordinated note in the amount of $1.0 million as payment in lieu of any alleged past damages, costs, expenses and legal fees.

F-15

The total value of the note payable was estimated to be $459,000 (Note 9). Of this amount, $337,000 was accounted for as prepaid royalties to be amortized over the initial free period in the Inverness agreement. The remaining portion of $122,000 was accounted for as a technology license to be amortized over the remaining life of the patent which ends in November 2009.

7.    Accrued Expenses and Other Liabilities

Accrued liabilities consist of the following (in thousands):

	September 30,				March 31, 2005
	2003		2004
					(unaudited)
Payroll and related expenses	$	191	$	424	$	557
Consulting		64		25		25
Other liabilities		114		242		721
	$	369	$	691	$	1,303

8.    Commitments

Capital Leases

The Company leases certain equipment under capital leases which expire through March 2008.

Future minimum lease payments under capital lease agreements are as follows (in thousands):

For the years ending September 30,
2005	$	51
2006		46
2007		40
2008		17
Total minimum lease payments		154
Less: Amount representing interest		(25	)
Present value of minimum lease payments		129
Less: Current portion of capital lease obligation		(38	)
Long-term portion of capital lease obligation	$	91

Operating Leases

The Company rents its facility under a non-cancelable operating lease, which expires in April 2009, unless extended. Future minimum lease payments under the non-cancelable operating lease agreement are as follows (in thousands):

For the years ending September 30,
2005	$	123
2006		143
2007		153
2008		162
2009		90
	$	671

Rent expense for the years ended September 30, 2003 and 2004 and for the six months ended March 31, 2005 (unaudited) was $190,000, $189,000 and $71,000, respectively.

F-16

Purchase Commitments

In 2004, the Company entered into purchase commitments containing cancelable and non-cancelable components. At March 31, 2005 (unaudited), the Company has $1.4 million of cancelable commitments and $409,000 of non-cancelable commitments. At September 30, 2004, the Company has $1.3 million of cancelable commitments and $442,000 of non-cancelable commitments.

Indemnifications

The Company has entered into indemnification agreements with each officer and director. Also in the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves future claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations, and accordingly, the Company has not accrued any amounts for such indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

Management Retention Plan

The Management Retention Plan (“Retention Plan”) provides for key employees of the Company to participate in the receipt of proceeds generally available for distribution to stockholders of the Company in the event of a change in control through an acquisition by another entity or sale of all or substantially all of the assets of the Company. The Board may at any time amend or terminate the Retention Plan or it shall automatically terminate upon the closing of an initial public offering of the Company’s common stock in which all of the outstanding shares of preferred stock are automatically converted into common stock.

9.    Borrowings

The Company’s borrowings consist of the following (in thousands):

	September 30,				March 31, 2005
	2003		2004
			(restated)		(unaudited)
Lighthouse Capital loan payable	$	—	$	2,907	$	7,023
Silicon Valley Bank equipment financing		937		—		—
Inverness note payable net of unamortized discount as of September 30, 2003, 2004 and March 31, 2005 (unaudited) of $0, $523 and $477, respectively		—		477		523
Total	$	937	$	3,384	$	7,546

Lighthouse Capital Loan Payable

In March 2004, the Company obtained a secured loan commitment of $7.5 million from partnerships of Lighthouse Capital. The Company is entitled to draw against the loan commitment through March 1, 2005. During the drawdown period interest is paid monthly a rate equal to prime plus 7.5% which was 12.0% at September 30, 2004. Beginning March 1, 2005, principal and interest payments are made over a 36 month period at a rate equal to 3.1% of the total amounts borrowed, based on prime of 4.0%, subject to adjustment as of this date due to changes in prime. A final payment, equal to 12.5% of the amounts borrowed is due March 1, 2008. The effective interest rate during the repayment period is 16.4%. In addition, the Company will also pay a facility fee of 1.0% per annum, quarterly, on the average unused portion of the loan through March 1, 2005. At September 30,

F-17

2004, the Company had drawn down $2.9 million and the future minimum payments under the secured loan are as follows (in thousands):

For the years ending September 30,
2005	$	529
2006		778
2007		910
2008		690
Total	$	2,907

As of March 31, 2005 (unaudited) the Company had drawn down $7.5 million under the loan commitment. The Company is permitted to prepay the amounts borrowed for a fee of 2.0% to 3.0%, plus the final payment of 12.5% of the amounts borrowed.

In connection with the secured loan commitment, the Company issued a warrant to purchase shares of the Company’s Series C-2 Preferred Stock at an exercise price of $1.58 per share, which were subsequently exchanged for Series C-3 Preferred Stock. The number of shares underlying the warrant is variable, based on the total amount drawn under the loan commitment, ranging from 284,810 shares to 474,684 shares if the full amount available is drawn. The warrant is immediately exercisable. As the Company draws against the loan commitment, the fair value of the warrants is recorded as an asset and amortized to interest expense over the life of the loan using the effective interest method. As of September 30, 2004 and March 31, 2005 (unaudited), the warrant was exercisable into 358,404 and 474,684 shares, respectively. The value of the warrant, using the Black-Scholes model was $354,000 and $470,000 as of September 30, 2004 and March 31, 2005 (unaudited), respectively.

The fair value of the warrants granted was estimated on the date of the grant using the following assumptions:

Risk-free interest rate	3.58%
Volatility	60%
Expected life	7 years
Dividend yield	0%

Silicon Valley Bank Equipment Financing

In January 2000, the Company obtained an equipment financing facility from Silicon Valley Bank. The credit facility was amended in July 2003, under which the Company received a new credit line of $1.75 million. Interest on the new line of credit was paid monthly on any outstanding balance at a fixed rate of 6%. The balance of the equipment advance under this new line of credit was to be repaid in equal monthly installments commencing July 22, 2003 and continuing through July 2, 2006. As of September 30, 2003, the Company had drawn down $991,557 under this financing line. Borrowing under this agreement was collateralized by all of the Company’s assets and a negative pledge on intellectual property. The Company has fully paid the equipment financing facility in fiscal 2004.

In connection with a Line of Credit agreement, the Company issued a warrant to purchase 33,228 shares of the Company’s Series C-1 Preferred Stock, which were subsequently exchanged for Series C-3 Preferred Stock, at an exercise price of $1.58 per share. The fair value of the warrants are determined using the Black-Scholes model and amortized over the life of the line of credit. In fiscal 2004, the Company has fully paid the line of credit and therefore recognized as an expense the remaining amount of the fair value of the warrants that was previously capitalized. As of September 30,

F-18

2004, the warrants have been fully vested of which none had been exercised. The warrants expire in July 2010.

Inverness Note Payable

The note payable in the amount of $1.0 million to Inverness issued in conjunction with the litigation settlement (Note 6) was recorded at its estimated net present value of $459,000 based on a 18.5% estimated incremental borrowing rate. This amount is being accreted up to the amount due on July 16, 2009. The accretion is recorded as interest expense in the statement of operations. The note accrues interest at 5% per annum. However, no interest accrues or is due prior to July 16, 2006. The Company may at any time, prepay all or any portion of the principal amount and accrued interest, if any. Of the total value of the note payable, $337,000 was recorded as prepaid royalties and the remaining amount of $122,000 was capitalized as a license.

10.    Redeemable Convertible Preferred Stock

Under the Company’s Certificate of Incorporation, as amended, the Company is authorized to issue preferred stock in series. The Company’s Board of Directors is authorized to determine the rights, preferences and terms of each series.

As of September 30, 2004, the redeemable convertible preferred stock consist of the following (in thousands, except per share data):

	Number of Shares Designated and Authorized	Number of Shares Issued and Outstanding	Proceeds of Preferred Stock, net/Fair Value of Warrants		Redemption Value per Share		Liquidation Value		Common Stock Reserved for Conversion
Series A-2	1,430	1,430	$	1,403	$	1.00	$	1,430	357
Series B-2	3,813	3,813		6,008	$	1.58		6,025	953
Series C-2	20,507	18,393		28,890	$	1.58		58,122	4,598
Preferred stock warrants	—	392		378	$	—		—	98
	25,750	24,028	$	36,679			$	65,577	6,006

As of March 31, 2005, the redeemable convertible preferred stock consist of the following (in thousands, except per share data):

	Number of Shares Designated and Authorized	Number of Shares Issued and Outstanding	Proceeds of Preferred Stock, net/Fair Value of Warrants		Redemption Value per Share		Liquidation Value		Common Stock Reserved for Conversion
Series A-2	1,430	—	$	—	$	1.00	$	—	—
Series A-3	1,430	1,430		1,404	$	1.00		1,430	357
Series B-2	3,813	—		—	$	1.58		—	—
Series B-3	3,813	1,915		3,008	$	1.58		3,025	479
Series C-2	18,901	—		—	$	1.58		—	—
Series C-3	24,000	18,612		29,210	$	1.58		58,814	4,653
Preferred stock warrants	—	508		494				—	127
	53,387	22,465	$	34,116			$	63,269	5,616

F-19

Dividends

The holders of Series A-3, Series B-3 and Series C-3 preferred stock are entitled to receive dividends, out of any assets legally available, prior and in preference to any declaration or payment of any dividend on the common stock of the Company, at the per annum rate of $0.08, $0.13 and $0.13 per share, respectively. Such dividends are payable when, as and if declared by the Board of Directors, and are not cumulative. No dividends have been declared to date.

Liquidation

In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of Series C-3 Preferred are entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of shares of Series A-3 preferred, Series B-3 preferred or common stock, an amount per share equal to $1.58, for each outstanding share of Series C-3 preferred stock, plus any declared but unpaid dividends on such shares. After payment has been made to the holders of Series C-3 preferred stock, an amount of up to $6.5 million shall be set aside for payment of the Retention Plan (Note 8). Thereafter, the holders of Series C-3 preferred stock are entitled to receive, prior and in preference to any distribution of any assets or surplus of the Company to the holders of Series A-3, Series B-3 and common stock, an additional amount of $1.58 for each outstanding share of Series C-3 preferred stock. The holders of Series A-3 and Series B-3 preferred stock are then entitled to receive, prior to any distribution of any of the assets or surplus funds of the Company to the holders of shares of common stock, an amount per share equal to the sum of $1.00 and $1.58, for each outstanding share of Series A-3 and Series B-3 preferred stock, respectively, plus any declared but unpaid dividends on such shares. The holders of common stock are then entitled to share ratably in the remaining assets up to $1.5 million, based on the number of shares of common stock held. Holders of Series A-3, Series B-3, Series C-3 preferred stock and common stock will share any remaining proceeds equally on an as-converted basis.

Redemption

The holders of at least two-thirds of the outstanding Series A-3, Series B-3 and Series C-3 preferred stock may, by written request, delivered at any time after October 31, 2007, require the Company to redeem the preferred stock by paying in cash a sum equal to the original purchase price of the preferred stock plus any declared and unpaid dividends.

The Company, with the written consent of at least two thirds of outstanding Series A-3, Series B-3 and Series C-3 preferred stock holders, may redeem the preferred stock at any time by paying in cash a sum equal to the original purchase price of the preferred stock plus any declared and unpaid dividends.

Voting

The holder of each share of preferred stock is entitled to voting rights equal to the number of shares of common stock into which each share of preferred stock could be converted into at the record date for a vote or consent of stockholders, except as otherwise required by law, and has voting rights and powers equal to the voting rights and powers of the shares of common stock.

Conversion

Each share of preferred stock, at the option of the holder, is convertible into the number of fully paid and nonassessable shares of common stock which results from dividing the conversion price per share in effect for the shares of preferred stock at the time of conversion into the per share conversion value of such shares. The initial conversion price per share for Series A-3, Series B-3 and Series C-3 preferred stocks are $1.00, $1.58 and $1.58, respectively, and the current per share conversion value for Series A-3, Series B-3 and Series C-3 preferred stocks are $4.00, $6.32 and $6.32, respectively.

F-20

Conversion is automatic immediately upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 covering the offer and sale of common stock in which the public offering price equals or exceeds $28.00 per share (adjusted to reflect subsequent dividends, splits or recapitalization) and the aggregate proceeds raised exceed $15,000,000 or at any time upon the written consent by the majority of the outstanding shares of the preferred stock.

At September 30, 2004, the Company has reserved 5,908,931 shares of common stock for conversion of preferred stock. At March 31, 2005, the Company has reserved 5,489,045 shares of common stock for conversion of preferred stock.

Series C-3 Preferred Stock Issuance

In February 2005, the Company raised approximately $3.4 million by issuing 2,124,218 shares of Series C-3 preferred stock at $1.58 per share. As a result, participating holders of the Series A-2, B-2 and C-2 preferred stock converted to Series A-3, B-3 and C-3 preferred stock, respectively. 3,803,758 shares of non-participating preferred stock converted into 190,185 shares of common stock.

11.    Stockholders’ Equity

Common Stock

Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding. To date, no dividends have been declared.

Common Stock Warrants

Common stock warrants outstanding as of September 30, 2004 are as follows:

	Date of Issuance	Number of Warrants Issued	Exercise Price		Expiration Date
Consulting agreement	May 2002	12,500	$	0.80	May 2005
Non-exclusive Sales Representative and Service Agreement	May 2003	16,250	$	0.80	May 2007
Non-exclusive Sales Representative and Service Agreement	September 2003	16,250	$	0.80	September 2007
Total		45,000

As of September 30, 2004, all of these warrants have vested and none have been exercised. The fair values of these warrants were determined using Black-Scholes model and they have been recorded as an expense in the respective period. These charges were not material to each of the periods.

12.    1997 Stock Option Plan

In 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”), as amended, under which 1.1 million shares of the Company’s common stock have been reserved for issuance to employees, directors and consultants. Options granted under the 1997 Plan may be incentive stock options or non-statutory stock options. Stock purchase rights may also be granted under the 1997 Plan. Incentive stock options may only be granted to employees. Options granted or stock purchased under the 1997 Plan must become exercisable or the Company’s right to repurchase lapse no less than 20% after one year and ratably over 4 years thereafter. In addition, there were 466,250 options

F-21

granted under the 1997 plan to certain employees in which the vesting will fully accelerate upon the occurrence of a change in control. Included in these options are 186,250 options granted in February 2005 to certain employees in which 20% will vest on an accelerated basis on the IPO effective date. The exercise price of incentive stock options and non-statutory stock options shall be no less than 100% and 85%, respectively, of the fair value per share of the Company’s common stock on the grant date, as determined by the Board of Directors. The term of the options is ten years.

Activity under this plan is as follows (In thousands except weighted average exercise price):

			Outstanding Options
	Shares Available for Grant		Number of Shares		Weighted Average Exercise Price
Balance, October 1, 2001	104		258		$	1.15
Additional shares authorized	250		—
Options granted	(266	)	266		$	0.80
Options exercised	—		(3	)	$	0.80
Options cancelled	34		(34	)	$	1.08
Issuance of common stock	(3	)	—
Balance, September 30, 2002	119		487		$	0.96
Options granted	(112	)	112		$	0.80
Options exercised	—		(1	)	$	0.80
Options cancelled	2		(2	)	$	2.13
Balance, September 30, 2003	9		596		$	0.93
Additional shares authorized	262		—
Options granted	(313	)	313		$	0.80
Options cancelled	92		(92	)	$	0.83
Balance, September 30, 2004	50		817		$	0.89
Additional shares authorized	188		—
Options granted	(292	)	292		$	0.80
Options exercised	—		(17	)	$	0.97
Options cancelled	93		(93	)	$	1.29
Balance, March 31, 2005 (unaudited)	39		999		$	0.82

The options outstanding and exercisable by exercise price at September 30, 2004 are as follows (in thousands, except per share amounts):

Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Number Exercisable	Weighted Average Exercisable Price
$0.10	3	3.58	3	$	0.40
$0.16	31	4.43	31	$	0.64
$0.20	738	8.06	384	$	0.80
$0.30	7	4.64	7	$	1.20
$0.50	3	4.83	3	$	2.00
$0.70	35	5.68	35	$	2.80
	817		463	$	0.95

F-22

The options outstanding and exercisable by exercisable price at September 20, 2003 are as follows (in thousands, except per share amounts):

Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Number Exercisable	Weighted Average Exercisable Price
$0.10	3	4.58	3	$0.40
$0.16	31	5.43	31	$0.64
$0.20	516	8.56	255	$0.80
$0.30	7	5.64	7	$1.20
$0.50	3	5.83	3	$2.00
$0.70	36	6.71	30	$2.80
	596		329	$0.99

There were no stock options granted to employees with exercise prices below estimated fair market value on the date of grant.

13.    2005 Equity Incentive Plan

In March 2005, the Company’s board of directors and stockholders approved the 2005 Equity Incentive Plan (the “2005 Plan”), which will become effective upon completion of its initial public offering. The Company has reserved a total of 50,000 shares of its common stock for issuance under the 2005 Plan, all of which are available for future grant. In addition, any unused shares in or any unvested shares under the 1997 Plan as of the effective date of an initial public offering will be added to the 2005 Plan.

14.    Segment Reporting

The Company derives significant revenue from outside the United States, primarily in Europe. Revenue by geographic areas, based on the customer shipment location, were as follows (in thousands):

	Year Ended September 30,				Six Months Ended March 31,
	2003		2004		2004		2005
			(restated)		(unaudited)
United States	$	323	$	2,556	$	973	$	2,435
Germany		93		556		234		606
Other		11		138		60		376
	$	427	$	3,250	$	1,267	$	3,417

15.    Related Party Transactions

During the year ended September 30, 2002, the Company paid Innovative Medical Products GmbH (“IMed Pro”), a services company in Germany affiliated with Gregory Ayers, a Board member, $156,000 for clinical trials consulting services. During the year ended September 30, 2003, the Company paid IMed Pro $436,000 for clinical trials consulting and distribution services. During the year ended September 30, 2004, the Company paid IMed Pro for distribution services of $560,000. The agreements between the Company and IMed Pro were terminated effective January 1, 2005. Since January 2005 I-Med-Partner GmbH (“IMedPartner”) has served as a distributor in Germany and purchased $185,000 (unaudited) of product. IMed Pro is a shareholder of IMedPartner.

The Company paid Dade Behring Inc., a stockholder which had a representative on the Company’s Board of Directors, $8,000 and $102,000 of license royalties for the years ended

F-23

September 30, 2003 and 2004, respectively. Also, as discussed in Note 6, in May 2003 the Company issued 787,919 shares of preferred stock valued at $1,245,000 to Dade Behring Inc. to extend the Dade Behring License, and in June 2004, the Company issued 357,570 shares of preferred stock valued at $565,000 to Dade Behring Inc. for the prepayment of $1.0 million of future license royalties.

16.    Income Taxes

A reconciliation of income taxes at the statutory federal income tax rate to income tax expense in the statement of operations is as follows (in thousands):

	2002			2003			2004
							(restated)
Pretax earnings	$	(4,708	)	$	(6,910	)	$	(10,261	)
Tax at federal statutory rate		(1,593	)		(2,350	)		(3,489	)
State, net of federal benefit		(327	)		(349	)		(428	)
Meals & entertainment		2			8			13
Non-cash interest expense		—			18			—
Research and development credit		19			(286	)		17
Other		(107	)		289			(258	)
		(2,006	)		(2,670	)		(4,145	)
Valuation allowance		2,006			2,670			4,145
Provision for taxes	$	—		$	—		$	—

At September 30, 2004, the Company has approximately $35.1 million and $31.4 million of federal and state net operating loss carryforwards available to offset future taxable income which expires in 2024 and 2017, respectively.

The Company also has research and development tax credit carryforwards of approximately $734,000 and $699,000 for federal and state income tax purposes, respectively. If not utilized, the federal carryforwards expire in 2024. The state tax credits can be carried forward indefinitely.

Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amounts of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period.

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows (in thousands):

	Year Ended September 30,
	2003			2004
				(restated)
Deferred tax assets
Fixed assets	$	(24	)	$	214
Reserves and accruals		80			258
Net operating loss carryforwards		9,548			13,294
Research and development credits		1,296			1,279
		10,900			15,045
Less: Valuation allowance		(10,900	)		(15,045	)
	$	—		$	—

F-24

The Company has established a 100% valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. Annually, management evaluates the recoverability of the deferred tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that deferred tax assets are realizable the valuation allowance will be reduced.

17.    Employee 401(k) Plan

In January 2001, the Company adopted a defined contribution retirement plan (the “401k Plan”), which qualifies under Section 401(k) of the Internal Revenue Code of 1996. The 401k Plan covers all employees in the U.S. with a minimum of three months of service. The Company has made no contributions to date.

18.    Unaudited Pro Forma Stockholders’ Equity

If the offering contemplated by this prospectus is consummated, all of the redeemable convertible preferred stock outstanding will automatically convert into 5,489,045 shares of common stock based on the shares of redeemable convertible preferred stock outstanding at March 31, 2005. Unaudited pro forma stockholders’ equity, as adjusted for the assumed conversion of the redeemable convertible preferred stock, is set forth on the balance sheet.

19.    Unaudited Pro Forma Net Loss Per Common Share

Pro forma basic and diluted net loss per common share have been computed to give effect to redeemable convertible preferred stock that will convert to common stock upon the closing of the Company’s initial public offering (using the as-converted method) for the year ended September 30, 2004 and the six months ended March 31, 2005 as if the closing occurred at the beginning of fiscal 2004. A reconciliation of the numerator and denominator used in the calculation of pro forma net loss per common share follows (in thousands, except per share data):

	Year Ended September 30,			Six Months Ended March 31,
	2004			2005
	(unaudited)
Numerator
Net loss	$	(10,261	)	$	(5,965	)
Denominator
Weighted-average number of common shares outstanding used in computing basic and diluted net loss per common share		337			404
Adjustment to reflect the effect of the assumed conversion of the weighted-average number of preferred stock from the date of issuance, basic and diluted		5,513			5,786
Weighted-average number of shares used in computing basic and diluted pro forma net loss per common share		5,850			6,190
Pro forma net loss per common share
Basic and diluted	$	(1.75	)	$	(0.96	)

F-25

20.    Subsequent Event

Investor Promissory Notes

In April 2005, the Company issued unsecured promissory notes to preferred stockholders of the Company in exchange for aggregate cash of $1.5 million. The notes are payable on the earlier of October 31, 2005 or the occurrence of a Liquidation Event. A Liquidation Event includes (i) a liquidation, dissolution or winding up of the Company or (ii) a merger, acquisition, sale of voting control or substantially all of the assets in which the stockholders of the Company do not own the majority of the outstanding shares of the surviving corporation. Following the completion of an IPO, the Company may elect to prepay the notes. The notes accrue interest at 6% per annum until paid. In addition, the holders of the notes received warrants to purchase shares of common stock of the Company to be calculated by dividing 20% of the principal amount of the notes by the warrant exercise price per share. The warrant exercise price per share will equal the price per share paid by the investors in the Company’s next equity financing, whether public or private. The warrants will terminate five years from the date of issuance. The cash received will be allocated to the debt and the warrants based on their respective fair values.

The value of the warrants has been estimated using a Black-Scholes valuation model using the following assumptions: volatility of 60%, term of five years, and a risk free rate of 3.84%. The value of the debt has been estimated using discounted cash flows and a 12% incremental borrowing rate. The value allocated to the warrant was $151,000 and the value allocated to the debt was $1,349,000.

Reverse Stock Split

On May 4, 2005, the Company effected a one-for-four reverse stock split of the Company’s common stock and as a result the conversion ratio of the Company’s preferred stock automatically adjusted to one-for-four. All share and per share amounts contained in the financial statements are retroactively adjusted accordingly.

F-26

BACK COVER

[Picture of two INRatio System test strips]

Confidence in PT/INR Results

Real Time On Board Quality Control

Convenience at the Point of Care

               Shares

HemoSense, Inc.

Common Stock

Dealer Prospectus Delivery Obligation

Until                     , 2005 (25 days after the date of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than the underwriting discounts, payable by us in connection with the sale of the securities being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.

SEC Registration Fee	$	4,575
NASD Filing Fee		3,950
Nasdaq National Market Listing Fee		100,000
Printing Costs		150,000
Legal Fees and Expenses		650,000
Accounting Fees and Expenses		300,000
Blue Sky Fees and Expenses		10,000
Transfer Agent and Registrar Fees		5,000
Miscellaneous		76,475
Total	$	1,300,000

Item 14.    Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law.

Article IX of our amended and restated certificate of incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law.

Article IX of our amended and restated bylaws provides for the indemnification of officers, directors and third parties acting on our behalf if such person acted in good faith and in a manner reasonably believed to be in and not opposed to our best interest, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful.

We have entered into indemnification agreements with our directors and executive officers, in addition to indemnification provided for in our charter documents, and we intend to enter into indemnification agreements with any new directors and executive officers in the future.

The underwriting agreement (Exhibit 1.1 hereto) provides for indemnification by the underwriters of us and our executive officers and directors, and indemnification of the underwriters by us for certain liabilities, including liabilities arising under the Securities Act, in connection with matters specifically provided in writing by the underwriters for inclusion in the registration statement.

We have purchased and intend to maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions.

See also our undertakings set forth in Item 17.

II-1

Item 15.    Recent Sales of Unregistered Securities

(a) Within the last three years, and through March 31, 2005, we have issued and sold the following unregistered securities:

1. From April 12, 2002 to December 12, 2004, we issued and sold to our employees an aggregate of 20,728 shares of our common stock at prices ranging from $0.80 to $1.20 per share pursuant to option exercises for an aggregate purchase price of $4,896.

2. From May 17, 2002 to September 12, 2003, we issued to an accredited investor warrants to purchase an aggregate of 45,000 shares of our common stock at an exercise price of $0.80 per share for an aggregate exercise price of $36,000. As of March 31, 2005, none of these warrants had been exercised.

3. On May 21, 2003, we issued and sold to accredited investors an aggregate of 4,903,526 shares of our Series C-1 preferred stock at a purchase price of $1.58 per share for an aggregate purchase price of $7,747,571. In connection with this transaction, these investors also participated in the following stock exchanges:

• on May 21, 2003, we issued to existing stockholders an aggregate of 1,429,566 shares of our Series A-1 preferred stock in exchange for an aggregate of 1,429,566 shares of our Series A preferred stock held by such stockholders;

• on May 21, 2003, we issued to existing stockholders an aggregate of 3,813,289 shares of our Series B-1 preferred stock in exchange for an aggregate of 3,813,289 shares of our Series B preferred stock held by such stockholders; and

• on May 21, 2003, we issued to existing stockholders an aggregate of 11,203,143 shares of our Series C-1 preferred stock in exchange for an aggregate of 11,203,143 shares of our Series C preferred stock held by such stockholders.

4. On May 30, 2003, we issued to existing stockholders an aggregate of 4,271 and 316 shares of our common stock in connection with the conversion of 85,434 and 6,329 shares of our Series A preferred stock and Series B preferred stock held by such stockholders, respectively, into shares of our common stock.

5. From July 21, 2003 to March 5, 2004, we issued to accredited investors warrants to purchase an aggregate of 318,038 shares of our Series C-1 preferred stock at a purchase price of $1.58 per share for an aggregate exercise price of $502,500. These warrants were later converted into warrants to purchase an aggregate of 318,038 shares of our Series C-3 preferred stock at $1.58 per share for an aggregate exercise price of $502,500. As of March 31, 2005, none of these warrants had been exercised.

6. On June 10, 2004, we issued and sold to accredited investors an aggregate of 2,286,267 shares of our Series C-2 preferred stock at a purchase price of $1.58 per share for an aggregate purchase price of $3,612,302. In connection with this transaction, these investors also participated in the following stock exchanges:

• on June 10, 2004, we issued to existing stockholders an aggregate of 1,429,566 shares of our Series A-2 preferred stock in exchange for an aggregate of 1,429,566 shares of our Series A-1 preferred stock;

• on June 10, 2004, we issued to existing stockholders an aggregate of 3,813,289 shares of our Series B-2 preferred stock in exchange for an aggregate of 3,813,289 shares of our Series B-1 preferred stock; and

II-2

• on June 10, 2004, we issued to existing stockholders an aggregate of 16,106,669 shares of our Series C-2 preferred stock in exchange for an aggregate of 16,106,669 shares of our Series C-1 preferred stock.

7. On February 7, 2005, we issued and sold to accredited investors an aggregate of 2,124,218 shares of our Series C-3 preferred stock at a purchase price of $1.58 per share for an aggregate purchase price of $3,356,264. In connection with this transaction, these investors also participated in the following stock exchanges:

• on February 15, 2005, we issued to existing stockholders an aggregate of 1,429,566 shares of our Series A-3 preferred stock in exchange for an aggregate of 1,429,566 shares of our Series A-2 preferred stock held by such stockholders;

• on February 15, 2005, we issued to existing stockholders an aggregate of 1,914,555 shares of our Series B-3 preferred stock in exchange for an aggregate of 1,914,555 shares of our Series B-2 preferred stock held by such stockholders; and

• on February 15, 2005, we issued to existing stockholders an aggregate of 16,487,912 shares of our Series C-3 preferred stock in exchange for an aggregate of 16,487,912 shares of our Series C-2 preferred stock held by such stockholders.

8. On February 16, 2005, we issued to an existing stockholder an aggregate of 94,936 and 95,249 shares of our common stock in connection with the conversion of 1,898,734 shares of our Series B-2 preferred stock and 1,905,024 shares of our Series C-2 preferred stock held by such stockholder, respectively, into shares of our common stock.

9. On March 1, 2005, we issued to an accredited investor warrants to purchase an additional 189,874 shares of our Series C-3 preferred stock at $1.58 per share for an aggregate exercise price of $300,001. As of March 31, 2005, none of these warrants had been exercised.

10. On April 25, 2005, we sold convertible promissory notes in the aggregate principal amount of $1.5 million to existing stockholders. In consideration for the purchase of these notes we issued to these stockholders warrants to purchase shares sold in our next equity financing. The number of shares that may be purchased under these warrants may be calculated by dividing 20% of the principal amount of each note by the price per share of equity securities sold to investors in our next equity financing.

The sales and issuances of securities in the transactions described in paragraphs 1 through 10 above were deemed to be exempt from registration under the Securities Act in reliance upon the following exemptions:

• with respect to the transactions described in paragraph 1, Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions pursuant to a written compensation benefit plan and contracts relating to compensation as provided under Rule 701;

• with respect to transactions described in paragraphs 2, 3, 5, 6, 7, 9 and 10, Section 4(2) of the Securities Act or Regulation D promulgated thereunder, as transactions by an issuer not involving any public offering. The recipients of securities in each transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in such transactions. The sale of these securities were

II-3

made without general solicitation or advertising. All recipients had adequate access, through their relationship with us, to information about us; and

• with respect to the transactions described in paragraphs 4 and 8, Section 3(a)(9) of the Securities Act, as transactions involving an exchange with existing security holders for no consideration.

(b) From March 31, 2002 through March 31, 2005, we granted options to purchase 952,875 shares of common stock to employees, directors and consultants under our 1997 Stock Plan at an exercise price of $0.80 per share for an aggregate exercise price of $762,300, 5,937 shares of which have been exercised.

The sales and issuances of securities in the transactions described above were deemed to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions pursuant to a written compensation benefit plan and contracts relating to compensation as provided under Rule 701.

(c) There were no underwritten offerings employed in connection with any of the transactions set forth in Item 15(a).

Item 16.    Exhibits and Financial Statement Schedules.

(a) Exhibits

Exhibit Number	Description
1.1**	Form of Underwriting Agreement.
3.1	Amended and Restated Certificate of Incorporation of the Registrant (Delaware) as currently in effect including the Certificate of Amendment dated May 4, 2005.
3.2	Form of Amended and Restated Certificate of Incorporation of the Registrant (Delaware) to be filed after the closing of the offering made under this Registration Statement.
3.3*	Bylaws of the Registrant as currently in effect.
3.4	Form of Amended and Restated Bylaws of the Registrant to be in effect after the closing of the offering made under this Registration Statement.
4.1**	Specimen Common Stock Certificate.
4.2*	Amended and Restated Investors’ Rights Agreement dated February 7, 2005 by and among the Registrant and certain of its stockholders.
5.1**	Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1*	Form of Indemnification Agreement by and between the Registrant and each of its directors and officers.
10.2*	1997 Stock Plan, as amended.
10.3*	2005 Equity Incentive Plan.
10.4	Lease by and between the Registrant and Montague Oaks Associates Phase I & II dated February 11, 2004.
10.5†*	Physician Plus Agreement dated August 15, 2004 by and between the Registrant and Cardinal Health 200, Inc., as amended.

II-4

Exhibit Number	Description
10.6†*	Distribution Agreement dated June 30, 2004 by and between the Registrant and Medline Industries, Inc.
10.7†*	Amended and Restated Distribution Agreement dated March 1, 2005 by and between the Registrant and Quality Assured Services, Inc.
10.8†*	INR PST Supplier Agreement dated April 2, 2004 by and between the Registrant and Raytel Cardiac Services.
10.9†*	Manufacture and Supply Agreement dated March 7, 2005 by and between the Registrant and Haematologic Technologies, Inc.
10.10†*	Professional Service Agreement dated October 29, 2003 by and between the Registrant and Plexus Services Corp.
10.11†*	Supply and License Agreement dated March 5, 1999 by and between the Registrant and Dade Behring Inc., as amended.
10.12*	Loan and Security Agreement No. 3821 dated March 5, 2004 by and between the Registrant and Lighthouse Capital Partners V, L.P.
10.13†*	Settlement Agreement and Mutual Release dated July 16, 2004 by and between the Registrant and Inverness Medical Switzerland GmbH.
10.14†*	Consulting Agreement dated May 17, 2002 by and between the Registrant and Innovative Medical Product Consultants, GmbH.
10.15†*	Non-Exclusive Sales Representative and Services Agreement dated November 12, 2002 by and between the Registrant and Innovative Medical Product Consultants, GmbH.
10.16†*	Distribution Agreement dated April 1, 2003 by and between the Registrant and Inamed KG.
10.17*	Employment Agreement dated June 3, 2002 by and between the Registrant and James D. Merselis.
10.18	Form of Change of Control Severance Agreement by and between the Registrant and its officers.
10.19	Consulting Agreement dated May 6, 2003 by and between the Registrant and Edward F. Brennan.
23.1	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
23.2**	Consent of Counsel (included in Exhibit 5.1).
24.1*	Power of Attorney (see Page II-7 of the original filing).

** To be filed by amendment.

* Previously filed.

† Pursuant to a request for confidential treatment, portions of the Exhibit have been redacted from the publicly filed document and have been furnished separately to the SEC as required by Rule 406 under the Securities Act.

II-5

(b) Financial Statement Schedules

The following schedule is filed herewith:

Schedule II – Valuation and Qualifying Accounts

Other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

(in thousands)	Balance at Beginning of Period		Charge to Expense		Write-Offs Net of Recoveries			Balance at End of Period
Inventory reserve
Year ended September 30, 2002	$	—	$	—	$	—		$	—
Year ended September 30, 2003		—		89		—			89
Year ended September 30, 2004		89		109		(29	)		169
Deferred tax valuation allowance
Year ended September 30, 2002	$	6,224	$	2,006	$	—		$	8,230
Year ended September 30, 2003		8,230		2,670		—			10,900
Year ended September 30, 2004		10,900		4,145		—			15,045

Item 17.    Undertakings

Insofar as indemnification by us for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described in Item 14 above or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by any of our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

We hereby undertake that:

(a) We will provide to the underwriters at the closing as specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(b) For purposes of determining any liability under the Securities Act, the information omitted from a form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(c) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of San Jose, California, on May 6, 2005.

HEMOSENSE, INC.
By:	/S/    JAMES D. MERSELIS
	James D. Merselis President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

Signature	Title	Date
/S/    JAMES D. MERSELIS         James D. Merselis	Director, President and Chief Executive Officer (Principal Executive Officer)	May 6, 2005
/S/    PAUL BALSARA         Paul Balsara	Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer)	May 6, 2005
/S/    GREGORY M. AYERS, M.D., PH.D.*   Gregory M. Ayers, M.D., Ph.D.	Director	May 6, 2005
/S/    EDWARD F. BRENNAN, PH.D.*         Edward F. Brennan, Ph.D.	Director	May 6, 2005
/S/    ROBERT D. ULRICH, PH.D.*         Robert D. Ulrich, Ph.D.	Director	May 6, 2005
/S/    KURT C. WHEELER*         Kurt C. Wheeler	Director	May 6, 2005

*By:	/S/    JAMES D. MERSELIS
	James D. Merselis Attorney-in-Fact

II-7

EXHIBIT INDEX

Exhibit Number	Description
1.1**	Form of Underwriting Agreement.
3.1	Amended and Restated Certificate of Incorporation of the Registrant (Delaware) as currently in effect including the Certificate of Amendment dated May 4, 2005.
3.2	Form of Amended and Restated Certificate of Incorporation of the Registrant (Delaware) to be filed after the closing of the offering made under this Registration Statement.
3.3*	Bylaws of the Registrant as currently in effect.
3.4	Form of Amended and Restated Bylaws of the Registrant to be in effect after the closing of the offering made under this Registration Statement.
4.1**	Specimen Common Stock Certificate.
4.2*	Amended and Restated Investors’ Rights Agreement dated February 7, 2005 by and among the Registrant and certain of its stockholders.
5.1**	Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1*	Form of Indemnification Agreement by and between the Registrant and each of its directors and officers.
10.2*	1997 Stock Plan, as amended.
10.3*	2005 Equity Incentive Plan.
10.4	Lease by and between the Registrant and Montague Oaks Associates Phase I & II dated February 11, 2004.
10.5†*	Physician Plus Agreement dated August 15, 2004 by and between the Registrant and Cardinal Health 200, Inc., as amended.
10.6†*	Distribution Agreement dated June 30, 2004 by and between the Registrant and Medline Industries, Inc.
10.7†*	Amended and Restated Distribution Agreement dated March 1, 2005 by and between the Registrant and Quality Assured Services, Inc.
10.8†*	INR PST Supplier Agreement dated April 2, 2004 by and between the Registrant and Raytel Cardiac Services.
10.9†*	Manufacture and Supply Agreement dated March 7, 2005 by and between the Registrant and Haematologic Technologies, Inc.
10.10†*	Professional Service Agreement dated October 29, 2003 by and between the Registrant and Plexus Services Corp.
10.11†*	Supply and License Agreement dated March 5, 1999 by and between the Registrant and Dade Behring Inc., as amended.
10.12*	Loan and Security Agreement No. 3821 dated March 5, 2004 by and between the Registrant and Lighthouse Capital Partners V, L.P.
10.13†*	Settlement Agreement and Mutual Release dated July 16, 2004 by and between the Registrant and Inverness Medical Switzerland GmbH.
10.14†*	Consulting Agreement dated May 17, 2002 by and between the Registrant and Innovative Medical Product Consultants, GmbH.

II-8

Exhibit Number	Description
10.15†*	Non-Exclusive Sales Representative and Services Agreement dated November 12, 2002 by and between the Registrant and Innovative Medical Product Consultants, GmbH.
10.16†*	Distribution Agreement dated April 1, 2003 by and between the Registrant and Inamed KG.
10.17*	Employment Agreement dated June 3, 2002 by and between the Registrant and James D. Merselis.
10.18	Form of Change of Control Severance Agreement by and between the Registrant and its officers.
10.19	Consulting Agreement dated May 6, 2003 by and between the Registrant and Edward F. Brennan.
23.1	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
23.2**	Consent of Counsel (included in Exhibit 5.1).
24.1*	Power of Attorney (see Page II-7 of the original filing).

** To be filed by amendment.

* Previously filed.

^† Pursuant to a request for confidential treatment, portions of the Exhibit have been redacted from the publicly filed document and have been furnished separately to the SEC as required by Rule 406 under the Securities Act.

II-9

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF

INCORPORATION OF HEMOSENSE, INC.

HemoSense, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

A. The name of the Corporation is HemoSense, Inc. The corporation was originally incorporated under the name “CardioSense, Inc.” and the date of filing the original Certificate of Incorporation of this Corporation with the Secretary of State of the State of Delaware was March 4, 1997.

B. Pursuant to sections 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation amends and restates the provisions of the Certificate of Incorporation of this Corporation.

C. The Certificate of Incorporation of this Corporation is hereby amended and restated to read as follows:

ONE. The name of the Corporation is HemoSense, Inc. (the “Corporation”).

TWO. The name and address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of the registered agent at such address is The Corporation Trust Company.

THREE. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.

FOUR. The Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Corporation is authorized to issue is Thirty-Eight Million (38,000,000) shares of Common Stock (the “Common Stock”) and Fifty-Three Million Three Hundred Eighty-Six Thousand Five Hundred Sixty (53,386,560) shares of Preferred Stock (the “Preferred Stock”), 1,429,566 shares are designated Series A-2 Preferred Stock (the “Series A-2 Preferred Stock”), 1,429,566 shares are designated Series A-3 Preferred Stock (the “Series A-3 Preferred Stock”), 3,813,289 shares are designated Series B-2 Preferred Stock (the “Series B-2 Preferred”), 3,813,289 shares are designated

Series B-3 Preferred Stock (the “Series B-3 Preferred”), 18,900,850 shares are designated Series C-2 Preferred Stock (the “Series C-2 Preferred”), and 24,000,000 shares are designated Series C-3 Preferred Stock (the “Series C-3 Preferred”). Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred, Series B-3 Preferred, Series C-2 Preferred, and Series C-3 Preferred are collectively referred to herein as the “Preferred Stock.” The Preferred Stock shall have a par value of one-tenth of one cent ($0.001) per share, and the Common Stock shall have a par value of one-tenth of one cent ($0.001) per share.

The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and Preferred Stock are as follows:

A. Dividends. When and as declared by the Corporation’s board of directors (the “Board”), the holders of Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred, Series B-3 Preferred, Series C-2 Preferred, and Series C-3 Preferred shall be entitled to receive, out of any funds legally available therefor, dividends at the per share per annum rate of $0.08 for Series A-2 Preferred and Series A-3 Preferred, $0.13 for Series B-2 Preferred and Series B-3 Preferred, and $0.13 for Series C-2 Preferred and Series C-3 Preferred (collectively, the “Dividend Rate”) (as adjusted for any stock splits, dividends, combinations, recapitalizations and the like with respect to such shares), payable in preference to any payment of any dividend on Common Stock. After payment of such dividends, any additional dividends declared shall be payable pro rata to the holders of Common Stock and Preferred Stock on an as-converted basis. No dividends shall be paid, and no transfer of cash or property by the Corporation to one or more of its stockholders without consideration, whether by dividend or otherwise (except a dividend in shares of the Corporation’s stock) shall be made with respect to the Common Stock during any calendar year unless dividends in the total amount of the annual Dividend Rate for the Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Preferred Stock during that calendar year. The right of the holders of Preferred Stock to receive dividends shall not be cumulative, and no right shall accrue to holders of Preferred Stock by reason of the fact that dividends on such shares are not declared or paid in any prior year.

B. Liquidation Preference.

1. Initial Series C-2 and C-3 Preferred Stock Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of Series C-2 Preferred and Series C-3 Preferred shall be entitled to receive, prior to and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred, Series B-3 Preferred or Common Stock, by reason of their ownership thereof, the amount of $1.58 per share for each share of Series C-2 Preferred and Series C-3 Preferred then held and, in addition, an amount equal to all declared but unpaid dividends on the Series C-2 Preferred and the Series C-3 Preferred (the ‘Initial Series C-2 and C-3 Preference”). If the assets and funds thus distributed among the holders of the Series C-2 Preferred and Series C-3 Preferred are insufficient to permit the payment to such holders of their full preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of Series C-2 Preferred and Series C-3 Preferred in proportion to the number of shares of Series C-2 Preferred and Series C-3 Preferred held by each such holder.

2

2. Management Incentive Pool. After payment or setting apart of payment has been made to the holders of Series C-2 Preferred and Series C-3 Preferred of the amounts set forth in Section B(1) above, up to $6.5 million payable under the Company’s Management Retention Plan dated as of March 7, 2003, as amended, adopted by the Board (the “Management Pool”) shall be set aside for payment pursuant to the terms of the Management Pool.

3. After payment or setting apart of payment of the amounts set forth in Section B(1) and B(2), the, the holders of Series C-2 Preferred and Series C-3 Preferred shall be entitled to receive, prior to and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred, Series B-3 Preferred or Common Stock, by reason of their ownership thereof, an additional amount of $1.58 per share for each share of Series C-2 Preferred or Series C-3 Preferred then held. If the assets and funds thus distributed among the holders of the Series C-2 Preferred and Series C-3 Preferred are insufficient to permit the payment to such holders of this full preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of Series C-2 Preferred and Series C-3 Preferred in proportion to the number of shares of Series C-2 Preferred and Series C-3 Preferred held by each such holder.

4. Series A-2, Series A-3, Series B-2 and Series B-3 Preferred Stock Preference. After payment or setting apart of payment has been made of the amounts set forth in Sections B(1), B(2) and B(3) above, the holders of Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred and Series B-3 Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock by reason of their ownership thereof, the amount of $1.00 per share for each share of Series A-2 Preferred or Series A-3 Preferred, and $1.58 per share for each share of Series B-2 Preferred or Series B-3 Preferred then held and, in addition, an amount equal to all declared but unpaid dividends on the Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred and Series B-3 Preferred, as applicable. If the remaining assets and funds thus distributed among the holders of the A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred and Series B-3 Preferred are insufficient to permit the payment to such holders of their full preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred and Series B-3 Preferred in proportion to the number of shares of Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred and Series B-3 Preferred held by each such holder.

5. Common Stock Preference. After payment or setting apart of payment has been made to the holders of Preferred Stock of the amounts set forth in Sections B(1), B(2), B(3) and B(4) above, the holders of Common Stock shall be entitled to receive, pro rata, up to the next $1,500,000 available for distribution. The holders of Preferred Stock who participated in the distributions in Sections B(1), B(3) and B(4) above shall be prohibited from converting their shares into Common Stock until such distribution to the holders of Common Stock has been made. If the assets and funds thus distributed among the holders of the Common Stock are insufficient to permit the payment to such holders of their full preferential amount, then the entire assets and funds of the Corporation legally available for distribution (after giving effect to the distributions described in Sections B(1), B(2), B(3) and B(4) above) shall be distributed among the holders of Common Stock in proportion to the number of shares of Common Stock held by each such holder.

3

6. Remaining Assets. After payment or setting apart of payment has been made to the holders of Preferred Stock and Common Stock of the amounts set forth in Sections B(1), B(2), B(3), B(4) and B(5) above, the remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Common Stock and Preferred Stock in proportion to each such holder’s aggregate number of shares of Common Stock and shares of Common Stock into which Preferred Stock held by such holder is at such time convertible.

7. Reorganization or Merger. A reorganization or merger of the Corporation with or into any other corporation or entity, or a sale of all or substantially all of the assets of the Corporation, in which transaction the Corporation’s stockholders immediately prior to such transaction own immediately after such transaction less than 50% of the equity securities of the surviving corporation or its parent, shall be deemed to be a liquidation within the meaning of this Section 4B.

8. Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any liquidation, dissolution, or winding up of the Corporation are in a form other than cash, then the value of such assets shall be their fair market value as determined by the Board, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

a. The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows:

(i) if the securities are then traded on a national securities exchange or the Nasdaq National Market (or a similar quotation system), then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the distribution;

(ii) if the securities are then actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the distribution; and

(iii) if there is no active public market for the securities, then the value shall be the fair market value thereof, as determined in good faith by the Board.

b. The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount, as determined in good faith by the Board, from the market value (as determined in subsections (a)(i), (ii) or (iii) of this Section B(6)) to reflect the approximate fair market value thereof.

C. Conversion. The holders of Preferred Stock shall have conversion rights as follows:

1. Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Issuance Price (as defined below) by the Conversion Price (as defined below) in effect at the time of conversion. The “Issuance Price” shall be $1.00 for the Series A-2 Preferred or Series A-3 Preferred, $1.58 for the Series B-2 Preferred or

4

Series B-3 Preferred, and $1.58 for the Series C-2 Preferred or Series C-3 Preferred. The “Conversion Price” shall initially be $1.00 for the Series A-2 Preferred or Series A-3 Preferred, $1.58 for the Series B-2 Preferred or Series B-3 Preferred, and $1.58 for the Series C-2 Preferred or Series C-3 Preferred, subject to adjustment as provided below. The number of shares of Common Stock into which a share of Preferred Stock is convertible is hereinafter referred to as the “Conversion Rate” of that series of Preferred Stock (collectively, “Preferred Stock Conversion Rate”).

2. Automatic Conversion.

a. Conversion Upon a Qualified Initial Public Offering. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Rate immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock by the Corporation to the public with a price of at least $7.00 per share (as adjusted for any stock splits, dividends, combinations, recapitalizations and the like with respect to such shares) and net proceeds to the Corporation in excess of $15,000,000 (a “Qualified IPO”).

b. Conversion Upon Election. At any time upon the written consent by the holders of at least a majority of the outstanding shares of the Preferred Stock, voting together as a single class on an as-converted into Common Stock basis, all shares of each series of the Preferred Stock shall be automatically converted into shares of Common Stock at the then effective Preferred Stock Conversion Rate applicable to that series

c. Conversion Upon Series C-3 Financing. On the date which is seven business days after the date upon which the first closing of a Series C-3 Preferred Stock financing occurs, each share of the Series A-2 Preferred Stock, Series B-2 Preferred Stock, and Series C-2 Preferred Stock then outstanding shall automatically be converted into shares of Common Stock at a conversion rate of one share of Common Stock for every five shares of Preferred Stock.

3. Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board. For such purpose, all shares of Preferred Stock held by each holder of Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to Section C(2) above, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such

5

shares of Preferred Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock, as determined pursuant to Section C(5). Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted or, in the case of automatic conversion, on the date of closing of the Qualified IPO or on the date seven business days after the first closing of a Series C-1 Preferred Stock financing pursuant to Section C(2)(c) above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. Any shares of Preferred Stock converted pursuant to this Section C shall be cancelled and shall not be reissued by the Corporation.

4. Adjustments to Conversion Price of Preferred Stock for Dilutive Issues.

a. Special Definitions. For purposes of this Section C(4), the following definitions shall apply:

(i) “Options” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities.

(ii) “Original Issue Date” shall mean the date on which the first share of the applicable series of Preferred Stock was first issued, as appropriate.

(iii) “Convertible Securities” shall mean any evidences of indebtedness, shares (other than the Common Stock) or other securities convertible into or exchangeable for Common Stock.

(iv) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section C(4)(b), deemed to be issued) by the Corporation, other than (each, an “Excluded Issuance”):

(A) shares of the Corporation’s Common Stock issued upon conversion of the Preferred Stock;

(B) up to 3,800,000 shares of the Corporation’s Common Stock (or related Options) issued from and after March 4, 1997 to employees, officers, consultants or other persons performing services for the Corporation pursuant to any stock option or incentive ownership plan or arrangement approved by the Board;

6

(C) shares issuable upon exercise of warrants issued to financial institutions in connection with the extension of credit to the Corporation or in connection with the lease of equipment approved by the Board;

(D) up to 180,000 shares issued upon the exercise of warrants held by Innovative Medical Product Consultants, GmbH as of the date hereof or issuable pursuant to that certain Non-Exclusive Sales Representative and Services Agreement dated November 12, 2002;

(E) shares of the Corporation’s Common Stock issued pursuant to a Qualified IPO; and

(F) shares of the Corporation’s Common Stock issued in connection with any stock split, stock dividend, or recapitalization by the Corporation.

b. Deemed Issue of Additional Shares of Common Stock. In the event the Corporation shall, at any time or from time to time after the Original Issue Date, issue any Options or Convertible Securities (or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities), then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability and without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, upon the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue (or, in case such a record date shall have been fixed, as of the close of business on such record date); provided, however, that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section C(4)(d)) of such Additional Shares of Common Stock would be less than the Conversion Price for the Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred, Series B-3 Preferred, Series C-2 Preferred, or Series C-3 Preferred, as applicable, in effect on the date of and immediately prior to such issue (or such record date, as the case may be); and provided further that no such adjustment shall have the effect of increasing the Conversion Price existing immediately prior to such adjustment or increasing the conversion price in an amount which exceeds the Conversion Price in effect immediately before the first adjustment pursuant to this Section C(4). In any such case in which Additional Shares of Common Stock are deemed to be issued:

(i) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

(ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation or in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such

7

increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;

(iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities that shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

(A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities, whether or not converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange; and

(B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised;

(iv) no readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the Conversion Price to an amount that exceeds the lower of (A) the Conversion Price on the original adjustment date and (B) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; and

(v) in the case of any Options which expire by their terms not more than 90 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options.

c. Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section C(4)(b)) after the Original Issue Date without consideration or for consideration per share less than the Conversion Price for the applicable series of Preferred Stock in effect on the date of and immediately prior to such issue, then, and in such event, the Conversion Price for that series of Preferred Stock shall be reduced, concurrently with such issue, to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including shares issuable upon conversion of the outstanding Preferred Stock) plus the number of shares of Common Stock that the aggregate

8

consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including shares issuable upon conversion of the outstanding Preferred Stock) plus the number of such Additional Shares of Common Stock so issued.

d. Determination of Consideration. For purposes of this Section C(4), the consideration received by the Corporation for any Additional Shares of Common Stock issued (or deemed issued pursuant to Section C(4)(b)) shall be computed as follows:

(i) Cash and Property: Such consideration shall:

(A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends;

(B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board irrespective of any accounting treatment;

(C) insofar as it consists of securities and the value of such securities is not determinable by reference to a separate agreement, then the value shall be determined in accordance with Section B(6)(a); and

(D) in the event Additional Shares of Common Stock are issued (or deemed issued pursuant to Section C(4)(b)) together with other shares or securities or other assets of the Corporation for consideration that covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board.

(ii) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section C(4)(b), relating to Options and Convertible Securities, shall be determined by dividing

(A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

(B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a

9

subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

5. Fractional Shares. In lieu of any fractional shares to which the holder of Preferred Stock would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of one share of Preferred Stock as determined by the Board. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock of each holder at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.

6. Additional Adjustments to Conversion Price. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as follows:

a. If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in shares of Common Stock, by a subdivision or split of shares of Common Stock or otherwise, then, on the date such payment is made or such change is effective, the Conversion Price of the Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of any shares of Preferred Stock shall be increased in proportion to such increase of outstanding shares of Common Stock.

b. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination or consolidation of the outstanding shares of Common Stock, then, on the effective date of such combination or consolidation, the Conversion Price of the Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of any shares of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

c. In the event the Corporation shall declare a cash dividend upon its Common Stock payable otherwise than out of retained earnings or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), stock or other securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights (excluding options to purchase and rights to subscribe for Common Stock or other securities of the Corporation convertible into or exchangeable for Common Stock), then, in each such case, each holder of Preferred Stock shall, concurrently with the distribution to holders of Common Stock, receive a like distribution based upon the number of shares of Common Stock into which such holder’s Preferred Stock is then convertible.

d. In the event, at any time after the date hereof, of any capital reorganization, any reclassification of the stock of the Corporation (other than as a result of a stock dividend or subdivision, split-up or combination of shares), any consolidation or merger of the Corporation with or into another person (other than a consolidation or merger in which the Corporation is the continuing entity and which does not result in any change in the Common Stock) or other disposition of the stock of the Corporation, the shares of Preferred Stock shall, after such reorganization, reclassification, consolidation, merger, sale or other disposition, be convertible into the kind and number of shares of stock or other securities or property of the Corporation or

10

otherwise to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition such holder had converted its shares of Preferred Stock into Common Stock. The provisions of this Section C(6)(d) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions.

e. All calculations under this Section C(6) shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be.

7. Minimal Adjustments. No adjustment to the Conversion Price for the Preferred Stock need be made if such adjustment would result in a change in the Conversion Price of less than $0.01. Any adjustment of less than $0.01 that is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment that, on a cumulative basis, amounts to an adjustment of $0.01 or more in the Conversion Price.

8. No Impairment. The Corporation shall not, through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in the carrying out of all the provisions of this Section C and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Preferred Stock against impairment. This provision shall not restrict the Corporation’s right to amend its Certificate of Incorporation with the requisite stockholder consent.

9. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Rate applicable to any series of Preferred Stock pursuant to this Section C, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) all such adjustments and readjustments, (ii) the Conversion Rate at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property that would be received at the time upon the conversion of such holder’s shares of Preferred Stock.

10. Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

11. Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are

11

entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property or to receive any other right, the Corporation shall mail to each holder of Preferred Stock at least twenty (20) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution or right, and the amount and character of such dividend, distribution or right.

12. Notices. Any notice required by the provisions of this Article 4 to be given to any holder of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder’s address appearing on the Corporation’s books.

D. Voting Rights. Except as otherwise required by law or as set forth herein, the holder of each share of Common Stock issued and outstanding shall have one vote for each share of Common Stock held by such holder, and the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Fractional votes by the holders of Preferred Stock shall not, however, be permitted and any fractional voting rights shall (after aggregating all shares of Common Stock into which shares of Preferred Stock held by each holder could be converted) be rounded to the nearest whole number. The votes of all shares of Common Stock and each series of Preferred Stock shall be counted together with all other shares of stock of the Corporation having general voting power and not counted separately as a class, except with respect to those matters required by law to be submitted to a class vote and except as otherwise set forth herein. Holders of Common Stock and Preferred Stock shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation.

E. Redemption.

1. The Corporation shall redeem, at any time after October 31, 2007 and within thirty (30) days following the receipt by the Corporation of the written request of the holders of not less than 66 ²/3% of the then outstanding Preferred Stock, voting together as a single class, all, or such lesser percentage as is specified in such written notice, of the issued, outstanding and unconverted shares of Preferred Stock held by such holders as of the date on which redemption is first requested, including any shares not redeemed in a prior year (or the maximum amount the Corporation may lawfully redeem, whichever is less) by paying in cash or cancellation of indebtedness to the Corporation therefor a sum per share of Preferred Stock (as adjusted for any stock split or combination of or dividend payable in Preferred Stock) equal to $1.00 for Series A-2 Preferred or Series A-3 Preferred, $1.58 for Series B-2 Preferred or Series B-3 Preferred, and $1.58 for Series C-2 Preferred or Series C-3 Preferred, together with all declared, but unpaid, dividends with respect to such share to the date of the redemption request.

2. The Corporation may redeem, at any time following the receipt by the Corporation of the written consent of the holders of not less than 66 ²/3% of the then outstanding Preferred Stock, voting together as a single class, all, or such lesser percentage as is specified in such

12

written notice, of the issued, outstanding and unconverted shares of Preferred Stock held by such holder as of the date on which redemption is first requested, including any shares not redeemed in a prior year (or the maximum amount the Corporation may lawfully redeem, whichever is less), by paying in cash or cancellation of indebtedness to the Corporation therefor a sum per share of Preferred Stock (as adjusted for any stock split or combination of or dividend payable in Preferred Stock) equal to $1.00 for Series A-2 Preferred or Series A-3 Preferred, $1.58 for Series B-2 Preferred or Series B-3 Preferred, and $1.58 for Series C-2 Preferred or Series C-3 Preferred, together with all declared, but unpaid, dividends with respect to such share to the date of the redemption request. Any redemption of Preferred Stock pursuant to this Section E(2) shall be made on a pro rata basis among the holders of the Preferred Stock in proportion to the number of shares of Preferred Stock to be redeemed by such holders.

3. At least twenty (20) but no more than sixty (60) days prior to the date fixed for any redemption of Preferred Stock (the “Redemption Date”), written notice (the “Redemption Notice”) shall be mailed, first-class postage prepaid, to each holder of record (at the close of business on the business day preceding the day on which notice is given) of Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder or given by the holder to the Corporation for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the price per share to be paid (the “Redemption Price”), the place at which payment may be obtained and the date on which such holder’s rights as a holder of such shares terminate, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed. Except as otherwise provided herein, on or after the Redemption Date, each holder of Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares.

4. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of such shares as holders of the Preferred Stock (except the right to receive the Redemption Price without interest after the Redemption Date upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. Subject to the rights of each series of Preferred Stock that may from time to time come into existence, if, in the case of a redemption pursuant to Section E(2) only, the funds of the Corporation legally available for redemption of shares of Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Preferred Stock required to be redeemed on such date, those funds that are legally available will be used first, to redeem the maximum possible number of such shares of Series C-2 Preferred and Series C-3 Preferred ratably among the holders of such shares to be redeemed, and second, to redeem the maximum possible number of such shares of Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred and Series B-3 Preferred ratably among the holders of such shares of Series A-2 Preferred,

13

Series A-3 Preferred, Series B-2 Preferred and Series B-3 Preferred to be redeemed. If the funds of the Corporation legally available for redemption of shares of Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series C-2 Preferred and Series C-3 to be redeemed on such Redemption Date, then the entire amount of such funds shall be used to redeem the maximum possible number of such shares of Series C-2 Preferred and Series C-3 Preferred ratably among such shares of Series C-2 Preferred and Series C-3 Preferred. If, in the case of a redemption pursuant to Section E(1), the funds of the Corporation legally available for redemption of shares of Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Preferred Stock required to be redeemed on such Redemption Date, those funds that are legally available will be used to redeem the maximum possible number of such shares of Preferred Stock to be redeemed.

The shares of Preferred Stock not redeemed shall remain outstanding and entitled to all the powers, preferences and rights provided herein. Subject to the rights of any series of Preferred Stock which may from time to time come into existence, at any time after the time when additional funds of the Corporation are legally available for the redemption of shares of the Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed.

F. Protective Provisions. In addition to any other class vote that may be required by law, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Preferred Stock voting as a single class:

1. alter or change the rights, preferences, privileges or restrictions of the Preferred Stock; or

2. increase or decrease the aggregate number of authorized shares of Preferred Stock; or

3. create any new class or series of securities (or any securities convertible into securities, or grant options or similar rights to acquire securities) having any rights, preferences, or privileges senior to or on a parity with any series of the Preferred Stock; or

4. amend, restate, modify or supercede the Certificate of Incorporation or Bylaws of the Corporation (including, without limitation, to change the number of directors of the Corporation); or

5. authorize a liquidation, dissolution, winding-up, recapitalization or reorganization of the Corporation, or a sale, lease or transfer of all or substantially all of the assets of the Corporation or a merger or consolidation of the Corporation if, as a result of such merger or consolidation, the stockholders of the Corporation shall own less than 50% of the voting securities of the surviving corporation; or

14

6. effect a reclassification or recapitalization of any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or on a parity with any series of the Preferred Stock; or

7. repurchase any shares of Preferred Stock except as set forth herein; or

8. declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution (other than Excluded Issuances), directly or indirectly, on account of any shares of Common Stock now or hereafter outstanding; or

9. change the authorized number of members of its Board of Directors; or

10. acquire or invest in any other business; or

11. incur material indebtedness (except in connection with equipment lease, inventory, receivables or similar types of financing in the ordinary course of business); or

12. issue any equity securities other than Excluded Issuances; or

13. redeem any securities of the Corporation, except as set forth herein.

G. Residual Rights. All rights accruing to the outstanding shares of capital stock not expressly provided for to the contrary herein shall be vested in the Common Stock.

FIVE. The Corporation is to have perpetual existence.

SIX. In furtherance and not in limitation of the powers conferred by statute, the Board, subject to any rights of the holders of Preferred Stock, is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.

SEVEN. The number of directors which will constitute the whole Board shall be as specified in the Bylaws of the Corporation.

EIGHT. The election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

NINE. Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provisions contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the Bylaws of the Corporation.

TEN. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or his or her testator or intestate is or was a

15

director, officer or employee of the Corporation, or any predecessor of the Corporation, or serves or served at any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor to the Corporation. Neither any amendment nor repeal of this Article 10, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article 10, shall eliminate or reduce the effect of this Article 10 in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article 10, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ELEVEN. Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation.

TWELVE. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

16

IN WITNESS WHEREOF, HemoSense, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by the Chief Executive Officer in San Jose, California this 2^nd day of February, 2005.

HEMOSENSE, INC.
By:	/s/    JAMES MERSELIS
	James Merselis Chief Executive Officer

CERTIFICATE OF AMENDMENT TO THE

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

HEMOSENSE, INC.

James Merselis, Chief Executive Officer of HemoSense, Inc. (the “Company”), certifies that:

1. He is the duly elected Chief Executive Officer of the Company, a corporation organized and existing under the laws of the state of Delaware.

2. The name of this Corporation is HemoSense, Inc. The Company’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 4, 1997 under the name “CardioSense, Inc.”.

3. The first paragraph of Article IV is deleted in its entirety and shall be revised to read as follows:

“FOUR. Immediately upon the filing of this Certificate of Amendment to the Amended and Restated Certificate of Incorporation (the “Filing Date”), each four (4) outstanding shares of the Corporation’s Common Stock will be exchanged and combined, automatically and without further action, into one (1) share of Common Stock. Such combination shall be effected on a certificate-by-certificate basis, and any fractional shares resulting from such combination shall be rounded up to the nearest whole share (with any fractional amount being rounded upward).

The Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Corporation is authorized to issue is Thirty-Eight Million (38,000,000) shares of Common Stock (the “Common Stock”) and Fifty-Three Million Three Hundred Eighty-Six Thousand Five Hundred Sixty (53,386,560) shares of Preferred Stock (the “Preferred Stock”), 1,429,566 shares are designated Series A-2 Preferred Stock (the “Series A-2 Preferred Stock”), 1,429,566 shares are designated Series A-3 Preferred Stock (the “Series A-3 Preferred Stock”), 3,813,289 shares are designated Series B-2 Preferred Stock (the “Series B-2 Preferred”), 3,813,289 shares are designated Series B-3 Preferred Stock (the “Series B-3 Preferred”), 18,900,850 shares are designated Series C-2 Preferred Stock (the “Series C-2 Preferred”), and 24,000,000 shares are designated Series C-3 Preferred Stock (the “Series C-3 Preferred”). Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred, Series B-3 Preferred, Series C-2 Preferred, and Series C-3 Preferred are collectively referred to herein as the “Preferred Stock.” The Preferred Stock shall have a par value of one-tenth of one cent ($0.001) per share, and the Common Stock shall have a par value of one-tenth of one cent ($0.001) per share.”

4. Section C(2)(a) is deleted in its entirety and shall be revised to read as follows:

“a. Conversion Upon a Qualified Public Offering. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Rate immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock by the Corporation to the public with net proceeds to the Corporation in excess of $15,000,000 (a “Qualified IPO”).”

IN WITNESS WHEREOF, this Certificate of Amendment of the Amended and Restated Certificate of Incorporation, which amends certain provisions of the Amended and Restated Certificate of Incorporation of the Company, having been duly adopted in accordance with Sections 228 and 242 of the Delaware General Corporation Law, has been duly executed by its Chief Executive Officer, this 4th day of May, 2005.

/s/    JAMES MERSELIS        

James Merselis,

Chief Executive Officer

CERTIFICATE OF CORRECTION FILED TO CORRECT

AN ERROR IN THE CERTIFICATE OF AMENDMENT

TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF HEMOSENSE, INC.

FILED IN THE OFFICE OF THE SECRETARY OF STATE

OF DELAWARE ON MAY 4, 2005

HemoSense, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY:

1. That the name of the corporation (hereinafter called the “corporation”) is HemoSense, Inc.

2. That a Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the corporation was filed with the Secretary of State of Delaware on May 4, 2005 (the “Amended Certificate”), and the Amended Certificate requires correction as permitted by subsection (f) of Section 103 of The General Corporation Law of the State of Delaware.

3. That the reverse stock split described in Article Four of the Amended Certificate inadvertently contained a reference to fractional shares being rounded upward, rather than being rounded downward as intended.

4. That the inaccuracy in Article Four of the Amended Certificate is hereby corrected to read in its entirety as follows:

“FOUR. Immediately upon the filing of this Certificate of Amendment to the Amended and Restated Certificate of Incorporation (the “Filing Date”), each four (4) outstanding shares of the Corporation’s Common Stock will be exchanged and combined, automatically and without further action, into one (1) share of Common Stock. Such combination shall be effected on a certificate-by-certificate basis, and any fractional shares resulting from such combination shall be rounded down to the nearest whole share (with any fractional amount being rounded downward).

The Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Corporation is authorized to issue is Thirty-Eight Million (38,000,000) shares of Common Stock (the “Common Stock”) and Fifty-Three Million Three Hundred Eighty-Six Thousand Five Hundred Sixty (53,386,560) shares of Preferred Stock (the “Preferred Stock”), 1,429,566 shares are designated Series A-2 Preferred Stock (the “Series A-2 Preferred Stock”), 1,429,566 shares are designated Series A-3 Preferred Stock (the “Series A-3 Preferred Stock”), 3,813,289 shares are designated Series B-2 Preferred

Stock (the “Series B-2 Preferred”), 3,813,289 shares are designated Series B-3 Preferred Stock (the “Series B-3 Preferred”), 18,900,850 shares are designated Series C-2 Preferred Stock (the “Series C-2 Preferred”), and 24,000,000 shares are designated Series C-3 Preferred Stock (the “Series C-3 Preferred”). Series A-2 Preferred, Series A-3 Preferred, Series B-2 Preferred, Series B-3 Preferred, Series C-2 Preferred, and Series C-3 Preferred are collectively referred to herein as the “Preferred Stock.” The Preferred Stock shall have a par value of one-tenth of one cent ($0.001) per share, and the Common Stock shall have a par value of one-tenth of one cent ($0.001) per share.”

IN WITNESS WHEREOF, the undersigned Chief Executive Officer has hereunto set his hand this 4^th day of May 2005.

/s/    JAMES MERSELIS

James Merselis, Chief Executive Officer

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

HEMOSENSE, INC.

HemoSense, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

A. The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on May 4, 1997.

B. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”), this Amended and Restated Certificate of Incorporation restates and amends the provisions of the Amended and Restated Certificate of Incorporation of the corporation.

C. This Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of the corporation in accordance with Sections 242 and 245 of the DGCL.

D. This Amended and Restated Certificate of Incorporation has been duly approved by the written consent of the stockholders of the corporation in accordance with Sections 228, 242 and 245 of the DGCL.

E. The Certificate of Incorporation of the corporation is hereby amended and restated in its entirety to read as follows:

ARTICLE I

The name of the corporation is HemoSense, Inc.

ARTICLE II

The address of the corporation’s registered office in the State of Delaware is the Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE III

The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

ARTICLE IV

The corporation shall have authority to issue shares as follows:

50,000,000 shares of Common Stock, par value $0.001 per share. Each share of Common Stock shall entitle the holder thereof to one (1) vote on each matter submitted to a vote at a meeting of stockholders.

10,000,000 shares of Preferred Stock, par value $0.001 per share, which may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fix by resolution or resolutions the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of Preferred Stock, including without limitation authority to fix by resolution or resolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof, or any of the foregoing.

The Board of Directors is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number of which was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in the Certificate of Incorporation or the resolution of the Board of Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

ARTICLE V

The number of directors that constitutes the entire Board of Directors of the corporation shall be determined in the manner set forth in the Bylaws of the corporation. At each annual meeting of stockholders, directors of the corporation shall be elected to hold office until the expiration of the term for which they are elected and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders’ meeting called and held in accordance with the DGCL.

The directors of the corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of the stockholders following the effective date of this corporation’s initial public offering (the “Effective Date”), the term of office of the initial Class II directors shall expire at the second annual meeting of the stockholders following the Effective Date and the term of office of the initial Class III directors shall expire at the third annual meeting of the stockholders following the Effective Date. At each annual meeting of stockholders, commencing with the first regularly-scheduled annual meeting of stockholders following the Effective Date, each of the successors elected to replace the directors of a Class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual

-2-

meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified.

Notwithstanding the foregoing provisions of this Article, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or removal. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Any director may be removed from office by the stockholders of the corporation only for cause. Vacancies occurring on the Board of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy or newly created directorship shall hold office until the next election of the Class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.

ARTICLE VI

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the corporation is expressly authorized to adopt, amend or repeal the Bylaws of the corporation.

ARTICLE VII

The election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide.

ARTICLE VIII

No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws, and no action shall be taken by the stockholders by written consent. The affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting securities of the corporation, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Article V, Article VI or Article VIII of this Certificate of Incorporation or Sections 2.1 (Place of Meetings), 2.2 (Annual Meeting), 2.3 (Special Meeting), 2.4 (Advance Notice Procedures; Notice of Stockholders’ Meetings), 2.9 (Voting), or 3.2 (Number of Directors) of the corporation’s Bylaws.

ARTICLE IX

The corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or

-3-

proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding. The corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board.

The corporation shall have the power to indemnify and hold harmless, to the extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.

Neither any amendment nor repeal of this Article IX, nor the adoption of any provision of this corporation’s Certificate of Incorporation inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any matter occurring, or any cause of action, suit or claim accruing or arising or that, but for this Article IX, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ARTICLE X

Except as provided in Article IX above, the corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

-4-

IN WITNESS WHEREOF, HemoSense, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by the Chief Executive Officer of the corporation on this          day of                      2005.

By:
	James D. Merselis
	Chief Executive Officer

-5-

EX-3.4

Exhibit 3.4

AMENDED AND RESTATED BYLAWS OF

HEMOSENSE, INC.

(as amended on March 28, 2005 effective as of the

closing of the corporation’s initial public offering)

TABLE OF CONTENTS

		Page
ARTICLE I - CORPORATE OFFICES		1
1.1	REGISTERED OFFICE	1
1.2	OTHER OFFICES	1
ARTICLE II - MEETINGS OF STOCKHOLDERS		1
2.1	PLACE OF MEETINGS	1
2.2	ANNUAL MEETING	1
2.3	SPECIAL MEETING	1
2.4	ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS’ MEETINGS	2
2.5	MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE	3
2.6	QUORUM	3
2.7	ADJOURNED MEETING; NOTICE	4
2.8	CONDUCT OF BUSINESS	4
2.9	VOTING	4
2.10	STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING	4
2.11	RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS	4
2.12	PROXIES	5
2.13	LIST OF STOCKHOLDERS ENTITLED TO VOTE	5
2.14	INSPECTORS OF ELECTION	5
ARTICLE III - DIRECTORS		6
3.1	POWERS	6
3.2	NUMBER OF DIRECTORS	6
3.3	ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS	7
3.4	RESIGNATION AND VACANCIES	7
3.5	PLACE OF MEETINGS; MEETINGS BY TELEPHONE	7
3.6	REGULAR MEETINGS	8
3.7	SPECIAL MEETINGS; NOTICE	8
3.8	QUORUM	8
3.9	BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING	9
3.10	FEES AND COMPENSATION OF DIRECTORS	9
3.11	APPROVAL OF LOANS TO OFFICERS	9
3.12	REMOVAL OF DIRECTORS	9
ARTICLE IV - COMMITTEES		9
4.1	COMMITTEES OF DIRECTORS	9
4.2	COMMITTEE MINUTES	10
4.3	MEETINGS AND ACTION OF COMMITTEES	10
ARTICLE V - OFFICERS		10
5.1	OFFICERS	10

-i-

TABLE OF CONTENTS

(continued)

		Page
5.2	APPOINTMENT OF OFFICERS	11
5.3	SUBORDINATE OFFICERS	11
5.4	REMOVAL AND RESIGNATION OF OFFICERS	11
5.5	VACANCIES IN OFFICES	11
5.6	REPRESENTATION OF SHARES OF OTHER CORPORATIONS	11
5.7	AUTHORITY AND DUTIES OF OFFICERS	11
ARTICLE VI - RECORDS AND REPORTS		12
6.1	MAINTENANCE AND INSPECTION OF RECORDS	12
6.2	INSPECTION BY DIRECTORS	12
ARTICLE VII - GENERAL MATTERS		12
7.1	EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS	12
7.2	STOCK CERTIFICATES; PARTLY PAID SHARES	12
7.3	SPECIAL DESIGNATION ON CERTIFICATES	13
7.4	LOST CERTIFICATES	13
7.5	CONSTRUCTION; DEFINITIONS	13
7.6	DIVIDENDS	14
7.7	FISCAL YEAR	14
7.8	SEAL	14
7.9	TRANSFER OF STOCK	14
7.10	STOCK TRANSFER AGREEMENTS	14
7.11	REGISTERED STOCKHOLDERS	14
7.12	WAIVER OF NOTICE	15
ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION		15
8.1	NOTICE BY ELECTRONIC TRANSMISSION	15
8.2	DEFINITION OF ELECTRONIC TRANSMISSION	16
8.3	INAPPLICABILITY	16
ARTICLE IX - INDEMNIFICATION		16
9.1	INDEMNIFICATION OF DIRECTORS AND OFFICERS	16
9.2	INDEMNIFICATION OF OTHERS	16
9.3	PREPAYMENT OF EXPENSES	17
9.4	DETERMINATION; CLAIM	17
9.5	NON-EXCLUSIVITY OF RIGHTS	17
9.6	INSURANCE	17
9.7	OTHER INDEMNIFICATION	17
9.8	AMENDMENT OR REPEAL	17
ARTICLE X - AMENDMENTS		18

-ii-

AMENDED AND RESTATED BYLAWS OF HEMOSENSE, INC.

ARTICLE I - CORPORATE OFFICES

1.1 REGISTERED OFFICE.

The registered office of HemoSense, Inc. shall be fixed in the corporation’s certificate of incorporation, as the same may be amended from time to time.

1.2 OTHER OFFICES.

The corporation’s Board of directors (the “Board”) may at any time establish other offices at any place or places where the corporation is qualified to do business.

ARTICLE II - MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS.

Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s principal executive office.

2.2 ANNUAL MEETING.

The annual meeting of stockholders shall be held each year. The Board shall designate the date and time of the annual meeting. In the absence of such designation the annual meeting of stockholders shall be held on the second Tuesday of May of each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding business day. At the annual meeting, directors shall be elected and any other proper business may be transacted.

2.3 SPECIAL MEETING.

A special meeting of the stockholders may be called at any time by the Board, chairperson of the Board, chief executive officer or president (in the absence of a chief executive officer), but such special meetings may not be called by any other person or persons.

No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.

2.4 ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS’ MEETINGS.

(i) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (B) otherwise properly brought before the meeting by or at the direction of the board of directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days before the one year anniversary of the date on which the corporation first mailed its proxy statement to stockholders in connection with the previous year’s annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date of the prior year’s meeting, notice by the stockholder to be timely must be so received not later than the close of business on the later of one hundred twenty (120) calendar days in advance of such annual meeting and ten (10) calendar days following the date on which public announcement of the date of the meeting is first made. A stockholder’s notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (c) the class and number of shares of the corporation that are beneficially owned by the stockholder, (d) any material interest of the stockholder in such business, and (e) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (i). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (i), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.

(ii) Only persons who are nominated in accordance with the procedures set forth in this paragraph (ii) shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (ii). Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (i) of this Section 2.4. Such stockholder’s notice shall set forth (a) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation that are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A

-2-

under the 1934 Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (b) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (i) of this Section 2.4. At the request of the board of directors, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (ii). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.

These provisions shall not prevent the consideration and approval or disapproval at an annual meeting of reports of officers, directors and committees of the board of directors, but in connection therewith no new business shall be acted upon at any such meeting unless stated, filed and received as herein provided. Notwithstanding anything in these bylaws to the contrary, no business brought before a meeting by a stockholder shall be conducted at an annual meeting except in accordance with procedures set forth in this Section 2.4.

All notices of meetings of stockholders shall be sent or otherwise given in accordance with either Section 2.5 or Section 8.1 of these bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

Notice of any meeting of stockholders shall be given:

(i) if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the corporation’s records; or

(ii) if electronically transmitted as provided in Section 8.1 of these bylaws.

An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or any other agent of the corporation that the notice has been given by mail or by a form of electronic transmission, as applicable, shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

2.6 QUORUM.

The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

-3-

2.7 ADJOURNED MEETING; NOTICE.

When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place if any thereof, and the means of remote communications if any by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

2.8 CONDUCT OF BUSINESS.

The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.

2.9 VOTING.

The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Subject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof having a preference over the Common Stock as dividend or upon liquidation, any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.

2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.

In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other such action.

-4-

If the Board does not so fix a record date:

(i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

(ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

2.12 PROXIES.

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.

2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.

The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporation’s principal executive office. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

2.14 INSPECTORS OF ELECTION

A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person.

-5-

Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.

Such inspectors shall:

(i) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;

(ii) receive votes, ballots or consents;

(iii) hear and determine all challenges and questions in any way arising in connection with the right to vote;

(iv) count and tabulate all votes or consents;

(v) determine when the polls shall close;

(vi) determine the result; and

(vii) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

ARTICLE III - DIRECTORS

3.1 POWERS.

Subject to the provisions of the DGCL and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board.

3.2 NUMBER OF DIRECTORS.

The authorized number of directors shall be determined from time to time by resolution of the Board, provided the Board shall consist of at least one member. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

-6-

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.

Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.

If so provided in the certificate of incorporation, the directors of the corporation shall be divided into three classes.

3.4 RESIGNATION AND VACANCIES.

Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.

Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If the directors are divided into classes, a person so elected by the directors then in office to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.

If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

-7-

Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.6 REGULAR MEETINGS.

Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.

3.7 SPECIAL MEETINGS; NOTICE.

Special meetings of the Board for any purpose or purposes may be called at any time by the chairperson of the Board, the chief executive officer, the president, the secretary or a majority of the authorized number of directors.

Notice of the time and place of special meetings shall be:

(i) delivered personally by hand, by courier or by telephone;

(ii) sent by United States first-class mail, postage prepaid;

(iii) sent by facsimile; or

(iv) sent by electronic mail,

directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the corporation’s records.

If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporation’s principal executive office) nor the purpose of the meeting.

3.8 QUORUM.

At all meetings of the Board, a majority of the authorized number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

-8-

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

3.10 FEES AND COMPENSATION OF DIRECTORS.

Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.

3.11 APPROVAL OF LOANS TO OFFICERS.

The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the corporation.

3.12 REMOVAL OF DIRECTORS.

Any director may be removed from office by the stockholders of the corporation only for cause.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

ARTICLE IV - COMMITTEES

4.1 COMMITTEES OF DIRECTORS.

The Board may, by resolution passed by a majority of the authorized number of directors, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and

-9-

authority of the Board in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation,

4.2 COMMITTEE MINUTES.

Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

4.3 MEETINGS AND ACTION OF COMMITTEES.

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

(i) Section 3.5 (place of meetings and meetings by telephone);

(ii) Section 3.6 (regular meetings);

(iii) Section 3.7 (special meetings and notice);

(iv) Section 3.8 (quorum);

(v) Section 7.12 (waiver of notice); and

(vi) Section 3.9 (action without a meeting)

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However:

(i) the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;

(ii) special meetings of committees may also be called by resolution of the Board; and

(iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

ARTICLE V - OFFICERS

5.1 OFFICERS.

The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the Board, a chairperson of the Board, a vice chairperson of the Board, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more

-10-

assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

5.2 APPOINTMENT OF OFFICERS.

The Board shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 and 5.5 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.

5.3 SUBORDINATE OFFICERS.

The Board may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS.

Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

5.5 VACANCIES IN OFFICES.

Any vacancy occurring in any office of the corporation shall be filled by the Board or as provided in Section 5.2.

5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

The chairperson of the Board, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

5.7 AUTHORITY AND DUTIES OF OFFICERS.

All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board or the

-11-

stockholders and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.

ARTICLE VI - RECORDS AND REPORTS

6.1 MAINTENANCE AND INSPECTION OF RECORDS.

The corporation shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal executive office.

6.2 INSPECTION BY DIRECTORS.

Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

ARTICLE VII - GENERAL MATTERS

7.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

The Board, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

7.2 STOCK CERTIFICATES; PARTLY PAID SHARES.

The shares of the corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares.

-12-

Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairperson or vice-chairperson of the Board, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

7.3 SPECIAL DESIGNATION ON CERTIFICATES.

If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

7.4 LOST CERTIFICATES.

Except as provided in this Section 7.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

7.5 CONSTRUCTION; DEFINITIONS.

Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the

-13-

singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

7.6 DIVIDENDS.

The Board, subject to any restrictions contained in either (i) the DGCL, or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock.

The Board may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.

7.7 FISCAL YEAR.

The fiscal year of the corporation shall be fixed by resolution of the Board and may be changed by the Board.

7.8 SEAL.

The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

7.9 TRANSFER OF STOCK.

Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.

7.10 STOCK TRANSFER AGREEMENTS.

The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

7.11 REGISTERED STOCKHOLDERS.

The corporation:

(i) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

(ii) shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

-14-

(iii) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

7.12 WAIVER OF NOTICE.

Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION

8.1 NOTICE BY ELECTRONIC TRANSMISSION.

Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:

(i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and

(ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

Any notice given pursuant to the preceding paragraph shall be deemed given:

(i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

(ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

-15-

(iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and

(iv) if by any other form of electronic transmission, when directed to the stockholder.

An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

8.2 DEFINITION OF ELECTRONIC TRANSMISSION.

An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

8.3 INAPPLICABILITY.

Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.

ARTICLE IX - INDEMNIFICATION

9.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS

The corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding. The corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board.

9.2 INDEMNIFICATION OF OTHERS

The corporation shall have the power to indemnify and hold harmless, to the extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.

-16-

9.3 PREPAYMENT OF EXPENSES

The corporation shall pay the expenses incurred by any officer or director of the corporation, and may pay the expenses incurred by any employee or agent of the corporation, in defending any Proceeding in advance of its final disposition; provided, however, that the payment of expenses incurred by a person in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article IX or otherwise.

9.4 DETERMINATION; CLAIM

If a claim for indemnification or payment of expenses under this Article IX is not paid in full within sixty days after a written claim therefor has been received by the corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.

9.5 NON-EXCLUSIVITY OF RIGHTS

The rights conferred on any person by this Article IX shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

9.6 INSURANCE

The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.

9.7 OTHER INDEMNIFICATION

The corporation’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.

9.8 AMENDMENT OR REPEAL

Any repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.”

-17-

ARTICLE X - AMENDMENTS

These bylaws may be adopted, amended or repealed by the stockholders entitled to vote. However, the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.

-18-

HEMOSENSE, INC.

CERTIFICATE OF AMENDMENT OF BYLAWS

The undersigned hereby certifies that he or she is the duly elected, qualified, and acting Secretary or Assistant Secretary of HemoSense, Inc., a Delaware corporation and that the foregoing bylaws, comprising 18 pages, were amended and restated, contingent upon the closing of the corporation’s initial public offering, on March 24, 2005 by the corporation’s board of directors.

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this 24^th day of March, 2005.

/s/    MICHAEL J. DANAHER        

Secretary

EX-10.4

Exhibit 10.4

MONTAGUE OAKS ASSOCIATES PHASE I & II,

(Landlord)

and

HEMOSENSE, INC.

(Tenant)

LEASE

SUMMARY OF LEASE

1.      DATE OF LEASE:	February 11, 2004
2.      LANDLORD:	MONTAGUE OAKS ASSOCIATES PHASE I & II 3945 Freedom Circle, Suite 640 Santa Clara, California 95054
3.      TENANT:	HEMOSENSE, INC.
4.      PREMISES:	651 River Oaks Parkway San Jose, California
5.      SQUARE FEET:	15,258
6.      PERMITTED USE:	General office, research and development, light manufacturing and other legally permitted uses incidental to the foregoing uses and reasonably necessary for the conduct of Tenant’s business
7.      TERM:
(a)    SCHEDULED COMMENCEMENT DATE:	April 1, 2004
(b)    SCHEDULED EXPIRATION DATE:	March 31, 2009
8.      RENT:
(a)    BASIC RENT:	$10,680.60 (months 4 - 12)
(b)    ADJUSTMENTS TO BASIC RENT:	$11,443.50 (lease months 13-24) $12,206.40 (lease months 25-36) $12,969.30 (lease months 37-48) $13,732.20 (lease months 49-60)
(c)    TENANT’S ESTIMATED SHARE OF COMMON AREA CHARGES:	$4,577.40
9.      SECURITY DEPOSIT:	$13,732.20
10.    PARKING SPACES PROVIDED:	Fifty-six (56), subject to paragraph 15 of the Lease.
11.    OTHER IMPORTANT PROVISIONS:	Option to Extend (paragraph 54) Right of First Offer (paragraph 55)

THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL GOVERN.

TABLE OF CONTENTS

		Page
1.	Use	1
2.	Term	1
3.	Possession	2
4.	Monthly Rent	3
5.	Intentionally Omitted	5
6.	Restriction on Use	5
7.	Compliance with Laws	5
8.	Alterations	6
9.	Repair and Maintenance	7
10.	Liens	10
11.	Insurance	10
12.	Utilities and Service	13
13.	Taxes and Other Charges	14
14.	Entry by Landlord	15
15.	Common Area; Parking	15
16.	Common Area Charges	17
17.	Damage by Fire; Casualty	19
18.	Indemnification	21
19.	Assignment and Subletting	21
20.	Default	24
21.	Landlord’s Right to Cure Tenant’s Default	26

-i-

TABLE OF CONTENTS

(Continued)

		Page
22.	Eminent Domain	26
23.	Notice and Covenant to Surrender	27
24.	Tenant’s Quitclaim	28
25.	Holding Over	28
26.	Subordination	29
27.	Certificate of Estoppel	29
28.	Sale by Landlord	29
29.	Attornment to Lender or Third Party	29
30.	Default by Landlord	30
31.	Intentionally Omitted	30
32.	Measurement of Premises	30
33.	Attorneys’ Fees	30
34.	Surrender	31
35.	Waiver	31
36.	Easements; Airspace Rights	31
37.	Intentionally Omitted	31
38.	Notices	31
39.	Name	32
40.	Governing Law; Severability	32
41.	Definitions	32
42.	Time	33
43.	Interest on Past Due Obligations; Late Charge	33

-ii-

TABLE OF CONTENTS

(Continued)

		Page
44.	Entire Agreement	34
45.	Corporate Authority	34
46.	Recording	34
47.	Real Estate Brokers	34
48.	Exhibits and Attachments	34
49.	Environmental Matters	35
50.	Signage	37
51.	Submission of Lease	38
52.	Tenant Improvements	38
53.	Additional Rent	38
54.	Option to Extend Term	38
55.	Right of First Offer	40
56.	Approvals	42
57.	Reasonable Expenditures	42

-iii-

LEASE

THIS LEASE (“Lease”) is made this eleventh (11th) day of February, 2004, by and between MONTAGUE OAKS ASSOCIATES PHASE I & II, a California general partnership (“Landlord”), and HEMOSENSE, INC., a Delaware corporation (“Tenant”).

WITNESSETH:

Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those certain premises outlined in red on Exhibit “A” (the “Premises”) commonly known as 651 River Oaks Parkway, San Jose, California, which Landlord and Tenant hereby agree consists of approximately fifteen thousand two hundred fifty-eight (15,258) square feet in that certain project commonly referred to as Montague Oaks (the “Project”). As used herein, the term Project shall mean and include all of the land described in Exhibit “B” and all of the buildings, improvements, fixtures and equipment now or hereafter situated on said land.

Tenant covenants, as a material part of the consideration of this Lease, to perform and observe each and all of the terms, covenants and conditions set forth below, and this Lease is made upon the condition of such performance and observance.

1. Use. Subject to the restrictions contained in paragraph 6 hereof, Tenant shall use the Premises for the purpose of general office, research and development, light manufacturing and other legally permitted uses incidental to the foregoing uses and reasonably necessary for the conduct of Tenant’s business and shall not use or permit the Premises to be used for any other purpose.

2. Term.

(a) The term shall be for sixty (60) months (unless sooner terminated as hereinafter provided) and, subject to paragraphs 2(b) and 3, shall commence on the later of (A) April 1, 2004 or (B) the date that Landlord shall have tendered possession of the Premises in accordance with paragraph 2(b) below (such later date being the “Commencement Date”), and end on the date that is one (1) day prior to the fifth (5^th) anniversary of such Commencement Date.

(b) Possession of the Premises shall be deemed tendered when all of the following have occurred:

(i) One day after a final building permit acknowledging completion and permitting occupancy is granted by the proper governmental agency;

(ii) All water, sewer, fire sprinkler, electricity and gas systems are connected to the Premises and available for use by Tenant upon payment by Tenant of the customary charges therefor;

-1-

(iii) Tenant has been afforded the FF&E Installation Period (as defined in paragraph 3(c) below); and

(iv) Upon substantial completion of the Tenant Improvements (as defined in Section 1 of the Work Letter Agreement attached as Exhibit “C” to this Lease (“Work Letter Agreement”)) in accordance with (A) the Work Letter Agreement, (B) the Final Construction Drawings and (C) and any change orders approved by Landlord and Tenant pursuant to the terms of the Work Letter Agreement, exclusive only of telephones or other communication systems and Punchlist items, the non-completion of which does not materially interfere with the use of the Premises by Tenant. Notwithstanding the preceding sentence, if Landlord is prevented from or delayed in completing the Tenant Improvements due to Tenant Delay (as defined in Paragraph 7 of the Work Letter Agreement), then the substantial completion date shall be deemed to be the date upon which such work would have been so substantially completed but for such Tenant Delay.

3. Possession.

(a) If Landlord for any reason cannot deliver possession of the Premises to Tenant by April 1, 2004 or any other date, this Lease shall not be void or voidable, Landlord shall not be liable to Tenant for any loss or damage on account thereof and Tenant shall not be liable for rent until the commencement of the term is determined in accordance with paragraph 2(b). If the term commences on a date other than April 1, 2004, then the parties shall immediately execute an amendment to this Lease stating the actual date of commencement and the revised expiration date. If the Commencement Date has not occurred on or before the “Scheduled Date”, as defined below, then Landlord shall not be liable to Tenant for any loss or damage on account thereof, but Tenant shall, as its sole and exclusive remedy for such delay, be entitled to an abatement of basic rent for each day from and after the Scheduled Date until the occurrence of the Commencement Date in accordance with paragraph 2(b) as follows: The basic rent first due on and after Commencement Date shall be subject to abatement calculated as follows: (i) for each day from the first (1^st) through the fifteenth (15th) day after the Scheduled Date, Tenant shall be entitled to an abatement of basic rent in an amount equal to twenty-five percent (25%) of one (1) daily installment of basic rent; (ii) for each day from and after the sixteenth (16th) day through and including the thirtieth (30th) day after the Scheduled Date, Tenant shall be entitled to an abatement of basic rent in an amount equal to fifty percent (50%) of one (1) daily installment of basic rent; (iii) for each day from and after the thirty-first (31st) day until and including the forty-fifth (45^th) day after the Scheduled Date, Tenant shall be entitled to an abatement of basic rent in an amount equal to seventy-five percent (75%) of one (1) daily installment of basic rent; and (iv) for each day from and after the forty-sixth (46^th) day after the Scheduled Date, Tenant shall be entitled to an abatement of basic rent in an amount equal to one hundred percent (100%) of one (1) daily installment of basic rent. In addition, if the Commencement Date has not occurred on or before the sixtieth (60^th) day after the Scheduled Date, then Tenant may, as Tenant’s sole and exclusive remedy, give written notice of termination of this Lease to Landlord. If the Commencement Date has not occurred within fifteen (15) days after the date of Landlord’s receipt of Tenant’s termination notice, then this Lease shall terminate as of the fifteenth (15^th) day after Landlord’s receipt of the termination notice, and Landlord shall return to

-2-

Tenant any prepaid rent and the security deposit delivered to Landlord. As used herein, the “Scheduled Date” shall mean May 15, 2004; provided, however that the Scheduled Date shall be extended one day for each day that substantial completion of the Tenant Improvements is delayed due to “Force Majeure.” As used herein, “Force Majeure” shall mean the unavailability of materials, strike or other labor trouble or any other cause beyond the reasonable control or anticipation of Landlord, but shall not include the default or wrongful conduct of the general contractor or subcontractor of any tier constructing the Tenant Improvements, a dispute between Landlord and its contractor, or between any general contractor or subcontractor of any tier constructing the Tenant Improvements, Landlord’s failure or inability to pay money or the unavailability of Building standard materials used by Landlord in the Project.

(b) Tenant’s inability or failure to take possession of the Premises on or before the Commencement Date shall not delay the commencement of the term of this Lease or Tenant’s obligation to pay rent.

(c) Subject to scheduling, safety, security and other similar considerations arising in connection with Landlord’s performance of the Tenant Improvements in accordance with the Work Letter Agreement (as determined by Landlord in Landlord’s reasonable discretion), Landlord shall use reasonable efforts to grant Tenant access to the Premises approximately thirty (30) days, but in no event less than twenty (20) days, preceding Landlord’s estimated substantial completion date for such Tenant Improvements (“FF&E Installation Period”) for the sole purpose of installing in the Premises, at Tenant’s sole cost and expense, its lab equipment, network cabling, electrical, telecommunications, furniture systems and other equipment and fixtures (collectively, the “FF&E”). Tenant hereby agrees and acknowledges that, due to scheduling, safety, security and other similar considerations arising in connection with Landlord’s performance of the Tenant Improvements, (A) Tenant may not have access to the entire Premises during the entire FF&E Installation Period provided, however, Tenant shall have access to the Premises for at least twenty (20) days prior to the Commencement Date, and (B) the actual Commencement Date may occur sooner than thirty (30) days (but no sooner than twenty (20) days) after the date that Tenant is initially granted access to the Premises pursuant to this paragraph 3(c). Tenant shall not be obligated to pay basic rent or common area charges (both as described in paragraph 4 below) during the FF&E Installation Period, but Tenant shall otherwise be subject to all of the terms and conditions of this Lease. In no event shall the installation of the FF&E interfere with or delay Landlord’s completion of Tenant Improvements. Notwithstanding Landlord’s granting of access to the Premises during the FF&E Installation Period, or delivery of possession of the Premises to Tenant on the Commencement Date, Tenant shall not be permitted to enter or occupy the Premises unless and until Tenant has provided Landlord the certificates of insurance required pursuant to the terms and conditions of this Lease (including, without limitation, paragraph 11 hereof).

4. Monthly Rent.

(a) Basic Rent. Tenant shall pay to Landlord monthly installments of basic rent for the Premises, in advance, on or before the first day of each and every calendar month of the lease

-3-

term as set forth in this paragraph 4(a) below. Basic rent for any partial month shall be payable in advance and shall be prorated based on the actual number of days in such partial month.

Lease Months	Monthly Amounts
1-3	$	0.00
4-12	$	10,680.60
13-24	$	11,443.50
25-36	$	12,206.40
37-48	$	12,969.30
49-60	$	13,732.20

(b) Common Area Charges. In addition to the above basic rent and as additional rent, Tenant shall pay to Landlord, subject to adjustments and reconciliation as provided in paragraph 16 of this Lease, the sum of Four Thousand Five Hundred Seventy-seven Dollars and Forty Cents ($4,577.40) on or before the first day of the fourth full calendar month of the term and on the first day of each and every successive calendar month, said sum representing Tenant’s estimated payment of its percentage share of common area charges as provided for in paragraph 16 of this Lease. Payment of estimated common area charges for any partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly payment of common area charges per day, assuming a thirty (30) day month.

(c) Manner and Place of Payment. All payments of basic rent and common area charges shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America, at the office of Landlord at 3945 Freedom Circle, Suite 640, Santa Clara, California 95054, or to such other person or place as Landlord may from time to time designate in writing.

(d) Fourth Month’s Rent. Upon the execution of this Lease by Landlord and Tenant, Tenant shall deposit with Landlord the sum of Fifteen Thousand Two Hundred Fifty-eight Dollars ($15,258.00) to be applied against the basic rent and common area charges for the fourth (4th) lease month of the term.

(e) Security Deposit. Concurrently with Tenant’s execution of this Lease, Tenant shall deposit with Landlord the sum of Thirteen Thousand Seven Hundred Thirty-two Dollars and Twenty Cents ($13,732.20), which sum shall be held by Landlord as a security deposit for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant. If any Event of Default occurs with respect to any provision of this Lease, including but not limited to, the provisions relating to the payment of basic rent and common area charges, Landlord may (but shall not be required to) use, apply, or retain all or any part of this security deposit for the payment of any amount which Landlord may spend by reason of such Event of Default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of such Event of Default. If any portion of said deposit is so used, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the security deposit to its original amount; Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this security deposit separate from its general

-4-

funds and Tenant shall not be entitled to interest on such deposit. At the expiration or termination of this Lease, Landlord may retain from the security deposit such amounts as may be necessary to remedy any event that, subject to notice and the expiration of any cure period, would be an Event of Default under this Lease, and the balance of the security deposit shall be returned to Tenant after Tenant has vacated the Premises. In the event of termination of Landlord’s interest in this Lease, Landlord shall transfer said deposit to Landlord’s successor in interest, and Tenant agrees that Landlord shall thereupon be released from liability for the return of such deposit or any accounting therefor.

5. Intentionally Omitted.

6. Restriction on Use. Tenant shall not do or permit to be done in or about the Premises or the Project, nor bring or keep or permit to be brought or kept in or about the Premises or Project, anything which is prohibited by or will in any way increase the existing rate of (unless Tenant pays all of the increased insurance premiums occasioned thereby within ten (10) days after Landlord’s notice of such increase and invoice therefor), fire or any other insurance covering the Project or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Project or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in or about the Premises or the Project which will constitute waste or which will in any way obstruct or interfere with the rights of other tenants or occupants of the Project or injure or annoy them, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises or the Project. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not use the Premises in any manner that will cause or emit any objectionable odor, noise or light into the adjoining premises or Common Area. Tenant shall not intentionally damage the Premises or Project and Tenant shall not overload the floor capacity of the Premises or the Project. No machinery, apparatus or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate or shake the Premises. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or the Project except in trash containers placed inside exterior enclosures designated for that purpose by Landlord, or where otherwise designated by Landlord; and no toxic or hazardous materials shall be disposed of through the plumbing or sewage system. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored or permitted to remain outside of the building proper.

7. Compliance with Laws. Subject to the allocation of responsibility for code compliance alterations as specified in paragraph 8 below, Tenant shall, in connection with its use and occupation of the Premises, at its sole cost and expense, promptly observe and comply (i) with all laws, statutes, ordinances and governmental rules, regulations and requirements of federal, state, county, municipal and other governmental authorities, now or hereafter in effect, which shall impose any duty upon Landlord or Tenant with respect to the use, occupancy or alteration of the Premises, (ii) with the requirements of any board of fire underwriters or other similar insurance body now or hereafter constituted and (iii) with any direction or occupancy certificate issued pursuant to law by any public authority; provided, however, that no such failure shall be deemed a breach of these

-5-

provisions if Tenant, promptly upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant (whether or not Landlord is a party thereto) that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant.

8. Alterations. Tenant shall not make or suffer to be made any alteration, addition or improvement to or of the Premises or any part thereof (collectively referred to herein as “Alterations”) without (i) the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, (ii) a valid building permit (to the extent required for any such Alteration) issued by the appropriate governmental authority and (iii) otherwise complying with all applicable laws, regulations and requirements of governmental agencies having jurisdiction and with the rules, regulations and requirements of any board of fire underwriters or similar body applicable to or arising from such Alteration. Landlord’s consent to any requested Alteration shall not create on the part of Landlord or cause Landlord to incur any responsibility or liability for such Alteration’s compliance with all laws, rules and regulations of federal, state, county, municipal and other governmental authorities. Notwithstanding anything contained herein, (a) Tenant may, at Tenant’s sole cost and expense, construct non-structural alterations, additions and improvements (“Permitted Alterations”) in the Premises without Landlord’s prior approval, but with ten (10) days’ prior written notice to Landlord describing the Permitted Alterations together with any plans or specifications for such Permitted Alterations, provided that the cost of such Permitted Alterations does not exceed Fifteen Thousand Dollars ($15,000) in any calendar year. Tenant’s trade fixtures, furniture, equipment and other personal property installed in the Premises (“Tenant’s Property”) by or on behalf of Tenant shall at all times be and remain Tenant’s property. Tenant may remove Tenant’s Property from the Premises at any time during the Lease term provided Tenant repairs all damage caused by such removal and restores the area where such removal occurred in accordance with all applicable laws, statutes, building codes and regulations in effect as of the date of such removal. Landlord shall have no lien or other interest in any item of Tenant’s Property. In no event shall Tenant remove any of the Tenant Improvements. Alterations and Permitted Alterations shall be made by Tenant at its sole risk, cost and expense and only after Landlord’s written approval of any licensed contractor selected by Tenant for that purpose, and the same shall be made at such time and in such manner that does not interfere with adjacent tenants in the Project. Tenant shall, if reasonably required by Landlord, secure at Tenant’s cost a completion and lien indemnity bond for such work. Tenant may at anytime during the term of the Lease, remove any Alterations and/or Permitted Alterations installed in the Premises by Tenant at its sole cost and expense provided that Tenant shall, at Tenant’s sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to the condition that existed prior to such Alteration and/or Permitted Alteration in accordance with all applicable laws, statutes, building codes, and regulations in effect as of the date of such restoration. In addition, upon the expiration or sooner termination of the term, Landlord may, at its sole option, require Tenant, at Tenant’s sole cost and expense, to promptly both remove any Alterations and/or Permitted Alterations made by or on behalf of Tenant (without regard for which party paid the cost thereof) and designated by Landlord to be removed and repair any damage to the Premises caused by such removal, and restore the Premises to the condition that existed prior to such Alteration or Permitted Alteration in accordance with all applicable laws,

-6-

statutes, building codes, and regulations in effect as of the date of such restoration. Notwithstanding the foregoing, if requested by Tenant at the time Tenant (A) requests Landlord’s consent to the Alteration in question or (B) provides written notice of any Permitted Alteration, Landlord shall notify Tenant concurrently with its consent to the Alteration, or within thirty (30) days after Landlord receives written notice of a Permitted Alteration, whether Landlord will require Tenant to remove such Alteration or Permitted Alteration upon the expiration or earlier termination of this Lease. Unless Landlord requires removal or Tenant elects to remove the same prior to the expiration of the term, all Alterations and Permitted Alterations made by or on behalf of Tenant after the Commencement Date (excluding Tenant’s Property), shall become a part of the Premises and belong to Landlord upon the expiration or earlier termination of this Lease. Any Tenant’s Property or other moveable furniture and equipment or trade fixtures belonging to anyone claiming through Tenant remaining on the Premises at the expiration or other termination of the term shall be disposed of at Tenant’s sole expense, in accordance with applicable law by Landlord unless promptly removed by Tenant.

If, during the term, any Alteration of the Premises is required by law, regulation, ordinance or order of any public authority with respect to Tenant’s particular use of the Premises or any Alterations or Permitted Alterations made by or on behalf of Tenant after the completion of the Tenant Improvements, such Alteration shall be promptly made by Tenant, at its sole cost and expense. If, during the term, any Alteration to the Common Area, the Premises or to the Project is required by law, regulation, ordinance or order of any public or quasi-public authority, without regard to Tenant’s particular use or an Alteration or Permitted Alteration made by or on behalf of Tenant, Landlord shall make such Alteration(s) and the cost thereof shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16.

9. Repair and Maintenance. Except as expressly provided in this paragraph 9, and subject to paragraphs 11 and 17 below, Tenant shall at its sole cost keep and maintain in the same condition as existed on the Commencement Date (ordinary wear and tear, casualty, condemnation, and Hazardous Materials not introduced to the Premises by Tenant or its agents, employees, subtenants and assigns excepted) the entire Premises and every part thereof, including, without limitation, the windows, window frames, plate glass, glazing, truck doors, doors and all door hardware, the interior walls and partitions, lighting and the electrical, mechanical, and plumbing systems. Notwithstanding the foregoing, on the Commencement Date, the plumbing, mechanical and electrical systems (collectively, “Building Systems”) serving the Premises shall be in good working order and, if, during the first ninety (90) days after the Commencement Date, Tenant shall give Landlord written notice of any failure of the Building Systems to be in good working order, Landlord shall promptly, at Landlord’s sole cost and expense, thereafter make such repairs as are necessary to cause such Building Systems to be in good working order. Tenant and Landlord hereby agree and acknowledge that Tenant shall be responsible for the routine maintenance and repair of the Building Systems during such ninety (90) day period. Notwithstanding anything to the contrary contained in this paragraph 9, but subject to paragraphs 11 and 17, to the extent any repair or maintenance to any Building System is required because of the negligent or wrongful act or omission of Tenant, or its agents, employees or invitees, Tenant shall pay to Landlord upon demand the full cost thereof.

-7-

Concurrently with the installation of the Tenant Improvements, Landlord shall, at Landlord’s sole cost and expense, replace six (6) original heating, ventilation and air conditioning units servicing the Premises (such replaced units shall be collectively referred to herein as the “New HVAC Units”). The other heating, ventilation and air conditioning units servicing the Premises (such other units shall be collectively referred to herein as the “Existing HVAC Units”) shall be in good working order on the Commencement Date. If at anytime prior to the expiration of the applicable HVAC Warranty Period (as defined below), Tenant gives Landlord written notice that any portion of the heating, ventilation and air conditioning system servicing the Premises (“HVAC System”) is not in good working order, so long as the necessary repairs and/or maintenance is covered under the applicable warranty, Landlord shall thereafter, at Landlord’s sole cost and expense, perform such repairs and maintenance as may be necessary to cause the same to be in good working order. As used herein, the “HVAC Warranty Period”: shall commence on the Commencement Date and end (i) for the Existing HVAC Units, on the ninetieth (90th) day after the Commencement Date, and (ii) for the New HVAC Units, on the later of (A) the ninetieth (90th) day after the Commencement Date or (B) any later expiration of any applicable manufacturer’s warranty (as described in the following subparagraph) for the repair of such New HVAC Units. After the expiration of the HVAC Warranty Period applicable to the Existing HVAC Units, except (x) for repairs and/or replacements covered by the New HVAC Unit manufacturer’s warranty described below, (y) for repair and/or replacements that are required to be capitalized under generally accepted accounting principles, and (z) as otherwise expressly provided in paragraphs 11, 16, 17 and 22, Tenant shall, at Tenant’s sole cost and expense, repair and maintain the HVAC System (unless Landlord has elected to keep and maintain the HVAC System as provided below) which shall include, without limitation, a periodic maintenance agreement with a reputable and licensed heating and air conditioning service company; provided, however, that Landlord shall promptly undertake and complete any repair or replacement to the HVAC System which is required to be capitalized under generally accepted accounting principles and Tenant shall pay on a monthly basis during the term of this Lease (and any extensions thereof) an amount equal to the monthly amortization of the full cost of the capital expenditure in question over the useful life of such capital repair or replacement. If Tenant’s use of the HVAC System is limited to normal business hours (8:00 a.m. to 6:00 p.m.) such agreement shall provide for service at least as often as every sixty (60) days; if Tenant’s use of the HVAC System extends beyond such normal business hours this service shall be as often as may be reasonably required by Landlord and in any event such service shall meet all applicable warranty enforcement requirements of such equipment that are disclosed by Landlord to Tenant and comply with all manufacturer recommended maintenance that is disclosed by Landlord to Tenant. Notwithstanding Tenant’s obligation to repair and maintain the HVAC System after the expiration of the applicable HVAC Warranty Period as herein required, Landlord may elect, at its option and at anytime during the term of this Lease, to keep and maintain the HVAC System and in such event, subject to the limitations on Tenant reimbursements set forth in Section 11, 16, 17, and 22, Tenant shall pay to Landlord within ten (10) days after Landlord’s invoice, the full cost of such maintenance; provided, however, any repair or replacement to the HVAC System which is required to be capitalized under generally accepted accounting principles shall be amortized in the manner set forth in the first (1st) sentence of the fourth (4th) subparagraph of this paragraph 9.

-8-

Landlord hereby agrees and acknowledges that, if any repairs to, or replacements of, the New HVAC Units are covered by any manufacturer’s warranty, then upon Tenant’s prompt written notice to Landlord of the need for such repair and/or replacement, Landlord shall, thereafter, diligently enforce such warranty. If the warranty repairs or replacements are not made within a reasonable period of time after Landlord makes a claim under the warranty, then Landlord shall cause such repairs or replacements to be made at its own cost and expense and thereafter pursue a claim under the warranty to recover such expenditure.

Notwithstanding the foregoing, to the extent any repairs to, or replacements of, any portion of the HVAC System is not covered by a warranty, and the cost of such repair or replacement constitutes a capital expenditure, Landlord shall make such repairs or replacements and Tenant shall pay on a monthly basis during the term of this Lease (and any extensions thereof) an amount equal to the monthly amortization of the full cost of such capital expenditure over the useful life of such repair or replacement. If at any time during the term of the Lease, Tenant’s HVAC maintenance contractor determines that any of the HVAC units other than the New HVAC Units require replacement, then Tenant shall give written notice of such fact to Landlord. Landlord shall thereafter engage its own HVAC maintenance contractor to inspect the HVAC unit in questions and determine whether Landlord agrees with the replacement recommendation from Tenant’s contractor. If Landlord agrees, then Landlord shall cause the HVAC unit in question to be replaced, and the cost of such replacement unit shall be amortized over its useful life. Tenant shall pay on a monthly basis during the term of the Lease (and any extensions thereof) an amount equal to such monthly amortized amount.

Subject to the provisions of paragraphs 11, 16, 17 and 22 Landlord shall keep and maintain the roof, structural elements (including, but not limited to, the foundations, main underground utilities from the street to the Project and structural roof systems), and exterior walls of the buildings constituting the Project and Common Area (as defined in paragraph 15 below) in good order and repair. In addition, Landlord shall, during calendar year 2004, at Landlord’s sole cost and expense, replace the entire roof covering servicing the Premises. Until Landlord replaces the roof covering, Landlord shall maintain and repair the roof covering at Landlord’s sole cost and expense; provided, however, to the extent any repairs to the roof covering are required because of a negligent or wrongful act or omission of Tenant, or its agents, employees, contractors or invitees, then, subject to paragraphs 11 and 17, Tenant shall pay to Landlord the full cost of such repairs within ten (10) days after Landlord’s invoice therefor. Notwithstanding anything to the contrary contained in this paragraph 9, if any repairs to the roof covering (after the replacement of such roof covering described above) are covered by any warranty obtained by Landlord in connection with the replacement of the roof, or if any other repairs which are the obligation of Tenant under this paragraph are covered by any other warranty held by Landlord, then upon Tenant’s prompt written notice to Landlord of the need for repair, Landlord shall promptly enforce such warranty. If the warranty repairs are not made within a reasonable period of time after Landlord makes a claim under the warranty, then Landlord shall cause such repairs to be made at its own cost and expense and thereafter pursue a claim under the warranty to recover such expenditure. If the roof covering requires further replacement during the term of the Lease and such replacement is not covered by any warranty, then Landlord shall cause such roof covering replacement to be made and the costs of

-9-

such replacement shall be amortized over the useful life of such roof covering replacement. Tenant shall pay on a monthly basis during the term of this Lease (and any extensions thereof) an amount equal to Tenant’s percentage share of the monthly amortization of such roof replacement. Tenant waives all rights under and benefits of California Civil Code Sections 1932(1), 1941, and 1942 and under any similar law, statute or ordinance now or hereafter in effect to the extent they are inconsistent with the parties’ respective obligations under this Lease. The cost of the repairs and maintenance which are the obligation of Landlord under this subparagraph (excluding (A) the cost of any replacements of structural elements of the Premises which are the obligation of Landlord hereunder, which cost shall be paid by Landlord, at its sole cost and expense, without right of reimbursement and (B) the cost of any HVAC and roof repairs that are covered by any warranty obtained by Landlord, which cost shall be paid by Landlord, at its sole cost and expense, without right of reimbursement), including, without limitation, except as expressly provided in the parenthetical contained in this sentence, maintenance contracts and supplies, materials, equipment and tools used in such repairs and maintenance shall be a common area charge and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraph 16; provided, however, that, except as expressly provided in (A) this paragraph 9 above and (B) paragraph 11 and 17 below, to the extent Landlord performs any such repairs or maintenance (including any replacements) because of a negligent or wrongful act or omission of Tenant, or its agents, employees or invitees, Tenant shall pay to Landlord within ten (10) days after Landlord’s invoice the full cost of such repairs or maintenance (including any replacements).

10. Liens. Tenant shall keep the Premises and the Project free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant, its agents, employees or contractors. Upon Tenant’s receipt of a preliminary twenty (20) day notice filed by a claimant pursuant to California Civil Code Section 3097, Tenant shall immediately provide Landlord with a copy of such notice. Should any lien be recorded against the Project, Tenant shall give immediate notice of such lien to Landlord. In the event that Tenant shall not, within ten (10) days following the date of notice to Tenant of the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses (including attorneys’ fees) incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the rate of ten percent (10%) per annum or the maximum rate permitted by law, whichever is less. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper for the protection of Landlord, the Premises and the Project and any other party having an interest therein, from mechanics’ and materialmen’s liens and like liens. Tenant shall give Landlord at least fifteen (15) days prior notice of the date of commencement of any construction on the Premises in order to permit the posting of such notices. In the event Tenant is required to post an improvement bond with a public agency in connection with any work performed by Tenant on or to the Premises, Tenant shall include Landlord as an additional obligee.

11. Insurance. Tenant, at its sole cost and expense, shall keep in force during the term (and the FF&E Installation Period) (i) commercial general liability and property damage insurance

-10-

with a combined single limit of at least $2,000,000 per occurrence insuring against personal or bodily injury to or death of persons occurring in, on or about the Premises or Project and any and all liability of the insureds with respect to the Premises or arising out of Tenant’s maintenance, use or occupancy of the Premises and all areas appurtenant thereto, (ii) direct physical loss-special insurance covering Tenant’s Property located in, on or about the Premises, with coverage in the amount of the full replacement cost thereof, and (iii) Worker’s Compensation Insurance as required by law of Tenant, together with employer’s liability coverage with a limit of not less than $1,000,000 for bodily injury for each accident and for bodily injury by disease for each employee to the extent required of Tenant by applicable law (the insurance coverage described in this subsection (iii) above shall hereinafter sometimes be collectively referred to as the “Worker’s Compensation Coverage”). Tenant has represented to Landlord that Tenant may conduct all or part of its operations in the Premises with individuals provided by an “employee outsourcing” firm (such individuals being “Outsourced Employees”), and that such outsourcing firm, and not Tenant, will maintain the Worker’s Compensation Coverage with respect to the Outsourced Employees. Prior to gaining access to the Premises during the FF&E Installation Period, and at least thirty (30) days prior to any renewal date for any such insurance, Tenant shall provide Landlord with written evidence (reasonably satisfactory to Landlord) that either Tenant maintains the Worker’s Compensation Coverage with respect to any Tenant employees in the Premises and any outsourcing firm(s) maintain(s) the Worker’s Compensation Coverage with respect to any and all such Outsourced Employees. Tenant’s commercial general liability and property damage insurance and the Workers Compensation Coverage shall be endorsed to provide that said insurance shall not be canceled or reduced except upon at least thirty (30) days prior written notice to Landlord. Further, Tenant’s commercial general liability insurance shall be primary and shall be endorsed to provide that Landlord and McCandless Management Corporation, and their respective partners, officers, directors and employees and such other persons or entities as directed from time to time by Landlord shall be named as additional insureds for all liability using ISO Bureau Form CG20111185 (or a successor form) or such other endorsement form reasonably acceptable to Landlord; shall contain a severability of interest clause and a cross-liability endorsement; shall be endorsed to provide that the limits and aggregates apply per location using ISO Bureau Form CG25041185 (or a successor form) or such other endorsement form reasonably acceptable to Landlord; and shall be issued by an insurance company admitted to transact business in the State of California and rated A- VIII or better in Best’s Insurance Reports (or a successor report). The deductibles for all liability insurance required to be maintained by Tenant hereunder shall not exceed Ten Thousand Dollars ($10,000.00) or shall be otherwise reasonably satisfactory to Landlord. The commercial general liability insurance carried by Tenant shall specifically insure the performance by Tenant of the indemnification provisions set forth in paragraph 18 of this Lease; provided, however, nothing contained in this paragraph 11 shall be construed to limit the liability of Tenant under the indemnification provisions set forth in said paragraph 18. If Landlord or any of the additional insureds named on any of Tenant’s insurance, have other insurance which is applicable to the covered loss on a contributing, excess or contingent basis, the amount of the Tenant’s insurance company’s liability under the policy of insurance maintained by Tenant shall not be reduced by the existence of such other insurance. Any insurance carried by Landlord or any of the additional insureds named on Tenant’s insurance policies shall be excess and non contributing with the insurance so provided by Tenant.

-11-

Tenant shall, prior to gaining access to the Premises during the FF&E Installation Period and at least thirty (30) days prior to any renewal date of any insurance policy required to be maintained by Tenant pursuant to this paragraph, provide Landlord with a completed Certificate of Insurance, using a form acceptable in Landlord’s reasonable judgment, attaching thereto copies of all endorsements required to be provided by Tenant under this Lease. Tenant agrees to increase the coverage or otherwise comply with changes in connection with said commercial general liability, property damage, direct physical loss and Worker’s Compensation Insurance as Landlord or Landlord’s lender may from time to time require to make such insurance policies and coverage consistent with insurance policies and coverage required by similar landlords of similar projects in the vicinity of the Project; provided, however, that such increase in coverage or changes do not cause the premiums for the insurance required to be maintained by Tenant hereunder to increase by more than twenty-five percent (25%) per year during the term of this Lease.

Landlord shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Premises (including the Tenant Improvements) and Project, in the amount of the full replacement value thereof, providing protection against those perils included within the classification of “all risk” insurance, with increased cost of reconstruction and contingent liability (including demolition), plus a policy of rental income insurance in the amount of one hundred percent (100%) of twelve (12) months’ rent (including sums paid as additional rent) and such other insurance as Landlord or Landlord’s lender may from time to time require. Landlord may, but shall not be obligated to, obtain flood and/or earthquake insurance. As of the date of this Lease, Landlord maintains earthquake insurance for the Project. If Landlord elects to cancel (or not renew) such earthquake insurance, Landlord shall notify Tenant in writing. Landlord shall have no liability to Tenant if Landlord elects not to obtain flood and/or earthquake insurance. The cost of all such insurance purchased by Landlord, plus any charges for deferred payment of premiums and the amount of any deductible incurred upon any covered loss within the Project (Tenant’s percentage share of any such deductible shall not exceed Ten Thousand Dollars ($10,000.00)), shall be common area charges and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraph 16. Tenant’s percentage share of insurance costs included in common area charges for any calendar year shall not increase more than twenty-five percent (25%) from Tenant’s percentage share of such insurance costs in the previous calendar year. Notwithstanding the preceding sentence, if the cost of Landlord’s insurance is increased due to Tenant’s particular use of the Premises, then Tenant shall pay to Landlord within ten (10) days after Landlord’s invoice the full cost of such increase. If any damage or repairs included within common area charges or any repairs required to be made pursuant to paragraph 9 at Tenant’s sole cost and expense are covered by the insurance required to be maintained by Landlord under this subparagraph, then Landlord shall file an insurance claim with respect to such damage or repairs (provided that Landlord may elect, in Landlord’s reasonable discretion, not to file a claim for damage or repairs totaling Fifty Thousand Dollars ($50,000.00) or less). If Landlord files a claim against its insurer, Tenant shall pay to Landlord Tenant’s percentage share of the deductible portion of any such insurance claim (provided that Tenant’s percentage share of any such deductible shall not exceed Ten Thousand Dollars ($10,000.00)). If Landlord elects not to file a claim for damage or repairs that is Fifty Thousand Dollars ($50,000.00) or less, unless Tenant is solely responsible for the cost of the repairs required to be made pursuant to paragraph 9 (in which event, Tenant shall pay the full cost thereof), the cost of

-12-

repairing or replacing such damage shall be included in common area charges and Tenant shall pay its proportionate share of such common area charge in accordance with paragraph 16 hereof. If Landlord elects not to file a claim for damage or repairs that is Fifty Thousand Dollars ($50,000.00) or less and, pursuant to paragraph 9, Tenant is solely responsible for the cost of the repairs relating thereto, Tenant shall pay to Landlord the entire cost of such repair, maintenance or replacement in accordance with paragraph 9.

Subject to Tenant’s obligations pursuant to the immediately preceding subparagraph of this paragraph 11, but notwithstanding anything else to the contrary contained in this Lease, Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Premises or the Project, or any part thereof, or to any personal property therein, from perils insured against under fire and extended coverage insurance and any other property insurance policies required to be carried (or actually carried) by the parties under this Lease. Any policy or policies of fire, extended or similar casualty insurance which either party obtains in connection with the Premises shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent any rights have been waived by the insured prior to the occurrence of injury or loss.

If Tenant does not take out and maintain insurance as required pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take out the necessary insurance and pay the premium therefor, and Tenant shall repay to Landlord promptly on demand, as additional rent, the amount so paid. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as additional rent, any and all reasonable expenses (including attorneys’ fees) and damages which Landlord may sustain by reason of the failure of Tenant to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon.

12. Utilities and Service. Tenant shall pay for all water, gas, light, heat, power, electricity, telephone, trash pickup, sewer charges and all other services supplied to or consumed on the Premises. All utilities to the Premises except water are separately metered. The cost of water service to the Premises shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16. In addition, the cost of all utilities and services furnished by Landlord to the Common Area shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16.

Landlord shall not be liable for, and, except as otherwise expressly provided below, Tenant shall not be entitled to any abatement or reduction of rent by reason of, the failure of any person or entity to furnish any of the foregoing services when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, governmental moratoriums, regulations or other governmental actions, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. In addition, Tenant shall not be relieved from the performance of any covenant or agreement in this Lease because of any such failure, and no eviction of Tenant shall result from such failure. Notwithstanding the foregoing, if there is a failure of water, gas, sewer, or electrical service to the Premises that makes the Premises untenantable for a period of

-13-

seven (7) consecutive calendar days or more that is caused by Landlord’s fault or neglect and is not due to (i) the fault of the utility supplier or failure of the utility supplier to provide the applicable service, (ii) Force Majeure, (iii) a casualty, or (iv) the act or omission of Tenant, its employees, contractors, agents or invitees, then Tenant shall be entitled to, as its sole and exclusive remedy for such failure, one (1) day of abatement of basic rent for each day from and after the expiration of such seven (7) consecutive calendar day period until the applicable utility service is restored.

Tenant shall also be entitled to an abatement of basic rent in the manner described in the preceding paragraph for each day from and after the date of the entry or issuance of an order prohibiting Tenant’s occupancy of the Premises by a court or governmental agency of competent jurisdiction due to the presence of Hazardous Materials in the Premises or the Project (provided that such order was not issued as a result of Hazardous Materials introduced to the Premises due to the acts or omissions of Tenant, and/or Tenant’s employees, contractors, agents, consultants, representatives, subtenants and/or invitees) (“Order”). If any such Order is not lifted, vacated, set aside or stricken within ninety (90) days after the date of issuance thereof, then Tenant shall be entitled, as its sole and exclusive remedy, to terminate this Lease upon ten (10) days prior written notice to Landlord.

13. Taxes and Other Charges. All real estate taxes and assessments and other taxes, fees and charges of every kind or nature, foreseen or unforeseen, which are levied, assessed or imposed upon Landlord and/or against the Premises, building, Common Area or Project, or any part thereof by any federal, state, county, regional, municipal or other governmental or quasi-public authority, together with any increases therein for any reason, shall be a common area charge for which Tenant shall pay its percentage share as provided in paragraph 16. By way of illustration and not limitation, “other taxes, fees and charges” as used herein include any and all taxes payable by Landlord (other than state and federal personal or corporate income taxes measured by the net income of Landlord from all sources, and premium taxes), whether or not now customary or within the contemplation of the parties hereto, (i) upon, allocable to, or measured by the rent payable hereunder, including, without limitation, any gross income or excise tax levied by the local, state or federal government with respect to the receipt of such rent, (ii) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any part thereof, (iii) upon or measured by the value of Tenant’s personal property or leasehold improvements located in the Premises, (iv) upon this transaction or any document to which Tenant is a party creating or transferring an interest or estate in the Premises, (v) upon or with respect to vehicles, parking or the number of persons employed in or about the Project, and (vi) any tax, license, franchise fee or other imposition upon Landlord which is otherwise measured by or based in whole or in part upon the Project or any portion thereof. If Landlord contests any such tax, fee or charge, the cost and expense incurred by Landlord thereby (including, but not limited to, costs of attorneys and experts) in an amount not to exceed Tenant’s percentage share of any tax reduction resulting therefrom, shall also be a common area charge for which Tenant shall pay its percentage share as provided in paragraph 16. In the event the Premises and any improvements installed therein by Tenant or Landlord are valued by the assessor disproportionately higher than those of other tenants in the building or Project or in the event alterations or improvements are made by Tenant to the Premises, Tenant’s percentage share of such taxes, assessments, fees and/or charges shall be

-14-

readjusted upward accordingly and Tenant agrees to pay such readjusted share. Such determination shall be made by Landlord from the respective valuations assigned in the assessor’s work sheet or such other information as may be reasonably available and Landlord’s reasonable determination thereof shall be conclusive absent manifest error.

Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the term hereof upon Tenant’s equipment, furniture, fixtures and other personal property located in the Premises, including carpeting and other property installed by Tenant whether or not such carpeting or other property has become a part of the Premises. If any of Tenant’s personal property shall be assessed with the Project, Tenant shall pay to Landlord, as additional rent, the amount attributable to Tenant’s personal property within ten (10) days after receipt of a written statement from Landlord setting forth the amount of such taxes, assessments and public charges attributable to Tenant’s personal property.

14. Entry by Landlord. Landlord reserves, and shall at all reasonable times have, the right to enter the Premises (i) to inspect the Premises, (ii) to supply services to be provided by Landlord hereunder, (iii) to show the Premises to prospective purchasers or lenders and to put “for sale” signs thereon and, during the last six (6) months of the lease term, to show the Premises to prospective tenants and to put “for lease” signs thereon, (iv) to post notices required or allowed by this Lease or by law, (v) to perform such alterations or repairs that are Landlord’s obligation under the Lease, and (vi) to erect scaffolding and other necessary structures outside of Premises where reasonably required by the character of the work to be performed. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord’s entry and acts pursuant to this paragraph and Tenant shall not be entitled to an abatement or reduction of rent if Landlord exercises any rights reserved in this paragraph. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, on and about the Premises (excluding Tenant’s vaults, safes and similar areas designated in writing by Tenant in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry by Landlord to the Premises pursuant to this paragraph shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Notwithstanding the foregoing, (i) Landlord and Landlord’s agents shall give reasonable prior notice of any entry into the Premises (other than in an emergency), (ii) comply with Tenant’s reasonable security measures in any such entry and (iii) Landlord shall use reasonable efforts to minimize any interference with Tenant’s business operations resulting from entry by Landlord or Landlord’s agents.

15. Common Area; Parking. Subject to the terms and conditions of this Lease and such rules and regulations as Landlord may from time to time reasonably prescribe, Tenant and Tenant’s employees and invitees shall, in common with other occupants of the Project, and their respective employees and invitees and others entitled to the use thereof, have the nonexclusive right to use such portion(s) of the access roads, parking areas and facilities, and sidewalks (collectively, the “Common Area”) as may be provided and designated by Landlord for the general use and convenience of the

-15-

occupants of the Project. For purposes of this paragraph 15, the “Common Area” shall also include refuse, landscape and plaza areas, roofs and building exteriors; provided that Tenant shall have access to use such roofs and building exteriors as reasonably required for Tenant’s business, subject to obtaining the prior written consent of Landlord, which shall not be unreasonably withheld or delayed. Tenant’s rights pursuant to this paragraph 15 shall terminate upon the termination of this Lease.

Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area; provided, however, that no such changes shall materially impair Tenant’s access to the Premises, Tenant’s right to use the Common Area, Tenant’s access rights to the roof, or Tenant’s parking rights forth in this Lease. Landlord shall also have the right at any time to change the name, number or designation by which the Project is commonly known. Landlord further reserves the right to promulgate such reasonable, non-discriminatory rules and regulations relating to the use of the Common Area, and any part thereof, as Landlord may deem appropriate for the best interests of the occupants of the Project. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be reasonably and non-discriminatorily amended by Landlord from time to time, with or without advance notice by delivery of a copy of any such amendments to Tenant.

Tenant shall have the nonexclusive use of forty-six (46), and exclusive use of ten (10), parking spaces in the Common Area as designated from time to time by Landlord. Tenant’s exclusive parking spaces shall be labeled accordingly and, to the extent reasonably practicable, located adjacent to the entry to the Premises (provided, however, Landlord shall not be obligated to locate any such exclusive parking spaces adjacent to any other tenant’s premises). Landlord reserves the right at its sole option to assign and label parking spaces (other than the ten (10) exclusive spaces described in the preceding sentence), but it is specifically agreed that Landlord is not responsible for policing any such parking spaces. Tenant shall not at any time park or permit the parking of Tenant’s trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant’s vehicles or trucks, or the vehicles or trucks of Tenant’s suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative Tenant vehicle or equipment to be parked on any portion of the Common Area. Landlord shall not grant to other tenants in the Project more than 3.7 parking spaces per 1,000 square feet of space occupied by such other tenant(s).

Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be operated, managed and maintained and the expenditures for such operation, management and maintenance shall be at the sole discretion of Landlord; provided, however, that Landlord shall not materially impair Tenant’s access to the Premises, Tenant’s right to use the Common Area, Tenant’s access rights to the roof, or Tenant’s parking rights set forth in this Lease. The cost of such maintenance, operation and management of the Common Area, including but not limited to landscaping, repair of paving, parking lots and sidewalks, security and exterminator services and salaries and employee benefits (including union benefits) of on-site personnel engaged

-16-

in such maintenance, shall be a common area charge and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraph 16.

16. Common Area Charges. Tenant shall pay to Landlord, as additional rent, an amount equal to 17.40% of the total common area charges as defined below. Tenant’s percentage share of common area charges shall be paid as follows:

Tenant’s estimated monthly payment of common area charges payable by Tenant during the calendar year in which the term commences is set forth in paragraph 4(b) of this Lease. Prior to the commencement of each succeeding calendar year of the term (or as soon as practicable thereafter), Landlord shall deliver to Tenant a written estimate of Tenant’s monthly payment of common area charges. Tenant shall pay, as additional rent, on the first day of each month during the term in accordance with paragraph 4(b) of this Lease, its monthly share of common area charges as estimated by Landlord. Within one hundred twenty (120) days of the end of each calendar year and of the termination of this Lease (or as soon as practicable thereafter), Landlord shall deliver to Tenant a statement of actual common area charges incurred for the preceding year, which statement shall be certified as being accurate to the actual knowledge of an officer of Landlord’s management company. If such statement shows that Tenant has paid less than its actual percentage then Tenant shall pay to Landlord the amount of such deficiency within ten (10) days after receipt of the statement. If Tenant fails to pay the deficiency within such ten (10) day period, Tenant shall pay an additional five percent (5%) of the amount due as a penalty. If such statement shows that Tenant has paid more than its actual percentage share then Landlord shall credit the amount of such excess to Tenant’s percentage share of common area charges next becoming due under the Lease, or if the Lease has terminated, return such excess to Tenant concurrently with delivery of the statement. Landlord reserves the right to revise any estimate of common area charges if actual or projected common area charges show an increase or decrease in excess of ten percent (10%) from any earlier estimate for the same period. In such event, Landlord shall deliver the revised estimate to Tenant, together with an explanation of the reasons therefor, and Tenant shall revise its payments accordingly. Landlord’s and Tenant’s obligation with respect to adjustments at the end of the term or earlier expiration of this Lease shall survive such termination or expiration.

Within ninety (90) days after receipt of the statement of actual common area charges for the prior calendar year described above or any other demand by Landlord for reimbursement pursuant to this Lease, Tenant shall have the right to request in writing from Landlord, and Landlord shall provide, reasonable “backup” documentation, including copies of invoices, substantiating any common area charge or requested reimbursement. Tenant shall have no right, pending the receipt of any documentation, to withhold any payment of the common area charges or any other amount actually owed by Tenant under this Lease.

“Common area charges,” as used in this Lease, shall include, but not be limited to, (i) all items identified in paragraphs 8, 9, 11, 12, 13 and 15 as being common area charges; (ii) amortization of such capital repairs, replacements, improvements or alterations having a useful life greater than one (1) year (any such capital repair, replacement, improvement or alteration being a “Capital Expenditure”) as Landlord may have performed or installed for the purpose of reducing

-17-

operating costs and/or to comply with all laws, rules and regulations of federal, state, county, municipal and other governmental authorities now or hereinafter in effect, such Capital Expenditure(s) to be amortized over the useful life of the Capital Expenditure(s) in question with interest thereon at five percent (5%) (and Tenant shall pay its percentage share of the monthly amortized portion of any such Capital Expenditure(s) during the remaining term of this Lease (plus any option term and/or other extension(s) of the term of this Lease)); (iii) salaries and employee benefits (including union benefits) of personnel engaged in the operation and maintenance of the Project (or the building in which the Premises are located) and payroll taxes applicable thereto; (iv) supplies, materials, non-capital equipment and tools used or required in connection with the operation and maintenance of the Project; (v) licenses, permits and inspection fees; and (vi) all other operating costs incurred by Landlord in maintaining and operating the Project.

Notwithstanding the foregoing, common area charges shall not include and, subject to the third (3^rd) subparagraph of paragraph 11 hereof, no other provision of this Lease shall impose upon Tenant a requirement to pay directly or reimburse Landlord for any of the following: (a) costs occasioned by casualties (except that Tenant shall pay Tenant’s percentage share of any deductible applicable to casualty insurance (which percentage share shall not exceed Ten Thousand Dollars ($10,000))) or by the exercise of the power of eminent domain by a public or quasi-public authority; (b) management fees or accounting fees or the cost of any on-site or off-site management personnel; (c) costs incurred to repair latent construction defects in the Premises not resulting from Alterations or Permitted Alterations performed by or on behalf of Tenant; (d) costs incurred by Landlord arising from claims, disputes or potential disputes between Landlord and individual tenants in the Project or any other third person with respect to the Project; (e) marketing and promotional costs, leasing commissions or fees in lieu of commissions or other costs incurred in procuring tenants, lenders or buyers; (f) costs occasioned by the intentional act or violation of law, rule, regulation, covenant, condition, restriction or fire underwriter’s requirement by Landlord, any other occupant of the Project, or their respective agents, employees or contractors; (g) costs to replace any underground utilities from the street to the Project or replacements of the structural elements of the Project; (h) any taxes which are separately assessed to another tenant of the Project as a result of such tenant’s over-standard improvements; (i) estate, inheritance, transfer, gift, or franchise taxes of Landlord or any federal or state income tax on income from all sources (except a tax on rent); (j) depreciation or other expense reserves; (k) interest, charges and fees incurred on debt, payments on mortgages and rent under ground leases; (l) costs of sculptures, fountains, paintings and other art objects; (m) costs incurred with respect to any Hazardous Materials (except to the extent the Hazardous Material was introduced to the Premises by Tenant, its subtenants or assigns, or their respective employees, agents or contractors); (n) the cost of repairs, replacements and general maintenance to the extent Landlord receives reimbursement for such costs in the same calendar year as incurred from insurance proceeds, warranties, guaranties or third parties (provided, however, if any such reimbursement is not received in the calendar year when such expense was incurred, the reimbursement shall be applied to common area charges for the calendar year in which such reimbursement is received (and, if the Lease has terminated, Landlord shall reimburse Tenant for its percentage share of any such reimbursement on the later of (A) the date Landlord delivers the statement described in the second (2^nd) subparagraph of this paragraph 16 or (B) the date that is thirty (30) days after the date Landlord

-18-

receives such reimbursement)); and (o) insurance premiums in excess of the premiums reimbursable by Tenant pursuant to paragraph 11 of this Lease.

Notwithstanding anything to the contrary contained in this paragraph 16, Tenant’s percentage share of the aggregate increase in Controllable Expenses (as defined below) for any calendar year shall not increase more than five percent (5%) from the actual Controllable Expenses in the previous calendar year. “Controllable Expenses” shall mean costs incurred by Landlord for landscaping, alarm system monitoring, parking lot sweeping, maintenance, and other services provided to the Project by third-party service providers (and not by Landlord or Landlord’s affiliated entities) but shall specifically exclude: (i) insurance; (ii) real property taxes; (iii) utilities; (iv) damage caused by acts of God which are not covered by insurance; (v) emergency repairs; and (vi) costs incurred to comply with governmental laws, statutes, codes, regulations and mandates.

17. Damage by Fire; Casualty. In the event the Premises are damaged by any casualty which is covered by any insurance actually carried by Landlord under paragraph 11 or which would be covered under an insurance policy required to be maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to the use of all insurance proceeds and, subject to this paragraph 17 below, shall repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect.

In the event the Premises are damaged by any casualty not covered under an insurance policy required to be maintained pursuant to paragraph 11, Landlord may, at Landlord’s option, either (i) repair such damage, at Landlord’s expense, as soon as reasonably possible, in which event this Lease shall continue in full force and effect, or (ii) if the loss exceeds ten percent (10%) of the replacement cost of the building of which the Premises form a part, give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord’s intention to cancel and terminate this Lease as of the date of the occurrence of the damage. Notwithstanding the preceding sentence, in the event Landlord elects to terminate this Lease pursuant to clause (ii) above, Tenant shall have the right, within ten (10) days after receipt of the required notice, to notify Landlord in writing of Tenant’s intention to contribute such amount, which, when added to the aggregate of (A) the amount equal to ten (10%) of the replacement cost of the building of which the Premises form a part (which amount shall be contributed by Landlord in the event of any casualty) (“Landlord’s Contribution”), and (B) any earthquake insurance proceeds actually received by Landlord (if the uninsured casualty is an earthquake and Landlord actually maintains earthquake insurance), is sufficient to repair such damage, at Tenant’s expense, without reimbursement from Landlord (such amount being the “Tenant’s Contribution”), in which event this Lease shall continue in full force and effect and Landlord shall proceed to make such repairs as soon as reasonably possible after Landlord receives all of the amounts described in this sentence above. If Tenant does not give such notice within the ten (10) day period, this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. Under no circumstances shall Landlord be required to repair any injury or damage to (by fire or other cause), or to make any restoration or replacement of, any of Tenant’s personal property, trade fixtures or property leased from third parties, whether or not the same is attached to the Premises.

-19-

If the Premises are damaged or destroyed but can be repaired or restored within two hundred twenty-five (225) days, after the date of destruction (assuming no Force Majeure, as defined above) to substantially the condition existing prior to such destruction and if the aggregate of (A) the proceeds of the insurance payable to the Landlord by reason of such destruction, (B) Landlord’s Contribution, (C) the deductible from Landlord’s insurance and (D) any Tenant’s Contribution which Tenant elects to contribute are sufficient to pay the cost of such repair or restoration, then the insurance proceeds, deductible amounts, Landlord’s Contribution (if applicable) and Tenant’s Contribution (if applicable) shall be so applied, and Landlord shall promptly repair and restore the Premises and this Lease shall continue, without interruption, in full force and effect. If Landlord’s good faith, reasonable estimate of the time period to restore the Premises to substantially the condition existing prior to such damage exceeds two hundred twenty-five (225) days after the date of destruction (assuming no Force Majeure), Landlord shall have the right to either terminate this Lease or to elect to restore the Premises. Landlord shall give written notice to Tenant of its election to terminate or restore within forty-five (45) days from the date of such damage. If Landlord elects to restore, the notice shall include Landlord’s good faith, reasonable estimate of the period required to effect such repair (“Restoration Estimate”). If the Restoration Estimate is in excess of two hundred twenty-five (225) days after the date of the destruction (assuming no Force Majeure), then regardless of whether the damage was caused by an insured casualty and provided that an Event of Default does not then exist under this Lease and that such damage or destruction was not caused by Tenant or its agents, invitees or employees, Tenant shall have the right to terminate this Lease by written notice of such election delivered to Landlord within ten (10) days after the date of Landlord’s notice. Failure of Tenant to give Landlord written notice of termination within said ten (10) days shall constitute Tenant’s irrevocable election not to terminate this Lease, and Landlord shall thereafter commence the repair and restoration of the Premises as soon as reasonably possible. If Landlord has not completed the repair and restoration of the Premises within thirty (30) days after the estimated date for completion in Landlord’s Restoration Estimate (which thirty (30) day period shall be extended for any period of Force Majeure), then as Tenant’s sole remedy (in addition to the abatement described in the following subparagraph of this paragraph 17), Tenant shall be entitled to one day’s additional abatement of basic rent for each day from and after said thirtieth (30^th) day until Landlord completes the restoration of the Premises and delivers possession thereof to Tenant. Said basic rent abatement shall be applied to the first basic rent coming due under the Lease after Landlord’s completion of the restoration. If the Premises are damaged during the last six (6) months of the term and the estimated restoration period exceeds sixty (60) days after the occurrence of such damage or destruction (assuming no Force Majeure) either Landlord or Tenant may cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to the other party of the terminating party’s election to do so within thirty (30) days after the occurrence of such damage.

If the Premises are partially or totally destroyed or damaged and Landlord or Tenant repair them pursuant to this Lease, the rent payable hereunder for the period during which such damage and repair continues until sufficient restoration is completed to make the Premises reasonably suitable for occupancy, shall be abated, without regard to Landlord’s rental interruption insurance, to the extent that the damage and destruction, and the repair and restoration thereof, unreasonably interferes with Tenant’s use of the Premises. Except to the extent expressly set forth in this

-20-

paragraph 17 and except for a breach by Landlord of any obligations it may have under this paragraph 17, Tenant shall have no claim against Landlord for any damage, loss or expense suffered by reason of any such damage, destruction, repair or restoration. The parties waive the provisions of California Civil Code sections 1932(2) and 1933(4) (which provisions permit the termination of a lease upon destruction of the leased premises), and hereby agree that the provisions of this paragraph 17 shall govern in the event of such destruction.

18. Indemnification. Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Project by or from any cause whatsoever except the failure of Landlord to perform its obligations under this Lease where such failure has persisted for an unreasonable period of time after Tenant’s notice to Landlord of such failure. Without limiting the foregoing, Landlord shall not be liable to Tenant for any injury to or death of any person or damage to or destruction of property by reason of, or arising from, any latent defect in the Premises or Project or the act or negligence of any other tenant of the Project. Tenant shall immediately notify Landlord of Tenant’s knowledge of any defect in the Premises or Project.

Except as to liability to the extent caused by (i) the negligence or willful misconduct of Landlord, (ii) Landlord’s violation of any law, or (iii) Landlord’s breach of this Lease, Tenant shall hold Landlord harmless from and defend Landlord against any claim, liability, loss, damage or expense (including attorneys’ fees) arising out of any injury to or death of any person or damage to or destruction of property occurring in the Premises from any cause whatsoever or on account of the use, condition, occupational safety or occupancy of the Premises. Tenant shall further hold Landlord harmless from and defend Landlord against any claim, liability, loss, damage or expense (including attorneys’ fees) to the extent arising (i) from Tenant’s use of the Premises or from the conduct of its business or from any activity or work done, permitted or suffered by Tenant or its agents or employees in or about the Premises or Project, (ii) out of the failure of Tenant to observe or comply with Tenant’s obligation to observe and comply with laws or other requirements as set forth in paragraph 7, (iii) by reason of Tenant’s use, handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by reason of any labor or service performed for, or materials used by or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises, or (v) from any other act, neglect, fault or omission of Tenant or its agents or employees.

The provisions of this paragraph 18 shall survive the expiration or earlier termination of this Lease.

19. Assignment and Subletting. Tenant shall not voluntarily assign, encumber or otherwise transfer its interest in this Lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first obtaining Landlord’s written consent (which consent shall not be unreasonably withheld, conditioned or delayed) and otherwise complying with the requirements of this paragraph 19. Any assignment, encumbrance or sublease without Landlord’s consent, shall constitute an Event of Default.

-21-

If Tenant desires to sublet or assign all or any portion of the Premises, Tenant shall give Landlord written notice thereof, specifying the projected commencement date of the proposed sublet or assignment (which date shall be not less than fifteen (15) days or more than ninety (90) days after the date of such notice), the portions of the Premises proposed to be sublet or assigned, and the identity of the proposed assignee or subtenant. Tenant shall further provide Landlord with such other information concerning the proposed assignee or subtenant as reasonably requested by Landlord. Any proposed assignee must agree to assume and agree to perform and any proposed sublessee must agree to be abide by all the covenants and conditions of Tenant under this Lease. Notwithstanding anything to the contrary contained herein, at any time during the term of this Lease (as the same may be extended), Tenant may give Landlord written notice (“Tenant’s Notice”) of its intent to either (A) assign this Lease or (B) sublease all (or substantially all) of the Premises for a sublet term ending within the last twelve (12) months of the term of this Lease (either of which being a “Major Transaction”) and the proposed first potential effective date of such Major Transaction (“Proposed Effective Date”). Within thirty (30) days after Landlord’s receipt of Tenant’s Notice, Landlord may, in Landlord’s sole and absolute discretion, elect to recapture the Premises and terminate this Lease; provided, however, that Landlord’s right of recapture pursuant to this paragraph shall not apply in the event Tenant’s Notice provides for the assignment to a Permitted Transferee (as set forth in this paragraph 19 below) or provides for the subletting of the Premises to an Affiliate (as defined below) of HemoSense. If Landlord notifies Tenant in writing of its election to recapture the Premises within such thirty (30) day period, this Lease shall terminate and Tenant shall vacate and surrender the same prior to the Proposed Effective Date, in the condition required pursuant to the terms and conditions of this Lease. Without in any way impairing Landlord’s right to withhold consent to any future proposed assignment or sublease in accordance with this Lease, Landlord’s failure to exercise its recapture right within such thirty (30) day period shall constitute a waiver of Landlord’s right to recapture the Premises (unless Tenant fails to complete a Major Transaction within one hundred eighty (180) days after the Proposed Effective Date, in which event Tenant shall not enter into a Major Transaction without again offering to Landlord the right to recapture the Premises pursuant to this paragraph 19 by delivering another Tenant’s Notice as set forth above). If Landlord does not elect to terminate this Lease pursuant to this paragraph 19 above following the delivery of a Tenant’s Notice, then any subsequent Major Transaction shall still be subject to all of the terms and conditions of this Lease, including, without limitation, any obligation of Tenant to obtain Landlord’s consent as required by this paragraph 19.

Any assignment or subletting by Tenant shall be subject to the following conditions: (i) any sublease shall be on the same terms set forth in the notice given to Landlord; (ii) no sublease shall be valid and no subtenant shall take possession of the sublet premises until an executed counterpart of such sublease has been delivered to Landlord; (iii) no sub-subtenant shall have a further right to sublet (i.e., a subtenant of Tenant shall be entitled to sub-sublet the Premises, but such sub-subtenant shall have no further right to sublet); (iv) fifty percent (50%) of any sums or other economic consideration received by Tenant as consideration for such assignment or sublet (after reimbursement to Tenant by its subtenant or assignee of the costs incurred by Tenant to negotiate, enforce, and perform its obligations with respect to the assignment or sublet, the amortization over the term of the assignment or sublease of the cost of leasehold improvements constructed for such assignees or subtenant, the cost of services rendered to the assignee or subtenant by Tenant,

-22-

attorneys’ fees, and brokerage fees) whether denominated rentals or otherwise, which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease), shall be payable to Landlord as additional rent under this Lease without affecting or reducing any other obligation of Tenant hereunder; provided, however that the provisions of this clause (iv) shall not apply in the event Tenant assigns this Lease to a Permitted Transferee or Tenant sublets the Premises to a domestic entity formed, existing and governed pursuant to the laws of one of the fifty (50) states of the United States of America (or the District of Columbia) which controls, is controlled by, or under common control with, HemoSense (such entity being an “Affiliate”) (the term “control” shall mean the ownership of fifty-one percent (51%) or more of both (A) the ownership and/or economic interest of an entity and (B) the voting securities of an entity (or possession of the right to vote more than fifty-one (51%) of the voting interest in the ordinary direction of the entity’s affairs); and (v) no sublet or assignment shall release Tenant of Tenant’s obligation or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. Tenant shall pay to Landlord within ten (10) days after Landlord’s invoice as additional rent, Landlord’s actual and reasonable attorneys’ fees and other costs incurred for reviewing, processing or documenting any requested assignment or sublease (“Landlord’s Review Expenses”), whether or not Landlord’s consent is granted. Tenant shall not be entitled to assign this Lease or sublease all or any part of the Premises (and any attempt to do so shall be voidable by Landlord) during any period in which an Event of Default exists under this Lease, unless concurrently with the effectiveness of such transaction, such Event of Default is fully cured.

If Tenant is a partnership, a withdrawal or change, voluntary or involuntary or by operation of law, of any general partner or the dissolution of the partnership shall be deemed an assignment of this Lease subject to all the conditions of this paragraph 19. If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant or the sale or other transfer of a controlling percentage of the capital stock of Tenant or the sale of more than fifty percent (50%) of the value of Tenant’s assets shall be an assignment of this Lease subject to all the conditions of this paragraph 19. The term “controlling percentage” means the ownership of, and the right to vote, stock possessing more than 50% of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding and entitled to vote. This paragraph shall not apply if Tenant is a corporation the stock of which is publicly-traded through an exchange.

Notwithstanding anything to the contrary contained in this paragraph 19, so long as no Event of Default then exists under this Lease, and subject to the satisfaction of the conditions set forth in this paragraph, Tenant shall have the right to assign this Lease without Landlord’s consent, without the application of the Landlord’s recapture right set forth above, and without the obligation of Tenant to pay any excess rent or other compensation to Landlord (other than Landlord’s Review Expenses), to any entity resulting from a merger or consolidation of Tenant with another entity or the acquisition by another entity of all or substantially all of the assets of Tenant (such entity being a “Permitted Transferee”), provided that: (i) such entity has a net worth immediately after such merger, consolidation or acquisition that is equal to or greater than the net worth of HemoSense, Inc., a Delaware corporation (“HemoSense”), as of the date of this Lease; (ii) Tenant gives Landlord at least fifteen (15) days’ prior written notice of such transfer identifying the surviving entity of such

-23-

merger or consolidation, or the entity acquiring all or substantially all of the assets of Tenant, as applicable; (iii) Tenant provides Landlord with such financial information as Landlord may reasonably require to verify that the applicable assignee satisfies the net worth requirement set forth herein; and (iv) in the case of any transfer of all or substantially all of the assets of Tenant to another entity, the transferee promptly executes and delivers to Landlord an assumption of all of Tenant’s obligations under this Lease. Notwithstanding any assignment of this Lease pursuant to this paragraph, all of the terms and conditions of this Lease shall remain in full force and effect and HemoSense (and any and all of its successors-in-interest as Tenant hereunder) shall not be released from its obligations and liabilities under this Lease.

The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or sublet shall not be deemed consent to any subsequent assignment or sublet. Upon the occurrence of an Event of Default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. Landlord may consent to subsequent assignments or sublets of this Lease or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this Lease.

Except as expressly permitted by this Lease in the event of a merger or acquisition, no interest of Tenant in this Lease shall be assignable by operation of law (including, without limitation, the transfer of this Lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors or institutes a proceeding under the Bankruptcy Act of 1978, as amended, in which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors; (ii) if a writ of attachment or execution is levied on this Lease; or (iii) if, in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment of this Lease which is not rescinded within thirty (30) days shall constitute an Event of Default by Tenant and Landlord shall have the right to elect to terminate this Lease, in which case this Lease shall not be treated as an asset of Tenant.

Tenant immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any subletting of all or a part of the Premises as permitted by this Lease, and Landlord, as assignee and as attorney in-fact for Tenant, or a receiver of Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; provided, however, Tenant shall have the right to collect such rent, subject to promptly forwarding to Landlord any portion thereof to which Landlord is entitled pursuant to this paragraph 19, except during the continuance of an Event of Default hereunder.

20. Default. The occurrence of any of the following shall constitute an “Event of Default”: (i) failure of Tenant to pay any rent or other sum payable hereunder within three (3) days

-24-

after receipt of written notice of non-payment from Landlord; provided, however, that if Landlord gives written notice of non-payment of monthly rent once in any calendar year, then no further notice of non-payment of rent shall be required for the balance of such calendar year, and failure to pay rent within three (3) days after the same becomes due shall be an Event of Default; further provided that, notwithstanding the occurrence of an Event of Default pursuant to this subsection (i), Landlord shall not terminate this Lease due to a monetary default by Tenant unless and until Landlord delivers a 3-day notice to Tenant in accordance with Section 1161 of the California Code of Civil Procedure; (ii) abandonment of the Premises (Tenant’s failure to occupy and conduct business in the Premises for fourteen (14) consecutive days shall be deemed an abandonment; provided, however no abandonment shall be deemed to have occurred if Tenant has vacated the Premises but continues to pay all rent and other monetary sums when due hereunder and continues to timely perform all other obligations of this Lease); or (iii) failure of Tenant to perform any other term, covenant or condition of this Lease if the failure to perform is not cured within thirty (30) days after notice thereof has been given to Tenant (provided that if such breach cannot reasonably be cured within thirty (30) days, Tenant shall not be in breach and shall have such additional time as may be reasonably necessary to cure such failure to perform (not to exceed ninety (90) days) so long as Tenant commences to cure such failure to perform within the thirty (30) day period and diligently and in good faith continues to cure the failure to perform). The notice referred to in clause (iii) above shall specify the failure to perform and the applicable Lease provision and shall demand that Tenant perform the provisions of this Lease within the applicable period of time. No notice shall be deemed a forfeiture or termination of this Lease unless Landlord so elects in the notice.

In addition to the above, the occurrence of any of the following events shall also constitute an “Event of Default”: (i) Tenant fails to pay its debts as they become due or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of creditors; or (ii) any financial statements given to Landlord by Tenant, any assignee of Tenant, or successor in interest of Tenant (including, without limitation, any schedule of Tenant’s aged accounts payable) are materially false. At any time during the term of this Lease but not more than once in any calendar year, Landlord shall have the right to receive from Tenant, upon the request of Landlord’s lender(s) and/or prospective purchaser(s) of the Project (or any portion thereof including the Premises), a current annual balance sheet. Landlord and such lenders and prospective purchasers shall use reasonable efforts to keep such balance sheet confidential.

Upon the occurrence of an Event of Default, Landlord, in addition to any other rights and remedies of Landlord at law or in equity, shall have the right either to terminate Tenant’s right to possession of the Premises (and thereby terminate this Lease) or, from time to time and following the termination of this Lease, to relet the Premises or any part thereof for such term and on such terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises.

Should Landlord elect to keep this Lease in full force and effect, Landlord shall have the right to enforce all of Landlord’s rights and remedies under this Lease, including but not limited to the right to recover and to relet the Premises and such other rights and remedies as Landlord may

-25-

have under California Civil Code Section 1951.4 or successor Code section or any other California statute.

Should Landlord at any time terminate this Lease for any breach, in addition to any other remedy it may have, it shall have the immediate right of entry and may remove all persons and property from the Premises and shall have all the rights and remedies of a landlord provided by California Civil Code Section 1951.2 or any successor code section. Upon such termination, in addition to all of its other rights and remedies, Landlord shall be entitled to recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and including (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom. The “worth at the time of award” of the amounts referred to in (i) and (ii) above is computed by allowing interest at the rate of ten percent (10%) per annum. The “worth at the time of award” of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Tenant’s Property or the personal property or equipment of any assignee or subtenant of Tenant removed from the Premises may be stored in a public or private warehouse or elsewhere at the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all thereof at a public or private sale in such manner and at such times and places as are permitted by applicable law and that Landlord, in its sole discretion, may deem proper, without notice to or demand upon Tenant.

21. Landlord’s Right to Cure Tenant’s Default. Landlord, at any time after the occurrence and during the continuation of an Event of Default, may, but shall not be obligated to, cure the default at Tenant’s cost. If Landlord at any time, by reason of any such Event of Default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord and shall bear interest at the rate of ten percent (10%) per annum or the maximum rate permitted by law, whichever is less, from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be additional rent.

22. Eminent Domain. If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payments, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance. Tenant shall have no claim against Landlord or otherwise for the value of any

-26-

unexpired term of this Lease. Notwithstanding the foregoing, Tenant shall be entitled to any compensation for Tenant’s equipment and fixtures and any compensation for its relocation expenses necessitated by such taking, but in each case only to the extent the condemning authority makes a separate award therefor or specifically identifies a portion of the award as being therefor. Each party waives the provisions of Section 1265.130 of the California Code of Civil Procedure (which section allows either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises) and, in such event, the obligations of the parties hereunder shall not be affected and Tenant shall be entitled to the full award for the temporary taking.

If any action or proceeding is commenced for such taking of the Premises or any portion thereof, or of any other space in the Project constituting fifty percent (50%) or more of the number of square feet in the Project, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the Premises or any portion thereof, or of any other space in the Project constituting fifty percent (50%) or more of the number of square feet in the Project, and Landlord shall decide to discontinue the use and operation of the Project or decide to demolish, alter or rebuild the Project, or decide that the remaining portion of the Project or Premises cannot be restored, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the earlier of the date of Landlord’s receipt of such notice of intention to condemn or the commencement of said action or proceeding. Such termination shall be effective as of the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first.

In the event of a partial taking, or conveyance in lieu thereof, of the Premises, and fifty percent (50%) or more of the number of square feet in the Premises are taken or if such taking (after taking into account any restoration by Landlord of the remaining Premises) unreasonably interferes with the conduct of Tenant’s business in the Premises, then Tenant may terminate this Lease. Any election by Tenant to so terminate shall be by written notice given to Landlord within sixty (60) days from the date of such taking or conveyance and shall be effective on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first.

If a portion of the Premises is taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant terminates this Lease as provided above, then this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed and all payments of rent shall be apportioned as of the date of such taking or conveyance so that thereafter the amounts to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking.

23. Notice and Covenant to Surrender. On the last day of the term or on the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises and all of the Tenant Improvements in their condition existing as of the Commencement Date (provided that any Alterations and Permitted Alterations in the Premises, except Alterations and Permitted Alterations which Tenant is required or elects to remove in accordance with paragraph 8, shall be surrendered in

-27-

their condition existing as of the installation thereof), all in clean condition, normal wear and tear, casualties, condemnation, Hazardous Materials (other than those released or emitted by Tenant), excepted, with damage to any walls patched, all floors clean and vacuumed, and the HVAC System serviced and repaired (as required pursuant to paragraph 9). On or prior to the last day of the term or the effective date of any earlier termination, Tenant shall, at Tenant’s sole cost and expense, remove from the Premises all of Tenant’s Property and any personal property, equipment or trade fixtures of any assignees or subtenants, together with Alterations and/or Permitted Alterations that Tenant is obligated to remove pursuant to the provisions of paragraph 8, repair any damage caused by such removal, and restore such areas to the condition that existed prior to the installation of such trade fixtures, Alterations or Permitted Alterations in accordance with all applicable laws, statutes, building codes, and regulations in effect as of the date of such restoration. Any personal property not removed shall be disposed of as described in paragraph 8 above. In addition, on or prior to the expiration or earlier termination of this Lease, Tenant shall remove, at Tenant’s sole cost and expense, all telephone, other communication, computer and any other cabling and wiring of any sort installed by Tenant in the space above the suspended ceiling of the Premises or anywhere else in the Premises and shall promptly repair any damage to the suspended ceiling, lights, light fixtures, walls and any other part of the Premises resulting from such removal.

If the Premises are not surrendered as required in this paragraph, Tenant shall indemnify Landlord against all loss, liability and expense (including, but not limited to, attorneys’ fees) resulting from the failure by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenants. It is agreed between Landlord and Tenant that the provisions of this paragraph shall survive termination of this Lease.

24. Tenant’s Quitclaim. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required to remove the cloud or encumbrance created by this Lease from the real property of which the Premises are a part. This obligation shall survive said expiration or termination.

25. Holding Over. Any holding over after the expiration or termination of this Lease with the written consent of Landlord shall be construed to be a tenancy from month to month at the monthly rent, as adjusted, in effect on the date of such expiration or termination. All provisions of this Lease, except those pertaining to the term and any option to extend, shall apply to the month to month tenancy. The provisions of this paragraph are in addition to, and do not affect, Landlord’s right of reentry or other rights hereunder or provided by law.

If Tenant shall retain possession of the Premises or any part thereof without Landlord’s consent following the expiration or sooner termination of this Lease for any reason, then Tenant shall pay to Landlord for each day of such retention an amount equal to one hundred fifty percent (150%) of the amount of the daily rental in effect during the last month prior to the date of such expiration or termination. Tenant shall also indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from any loss, liability and expense (including, but not limited to, attorneys’ fees) resulting from delay by Tenant in surrendering the Premises, including,

-28-

without limitation, any claims made by any succeeding tenant founded on such delay. Acceptance of rent by Landlord following expiration or termination shall not constitute a renewal of this Lease, and nothing contained in this paragraph shall waive Landlord’s right of re entry or any other right. Tenant shall be only a tenant at sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant is holding over without Landlord’s written consent.

26. Subordination. The Project is not currently encumbered by any lien securing Landlord’s financing. In the event Landlord’s title or leasehold interest is now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at the request of Landlord or the lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such encumbrance, or, if so requested, agreeing that the lien of lender’s encumbrance shall be or remain subject and subordinate to the rights of Tenant under this Lease, provided in either case that the lender agrees not to disturb Tenant’s possession under this Lease so long as no Event of Default exists and so long as Tenant shall pay all amounts due hereunder and otherwise observe and perform all provisions of this Lease. In addition, if in connection with any such loan the lender shall request reasonable modifications of this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereof, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or decrease Tenant’s rights hereunder.

27. Certificate of Estoppel. Each party shall, within five (5) calendar days after request therefor, execute and deliver to the other party, in recordable form, a certificate stating that this Lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of the monthly rent, the date to which monthly rent has been paid in advance, the amount of the security deposit and/or prepaid monthly rent, and, if the request is made by Landlord, shall include such other items as Landlord or Landlord’s lender may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgment by the party failing to deliver the certificate that this Lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. Any such certificate requested by Landlord may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or Project. Further, within five (5) calendar days following written request made from time to time by Landlord, Tenant shall furnish to any prospective purchaser or lender of the Premises current financial statements of Tenant.

28. Sale by Landlord. In the event the original Landlord hereunder, or any successor owner of the Project or Premises, shall sell or convey the Project or Premises, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this Lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner and to look solely to such new owner for performance of any and all such liabilities and obligations.

29. Attornment to Lender or Third Party. In the event the interest of Landlord in the land and buildings in which the Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by a deed of trust, and such interest is acquired by a

-29-

lender or any other third party through judicial foreclosure or by exercise of a power of sale at private trustee’s foreclosure sale, Tenant hereby agrees to release Landlord of any obligation arising on or after any such foreclosure sale and to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease so long as such purchaser agrees not to disturb Tenant’s possession under this Lease so long an Event of Default has not occurred and Tenant pays all amounts due hereunder and otherwise observes and performs all provisions of this Lease.

30. Default by Landlord. Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises (provided Landlord has provided Tenant the name and address of such holder) specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord’s obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion.

If Landlord is in default of this Lease, Tenant’s sole remedy shall be to institute suit against Landlord in a court of competent jurisdiction, and Tenant shall have no right to offset any sums expended by Tenant as a result of Landlord’s default against future rent and other sums due and payable pursuant to this Lease. If Landlord is in default of this Lease, and as a consequence Tenant recovers a money judgment against Landlord, the judgment shall be satisfied only out of the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Project of which the Premises are a part, and out of rent or other income from such real property receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord’s right, title and interest in the Project of which the Premises are a part. Neither Landlord nor any of the partners comprising the partnership designated as Landlord shall be personally liable for any deficiency.

31. Intentionally Omitted.

32. Measurement of Premises. Tenant understands and agrees that any reference to square footage of the Premises is approximate only and includes all interior partitions and columns, one half of exterior walls, and one half of the partitions separating the Premises from the rest of the Project, Tenant’s proportionate share of the Common Area and, if applicable, covered areas immediately outside the entry doors or loading docks. Tenant waives any claim against Landlord regarding the accuracy of any such measurement and agrees that there shall not be any adjustment in basic rent or common area charges or other amounts payable hereunder by reason of inaccuracies in such measurement.

33. Attorneys’ Fees. If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the losing party all expenses reasonably incurred in such litigation, including, without limitation, travel expenses, attorneys’ fees, expert witness fees, trial and appellate court costs, and

-30-

deposition and transcript expenses. If either party becomes a party to any litigation brought by a third party concerning this Lease, or concerning the Premises or the Project, by reason of any act or omission of the other party or its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to the other party for all expenses of litigation, including, without limitation, travel expenses, attorneys’ fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses.

34. Surrender. The voluntary or other surrender of this Lease or the Premises by Tenant, or a mutual cancellation of this Lease, shall not work a merger, and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies.

35. Waiver. No delay or omission in the exercise of any right or remedy of Landlord on any default by Tenant or of Tenant on any default by Landlord shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent or other payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this Lease. Landlord’s consent to or approval of any act by Tenant requiring Landlord’s consent or approval shall not be deemed to waive or render unnecessary Landlord’s consent to or approval of any subsequent act by Tenant. Any waiver by Landlord or Tenant of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease.

36. Easements; Airspace Rights. Landlord reserves the right to alter the boundaries of the Project and grant easements and dedicate for public use portions of the Project without Tenant’s consent, provided that no such grant or dedication shall interfere with Tenant’s use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time, and upon Landlord’s demand, Tenant shall execute, acknowledge and deliver to Landlord, in accordance with Landlord’s instructions, any and all documents, instruments, maps or plats necessary to effectuate Tenant’s covenants hereunder.

This Lease confers no rights either with regard to the subsurface of or airspace above the building of which the Premises are a part. Tenant agrees that no diminution or shutting off of light or view by a structure which is or may be erected (whether or not by Landlord) on property adjacent to the building of which the Premises are a part or to property adjacent thereto, shall in any way affect this Lease, or entitle Tenant to any reduction of rent, or result in any liability of Landlord to Tenant.

37. Intentionally Omitted.

38. Notices. All notices, demands, requests, consents and other communications which may be given or are required to be given by either party to the other shall be in writing and shall be

-31-

sufficiently made and delivered if personally served or if sent by United States first class mail, postage prepaid, or overnight delivery service. Prior to the commencement date, all such communications from Landlord to Tenant shall be served or addressed to Tenant at 600 Valley Way, Milpitas, California 95035. On or after the commencement date, all such communications from Landlord to Tenant shall be addressed to Tenant at the Premises. All such communications by Tenant to Landlord shall be sent to Landlord at its offices at 3945 Freedom Circle, Suite 640, Santa Clara, California 95054. Either party may change its address by notifying the other of such change. Each such communication shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be.

39. Name. Tenant shall not use the name of the Project for any purpose, other than as the address of the business conducted by Tenant in the Premises, without the prior written consent of Landlord.

40. Governing Law; Severability. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be held or rendered invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect.

41. Definitions. As used in this Lease, the following words and phrases shall have the following meanings:

Authorized representative: any officer, agent, employee or independent contractor retained or employed by either party, acting within authority given him by that party.

Encumbrance: any deed of trust, mortgage or other written security device or agreement affecting the Premises or the Project that constitutes security for the payment of a debt or performance of an obligation, and the note or obligation secured by such deed of trust, mortgage or other written security device or agreement.

Lease Month: the period of time determined by reference to the day of the month in which the term commences and continuing to one day short of the same numbered day in the next succeeding month; e.g., the tenth day of one month to and including the ninth day in the next succeeding month.

Lender: the beneficiary, mortgagee or other holder of an encumbrance, as defined above.

Lien: a charge imposed on the Premises by someone other than Landlord, by which the Premises are made security-for the performance of an act. Most of the liens referred to in this Lease are mechanic’s liens.

Maintenance: repairs, replacement, repainting and cleaning.

-32-

Monthly Rent: the sum of the monthly payments of basic rent and common area charges.

Person: one or more human beings, or legal entities or other artificial persons, including, without limitation, partnerships, corporations, trusts, estates, associations and any combination of human being and legal entities.

Provision: any term, agreement, covenant, condition, clause, qualification, restriction, reservation or other stipulation in this Lease that defines or otherwise controls, establishes or limits the performance required or permitted by either party.

Rent: basic rent, common area charges, additional rent, and all other amounts payable by Tenant to Landlord required by this Lease or arising by subsequent actions of the parties made pursuant to this Lease.

Words used in any gender include other genders. If there be more than one Tenant, the obligations of Tenant hereunder are joint and several. The paragraph headings are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.

42. Time. Time is of the essence of this Lease and of each and all of its provisions.

43. Interest on Past Due Obligations; Late Charge. Any amount due from Tenant to Landlord hereunder which is not paid within three (3) days after when due shall bear interest at the rate of ten percent (10%) per annum from when due until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by Tenant under this Lease. In addition, Tenant acknowledges that late payment by Tenant to Landlord of basic rent or common area charges or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord, e.g., by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord within three (3) days after written notice of the delinquency, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue payment as a late charge; provided, however, with respect to the first (1st) delinquent payment in each calendar year during the lease term of any monthly rent or estimated common area charges, Landlord shall be required to give Tenant written notice of such delinquent payment in accordance with clause (i) of paragraph 20 hereof only with respect to such first (1st) delinquent payment before the imposition of a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant’s default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. Except as specifically provided in this paragraph 43, no notice to Tenant of failure to pay shall be required prior to the imposition of such interest and/or late charge, and any notice period provided for in paragraph 20 shall not affect the imposition of such interest and/or late

-33-

charge. Any interest and late charge imposed pursuant to this paragraph shall be and constitute additional rent payable by Tenant to Landlord.

44. Entire Agreement. This Lease, including any exhibits and attachments, constitutes the entire agreement between Landlord and Tenant relative to the Premises and this Lease and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral or other written agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this Lease.

45. Corporate Authority. If Tenant is a corporation, each individual executing this Lease on behalf of the corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this Lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord, within ten (10) days of the execution of this Lease, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this Lease and naming the officers that are authorized to execute this Lease on behalf of Tenant, which copy shall be certified by Tenant’s president or secretary as correct and in full force and effect.

46. Recording. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other.

47. Real Estate Brokers. Each party represents and warrants to the other party that it has not had dealings in any manner with any real estate broker, finder or other person with respect to the Premises and the negotiation and execution of this Lease except Scott Kinder of CRESA Partners (“Broker”). Except as to commissions and fees to be paid as provided in this paragraph, each party shall indemnify and hold harmless the other party from all damage, loss, liability and expense (including attorneys’ fees and related costs) arising out of or resulting from any claims for commissions or fees that may or have been asserted against the other party by any broker, finder or other person with whom Tenant or Landlord has or purportedly has dealt with in connection with the Premises and the negotiation and execution of this Lease. To the extent agreed to between Landlord and Broker, Landlord shall pay all broker leasing commissions to Broker incurred in connection with the Premises and the negotiation and execution of this Lease. Neither Landlord nor Tenant shall be obligated to pay any broker leasing commissions, consulting fees, finder fees or any other fees or commissions arising out of or relating to any extended term of this Lease or to any expansion or relocation of the Premises at any time; provided, however, in the event that, concurrently with Tenant’s exercise of the Option set forth in paragraph 54, Tenant notifies Landlord in writing that Broker is representing Tenant in connection therewith, Landlord shall pay Broker a leasing commission with respect to such Option pursuant to a separate agreement between Landlord and Broker.

48. Exhibits and Attachments. All exhibits and attachments to this Lease are a part hereof.

-34-

49. Environmental Matters.

(a) Tenant’s Covenants Regarding Hazardous Materials.

(i) Hazardous Materials Handling. Except for Permitted Hazardous Materials (as defined in Paragraph 49(ii) hereof), Tenant, its agents, invitees, employees, contractors, sublessees, assigns and/or successors shall not use, store, dispose, release or otherwise cause to be present nor shall Tenant permit the use, storage, disposal, release or presence of Hazardous Materials (as defined below) by its agents, invitees, employees, contractors, subtenants, assigns and/or successors on or about the Premises or Project, except for limited quantities of office and janitorial supplies used or stored at the Premises and required in connection with the routine maintenance and maintenance of the Premises, and then only in compliance with all applicable Hazardous Materials Laws. As used herein “Hazardous Materials” shall mean any petroleum or petroleum by products, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any “hazardous substance,” “hazardous waste,” “hazardous materials,” “toxic substance” or “toxic waste” as those terms are defined under the provisions of the California Health and Safety Code and/or the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), or any other hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or any agency thereof, or the United States Government or any agency thereof.

(ii) Permitted Hazardous Materials. Notwithstanding anything contained in paragraph 49(a)(i), subject to (A) Landlord’s right to retain an environmental consultant to review Tenant’s proposed Permitted Hazardous Materials and (B) Tenant’s obligation, at Tenant’s sole cost and expense, to implement any reasonable recommendation made by such environmental consultant with respect to such proposed Permitted Hazardous Materials prior to Tenant’s introduction thereof to the Premises, Tenant may use and store in the Premises reasonable quantities of Hazardous Materials to the extent such use and storage is necessary for the conduct of Tenant’s business in the Premises consistent with the uses permitted by paragraph 1 hereof (“Permitted Hazardous Materials”) provided that (i) Tenant gives Landlord written notice at least thirty (30) days prior to the date that Tenant desires to commence use of the Permitted Hazardous Materials in the Premises, identifying the Permitted Hazardous Materials and the maximum quantities thereof to be used and stored by Tenant on the Premises and the method of use and disposal of such Permitted Hazardous Materials; (ii) Tenant provides Landlord, concurrently with its request to use Permitted Hazardous Materials, a Hazardous Materials Disclosure Certificate (“HazMat Certificate”) in the form attached hereto as Exhibit D; (iii) Tenant uses such Permitted Hazardous Materials only in connection with the use of the Premises allowed pursuant to paragraph 1 hereof; (iv) if Landlord has reasonable cause to believe that Tenant is violating this paragraph 49, or if Landlord retains an environmental consultant in accordance with clause (A) above, the reasonable cost of any such environmental consultant that Landlord elects to retain to evaluate the impact on the Project of the proposed or then-used Permitted Hazardous Materials shall be paid by Tenant within thirty (30) days after Landlord’s invoice therefor; (v) the Permitted Hazardous Materials would not subject the Premises, Project or the environment to a significant material risk of contamination; and (vi) if required by

-35-

Landlord, Tenant constructs or installs, at Tenant’s sole cost and expense, any alterations, improvements, or fixtures to or in the Premises required by applicable Hazardous Materials Laws, or that Landlord’s environmental consultant reasonably recommends pursuant to clause (A) above, for the use, storage or disposal of such Permitted Hazardous Materials to protect the Premises and the Project from the unauthorized or unintentional release or disposal of such Permitted Hazardous Materials. Tenant shall remove any such alterations, improvements or fixtures from the Premises and restore any damage caused by such removal prior to the expiration or sooner termination of the term of the Lease in accordance with paragraph 23 of this Lease. Tenant shall, on or before each anniversary of the Commencement Date, execute and deliver to Landlord a new HazMat Certificate describing Tenant’s present use of Permitted Hazardous Materials. Tenant shall use and store such Permitted Hazardous Materials only to the extent of the quantities listed in the then-current HazMat Certificate. Tenant shall dispose of all waste generated from its use of Permitted Hazardous Materials in accordance with applicable Hazardous Materials Laws within ninety (90) days. Tenant, at its sole cost, shall comply with all Hazardous Materials Laws relating to the storage, use, generation, transport, discharge and disposal by Tenant or its agents, invitees, employees, contractors of any Permitted Hazardous Material. In no event shall Tenant be permitted to install any underground storage tanks in or about the Premises for the storage of Permitted Hazardous Materials.

(iii) Notices. Tenant shall immediately notify Landlord in writing of any of the following relating to Tenant’s use, storage, disposal, release or transportation of Hazardous Materials: (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any law, regulation or ordinance relating to environmental protection as a consequence of Tenant’s use, analysis, generation, manufacture, storage, disposal or transportation of any Hazardous Materials (collectively “Hazardous Materials Laws”), (ii) any claim made or threatened by any person against Tenant, the Premises, Project or buildings within the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or removed from the Premises, Project or buildings within the Project, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, Project or buildings within the Project or Tenant’s use thereof. Upon request by Landlord, Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises.

(b) Indemnification of Landlord. Tenant shall indemnify, defend (by counsel acceptable to Landlord), protect, and hold Landlord, and each of Landlord’s partners, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys’ fees) for death of or injury to any person or damage to any property whatsoever (including water tables and atmosphere) to the extent arising from or caused in whole or in part, directly or indirectly, by (i) the discharge in or

-36-

from the Premises, Project or buildings within the Project of any Hazardous Materials by Tenant or the use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises, Project or buildings within the Project by Tenant, or (ii) Tenant’s failure to comply with any Hazardous Materials Laws whether knowingly, unknowingly, intentionally or unintentionally. Tenant’s obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, Project or buildings within the Project, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith resulting from Tenant’s use, analysis, storage, transportation, disposal, release, transportation, discharge or generation of Hazardous Materials. In addition, Tenant shall reimburse Landlord for (i) losses in or reductions to rental income resulting from Tenant’s use, storage or disposal of Hazardous Materials, (ii) all costs of refitting or other alterations to the Premises, Project or buildings within the Project required as a result of Tenant’s use, storage, or disposal of Hazardous Materials including, without limitation, alterations required to accommodate an alternate use of the Premises, Project or buildings within the Project, and (iii) any diminution in the fair market value of the Premises, Project or buildings within the Project caused by Tenant’s contamination of the Premises, Project or buildings within the Project with Hazardous Materials. For purposes of this paragraph 49, any acts or omissions of Tenant, or by employees, agents, assignees, contractors or subcontractors of Tenant or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant. Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no responsibility for Hazardous Materials located in, on or under the Premises or Project, except to the extent any such Hazardous Materials are placed in, on or under the Premises or Project by Tenant, its subtenants and/or assigns (and/or the respective employees, agents and/or contractors of Tenant, its subtenants and assigns).

(c) Survival. The provisions of this paragraph 49 shall survive the expiration or earlier termination of the term of this Lease.

50. Signage. Promptly after the Commencement Date, Landlord shall install Tenant’s name on the tenant directories located in the Common Area. Subject to the terms and conditions of this paragraph 50 below, Tenant shall have the right to install: (a) a sign identifying Tenant at the main entrance to the Premises and (b) a sign at the glass entry area of the Premises (collectively, the “Permitted Signs”). Tenant may elect to have the Permitted Signs installed as part of the Tenant Improvements with the cost of installation deducted from the Allowance (as defined in Section 4(a) of the Work Letter Agreement). Excepting the Permitted Signs, Tenant shall not, without obtaining the prior written consent of Landlord, install or attach any sign or advertising material on any part of the outside of the Premises, or on any part of the inside of the Premises which is visible from the outside of the Premises, or in the halls, lobbies, windows or elevators of the building in which the Premises are located or on or about any other portion of the Common Area or Project. If Landlord consents to the installation of any sign or other advertising material, the location, size, design, color and other physical aspects thereof shall be subject to Landlord’s prior written approval and shall be in accordance with any sign program applicable to the Project. Without limiting the generality of the foregoing, Tenant hereby agrees and acknowledges that the provisions of the preceding sentence

-37-

shall be applicable to the Permitted Signs. In addition to any other requirements of this paragraph 50, the installation of any sign or other advertising material by or for Tenant must comply with all applicable laws, statutes, requirements, rules, ordinances and any C.C. & R.’s or other similar requirements. With respect to any permitted sign installed by or for Tenant (including, without limitation, the Permitted Signs), Tenant shall maintain such sign or other advertising material in good condition and repair and shall remove such sign or other advertising material on the expiration or earlier termination of the term of this Lease. Unless Tenant elects to have the cost of installation of the Permitted Signs deducted from the Allowance, the cost of any permitted sign or advertising material (including, without limitation, the Permitted Signs) and all costs associated with the installation, maintenance and removal thereof shall be paid for solely by Tenant. If Tenant fails to properly maintain or remove any permitted sign or other advertising material (including, without limitation, the Permitted Signs), Landlord may do so at Tenant’s expense. Any cost incurred by Landlord in connection with such maintenance or removal shall be deemed additional rent and shall be paid by Tenant to Landlord within ten (10) days following notice from Landlord. Landlord may remove any unpermitted sign or advertising material without notice to Tenant and the cost of such removal shall be additional rent and shall be paid by Tenant within ten (10) days following notice from Landlord. Landlord shall not be liable to Tenant for any damage, loss or expense resulting from Landlord’s removal of any sign or advertising material in accordance with this paragraph 50. The provisions of this paragraph 50 shall survive the expiration or earlier termination of this Lease.

51. Submission of Lease. The submission of this Lease to Tenant for examination or signature by Tenant is not an offer to lease the Premises to Tenant, nor an agreement by Landlord to reserve the Premises for Tenant. Landlord will not be bound to Tenant until this Lease has been duly executed and delivered by both Landlord and Tenant.

52. Tenant Improvements. Improvements to the Premises shall be constructed and installed in accordance with the plans and specifications, and other terms and conditions, set forth in the Work Letter Agreement, the contents of which is incorporated herein and made a part hereof by this reference. The improvements shall be constructed and installed at the expense of Landlord and/or Tenant as set forth in Exhibit “C” to this Lease and in each case, shall be performed in a diligent and workmanlike manner.

53. Additional Rent. All costs, charges, fees, penalties, interest and other payments (including Tenant’s reimbursement to Landlord of costs incurred by Landlord) which Tenant is required to make to Landlord pursuant to the terms and conditions of this Lease and any amendments to this Lease shall be and constitute additional rent payable by Tenant to Landlord when due as specified in this Lease and any amendments hereto.

54. Option to Extend Term. Landlord grants to Tenant an option to extend the term of this Lease for a period of five (5) years (such extension is hereafter referred to as the “Extended Term”) with respect to the entire Premises (as the same may be expanded). The Extended Term shall follow the expiration of the initial term set forth in paragraph 2(a), as the same may be extended pursuant to paragraph 55 hereof (“Initial Term”). All the provisions of this Lease shall apply during the Extended Term except for the amount of the basic rent. The basic rent for the

-38-

Extended Term shall be adjusted to equal ninety-five percent (95%) of the market rate (as defined below). The option is further subject to the following terms and conditions:

(a) Tenant must deliver its irrevocable written notice of Tenant’s exercise of the option to Landlord not less than six (6) lease months, nor more than ten (10) lease months, prior to the expiration of the Initial Term. Time is of the essence with respect to the time period during which Tenant must deliver to Landlord its written notice of exercise and, therefore, if Tenant fails to give Landlord its irrevocable written notice of its exercise of the option within the applicable time period provided above, then the option shall expire and be of no further force or effect.

(b) The parties shall have thirty (30) days from the date Landlord receives Tenant’s notice of exercise in which to agree on the amount constituting the market rate. If Landlord and Tenant agree on the amount of the market rate, they shall immediately execute an amendment to this Lease setting forth the expiration date of the Extended Term and the amount of the basic rent to be paid by Tenant during the Extended Term. If Landlord and Tenant are unable to agree on the amount of the market rate within such time period, then the market rate shall be determined as follows:

(i) If Landlord and Tenant are unable to agree on the market rate within said thirty (30) day period, then, within five (5) days thereafter, Landlord and Tenant shall each simultaneously submit to the other in a sealed envelope its good faith estimate of the market rate. If the higher of such estimates is not more than one hundred five percent (105%) of the lower of such estimates, then the market rate shall be the average of the two estimates.

(ii) If the matter is not resolved by the exchange of estimates as provided in subparagraph (i) above, then either Landlord or Tenant may, by written notice to the other on or before five (5) days after the exchange of such estimates, require that the disagreement be resolved by arbitration. Within seven (7) days after such notice, the parties shall select as an arbitrator a mutually acceptable commercial real estate broker with experience in commercial real estate activities, including at least ten (10) years’ experience in leasing office and research and development space in the County of Santa Clara, California. If the parties cannot agree on a broker, then, within a second period of seven (7) days, each party shall select an independent broker meeting the aforementioned criteria and, within a third period of seven (7) days, the two appointed brokers shall select a third broker meeting the aforementioned criteria and the third broker shall determine the market rate pursuant to subparagraph (iii) below. If one party shall fail to make such appointment within said second seven (7) day period, then the broker chosen by the other party shall be the sole arbitrator.

(iii) Once the arbitrator has been selected as provided for in subparagraph (ii) above, then, as soon as practicable but in any case within fourteen (14) days thereafter, the arbitrator shall select one of the two estimates of the market rate submitted by Landlord and Tenant, which estimate shall be the one that is closer to the market rate as determined by the arbitrator. The arbitrator’s selection shall be rendered in writing to both Landlord and Tenant and shall be final and binding upon them and shall not be subject to appeal. The party whose estimate is not chosen by the

-39-

arbitrator shall pay the costs of the arbitrator; provided, however, that any fees of any counsel or expert engaged directly by Landlord or Tenant shall be borne by the party retaining such counsel or expert.

(c) As used herein, the term “market rate” shall mean the rental and all other monetary payments and escalations that Landlord could obtain from a third party tenant comparable to Tenant desiring to lease the Premises for the Extended Term, taking into account the size of the Premises, the type and quality of tenant improvements, the location of the Premises, the quality of construction of the Project and the Premises, the services provided under the terms of this Lease, the rental and brokers commissions then being paid for the renewal of leases of space comparable to the Premises in the County of Santa Clara and all other factors that would be relevant to a third party in determining the rental such party would be willing to pay to lease the Premises for the Extended Term.

(d) Common area charges shall continue to be determined and payable as provided in paragraph 16 of this Lease.

(e) Tenant may transfer this option to an assignee in connection with the assignment of the Lease; provided, however, that HemoSense hereby agrees and acknowledges that, notwithstanding the exercise of the option by such an assignee, HemoSense shall remain jointly and severally liable with such assignee for any and all of the obligations of the Tenant under this Lease during the Extended Term. Tenant shall have no right to extend the term beyond the Extended Term. If, on the date of delivery of Tenant’s notice of exercise to Landlord, an Event of Default exists under this Lease, then such notice shall be of no effect and this Lease shall expire at the end of the Initial Term. If an Event of Default exists under this Lease on the last day of the Initial Term, then Landlord may in its sole discretion elect to have Tenant’s exercise of the option be of no effect, in which case this Lease shall expire at the end of the Initial Term.

55. Right of First Offer. If following the Commencement Date, that certain space adjacent to the Premises, consisting of approximately twenty thousand five hundred eighty-two (20,582) square feet, and commonly known as 655 River Oaks Parkway (“First Offer Space”), becomes available for lease, then Landlord shall give Tenant written notice of such availability (“Landlord’s Offer Notice”). Landlord’s Offer Notice shall include the terms and conditions on which Landlord is willing to lease the First Offer Space, including the basic rent (which basic rent shall represent Landlord’s good faith estimate of the prevailing market rent for space comparable to such First Offer Space and shall be the same basic rent at which Landlord is willing to lease the Premises to third parties) for, and any allowance for construction of tenant improvements in, the First Offer Space. Landlord’s Offer Notice shall include such reasonable documentation as may have been relied upon by Landlord in its determination that the basic rent and other lease terms set forth in Landlord’s Offer Notice are consistent with the market. Tenant shall have the right, within ten (10) business days after the date of Tenant’s receipt of Landlord’s Offer Notice, to give Landlord written notice whether or not Tenant desires to lease the First Offer Space on the terms and

-40-

conditions set forth in Landlord’s Offer Notice. Tenant’s failure to give Landlord written notice of its desire to lease such First Offer Space on the terms and conditions set forth in Landlord’s Offer Notice within such ten (10) business day period shall be deemed Tenant’s waiver of the right of first offer set forth herein with respect to the First Offer Space and Landlord shall thereafter have the right to lease such First Offer Space free and clear of any rights of Tenant hereunder but, upon termination of such lease the Tenant’s rights hereunder shall again become effective, as set forth below. Notwithstanding the foregoing, if Landlord thereafter changes the rental rate and/or any allowance for tenant improvements on which Landlord is offering the First Offer Space to third parties, and such change, when taken as a whole, is fifteen percent (15%) or more favorable to such third-party lessees than the rental rate and allowance for tenant improvements set forth in Landlord’s Offer Notice, then Landlord shall again offer the First Offer Space to Tenant on the terms set forth in this paragraph 55. If Tenant gives Landlord written notice that it desires to lease such First Offer Space in accordance with this paragraph 55 above, then Landlord and Tenant shall execute an amendment to this Lease that incorporates such First Offer Space into the Premises; provided, however, that the term of the lease as to such First Offer Space shall be for the period set forth in the Landlord’s Offer Notice (and such term may or may not be coterminous with the lease term for the Premises). Such amendment shall provide for Tenant to lease such First Offer Space at the basic rent, include any allowance for construction of tenant improvements, and otherwise be subject to all of the terms and conditions of this Lease to the extent not inconsistent with the economic terms set forth in Landlord’s Offer Notice. If Tenant does not execute such lease amendment within fifteen (15) days after the date Landlord delivers a draft of the lease amendment to Tenant complying with this Lease, then Tenant’s right of first offer with respect to the First Offer Space shall be deemed terminated and Landlord shall have the right to lease such First Offer Space free and clear of any rights of Tenant hereunder. Tenant’s rights under this paragraph 55 shall be personal to HemoSense, and shall not be transferable or assignable to any assignee of this Lease, except to an assignee which is a Permitted Transferee; provided, however, that HemoSense hereby agrees and acknowledges that, notwithstanding such Permitted Transferee’s exercise of the right of first offer set forth herein, HemoSense shall remain jointly and severally liable with such Permitted Transferee for any and all of the obligations of the Tenant under this Lease, as applicable to the First Offer Space. In furtherance of the foregoing, the right of an assignee of the rights hereunder which is a Permitted Transferee to exercise the right of first offer set forth herein shall be subject to the condition precedent that HemoSense and such Permitted Transferee execute an amendment to this Lease stating that HemoSense and such Permitted Transferee will be jointly and severally liable under this Lease with respect to the First Offer Space. Tenant’s rights under this paragraph 55 shall be void and of no force and effect and shall confer no rights on Tenant during any period that an Event of Default exists under this Lease. Notwithstanding anything to the contrary contained in this paragraph, in the event that, after Tenant shall have waived (or shall have been deemed to have waived) its right to lease the First Offer Space pursuant to this paragraph 55, such First Offer Space again becomes available as a result of the expiration or earlier termination of a lease entered into by Landlord and a third party, such First Offer Space shall be re-offered to Tenant in accordance with the terms and conditions of this paragraph 55.

If Tenant leases the First Offer Space pursuant to this paragraph 55 during the last three (3) years of the Initial Term, and the term of the lease as to such First Offer Space (as set in Landlord’s

-41-

Offer Notice) extends beyond the expiration date of such Initial Term (i.e., the date that is sixty (60) months after the Commencement Date of this Lease), Tenant shall have the right to extend the Initial Term with respect to the Premises for only such period of time as may be necessary to make the term of the lease with respect to the Premises coterminous with the term as to the First Offer Space. The extension right granted pursuant to this paragraph 55 must be exercised by Tenant by written notice to Landlord given concurrently with Tenant’s notice of its desire to lease the First Offer Space on the terms and conditions of Landlord’s Offer Notice. Upon such exercise, the Initial Term shall be deemed extended, and the option granted pursuant to paragraph 54 above may exercised only as to both the Premises and the First Offer Space at the expiration of the extended Initial Term. The basic rent payable during the extended Initial Term shall be equal to one hundred percent (100%) of the market rate and determined in accordance with the procedure set forth in paragraph 54; provided, however, such market rate shall in no event be less than the basic rent in effect at the expiration of the Initial Term.

56. Approvals. Whenever the lease requires an approval, consent, determination, selection or judgment by either Landlord or Tenant, unless another standard is expressly set forth, such approval, consent, determination, selection or judgment and any conditions imposed thereby shall be reasonable, and shall not be unreasonably withheld or delayed and, in exercising any right or remedy hereunder, each party shall at all times act reasonably and in good faith.

57. Reasonable Expenditures. Any expenditure by a party permitted or required under the Lease, for which such party is entitled to demand and does demand reimbursement from the other party, shall be limited to the fair market value of the goods and services involved and shall be reasonably incurred.

[remainder of page intentionally left blank]

-42-

SIGNATURE PAGE FOR LEASE

by and between MONTAGUE OAKS ASSOCIATES PHASE I & II, a California general partnership (“Landlord”), and HEMOSENSE, INC., a Delaware corporation (“Tenant”)

IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease on the date first above written.

LANDLORD:
MONTAGUE OAKS ASSOCIATES PHASE I & II, a California general partnership
By:	McCANDLESS GROUP (MONTAGUE), a California general partnership, a general partner
	By:	/s/    BIRK S. MCCANDLESS
		BIRK S. McCANDLESS, as Trustee of the Birk S. McCandless and Mary McCandless Intervivos Trust dated February 17, 1982, a general partner
By:	THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, a general partner
	By:	/s/    Illegible
	Its:	Vice President
TENANT:
HEMOSENSE, INC., a Delaware corporation
By:	/s/    J. D. MERSELIS
Its:	Pres. & CEO
By:	/s/    G. HEWITT
Its:	VP

EXHIBIT “A”

[Map of the Project with the Premises outlined in red]

EXHIBIT “B”

[Map of the Project]

EXHIBIT “C”

WORK LETTER AGREEMENT

EXISTING SPACE - ALLOWANCE

This Work Letter Agreement (hereinafter “Exhibit ‘C’”) is attached to and forms a part of that certain lease (“Lease”) by and between Montague Oaks Associates Phase I & II, a California general partnership (“Landlord”), and HemoSense, Inc., a Delaware corporation (“Tenant”), pursuant to which Landlord leases to Tenant those certain premises located at 651 River Oaks Parkway, San Jose, California and consisting of approximately fifteen thousand two hundred fifty-eight (15,258) square feet (“Premises”). All capitalized terms used herein shall have the meaning ascribed to them in the Lease unless otherwise defined below. The Premises shall be improved in accordance with the following:

1. Tenant Improvements. As used herein, “Tenant Improvements” shall include those items and specifications shown on the Final Construction Drawings prepared in accordance with paragraph 2 below. Landlord shall construct Tenant Improvements in accordance with the Final Construction Drawings and the provisions of this Exhibit “C.” Unless otherwise specifically agreed to by Landlord in writing, the installation, wiring, maintenance and removal of furniture partition systems, telephone and other communication systems, data cabling, alarm and/or security systems and any other systems not specifically set forth on the Final Construction Drawings, and all cost and expense associated therewith, shall be the sole responsibility of Tenant; provided, however, at Tenant’s discretion, the “drops” for the electrical, data and communication for partitions may be included in the Tenant Improvements.

2. Tenant Improvement Design Schedule. The plans and specifications for the Tenant Improvements and any other improvements shall be completed in accordance with the following:

(a) Attached hereto as “Exhibit C-1” are the preliminary floor plan layouts for the Premises (“Preliminary Floor Plans”) prepared by Landlord and approved by Tenant. Landlord’s architect has prepared architectural construction drawings and related documents from the approved Preliminary Floor Plans (“Architectural Construction Documents”).

(b) Attached hereto as “Exhibit C-2” is a preliminary cost estimate for the work based on the Preliminary Floor Plans prepared by Landlord and approved by Tenant.

(c) Tenant has made the decisions required and supplied to Landlord the information necessary for Landlord’s architect to complete the Architectural Construction Documents in enough detail so that Landlord’s general contractor can to bid the work, select subcontractors and proceed toward the design of electrical, mechanical and any other requirements not included on the Architectural Construction Documents. Upon Landlord’s general contractor’s selection of subcontractors, Landlord’s general contractor and subcontractors shall prepare design specifications outlining in reasonable detail electrical, mechanical and any other requirements not

C-1

included on the Architectural Construction Documents (“Electrical and Mechanical Drawings”). Upon receipt of the Electrical and Mechanical Drawings, Landlord shall cause its architect to prepare the Construction Drawings based on the Architectural Construction Documents and the Electrical and Mechanical Drawings.

(d) Tenant shall have decided upon finish selections by February 11, 2004.

(e) As used herein, “Final Construction Drawings” shall include the Construction Drawings, as approved by the City, Landlord and Tenant, and any subsequent additions, deletions or changes to the Tenant Improvements permitted or required pursuant to paragraphs 5 and 6 of this Exhibit “C.”

3. Plan and Estimate Approval. Concurrently with the completion of the Final Construction Drawings and the Electrical and Mechanical Drawings, Landlord shall prepare and deliver to Tenant an improvement cost budget (“Improvement Cost Budget”) setting forth the expected Total Cost of Tenant’s Improvements (as defined in Paragraph 4(b) below) below), which shall be based upon and be logical evolutions of the Preliminary Floor Plans and preliminary cost estimate attached to this Work Letter Agreement. Landlord shall thereafter submit both the Final Construction Drawings and the Improvement Cost Budget to Tenant for approval. Tenant shall give Landlord written notice of its approval or disapproval of the Final Construction Drawings and Improvement Cost Budget within five (5) business days after receipt thereof. If Tenant disapproves either the Final Construction Drawings or the Improvement Cost Budget, Tenant shall specify its reasons for disapproval to Landlord in writing. Thereafter, the parties shall negotiate in good faith to reach agreement on the modifications to the Final Construction Drawings and/or Improvement Cost Budget that are necessary to overcome Tenant’s written objections. If the parties reach agreement within said three (3) business day period, Landlord shall cause the Final Construction Drawings and/or Improvement Cost Budget to be revised to incorporate such agreements and resubmit the same to Tenant for approval. Tenant shall approve or disapprove of the revised Final Construction Drawings and/or Improvement Cost Budget within three (3) business days after receipt thereof. Tenant’s failure to give written notice of approval or disapproval of the Final Construction Drawings or Improvement Cost Budget or any revision thereof within the time periods specified herein shall be a “Tenant Delay”. If Tenant does not deliver to Landlord its written approval or disapproval of the Final Construction Drawings and/or Improvement Cost Budget or any modifications thereto within the time period specified herein, Tenant will be deemed to have disapproved the Final Construction Drawings and/or Improvement Cost Budget. If Tenant gives written notice of disapproval of or is deemed to have disapproved the Final Construction Drawings and/or Improvement Cost Budget and the parties are not able to reach agreement on modifications thereto necessary to overcome Tenant’s objections within five (5) business days after Tenant’s receipt of the Final Construction Drawings or Improvement Cost Budget, or any modifications thereto, then Landlord may terminate the Lease upon written notice to Tenant. Upon Tenant’s approval of the Final Construction Drawings and Improvement Cost Budget, Tenant shall sign copies of the same and deliver such signed copies to Landlord. Upon Tenant’s written approval of the Improvement Cost Budget, the Improvement Cost Budget shall be deemed a guaranteed maximum price for the Tenant Improvements (said price shall be referred to herein as the “Tenant Improvement Guaranteed Maximum Cost”). The Tenant

C-2

Improvement Guaranteed Maximum Cost shall be subject to adjustment for increases (i) in the actual cost of the City permits from the estimated cost shown in the Improvement Cost Budget and (ii) in costs resulting from changes to the Tenant Improvements requested or required and approved by the parties pursuant to Paragraphs 5 and 6 below. Landlord shall not be obligated to commence construction of the Tenant Improvements until the following has occurred: the Final Construction Drawings and Tenant Improvement Guaranteed Maximum Cost have been agreed to by Landlord and Tenant and Tenant has indicated its approval of the Final Construction Drawings and Improvement Cost Budget by signing copies thereof.

4. Tenant Improvement Allowance.

(a) Landlord agrees to grant to Tenant a Tenant Improvement Allowance (“Allowance”) of One Hundred Eighty-three Thousand Ninety-six Dollars ($183,096.00) ($12.00/SF x 15,258 SF) to be applied toward the “Total Cost of Tenant’s Improvements” (as defined below) to be installed in accordance with this Exhibit “C.”

(b) As used herein, “Total Cost of Tenant’s Improvements” shall include: (i) the cost of Tenant Improvements and increases therein pursuant to Paragraphs 5 and 6 below, if any, and all demolition costs incurred in connection with preparing the Premises for the installation of the Tenant Improvements; (ii) all costs related to change orders requested by Tenant up to the guaranteed maximum additional cost for the change specified in the change order and approved by Landlord and Tenant in accordance with Paragraph 5 hereof; (iii) all costs related to Government Change Orders (as defined in Paragraph 6) approved or deemed approved by Tenant in accordance with Paragraph 6; (iv) actual permit fees and other fees for the Tenant Improvements; (v) the cost of consultants and engineers identified in the Improvement Cost Budget for the Tenant Improvements; (vi) an amount equal to the actual cost of third party supervision, administration and on site facilities and equipment necessary to perform the work; (vii) the cost to comply with any laws, rules, regulations, covenants, conditions, restrictions and/or fire underwriter requirements applicable to the Premises to the extent such compliance is triggered by the Tenant Improvement work; (viii) an amount equal to the percentage mutually agreed upon by Landlord and Tenant with the general contractor for the general contractor’s overhead and profit (“Contractor’s Fee”); and (ix) the cost of architects hired by Landlord for the design of the Tenant Improvements. Except as specifically provided in this Exhibit C, the Total Cost of Tenant’s Improvements may not exceed the Tenant Improvement Guaranteed Maximum Cost and shall not include any of the following: (a) the cost of any Landlord’s work other than the construction of the Tenant Improvements described on the Final Construction Drawings and any approved change orders thereto requested by Tenant; (b) the cost of removing any Hazardous Materials in the Premises not introduced to the Premises by Tenant; (c) the cost to comply with any laws, rules, regulations, covenants, conditions, restrictions and/or fire underwriter requirements applicable to the Premises to the extent such compliance would have been required in the absence of the Tenant Improvement work; (d) costs for overtime not authorized by Tenant in writing to the extent in excess of any budget for overtime included in the Improvement Cost Budget; (e) construction management, profit and overhead charges (whether payable to Landlord, its authorized representatives or any general contractor) in excess of the Contractor’s Fee; (f) replacement of the roof and the New HVAC Units as specified in paragraph 9 of the Lease; and

C-3

(g) construction of new restrooms in the Premises as specified in Paragraph 9 of this Exhibit C. If any item of the Total Cost of Tenant Improvements paid from the Allowance or Additional Allowance is covered by insurance or warranty, Landlord shall make a claim under such insurance or warranty, as applicable, and upon receipt of any recovery under such insurance or warranty, shall credit the amount of such recovery to the next accruing installment of basic rent due under the Lease.

(c) In the event that the Total Cost of Tenant’s Improvements exceeds the Allowance (the amount by which the Total Cost of Tenant’s Improvements exceeds the Allowance shall be referred to herein as the “Excess Cost”), Tenant shall pay to Landlord as the work progresses, within five (5) days after receipt of Landlord’s invoice therefor, a proportionate share of each monthly progress payment made by Landlord to the general contractor in the amount equal to the amount of such progress payment multiplied by a fraction, the numerator which is the Excess Cost and denominator of which is the sum of the Allowance and the Excess Cost; provided, however, until the substantial completion of the Tenant Improvements, the maximum amount payable by Tenant pursuant to this paragraph shall be ninety percent (90%) of such Excess Cost. Tenant’s failure to pay its proportionate share of any progress payment within three (3) days after such payment becomes due shall be deemed an Event of Default under the Lease and the amount so delinquent shall be deemed additional rent and Landlord may exercise all rights and remedies set forth in Paragraph 20 of the Lease; and in addition, Landlord may delay construction until such payment is made and such delay which delays the progress of the work shall be deemed a Tenant Delay subject to the provisions of Paragraph 7 of this Exhibit “C.”

(d) In addition to the Allowance, Landlord shall make available to Tenant an additional tenant improvement allowance in an amount not to exceed Seventy-six Thousand Two Hundred Ninety Dollars ($76,290.00) (i.e., $5.00/square foot x 15,258 square feet) (“Additional Allowance”). If the parties determine that there will be Excess Cost, Tenant shall have the right to request, within five (5) days after Tenant’s approval of the Improvement Cost Budget (in accordance with paragraph 3 hereof), that Landlord make the Additional Allowance available for payment of any such Excess Costs. In addition, Tenant may request that Landlord apply the Additional Allowance against the cost of any change orders included in the Total Cost of Tenant Improvements (to the extent the Tenant Improvement Maximum Guaranteed Cost exceeds the Allowance as a result of such change orders). If Tenant elects not to use the Additional Allowance to pay Excess Costs, and/or such change order costs, Tenant shall pay such Excess Cost and/or such change order costs in accordance with the terms and conditions of Paragraphs 4(c) and 5 of this Exhibit “C.”

The use of the Additional Allowance shall be subject to all of the terms and conditions of this Exhibit “C.” Upon completion of the Tenant Improvements, the actual amount of Additional Allowance used by Tenant shall be amortized over the initial term of the Lease (i.e., sixty (60) months) together with interest thereon at five percent (5%) per annum, and such monthly amortized amount shall be added to the monthly installments of basic rent payable by Tenant pursuant to paragraph 4 of the Lease for the first sixty (60) months of the term of the Lease.

5. Changes by Tenant. Tenant may request changes, deletions or additions to the Tenant Improvements; provided, however, that the effectiveness of any such requested change, deletion or

C-4

addition shall be subject to written approval by an authorized representative of Landlord, which approval shall not be unreasonably withheld or delayed, and to obtaining any required governmental permits or other approvals. In no event shall work on any change, deletion or addition requested pursuant to this Paragraph 5 commence prior to (i) Landlord and Tenant approving, in writing, such change, deletion or addition, and (ii) Landlord’s and Tenant’s agreement on any change to the Tenant Improvement Guaranteed Maximum Cost, the maximum amount of any Tenant Delay to be charged against Tenant with respect to such change order, and any revision to the Scheduled Date as a result of such change order. If any such change order approved by Landlord and Tenant increases the Tenant Improvement Guaranteed Maximum Cost, then Tenant may elect to pay the amount of such increase, as agreed by the parties in the preceding sentence, either from Allowance, the Additional Allowance or as part of the Excess Cost payable by Tenant as the work progresses.

6. Changes by Authority. If any change, deletion or addition to the Tenant Improvements shown in the approved Final Construction Drawings submitted to the City is required in order to obtain any governmental permit or approval, or otherwise, and such change, deletion or addition is not due to an error in the Construction Drawings by Landlord’s architect (“Government Change Order”), Landlord shall give Tenant written notice thereof along with an estimate of the cost to implement such Government Change Order. If the estimated cost of such Government Change Order is less than Fifteen Thousand Dollars ($15,000), then Tenant shall be deemed to have approved such Government Change Order and costs associated with such Government Change Order shall be included in the Total Cost of Tenant Improvements as provided in Paragraph 4(b) of this Exhibit C up to Fifteen Thousand Dollars ($15,000). If the estimated cost of any Government Change Order is Fifteen Thousand Dollars ($15,000) or more, Tenant shall have the right to terminate this Lease by giving written notice of such termination within ten (10) business days after receipt of the estimated cost of the Government Change Order. If Tenant fails to give written notice of termination of this Lease within said ten (10) business day period, Tenant shall be deemed to have agreed to pay the costs associated with such Government Change Order (up to the maximum amount stated in the Government Change Order) and such costs shall be included in the Total Cost of Tenant Improvements as provided in Paragraph 4(b) of this Exhibit C. If Tenant gives written notice of termination of the Lease within said ten (10) business day period, then this Lease shall terminate, Landlord may apply the prepaid basic rent and common area charges deposited by Tenant in accordance with paragraph 4(d) of the Lease to the cost incurred by Landlord for the Construction Drawings in an amount not to exceed Fifteen Thousand Dollars ($15,000) and the balance of such prepaid rent and common area charges and the security deposit shall be promptly returned to Tenant within ten (10) days following delivery to Landlord of Tenant’s termination notice.

7. Tenant Delays. As used in this Lease, a “Tenant Delay” shall mean a delay in the commencement of the term beyond the Scheduled Date to the extent such delay is due to (a) Tenant’s failure to deliver notices of approval or disapproval within the time periods specified in Paragraph 2 above, (b) changes in the Tenant Improvements required by Tenant (but not in excess of the maximum delay approved by Landlord and Tenant), (c) any other event described in the Lease as a Tenant Delay or (d) any other failure by Tenant to perform its obligations under this Exhibit “C” or otherwise under the Lease which continues for more than twenty-four (24) hours after written notice to Tenant that Tenant’s non-performance is delaying the construction of the Tenant Improvements.

C-5

8. Punch List. Landlord and Tenant shall conduct a walk-through inspection of the Premises and shall jointly create a list of items (“Punch List”) that require completion or correction in order for the Premises to be acceptable and conform to the Lease. Landlord shall commence to complete or correct the items as soon as possible and shall complete such Punch List items within a reasonable period of time. If Tenant does not make itself available to conduct the walk-through and create the Punch List within thirty (30) days after Landlord’s notice of substantial completion, Tenant shall be deemed to have waived the right to prepare a Punchlist. Notwithstanding Landlord’s completion of Punch List items or anything contained in paragraph 9 of the Lease, Landlord, at Landlord’s sole cost, shall enforce any warranty pertaining to the Tenant Improvements provided to Landlord by the general contractor, any subcontractor or manufacturer in connection with the construction of the Tenant Improvements. Nothing in this Paragraph 8 shall delay the commencement of the term or Tenant’s obligation to pay rent or to make other payments due Landlord under the Lease.

9. Additional Restrooms. Landlord shall, during the construction of the Tenant Improvements, at Landlord’s sole cost and expense, install in the Premises an additional set of restrooms in the location specified and in accordance with the Construction Drawings. Upon completion, such restrooms shall comply with all applicable laws, statutes, building codes and regulations, including without limitation, the Americans With Disabilities Act.

10. Rent Credit. If any portion of the Allowance remains unused after Landlord has completed construction of the Tenant Improvements, completed any Punch List items and obtained final lien releases from the general contractor, all subcontractors and all persons supplying labor or material to the Tenant Improvements, Landlord shall notify Tenant of the amount of any unused portion of the Allowance. Landlord shall apply the unused portion of the Allowance toward the next accruing monthly installments of basic rent coming due under the Lease until such excess is exhausted.

C-6

EXHIBIT “C-1”

[Diagram of the preliminary floor plan layouts for the Premises]

EXHIBIT “C-2”

PRELIMINARY COST ESTIMATE

651 RIVER OAKS PARKWAY HEMOSENSE			SF:	15,258
SHOOTING FOR APRIL 1ST MOVE-IN DATE
Contractor’s Fee	7	%	10% cont. 12% CO	10	%
Scope of Work:	ICON		TICON	Willow Glen
Title 24 calcs? Extra cost depends on City’s requirements	Part., not work		no	yes, but not work
Time in to secure permit	ü		ü	ü
Any allowance in for permits?	$1,200		¨	¨
Cost for subs plans for permit?	ü		ü	ü
How much supervision time per day?	4 hrs per day		4-5 hrs. per day	6 hours
How long for job?	10 wks inc permit		5.5 wks after permit	4-5 wks after permit
Any time in for meetings?	ü		ü	ü
Site protection (existing carpet, etc.)	ü		ü	ü
Dump fees for entire job included?	ü		ü	ü
Demo double doors between wet lab area and strip Mfg.	ü		ü	ü
Demo exterior wall at new door location	ü		ü	ü
Demo concrete, landscape, soil, etc.	ü		ü	ü
Install new glass exit door	ü		ü	ü
ADA compliant path of travel from door to parking lot? (ramp, ret. walls) If ramp, how long? Hand rail inc.? Waterproof along building exterior?	ü		ü	ü
Demo walls per plan	ü		ü	ü
Install drywall soffits at differing ceiling heights (rms 123 & 124)	ü		ü	ü
Install new walls per plan	ü		ü	ü
1-hour rated lobby	ü		ü	ü
New wall surface to match existing	ü		ü	ü
Install new doors, frames and ADA hardware	ü		ü	ü
Install new side lights w/ 1’ wall between door & glass for switch	ü		ü	ü
Paint new construction to match existing	ü		ü	ü
Repair/replace t-bar ceiling at new construction	ü		ü	ü
Electrical:	ü		ü	ü
Safe off required for demo?	ü		ü	ü
Exit signs per plan?	ü		ü	ü
1, 4’. 2-tube light fixture w/lens in each room?	ü		ü	ü
Emergency exit lights?	ü		ü	ü

Scope of Work:	ICON		TICON		Willow Glen
Exhaust fans in restrooms? 1 ea. or shared		1 each		1 each		1 each
GFI outlet in each restroom?		ü		ü		ü
All electrical per plan and Addendum #1?		ü		ü		ü
New Restrooms?		ü		ü		ü
Toilets, mirrors, locking door hardware		ü		will add		not SN dispenser
TP, SN & PT dispensers, SN disposal		ü		will add		3
Soap disp., seat cover disp.		ü		ü		ü
Cabinetry and sinks		Counter top & sink		Counter top & sink		Counter top & sink
ADA accessible		ü		ü		ü
Marlite or RFP in new restrooms		ü		ü		ü
Sheetrock ceiling in new restrooms		ü		ü		ü
Sheet vinyl in new restrooms		ü		ü		ü
Plumbing in wet lab with hot & cold water		ü		ü		ü
Cabinetry and sheet vinyl in wet lab #113		ü		ü		ü
Cabinetry in breakroom		ü		ü		ü
VCT in breakroom and mail/copy & for Rm 124.		ü		ü		ü
waterline for coffee maker		ü		ü		ü
Relocate/add fire sprinklers		ü		ü		ü
Add new carpet where necessary.		ü		ü		ü
New base at new construction and where necessary		ü		ü		ü
HVAC:		ü		ü		ü
supplies/returns relocated & added where necessary		ü		ü		ü
air balance of entire suite		area of construction		area of construction		area of construction
Install control panel to allow independent AC for conf. rooms
Lobby and west offices		ü		ü		ü
Fire extinguisher cabinets per plan?		ü		ü		ü
New ADA door hardware at all doors		ü		ü		ü
Final clean up		ü		ü		ü
Cost of main contract LESS restrooms and ext. door:	$	167,890	$	188,469	$	140,626
Exterior signage Estimate Only:	$	500	$	500	$	500
Permit fees Estimate Only:	$	20,000	$	20,000	$	20,000
Architectural costs & submittal fees: (all others in bid)	$	10,580	$	10,580	$	10,580
Total job cost less restrooms and exterior door:	$	198,970	$	219,549	$	171,706
PER SQUARE FOOT COSTS	$	13.04	$	14.39	$	11.25
(Note: unknown City cost for Title 24 at this time)
Alternates (FOR TENANT):
New VCT per note 7 on plan (less room 124)	$	12,465	$	10,914	$	11,433

Scope of Work:	ICON		TICON		Willow Glen
Includes removal of old glue off cement?		Scraped off		Scraped off		Scraped off
Add four four-plexes at room 112		not indicated		not indicated	$	740
	$	12,465	$	10,914	$	12,173
ALTERNATES FOR TENANT	$	0.82	$	0.72	$	0.80
Total for tenant including alternates if desired:					$	12.05
Approval of Willow Glen Construction
Tenant Approval: /s/ Gary Hewett
Date: 2/4/04
Fax back to Nancy Babb @ McCandless Mgt. (408) 562-4322

EXHIBIT “D”

Hazardous Materials Disclosure Certificate

All capitalized terms in this Certificate which are not defined in this Certificate shall have the meanings given them in the Lease. Any questions regarding this certificate should be directed to, and when completed, the certificate should be delivered to:

Name of Tenant:                                                                                                                                                              

Mailing Address:                                                                                                                                                             

Contact Person, Title and Telephone Number(s):                                                                                                      

Contact Person for Hazardous Waste Materials Management and Manifests and Telephone

Number(s):                                                                                                                                                                                       

Address of Premises:                                                                                                                                                      

Length of Initial Term:                                                                                                                                                    

1. GENERAL INFORMATION:

Describe the proposed operation to take place in the Premises that will require the use of Hazardous Materials, including, without limitation, principal products processed, manufactured or assembled services and activities to be provided or otherwise conducted. Or describe any proposed changes to on-going operations.

2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS

What Hazardous Materials will be used, generated, stored or disposed of in, on or about the Premises? Describe any Hazardous Materials which continue to be used, generated, stored or disposed of in, on or about the Premises. Attach a list of any Hazardous Materials to be used, generated, stored or disposed of in, on or about the Premises, including the applicable hazard class and an estimate of the quantities of such Hazardous Materials at any given time; estimated annual throughput; the proposed location(s) and method of storage (excluding nominal amounts of ordinary household cleaners and janitorial supplies which are not regulated by any Hazardous Materials Laws); and the proposed location(s) and method of disposal for each Hazardous Material, including, the estimated frequency, and the proposed contractors or subcontractors. If there is an existing Hazardous Materials use, attach a list setting forth the information requested above including actual data from on-going operations and the identification of any variations in such information from the prior year’s certificate.

3. WASTE MANAGEMENT

3.1 Has your company been issued an EPA Hazardous Waste Generator I.D. Number? Describe any additional identification numbers issued since the previous certificate.

Yes ¨    No ¨

D-1

3.2 Has your company filed a biennial or quarterly reports as a hazardous waste generator? Describe any new reports filed.

Yes ¨    No ¨

If yes, attach a copy of the most recent report filed.

4. WASTEWATER TREATMENT AND DISCHARGE

4.1 Will your company discharge wastewater or other wastes to:

¨ storm drain?	¨ sewer?
¨ surface water?	¨ no wastewater or other wastes discharged.

4.2 Will any such wastewater or waste be treated before discharge?

Yes ¨    No ¨

If yes, describe the type of treatment proposed to be conducted.

5. AIR DISCHARGES

5.1 Do you plan for any air filtration systems to be used in your company’s operations in, on or about the Premises that will discharge into the air; and will such air emissions be monitored? Indicate whether or not there are any such air filtration systems in use in, on or about the Premises which discharge into the air and whether such air emissions are being monitored.

Yes ¨    No ¨

If yes, please describe:

6. HAZARDOUS MATERIALS DISCLOSURES

6.1 Has your company prepared or will it be required to prepare a Hazardous Materials management plan (“Management Plan”) pursuant to Fire Department or other governmental or regulatory agencies’ requirements? Indicate whether or not a Management Plan is required and has been prepared.

Yes ¨    No ¨

If yes, attach a copy of the Management Plan. Existing tenants should attach a copy of any required updates to the Management Plan.

6.2 Are any of the Hazardous Materials, and in particular chemicals, proposed to be used in your operations in, on or about the Premises regulated under Proposition 65? Indicate whether or not there are any new Hazardous Materials being so used which are regulated under Proposition 65.

Yes ¨    No ¨

If yes, please explain:

D-2

7. ENFORCEMENT ACTIONS AND COMPLAINTS

7.1 With respect to Hazardous Materials or Hazardous Materials Laws, has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees or has your company received requests for information, notice or demand letters, or any other inquiries regarding its operations? Indicate whether or not any such actions, orders or decrees have been, or are in the process of being, undertaken or if any such requests have been received.

Yes ¨    No ¨

If yes, describe the actions, orders or decrees and any continuing compliance obligations imposed as a result of these actions, orders or decrees and also describe any requests, notices or demands, and attach a copy of all such documents.

7.2 Have there ever been, or are there now pending, any lawsuits against your company regarding any environmental or health and safety concerns?

Yes ¨    No ¨

If yes, describe any such lawsuits and attach copies of the complaint(s), cross-complaint(s), pleadings and all other documents related thereto as requested by Landlord.

7.3 Have there been any problems or complaints from adjacent tenants, owners or other neighbors at your company’s current facility with regard to environmental or health and safety concerns? Indicate whether or not there have been any such problems or complaints from adjacent tenants, owners or other neighbors at, about or near the Premises.

Yes ¨    No ¨

If yes, describe.

8. PERMITS AND LICENSES

8.1 Attach copies of all Hazardous Materials permits and licenses including a Transporter Permit number issued to your company with respect to its proposed operations in, on or about the Premises, including, without limitation, any use permits or approvals.

I (print name)                             , acting with full authority to bind the Tenant and on behalf of the Tenant, certify, represent and warrant that the information contained in this certificate is true and correct.

TENANT:

By: 

Title: 

Date: 

D-3

EX-10.18

Exhibit 10.18

HEMOSENSE, INC.

CHANGE OF CONTROL SEVERANCE AGREEMENT

This Change of Control Severance Agreement (the “Agreement”) is made and entered into by and between                      (the “Employee”) and HemoSense, Inc., a Delaware Corporation (the “Company”), effective as of                     , 2002 (the “Effective Date”).

RECITALS

1. It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control. The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein) of the Company.

2. The Board believes that it is in the best interests of the Company and its stockholders to provide the Employee with an incentive to continue his employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its stockholders.

3. The Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee’s termination of employment following a Change of Control. These benefits will provide the Employee with enhanced financial security and incentive and encouragement to remain with the Company notwithstanding the possibility of a Change of Control.

4. Certain capitalized terms used in the Agreement are defined in Section 5 below.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:

1. Term of Agreement. This Agreement shall terminate upon the date that all of the obligations of the parties hereto with respect to this Agreement have been satisfied.

2. At-Will Employment. The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined under applicable law, except as may otherwise be specifically provided under the terms of any written formal employment agreement between the Company and the Employee (an “Employment Agreement”). If the Employee’s employment terminates for any reason, including (without limitation) any termination prior to a Change of Control, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement or under his Employment Agreement.

3. Severance Benefits.

(a) Involuntary Termination Other than for Cause or Voluntary Termination for Good Reason Following a Change of Control. If within twelve (12) months following a Change of Control (i) the Employee terminates his employment with the Company (or any parent or subsidiary of the Company) for “Good Reason” (as defined herein) or (ii) the Company (or any parent or subsidiary of the Company) terminates the Employee’s employment for other than “Cause” (as defined herein), and the Employee signs and does not revoke a standard release of claims with the Company in a form acceptable to the Company, then the Employee shall be entitled to receive a lump-sum severance payment (less applicable withholding taxes) equal to 100% of the Employee’s annual base salary (as in effect immediately prior to (A) the Change of Control, or (B) the Employee’s termination, whichever is greater).

(b) Timing of Severance Payments. The severance payment to which Employee is entitled shall be paid by the Company to Employee in cash and in full, not later than ten (10) calendar days after the date Employee signs the standard release of claims following the termination of Employee’s employment as provided in Section 3(a). If the Employee should die before all amounts have been paid, such unpaid amounts shall be paid in a lump-sum payment (less any withholding taxes) to the Employee’s designated beneficiary, if living, or otherwise to the personal representative of the Employee’s estate.

(c) Voluntary Resignation; Termination for Cause. If the Employee’s employment with the Company terminates (i) voluntarily by the Employee other than for Good Reason or Disability or (ii) for Cause by the Company, then the Employee shall not be entitled to receive severance or other benefits except for those (if any) as may then be established under the Company’s then existing severance and benefits plans and practices or pursuant to other written agreements with the Company.

(d) Termination Apart from Change of Control. In the event the Employee’s employment is terminated for any reason, either prior to the occurrence of a Change of Control or after the twelve (12)-month period following a Change of Control, then the Employee shall be entitled to receive severance and any other benefits only as may then be established under the Company’s existing written severance and benefits plans and practices or pursuant to other written agreements with the Company.

(e) Exclusive Remedy. In the event of a termination of Employee’s employment within twelve (12) months following a Change of Control, the provisions of this Section 3 are intended to be and are exclusive and in lieu of any other rights or remedies to which the Employee or the Company may otherwise be entitled, whether at law, tort or contract, in equity, or under this Agreement. The Employee shall be entitled to no benefits, compensation or other payments or rights upon termination of employment following a Change in Control other than those benefits expressly set forth in this Section 3.

-2-

4. Limitation on Payments. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Section 5, would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee’s severance benefits under Section 3(a) shall be either:

(a) delivered in full, or

(b) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company’s independent public accountants immediately prior to Change of Control (the “Accountants”), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

5. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

(a) Cause. “Cause” shall mean (i) an act of personal dishonesty taken by the Employee in connection with his responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) Employee being convicted of a felony, (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company, (iv) following delivery to the Employee of a written demand for performance from the Company which describes the basis for the Company’s reasonable belief that the Employee has not substantially performed his duties, continued violations by the Employee of the Employee’s obligations to the Company which are demonstrably willful and deliberate on the Employee’s part.

(b) Change of Control. “Change of Control” means the occurrence of any of the following:

(i) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or

-3-

(ii) The consummation of the sale, lease or other disposition by the Company of all or substantially all the Company’s assets.

(c) Good Reason. “Good Reason” means without the Employee’s express written consent (i) a material reduction of the Employee’s duties, title, authority or responsibilities, relative to the Employee’s duties, title, authority or responsibilities as in effect immediately prior to such reduction, or the assignment to Employee of such reduced duties, title, authority or responsibilities; provided, however, that a reduction in duties, title, authority or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Executive Officer of the Company remains the Chief Executive Officer of the subsidiary or business unit containing the Company’s business following a Change of Control) shall not by itself constitute grounds for a “Voluntary Termination for Good Reason”; (ii) a substantial reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company in the base compensation of the Employee as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of benefits to which the Employee was entitled immediately prior to such reduction with the result that such Employee’s overall benefits package is significantly reduced; (v) the relocation of the Employee to a facility or a location more than fifty (50) miles from such Employee’s then present location.

6. Successors.

(a) The Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this Section 6(a) or which becomes bound by the terms of this Agreement by operation of law.

(b) The Employee’s Successors. The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

-4-

7. Notice.

(a) General. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to Employee, at his last known residential address and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address as a party may designate by ten (10) days’ advance written notice to the other party pursuant to the provisions above.

(b) Notice of Termination. Any termination by the Company for Cause or by the Employee for Good Reason or Disability or as a result of a voluntary resignation shall be communicated by a notice of termination to the other party hereto given in accordance with Section 7(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Good Reason or Disability shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder.

8. Miscellaneous Provisions.

(a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source.

(b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(c) Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

(d) Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto and supersedes in their entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed or implied) of the parties with respect to the subject matter hereof.

-5-

(e) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have exclusive jurisdiction and venue over all controversies in connection with this Agreement.

(f) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(g) Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

(h) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

-6-

IN WITNESS WHEREOF, each of the parties has executed this Change of Control Severance Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below.

COMPANY	HEMOSENSE, INC.
	By:
	Name:
	Title:
EMPLOYEE	By:
	Name:
	Title:

-7-

EX-10.19

Exhibit 10.19

HEMOSENSE

CONSULTING AGREEMENT

DATE: MAY 6, 2003

Edward Brennan

1216 Arguello Blvd.

San Francisco, CA 94122-2707

Dear: Ed

1. HemoSense, Inc. (The “Company”) wishes to obtain your services as a consultant on projects agreed by you and the Company in writing. The initial project on which you are to work is described on Exhibit A attached hereto. This letter shall constitute an agreement (the “Agreement”) between you and the Company, its subsidiaries, its successors and its assigns, and contains all the terms and conditions relating to the services you are to provide.

2. Either you or the Company may terminate this Agreement at any time by at least thirty (30) days prior written notice.

3. As consideration for your services and other obligations you will be paid as set forth on Exhibit A attached hereto for work on the initial project. Fees for future projects will be set forth in the agreements concerning such projects.

4. As additional consideration for your services hereunder, the Company will provide you with such support facilities and space as may be required in the Company’s judgment to enable you to properly perform your services hereunder.

5. You shall be reimbursed for reasonable travel and other out-of-pocket expenses incurred by you in connection with your services under this Agreement, provided that you provide receipts and obtain prior approval of the CEO or Consulting Chief Financial Officer of the Company for any significant expenses.

6. Your relationship with the Company shall be that of an independent contractor and not that of an employee. You will not be eligible for any employee benefits, nor will the Company make deductions from payments made to you for taxes, which shall be your responsibility. You shall have no authority to enter into contracts, which bind the Company or create obligations on the part of the Company without the express prior authorization of the Company.

7. All services to be performed by you will be as agreed between you and the Board/CEO of the Company, or such other person as the Board/CEO may designate. You shall be required to report to the Company, concerning your services performed under this Agreement. The nature and frequency of these reports will be left to the discretion of the Board/CEO or such other person.

8. You shall keep in confidence and shall not disclose or make available to third parties or make any use of any information or documents relating to your services under this Agreement or to the products, methods of manufacture, trade secrets, processes, business or affairs of confidential or proprietary information of the Company except with the prior written consent of the Company or to the extent necessary in performing tasks assigned to you by the Company. This Agreement imposes no obligation upon you with respect to Information that: (a) was in your possession before receipt from HemoSense; or (b) is or becomes available to the public through no fault of yours; or (c) is received in good faith by you from a third party and is not subject to an obligation of confidentiality owed to the third party; or (d) is independently developed by you without reference to Information received hereunder, as evidenced by your written records. Upon termination of this Agreement you

Confidential Page 1 5/6/2003

will return to the Company all documents, and other materials related to the services provided hereunder or furnished to you by the Company. Your obligations under this Paragraph 8 shall survive termination of this Agreement.

9. You shall promptly disclose and hereby transfer and assign to the Company all right, title and interest to all techniques, methods, processes, formulas, improvements, inventions and discoveries made or conceived or reduced to practice by you, solely or jointly with others, in the course of providing services hereunder or with the use of materials or facilities of the Company during the period of this Agreement or which relate to the Company’s business or its actual or demonstrably anticipated research or development (except as otherwise provided below). When requested by the Company you will make available to the Company all notes, drawings, data and other information relating to the above. You will promptly sign any documents (including U.S. and foreign patent assignments) requested by the Company related to the above assignment of rights and inventions and will cooperate with the Company at the Company’s request and expense in preparation and prosecution of any US or foreign patent applications related to such rights and inventions. Your obligations under this Paragraph 9 shall survive termination of this Agreement. This Agreement does not apply to inventions fully covered by the provisions of Exhibit B, attached hereto, (If any).

10. The Company understands that you do not presently perform, or intend to perform, during the term of this Agreement, consulting or other services for companies whose businesses or proposed businesses in any way involve the design or use of products that would be competitive with the products or proposed products of the Company (except for the companies, if any, listed on Exhibit C attached hereto). If, however, you decide to do so, you agree to notify the Company in writing in advance (specifying the organization with which you propose to consult) and provide information sufficient to allow the Company to determine if such consulting would conflict with areas of interest to the Company or further services which the Company might request of you pursuant to this Agreement.

11. Any amendment to this Agreement must be in writing signed by you and the Company.

12. All notices, requests and other communications called for by this Agreement shall be deemed to have been given if made in writing and mailed, postage prepaid, if to you at the address set forth above and if to the Company at 600 Valley Way, Milpitas, CA 95035 or to such other addresses as either party shall specify to the other.

13. The validity, performance and construction of this Agreement shall be governed by the laws of the State of California.

14. This Agreement supersedes any prior consulting or other agreements between you and the Company.

If this Agreement is satisfactory, you should execute and return the original and one copy to us, retaining the third copy for your file.

Very truly yours,
HemoSense, Inc.		AGREED AND ACCEPTED:
By:	/s/    JAMES MERSELIS	/s/    EDWARD F. BRENNAN
Title:	President & CEO	Signature
		Edward F. Brennan
		Print Name

Confidential Page 2 5/6/2003

EXHIBIT A

DESCRIPTION OF INITIAL CONSULTING PROJECT AND COMPENSATION

Provide strategic counsel and guidance to the CEO on all matters related to HemoSense, Inc. business.

Provide assistance specific to optimizing the Government/CMS reimbursement for HemoSense product, the INRatio system.

The compensation will be $3750.00, paid monthly. It assumes an average of one day per week spent on HemoSense business.

Confidential Page 3 5/6/2003

EXHIBIT B

INVENTIONS MADE PRIOR TO THIS AGREEMENT AND

EXCLUDED FROM PARAGRAPH 9 (IF NONE, SO STATE):

Patent #6,076,013 and related art.

Confidential Page 4 5/6/2003

EXHIBIT C

LIST OF COMPANIES COMPETITIVE TO HEMOSENSE, INC

FOR WHICH CONSULTING SERVICES ARE PRESENTLY BEING PERFORMED

(IF NONE, SO STATE):

None

Confidential Page 5 5/6/2003

EXHIBIT D

(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer.

(2) Result from any work performed by the employee for the employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

Confidential Page 6 5/6/2003

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Amendment No. 1 to the Registration Statement on Form S-1 of our report dated March 30, 2005, except for Note 20 as to which the date is May 4, 2005, relating to the financial statements and financial statement schedule of HemoSense, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/    PricewaterhouseCoopers LLP

San Jose, California

May 5, 2005

CORRESP

May 6, 2005

Via EDGAR and Overnight Delivery

Securities and Exchange Commission

Division of Corporation Finance

450 Fifth Street, NW

Washington D.C. 20549-1004

Mail Stop 03-06

Attn: Mary Beth Breslin

Re:	HemoSense, Inc.
	Registration Statement on Form S-1
	File No. 333-123705

Ms. Breslin:

On behalf of HemoSense, Inc. (“HemoSense” or the “Company”), we are responding to the Staff’s letter dated April 29, 2005 (the “Comment Letter”), relating to the above-referenced Registration Statement on Form S-1 (the “Registration Statement”). In response to the comments set forth in the Comment Letter, the Registration Statement has been amended and HemoSense is filing pre-effective Amendment No. 1 to the Registration Statement (“Amendment No. 1”) with this response letter. For your convenience we have repeated the Staff’s comments below in bold face type before each of our responses below. The numbered paragraphs of this letter correspond to the numbered paragraphs of the Comment Letter. References to “we,” “our” or “us” mean the Company or its advisors, as the context may require.

General

1. Please confirm that any preliminary prospectus you circulate will include all non-Rule 430A information. This includes the price range and related information based on a bona fide estimate of the public offering price within that range, and other information that was left blank throughout the document. Also note that we may have additional comments, after you file this information. Please ensure that you allow adequate time for our review of this information.

United States Securities and

Exchange Commission

May 6, 2005

Page 2

The Company confirms that all non-Rule 430A information will be included in its preliminary prospectus. We have included a offering price range and related information in Amendment No. 1.

Prospectus Summary – Page 1

2. Please provide supplemental independent support for your statements here and on page 39 regarding the efficacy of your product, such as the statement that your product is “easy to use” and “reliable,” that the device is “simple and straightforward,” and, as indicated in your artwork, that users have “confidence in PT/INR results.” In this regard, we note your risk factor disclosure on pages 11 and 12. Also revise your prospectus and your artwork to indicate the bases for these statements.

In response to the Staff’s comment, we are supplementally providing the Staff with information from the FDA’s website (see, http://www.fda.gov/cdrh/clia/cliawaived.html) defining the criteria for CLIA-waived tests, to support the statements regarding “easy to use,” “reliable,” “simple and straightforward,” “confidence in PT/INR results,” and other similar statements. We respectfully advise the Staff that the Company does not believe that its prospectus or artwork should be revised to indicate the basis for these statements since the basis is simply “CLIA-waived.”

As required for CLIA-waiver, the Company’s device is in a class of devices that are “so simple and accurate as to render the likelihood of erroneous results negligible.” The risk factors found on pages 11 and 12 highlight the potential, albeit negligible, risks associated with inaccurate readings from the Company’s device. Out of over one million tests performed to date, the “Our product could be misused...” risk factor refers to “a few situations” and the following risk factor describes “two reported instances.” Since any single injury, however negligible overall, could lead to costly litigation or regulatory action, the Company believes that it is material to a prospective investor’s informed decision to consider the potential risk without mitigating language.

Risks Affecting Us – Page 2

3. Where you indicate the size of your accumulated deficit, please revise to also state that, in the opinion of your auditors, the losses you have incurred raise substantial doubt as to your ability to continue as a going concern.

In response to the Staff’s comment, we have revised the “Prospectus Summary—Risks Affecting Us” section to indicate the Company’s belief that the offering will provide sufficient

United States Securities and

Exchange Commission

May 6, 2005

Page 3

proceeds to fund the Company’s operations through at least the next 12 months. We have similarly revised the “Our ability to continue as a going concern...” risk factor and the “Use of Proceeds” sections. Since the going concern qualification was rendered as of March 30, 2005 and, as indicated in Note 1 to the financial statements, does not take into account the proceeds of the IPO (which would render the going concern qualification moot), we respectfully advise the Staff that we believe that the foregoing revisions give appropriate information to prospective investors in this offering.

The Offering – Page 4

4. Please revise to quantify the portion of the proceeds of the offering to be used for each purpose indicated.

In response to the Staff’s comment, we have revised the disclosure to quantify the portions of the offering proceeds to be used for each purpose indicated.

Risk Factors – Page 6

5. Please revise the introductory paragraph to eliminate the third and last sentences and revise as necessary to include a discussion of all material risks in your risk factor section.

In response to the Staff’s comment, we have eliminated the third and last sentence of the introductory paragraph to the risk factors section. We do not believe additional material risks need to be included.

6. Several of your subheadings currently state only a fact about your business. Please review all of your risk factor headings to ensure that the headings state a risk to investors that results from the condition, fact or uncertainty you describe. By way of non-exclusive example, the following are all statements of fact rather than risk:

• We rely on commercial partners... (page 10); and

• We depend on clinical sites... (page 12).

In response to the Staff’s comment, we have revised the subheadings in the risk factor section so that each now states a risk.

United States Securities and

Exchange Commission

May 6, 2005

Page 4

We have limited operation experience and a history of net losses... – Page 6

7. Please revise to present the second paragraph of this risk factor as a separate risk factor with an appropriate caption referencing your negative gross margins due to the cost of manufacturing your test strips.

In response to the Staff’s comment, we have revised the risk factor as requested.

We may be unable to accurately predict our future performance... – Page 6

8. We note your statement that you believe that your quarterly results may fluctuate as a result of seasonality of sales. If your business may be seasonal, please revise your business section to include the disclosures required by Item 101(c)(1)(v) of Regulation S-K.

In response to the Staff’s comment, we have deleted the reference to sales seasonality as the Company does not believe that seasonality of sales has a material effect on its business.

Our ability to successfully market and sell our product is dependent on... – Page 9

9. Please quantify the “small portion” of the total number of patients on warfarin in the United States who have mechanical heart valves and for whom self-testing is reimbursable by Medicare. Also present this figure as a percentage of all warfarin users in the United States, if known. If not known, so state.

We have revised this risk factor on page 9 to quantify the “small portion” of the total number of patients on warfarin in the United States who have mechanical heart valves and for whom self-testing is reimbursable. Of the estimated three million U.S. patients taking warfarin on a daily basis, there are 400,000, or approximately 15%, who have mechanical heart valves. The 400,000 figure was previously provided to the Staff, and is found in the CMS Decision Memo. A supplemental independent source for the three million patients taking warfarin is provided supplementally hereto. For the prospective investor’s convenience, we have also revised the “Business” section on page 39 to include disclosure of the U.S. warfarin patient population.

United States Securities and

Exchange Commission

May 6, 2005

Page 5

If we are unable to establish sufficient sales... – Page 9

10. Revise to specify the size of your sales and marketing team. Also quantify the number of distributors with whom you have entered into relationships for the sale of your products, both domestically and internationally.

In response to the Staff’s comment, we have revised the disclosure to add the requested information.

Because of our limited experience... – Page 11

11. We note your disclosure that you have in the past needed to discard test strip lots due to their failure to meet specifications. Please revise to quantify the cost, if material, you have incurred in the two most recent fiscal years as a result of such failures.

In response to the Staff’s comment, we have revised the disclosure to quantify the costs incurred in our last two fiscal years relating to discarded test strips, which were zero in fiscal 2003, $0.7 million in 2004 and $166,000 for the six months ended March 31, 2005.

We are currently undergoing an investigation by a European regulatory agency... – Page 11

12. Expand your caption to indicate the potential that your product may be recalled, as indicated in the last sentence of this risk factor. Also expand this risk factor to indicate the percentage of sales in the two most recent fiscal years in the United Kingdom and the potential number of meters that would be recalled in the event the Medicines and Healthcare Products Regulatory Agency finds that the inaccurate readings resulted from failures within your manufacturing processes.

In response to the Staff’s comment, we have updated this risk factor in Amendment No. 1 to reflect completion of a voluntary exchange of test strips in the U.K. in April 2005. We have removed the reference to “product” failure, and have substituted the more accurate “test strip” failure. Although we have not yet received a response from the MHRA closing the matter, we do not believe that a recall is a material risk because there are no test strips from this production lot in the field to recall. Accordingly, we have not included disclosure regarding the percentage of sales in the two most recent fiscal years in the U.K. as we do not believe that information would be material to prospective investors. The Company also advises the Staff that the risk associated with failures within our test strip manufacturing processes has been addressed in a preceding risk factor entitled “Because of our limited experience, we have in the past manufactured....”

United States Securities and

Exchange Commission

May 6, 2005

Page 6

We can provide no assurance regarding our conclusions – Page 15

13. This risk could apply to nearly any company that is subject to the Sarbanes-Oxley Act of 2002 and the rules adopted by the Commission implementing that Act. Please note that Item 503(c) of Regulation S-K provides that issuers should not “present risks that could apply to any issuer or to any offering.” If you elect to retain this risk factor in your prospectus, you must more clearly explain how it specifically applies to your company.

In response to the Staff’s comment, we have deleted this risk factor.

Use of Proceeds – Page 24

14. We note that you plan to use the proceeds generated in this offering for sales and marketing initiatives, research and development, and the remainder for working capital and general corporate purposes. Given your recurrent cash flow deficits, it appears you will need to use the proceeds to fund your business operations. We note the report of independent auditors also indicates that in the opinion of your auditors dated March 30, 2005, additional financing will be needed to enable you to fund your fiscal 2005 operations. Please advise.

In response to the Staff’s comment, we have revised the “Use of Proceeds” section on page 24 to indicate the Company’s belief that the offering will provide sufficient proceeds to fund the Company’s operations through at least the next 12 months. We have elsewhere in the Registration Statement, in response to the Staff’s Comment No. 3, provided disclosure to clarify confusion that could potentially result from the going concern opinion raised by the auditors, which was as of a particular date, March 30, 2005, and without regard to the expected proceeds of this offering, as indicated in Note 1 to the financial statements.

15. We note your disclosure that you reserve the right to change the allocation of use of proceeds as a result of certain contingencies. Please also discuss the alternatives to your use of proceeds in the event the contingencies occur. Refer to Instruction 7 of Item 504 of Regulation S-K.

In response to the Staff’s comment, we have clarified that the reallocation of proceeds would be within the categories already described, rather than to any new uses.

United States Securities and

Exchange Commission

May 6, 2005

Page 7

Management’s Discussion and Analysis... – Page 30

16. Please include a discussion of any material trends or uncertainties that could materially affect the company’s financial condition or results of operations. For example, we note that you are currently operating at a negative gross margin, primarily due to the cost of manufacturing your test strips, but it is not apparent how and when you expect to be able to address those negative gross margins. We also note that you will begin to incur royalties under the Inverness settlement agreement beginning in 2006, but it is not apparent how the obligation to pay those royalties may affect the company’s results of operations. We further note that your ability to successfully market and sell your product is dependent upon the availability of reimbursement from Medicare and other insurance providers, but it is not apparent how the lack of reimbursement for the large portion of patients on warfarin who do not have mechanical heart valves will affect your growth and results of operations. For guidance, please refer to “Focus on Material Trends and Uncertainties” at Section m.B.3 of Release No. 33-8350 (December 19, 2003).

In response to the Staff’s comment, we have revised the disclosure to address trends and uncertainties that could materially affect the Company’s financial condition or results of operations.

Results of Operations – Page 31

17. To aid in investor understanding, and given the substantial differences between the gross margins with respect to your meters/accessories product class and your gross margins with respect to your test strips product class, please separately quantify and disclose the period to period changes in revenues and costs of goods sold that are attributable to each product class.

In response to the Staff’s comment, we have added the requested disclosure regarding our meter and test strip product classes.

Liquidity and Capital Resources – Page 33

18. To better explain cash flows from operations, please revise to discuss significant changes to the components of working capital – i.e., individually significant changes in line items. For example, we note that inventories increased only moderately $211 thousand or 19% over the past year while sales increased significantly, $2.8 million or 661%. Please address the impact on your working capital. When you cite changes in components of working capital, explain the reasons for the changes.

United States Securities and

Exchange Commission

May 6, 2005

Page 8

In response to the Staff’s comment, we have revised the disclosure regarding significant changes to working capital components as requested.

19. Please revise to discuss briefly the material terms of your financing arrangements with Lighthouse Capital Partners and Silicon Valley Bank.

In response to the Staff’s comment, we have added the requested brief descriptions of these financing arrangements.

Business – Page 39

20. Please revise to discuss your dependence on a single customer, or a few customers, the loss of any one or more of which would have a material adverse effect on your business. Further, please identify the customers who accounted for 31% and 26% of your revenues in fiscal 2004.

In response to the Staff’s comment, we have added disclosure regarding the Company’s dependence on its distributors to page 40 of the “Business” section. We respectfully advise the Staff that the Company believes that the identity of the specific customers that accounted for 31% and 26% of its fiscal 2004 revenue is commercially sensitive competitive information and that it would be harmed in negotiations with current and future customers if such information is required to be publicly disclosed. The Company does not believe that disclosure of these specific customers’ identities is necessary for a prospective investor’s understanding the Company’s financial results or prospects. In addition, the Company has identified its major distributors in the Registration Statement and has filed, subject to pending confidential treatment requests, the full text of the contracts with these distributors as exhibits to the Registration Statement.

Background and Market – Page 40

21. It appears that among the studies cited in the September 2001 National Coverage Decision Memorandum, the highest percentage of time self-testing patients spent in the therapeutic range was approximately 92%, not 100%. Please revise the table on page 42 accordingly.

In response to the Staff’s comment, we have revised the time in therapeutic range in the table on page 42 to reflect the proper highest/lowest ranges from the seven statistically significant studies presented.

United States Securities and

Exchange Commission

May 6, 2005

Page 9

Sales and Marketing – Page 46

22. Please revise to discuss briefly the material terms of your agreements with distributors, including any significant obligations or commitments of the parties, duration, termination provisions, and any intellectual property indemnification provisions.

In response to the Staff’s comment, we have expanded the disclosure to describe the material terms of the agreements entered into with our distributors.

Manufacturing – Page 49

23. We note your disclosure that you contract with an electronic manufacturing services supplier to manufacture the INRatio meter. Please revise to discuss the material terms of this arrangement, as well as the material terms of your arrangements with other single source suppliers.

In response to the Staff’s comment, we have revised the disclosure to describe the material terms of the agreements with our single source suppliers.

Research and Development – Page 50

24. Please revise to quantify the amount you have spent on research and development over the last three fiscal years, if material. Refer to Item 101(c)(xi) of Regulation S-K. If you have not spent a material amount on research and development in the prior three fiscal years, so state.

In response to the Staff’s comment, we have revised the disclosure to quantify the amount we have spent on research and development over the last three fiscal years.

Intellectual Property – Page 50

25. Please revise to include a more complete discussion of the material terms of the license obtained pursuant to the terms of the Inverness settlement and mutual release agreement.

In response to the Staff’s comment, we have expanded the disclosure regarding the license obtained from Inverness. However, we respectfully advise the Staff that we have omitted certain information from that description, since such information is the subject of a pending confidential treatment request.

United States Securities and

Exchange Commission

May 6, 2005

Page 10

Management – Page 57

Board of Directors – Page 58

26. Please revise to describe briefly any arrangement or understanding pursuant to which directors are serving. In this regard, we note that a number of your directors are affiliated with one or more of your principal stockholders. Refer to Item 401(a) of Regulation S-K.

We respectfully advise the Staff that we have disclosed the affiliations of certain of our directors with our principal stockholders in the directors’ biographies in the “Management” section as well as in the “Principal Stockholders” section of the Registration Statement. As the Company is not aware of any voting agreements for the nomination or election of the members of our board of directors, we do not believe any additional disclosure is required.

Advisory Board Committee – Page 60

27. We note that you have formed a medical advisory board, and that you have entered into a consulting agreement with each member and have granted stock options to some members. Please expand this section to discuss and quantify the interest that each advisor has in your company, and describe more specifically your compensation arrangements with the advisors.

In response to the Staff’s comment, we have expanded the disclosure regarding our medical advisory board and included the additional information requested.

Change of Control Severance Agreements – Page 65

28. We note your disclosure concerning severance agreements with officers. Please include a more complete description of the material terms of those agreements, including the names of the officers who are parties to those agreements and the general meaning of the terms “terminated without cause,” “constructively terminated” and “change in control.” Please file these agreements as exhibits to your registration statement. Refer to Item 601(b)(10)(iii) of Regulation S-K.

United States Securities and

Exchange Commission

May 6, 2005

Page 11

In response to the Staff’s comment, we have expanded our disclosure to include the names of the officers who are parties to the Change of Control Severance Agreements. In addition, we have included the general meaning of the terms “resignation for good reason” (which has replaced the term “constructively terminated”), “terminated without cause” and “change of control” as defined in the Change of Control Severance Agreements. In addition, we have filed the form of Change of Control Severance Agreement as an exhibit to Amendment No. 1.

Related Party Transactions – Page 66

Relationships with Entities Affiliated with a Director – Page 66

29. Please revise to describe the material terms of the consulting agreement and sales and services agreement with IMed Pro.

In response to the Staff’s comment, we have revised the disclosure to describe the material terms of the agreements with IMed Pro.

Management Retention Plan – Page 66

30. Please file the management retention plan as an exhibit to your registration statement. Refer to Item 601(b)(10)(iii) of Regulation S-K.

We respectfully advise the Staff that because our management retention plan terminates in accordance with its terms upon the completion of our initial public offering, we do not believe that it should be required to be filed as an exhibit to the Registration Statement.

Consulting Agreements with Officers and Directors – Page 67

31. Please file the consulting agreements as exhibits to your registration statement. Refer to Item 601(b)(10)(iii) of Regulation S-K.

In response to the Staff’s comment, we have filed the consulting agreement with Edward Brennan as an exhibit to Amendment No.1. We respectfully advise the Staff that we do not believe that the consulting agreement with Paul Balsara should be required to be filed as an exhibit to the Registration Statement as it is no longer in effect and was entered into more than two years prior to the filing of the Registration Statement.

United States Securities and

Exchange Commission

May 6, 2005

Page 12

Plan of Distribution – Page 76

32. We note that W.R. Hambrecht intends to conduct the offering using a “Dutch auction” method of distribution referred to in the prospectus as an “OpenIPO.” Please have W.R. Hambrecht supplementally confirm to us that the method of distribution to be used in this offering will not differ materially from the method used by W.R. Hambrecht in prior “OpenIPO” initial public offerings conducted by W.R. Hambrecht during the past two years. If the method of distribution to be used in this offering may differ materially from that of the prior offerings, please describe those differences in detail. For example, we would consider any expanded use of the internet or any other form of electronic media in connection with the auction to be a material change in the method of distribution.

W.R. Hambrecht + Co., LLC (the “Lead Underwriter”) has informed the Company that the Lead Underwriter intends to conduct the offering in a manner that is materially consistent with the procedures utilized in the BofI Holdings, Inc. (priced March 14, 2005) and Morningstar, Inc. (priced May 1, 2005) offerings.

The Lead Underwriter has further informed the Company that the only potentially material changes in the OpenIPO process in the past two years occurred subsequent to the Google, Inc. offering (priced August 16, 2004), which was also a “Dutch Auction” process. After the Google, Inc. offering, the Lead Underwriter adopted a “negative reconfirmation” procedure for OpenIPO offerings, whereby a bid in the auction could be accepted by the underwriters after effectiveness of the registration statement without reconfirming the bid. At the request of the Lead Underwriter, the Division Chief Counsel’s office subsequently reviewed the modified OpenIPO Plan of Distribution and requested that the company modify additional OpenIPO procedures and disclosure in the Plan of Distribution in light of the adoption of the negative reconfirmation procedure. The Lead Underwriter intends to conduct this offering in a manner that is materially consistent with the procedures that were reviewed and commented upon by Joe Babits of the Division Chief Counsel’s office.

33. Please confirm that the information on the underwriters’ websites will be limited to the electronic prospectus and other information permitted by Rule 134, or information that is ministerial in nature.

The underwriters have confirmed that the information on the underwriters’ websites will be limited to the electronic prospectus and other information permitted by Rule 134, or information that is ministerial in nature. The underwriters have further informed the Company that examples of all materials posted on the underwriters’ websites in connection with OpenIPO

United States Securities and

Exchange Commission

May 6, 2005

Page 13

offerings have been submitted to and approved by the Staff of the Commission in connection with prior OpenIPO offerings, including most recently the BofI Holdings, Inc. offering and the Morningstar, Inc. offering.

34. Identify any members of the underwriting syndicate, other than W.R. Hambrecht + Co. LLC, that will engage in any electronic offer, sale and distribution of the shares and describe their procedures to us supplementally. If you become aware of any additional members of the underwriting syndicate that may engage in electronic offers, sales or distributions after you respond to this comment, promptly supplement your response to identify those members and provide us with a description of their procedures. In addition, tell us whether you or the underwriters have any arrangements with a third party to host or access your preliminary prospectus on the internet. If so, identify the party and the website, describe the material terms of your agreement, and provide us with a copy of any written agreement. Also provide us with all information concerning your company or prospectus that has appeared on the third party’s website. Again, if you subsequently enter into such arrangements, promptly supplement your response.

The Lead Underwriter has informed the Company that it will engage in the electronic offer, sale and distribution of shares in the manner that has previously been cleared by the Staff, most recently in the BofI Holdings, Inc. offering and the Morningstar, Inc. offering. The Company respectfully submits on behalf of the Lead Underwriter that the procedures that will be utilized in connection with electronic offers, sales and distribution are described in detail in the Plan of Distribution filed with the registration statement. Roth Capital, LLC has informed the Company that it will not engage in the electronic offer, sale and distribution of shares of the Company’s common stock in this offering.

The Lead Underwriter has also advised the Company that certain dealers or members of the selling group that are not underwriters in the offering may also engage in the electronic offer, sale and distribution of shares. However, the nature of the syndication process and the establishment of the selling group is such that the final list of syndicate members, selling group members and the allocation of shares among those members typically is not made until the day of pricing. Because the underwriters will not know who the members of the syndicate or the selling group are, and what their plans for electronic distribution will be, until after the registration statement is declared effective, the Company is unable to disclose any syndicate or selling group member’s plans for electronic distribution in the registration statement before it is declared effective. However, the Lead Underwriter has advised the Company that in accepting the invitation to join the syndicate or the selling group, each member of the syndicate or selling group represents to the Lead Underwriter that they will comply with Section 5 of the Securities Act of 1933 in connection with their any offer, sale or distribution of securities in the offering.

United States Securities and

Exchange Commission

May 6, 2005

Page 14

Financial Statements

Note 2. Restatement of fiscal year 2004 financial statements – Page F-7

35. Please revise this note to include the per share impact of the restatements as required by paragraph 37 of APB Opinion 20.

In response to the Staff’s comment, we have revised the disclosure to include the per share impact of the restatements.

36. Please expand the disclosures about the nature of the adjustments to include the gross amounts for each significant adjustment item unless the amount presented in the “impact” column for the financial statement line item is on a gross basis. Also, supplementally tell us why the indicated errors occurred, how they were discovered and why you believe similar mistakes have not gone undiscovered. We may have further comments after reviewing your response and revisions.

In response to the Staff’s comment, we have expanded the disclosure as requested.

We respectfully advise the Staff that the one material error occurred because the Company failed to fully evaluate the accounting consequences of a complex transaction with Inverness. Specifically, the Company used a prior financing with an interest rate of 6% as a proxy for the discount rate used to determine the present value of the note payable, rather than the rate obtained under a more recent and senior borrowing arrangement and incorrectly allocated the cost of the transaction to expense rather than an intangible asset. In the preparation for this offering, the Company evaluated the prior accounting for each significant transaction and the Company does not believe that any similar mistakes have gone undiscovered.

With respect to the other errors that were corrected, the Company does not believe that these errors were material, but because they represented known errors at the time of the filing of the Registration Statement they were corrected regardless of immateriality.

37. We see adjustment (b) indicates “the overall cost of the settlement has been reduced by $393,000... [and] the reduced value has now been allocated entirely to prepaid royalty and technology license assets.” If this is true, please supplementally explain why adjustment (d) is only for $117,000. Revise the filing as necessary to address our concerns.

United States Securities and

Exchange Commission

May 6, 2005

Page 15

We respectfully advise the Staff that the overall cost of the settlement was reduced by $393,000. Previously recorded legal expenses were reduced by $515,000 with an offset of $122,000 to capitalized technology license fees. The technology license fees were amortized in the amount of $5,000 as of September 30, 2004 resulting in net capitalized technology fees as of September 30, 2004 of $117,000. We have revised the disclosure accordingly.

Note 3. Summary of Significant Accounting Policies – Page F-8

Revenue Recognition – Page F-10

38. Please supplementally confirm our understanding that your testing strips and meters are sold separately. If not the case, does EITF 00-21 impact you? We may have further comments after reviewing your response.

We respectfully advise the Staff that the Company sells test meters and strips separately and also sells meters and strips together in a bundled arrangement. Under the bundled arrangements, the meters may be offered at discount pricing or at no charge. When sold together, the transaction is impacted by EITF 00-21. However, under such arrangements, delivery to the customers of both the meters and the strips occurs at the same time and revenue for both elements is recognized upon delivery. As a result, EITF 00-21 does not have a significant impact on the Company.

Part II

Recent Sales of Unregistered Securities – Page II-2

39. Please revise to clarify the exemption(s) from the registration requirements of the Securities Act relied upon in connection with each disclosed offering and, to the extent not already clear from each description, the facts relied upon to support the availability of the exemption(s) in each case.

In response to the Staff’s comment, we have revised our disclosure to clarify (i) the exemptions from the registration requirements of the Securities Act relied upon in connection with the sales of unregistered securities the Company made to certain investors from March 31, 2002 to March 31, 2005 and (ii) the facts that support the availability of such exemptions.

40. Provide us with an itemized chronological schedule detailing each issuance of your preferred shares, ordinary shares, stock options and warrants by the company or

United States Securities and

Exchange Commission

May 6, 2005

Page 16

principal stockholder since September 30, 2004 through the date of your response. Include the following information for each issuance or grant date:

a. Number of shares issued or issuable in the grant,

b. Purchase price or exercise price per share,

c. Any restriction or vesting terms,

d. Identity of the recipient and relationship to the company,

e. Nature and terms of any concurrent transactions with the recipient,

f. Amount of any recorded compensation and

g. The timing of all offering discussions with your underwriters, including possible offering pricing ranges.

In the analysis requested above, highlight any transactions with unrelated parties believed by management to be particularly evident of an objective fair value per share determination. Progressively bridge the previously provided management’s common stock fair value per share determinations to the current estimated IPO price per share, and identify all material positive and negative events occurring during the period which could reasonably contribute to variances in fair value. We will not conclude our evaluation of your response until you have included an offering price in the filing.

In response to the Staff’s comment, we have attached hereto as Attachment A a spreadsheet that details each issuance of preferred stock, common stock, stock options and warrants by the company or its principal stockholder since September 30, 2004. Included in the spreadsheet is information, if applicable, relating to the (i) number of shares issued or issuable in the grant, (ii) purchase price or exercise price per share, (iii) any restriction or vesting terms, (iv) identity of the recipient and relationship to the company, and (v) nature and terms of any concurrent transactions with the recipient. There was no recorded compensation with respect to employee stock options because the options grants were made at exercise prices that were equal to or greater than the fair value of the underlying common stock on the date of grant.

The Company respectfully advises the Staff that it had a Series B round of preferred stock financing in May 1999 at $6.32 per share (all per share figures in this response reflect the four-for-one reverse stock split effectuated on May 4, 2005). Since that time the Company has

United States Securities and

Exchange Commission

May 6, 2005

Page 17

had four rounds of preferred stock financing (Series C, C-1, C-2 and C-3) at the same $6.32 price per share. The most recent Series C-3 round of financing occurred in February 2005. Each of these financing rounds added another layer of preferred stock with rights to participate in liquidation proceeds, including proceeds from a merger or acquisition transaction, before the common stockholders are allowed to participate in any of the proceeds. Furthermore, these financings all contained provisions for a 2x liquidation preference ($12.64 per share) versus the 1x liquidation preferences for the Series A and B rounds.

The following represents the chronology of discussions between the Company, the Board and certain third parties regarding valuation of the Company:

• The Company had no discussions with underwriters regarding a potential IPO prior to January 28, 2005, when the Board authorized management to initiate discussions regarding a potential IPO.

• The Company received a rough initial IPO valuation estimate from certain prospective underwriters of this offering on February 17, 2005, based on then current market conditions, comparable public company valuations and preliminary financial modeling from the Company. These prospective underwriters estimated the pre-money IPO equity valuation to be approximately $70 million to $100 million.

• The Company’s Board of Directors received an update to the February 17, 2005 IPO valuation estimate from the lead underwriters of this offering on March 24, 2005, prior to the initial filing of the Registration Statement, based on then diminished market conditions and comparable public company valuations. At that time, the lead underwriters estimated the pre-money IPO equity valuation to be approximately $60 million to $90 million.

• The Company received a current IPO valuation analysis from the lead underwriters on May 2, 2005, based on current market conditions and comparable public company valuations and also based upon a detailed financial model from the Company. The lead underwriters estimated the pre-money IPO equity valuation to be approximately $63 million to $92 million, with the midpoint of the range being $77.5 million.

The Company engaged Standard & Poors Corporate Value Consulting (“CVC”) to prepare an independent valuation of our common shares as of February 17, 2005. A copy of their report was supplementally provided earlier to the Commission. In their report, CVC concluded that the fair market value of a share of the Company’s common stock at that time was $0.44 per share. The Company agrees with CVC’s conclusions. CVC has offered to discuss their report

United States Securities and

Exchange Commission

May 6, 2005

Page 18

with the Staff on behalf of the Company. The enterprise value determined in the CVC analysis indicates a value on a minority marketable basis of $57 million, which is approximately 10% less than the low-end of the current valuation range estimated by the underwriters. It is the Company’s view that the fair value of the common stock did not change significantly between February 17, 2005 and March 31, 2005.

Accordingly, because the options grants were made at a significant premium to the valuation determined with the assistance of outside valuation consultants, the Company has concluded that no compensation expense should be recorded with respect to stock options granted prior to March 31, 2005.

In coming to this determination, management has determined that the value of the common stock is significantly affected by (1) the preferences granted to the preferred stockholders, (2) the fact that the preferred stockholders have voting control of the Company, (3) the fact that the Company has limited liquidity and must rely on the preferred stockholders to fund operations month-to-month, and (4) reluctance of the current investors to fund the Company to positive cash flows.

Because of these factors, the Company has assumed in valuing the common stock, that the preferred stockholders will take the action most likely to maximize the return to the preferred stockholders whether that transaction is an initial public offering or a merger (sale) of the Company. Through March 31, 2005, a merger was considered to be a more likely outcome than an initial public offering and continues to be a viable exit strategy for the Company.

Accordingly, we note that in the event of a merger transaction which valued the Company at $80 million (the valuation implicit in a share price of $11.00 per share), the preferred stockholders would receive approximately $66.8 million of the proceeds (approximately $11.00 per share) after repayment of debt and other costs, including the management retention bonus. The common stockholders would receive no proceeds from such a transaction. In fact, the Company would be required to obtain a merger valuation of $83.4 million before the Common stockholders would receive any proceeds, and a merger valuation of approximately $150 million before the common stockholders would receive $11.00 per share.

In addition, in evaluating various alternatives, the preferred stockholders would be expected to accept a merger offer with a value significantly less than an IPO value, as a merger could provide faster liquidity, no requirement to share with the common stockholders, and accordingly allow the preferred stockholders to receive a greater return on their investment.

United States Securities and

Exchange Commission

May 6, 2005

Page 19

Of course, if the preferred stockholders elect to pursue an IPO, they would agree to give up their preferences and convert their shares to common stock. Assuming an IPO at $11.00 per share, the post-IPO value of the preferred stock would be approximately $60 million, versus the assumed preferred merger proceeds of $66.8 million discussed above. This difference represents the value transfer from the preferred stockholders to the common stockholders upon the IPO and represents the reason that the value of the common stock would increase from $0.44 per share to $11.00 per share upon a completion of an IPO.

The Company believes that the preferred stockholders’ decision as to whether to permit the Company to complete an IPO or to insist on a sale of the Company will be dependent on the valuation of these two alternatives, the ability to complete the transaction and the timing of liquidity under both scenarios.

Because an IPO requires a significant transfer of value from the preferred stockholders to the common stockholders, and because the preferred stockholders control the outcome, the Company did not consider it appropriate to assume the consummation of an IPO in valuing the common stock.

With regard to the likelihood of a merger transaction versus an IPO, during the quarter ended March 31, 2005, the Company had an investment banker engaged to provide M&A advisory services, had received multiple indications of interest from potential interested acquirors, and had engaged in M&A diligence activities with one potential acquiror. Because of the liquidation preference, preferred stockholders, who control the decision on approving an M&A or IPO opportunity, would receive a greater return from an M&A event and would therefore be better off approving a lower value M&A transaction, even if the IPO were valued at a higher price. Additionally, with the management retention plan, which terminates on an IPO, management would also have an incentive to pursue an M&A opportunity over an IPO.

Subsequent to March 31, 2005 the Company has dismissed the advisor assisting the Company with merger opportunities and is currently not actively pursuing a merger. However, a merger remains a viable possibility prior to the completion of the IPO. Based on current value estimates, it is expected that if a merger option is selected the common stockholders will receive no proceeds from the transaction.

As the likelihood of an IPO grows higher, the Company will take this into consideration in valuing stock options. The Company expects that if it grants any options for common stock post-March 31, 2005 and pre-IPO, that it will record deferred compensation charge equal to the difference between the exercise price and the midpoint of the anticipated offering, or $11.00 per share.

United States Securities and

Exchange Commission

May 6, 2005

Page 20

Exhibits – Page II-8

41. We note your request for confidential treatment. We will review and provide comments on your request separately. Comments on your request must be resolved before we may accelerate the effectiveness of this registration statement.

We acknowledge the Staff’s comment.

42. We note your intention to file some exhibits, including your legal opinion, by amendment. Because we may have comments on these exhibits, please file the exhibits allowing adequate time for their review.

In response to the Staff’s comment, we have filed additional exhibits with Amendment No. 1 and will file any remaining exhibits with a subsequent amendment to the Registration Statement.

We would very much appreciate the Staff’s prompt review of Amendment No. 1. Should you have any follow-up questions, please call me at (650) 320-4872.

Sincerely,

WILSON SONSINI GOODRICH & ROSATI

Professional Corporation

/s/ David J. Saul

David J. Saul

ATTACHMENT A

Date Issued/Granted	Name of Recipient	Relationship to HemoSense	Type of Security	Number of Shares (Pre-Split)	Purchase/Exercise Price Per Share (Pre-Split)		Note Amount	Restriction or Vesting Terms	Nature and Terms of Concurrent Transactions with Recipient
11/29/04	Judith Blunt	Employee	Common Stock upon option exercise	30,000	$	0.30	N/A	None	None
11/29/04	Judith Blunt	Employee	Common Stock upon option exercise	15,000	$	0.20	N/A	None	None
12/02/04	Jeri Cavanaugh	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None
12/02/04	Margaret McInerney	Employee	Stock option to purchase Common Stock	25,000	$	0.20	N/A	(1)	None
12/02/04	Parminder Mumman	Employee	Stock option to purchase Common Stock	3,000	$	0.20	N/A	(1)	None
12/02/04	David Phillips	Employee	Stock option to purchase Common Stock	25,000	$	0.20	N/A	(1)	None
12/02/04	Shashi Sharma	Employee	Stock option to purchase Common Stock	3,000	$	0.20	N/A	(1)	None
12/12/04	Scott Segelke	Employee	Common Stock upon option exercise	23,750	$	0.20	N/A	None	None
01/28/05	Birdie Batiste	Employee	Stock option to purchase Common Stock	10,000	$	0.20	N/A	(1)	None
01/28/05	Elizabeth Garcia	Employee	Stock option to purchase Common Stock	3,000	$	0.20	N/A	(1)	None
01/28/05	Bruce Hartmann	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None
01/28/05	Josephine Palafox	Employee	Stock option to purchase Common Stock	3,000	$	0.20	N/A	(1)	None
01/28/05	Beth Russell	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None
01/28/05	Olasa Saisnith	Employee	Stock option to purchase Common Stock	3,000	$	0.20	N/A	(1)	None
01/28/05	Todd Steinhoff	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None

Date Issued/Granted	Name of Recipient	Relationship to HemoSense	Type of Security	Number of Shares (Pre-Split)	Purchase/Exercise Price Per Share (Pre-Split)		Note Amount	Restriction or Vesting Terms	Nature and Terms of Concurrent Transactions with Recipient
01/28/05	Nyawira Theuri	Employee	Stock option to purchase Common Stock	3,000	$	0.20	N/A	(1)	None
01/28/05	Phong Tran	Employee	Stock option to purchase Common Stock	3,000	$	0.20	N/A	(1)	None
01/28/05	Norman R. Tyler	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None
01/28/05	Stephen Welch	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None
02/07/05	B.F. Saul Company Employees’ Profit Sharing Retirement Plan	Existing stockholder	Series C-3 Preferred Stock	134,268	$	1.58	N/A	None	None
02/07/05	Connecticut Avenue Investments, LLC	Existing stockholder	Series C-3 Preferred Stock	76,722	$	1.58	N/A	None	None
02/07/05	Michael Danaher	Existing stockholder	Series C-3 Preferred Stock	485	$	1.58	N/A	None	None
02/07/05	Arvind Jina	Founder of HemoSense	Series C-3 Preferred Stock	198	$	1.58	N/A	None	None
02/07/05	MPM Bio Ventures GmbH & Co., Parallel-Beteiligungs KG	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	324,436	$	1.58	N/A	None	None
02/07/05	MPM Bio Ventures II, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	101,712	$	1.58	N/A	None	None
02/07/05	MPM Bio Ventures II-QP, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	921,564	$	1.58	N/A	None	None
02/07/05	MPM Asset Management Investors 2000 B LLC	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	21,218	$	1.58	N/A	None	None

Date Issued/Granted	Name of Recipient	Relationship to HemoSense	Type of Security	Number of Shares (Pre-Split)	Purchase/Exercise Price Per Share (Pre-Split)		Note Amount	Restriction or Vesting Terms	Nature and Terms of Concurrent Transactions with Recipient
02/07/05	Vanguard V, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	270,646	$	1.58	N/A	None	None
02/07/05	W Capital Partners Ironworks, L.P.	Existing stockholder	Series C-3 Preferred Stock	268,730	$	1.58	N/A	None	None
02/07/05	WS Investment Company, LLC	Existing stockholder	Series C-3 Preferred Stock	4,239	$	1.58	N/A	None	None
02/15/05	MGVF III, Ltd.	Existing stockholder	Series A-3 Preferred Stock	427,066		Stock exchange; no additional consideration	N/A	None	None
02/15/05	Vanguard V, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series A-3 Preferred Stock	500,000		Stock exchange; no additional consideration	N/A	None	None
02/15/05	W Capital Partners Ironworks, L.P.	Existing stockholder	Series A-3 Preferred Stock	487,500		Stock exchange; no additional consideration	N/A	None	None
02/15/05	WS Investment Company, LLC (97B)	Existing stockholder	Series A-3 Preferred Stock	15,000		Stock exchange; no additional consideration	N/A	None	None
02/15/05	Michael Danaher	Existing stockholder	Series B-3 Preferred Stock	3,164		Stock exchange; no additional consideration	N/A	None	None
02/15/05	GC Technology Fund L.P.	Existing stockholder	Series B-3 Preferred Stock	632,911		Stock exchange; no additional consideration	N/A	None	None
02/15/05	Vanguard V, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series B-3 Preferred Stock	632,911		Stock exchange; no additional consideration	N/A	None	None
02/15/05	W Capital Partners Ironworks, L.P.	Existing stockholder	Series B-3 Preferred Stock	632,911		Stock exchange; no additional consideration	N/A	None	None

Date Issued/Granted	Name of Recipient	Relationship to HemoSense	Type of Security	Number of Shares (Pre-Split)	Purchase/Exercise Price Per Share (Pre-Split)	Note Amount	Restriction or Vesting Terms	Nature and Terms of Concurrent Transactions with Recipient
02/15/05	WS Investment Company, LLC (99A)	Existing stockholder	Series B-3 Preferred Stock	12,658	Stock exchange; no additional consideration	N/A	None	None
02/15/05	B.F. Saul Company Employees’ Profit Sharing Retirement Plan	Existing stockholder	Series C-3 Preferred Stock	236,657	Stock exchange; no additional consideration	N/A	None	None
02/15/05	Connecticut Avenue Investments, LLC	Existing stockholder	Series C-3 Preferred Stock	135,227	Stock exchange; no additional consideration	N/A	None	None
02/15/05	Michael Danaher	Existing stockholder	Series C-3 Preferred Stock	1,365	Stock exchange; no additional consideration	N/A	None	None
02/15/05	GC Technology Fund L.P.	Existing stockholder	Series C-3 Preferred Stock	411,409	Stock exchange; no additional consideration	N/A	None	None
02/15/05	Arvind Jina	Founder of HemoSense	Series C-3 Preferred Stock	1,851	Stock exchange; no additional consideration	N/A	None	None
02/15/05	MGVF III, Ltd.	Existing stockholder	Series C-3 Preferred Stock	126,584	Stock exchange; no additional consideration	N/A	None	None
02/15/05	MPM Bio Ventures GmbH & Co., Parallel-Beteiligungs KG	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	3,028,984	Stock exchange; no additional consideration	N/A	None	None
02/15/05	MPM Bio Ventures II, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	949,593	Stock exchange; no additional consideration	N/A	None	None
02/15/05	MPM Bio Ventures II-QP, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	8,603,848	Stock exchange; no additional consideration	N/A	None	None

Date Issued/Granted	Name of Recipient	Relationship to HemoSense	Type of Security	Number of Shares (Pre-Split)	Purchase/Exercise Price Per Share (Pre-Split)		Note Amount	Restriction or Vesting Terms	Nature and Terms of Concurrent Transactions with Recipient
02/15/05	MPM Asset Management Investors 2000 B LLC	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	198,097		Stock exchange; no additional consideration	N/A	None	None
02/15/05	Vanguard V, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Series C-3 Preferred Stock	1,393,882		Stock exchange; no additional consideration	N/A	None	None
02/15/05	W Capital Partners Ironworks, L.P.	Existing stockholder	Series C-3 Preferred Stock	1,388,496		Stock exchange; no additional consideration	N/A	None	None
02/15/05	WS Investment Company, LLC (2003A)	Existing stockholder	Series C-3 Preferred Stock	8,199		Stock exchange; no additional consideration	N/A	None	None
02/15/05	WS Investment Company, LLC	Existing stockholder	Series C-3 Preferred Stock	3,720		Stock exchange; no additional consideration	N/A	None	None
02/16/05	Dade Behring, Inc.	Existing stockholder; sole supplier of reagents to HemoSense	Common Stock	760,750		Conversion of Series B-2 and C-2 Preferred Stock; no consideration	N/A	None	HemoSense and Dade Behring have entered into a supply and license agreement.
02/17/05	Michael Acosta	Employee	Stock option to purchase Common Stock	30,000	$	0.20	N/A	(1)	None
02/17/05	Kristal Ball	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None
02/17/05	Paul Balsara	Employee	Stock option to purchase Common Stock	100,000	$	0.20	N/A	(2)	None
02/17/05	Ed Brennan	Director/Consultant	Stock option to purchase Common Stock	90,000	$	0.20	N/A	(2)	None
02/17/05	Michealle Havenhill	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None
02/17/05	Margaret McInerney	Employee	Stock option to purchase Common Stock	15,000	$	0.20	N/A	(1)	None

Date Issued/Granted	Name of Recipient	Relationship to HemoSense	Type of Security	Number of Shares (Pre-Split)	Purchase/Exercise Price Per Share (Pre-Split)		Note Amount		Restriction or Vesting Terms	Nature and Terms of Concurrent Transactions with Recipient
02/17/05	Jim Merselis	Employee	Stock option to purchase Common Stock	455,000	$	0.20		N/A	(2)	None
02/17/05	Maria Navarro	Employee	Stock option to purchase Common Stock	50,000	$	0.20		N/A	(2)	None
02/17/05	Steven Perdue	Employee	Stock option to purchase Common Stock	15,000	$	0.20		N/A	(1)	None
02/17/05	David Phillips	Employee	Stock option to purchase Common Stock	15,000	$	0.20		N/A	(1)	None
02/17/05	Kevin R. Shuler	Employee	Stock option to purchase Common Stock	15,000	$	0.20		N/A	(1)	None
02/17/05	Timothy Still	Employee	Stock option to purchase Common Stock	50,000	$	0.20		N/A	(2)	None
02/17/05	Ad de Waard	Consultant	Stock option to purchase Common Stock	20,000	$	0.20		N/A	(1)	None
03/01/05	Lighthouse Capital Partners IV, L.P.	Lender	Warrant to purchase Series C-3 Preferred Stock	189,874	$	1.58		N/A	(3)	HemoSense and Lighthouse Capital have entered into a secured loan agreement.
03/24/05	Andrew Chisholm	Employee	Stock option to purchase Common Stock	25,000	$	0.20		N/A	(1)	None
03/24/05	Robert Hansen	Employee	Stock option to purchase Common Stock	30,000	$	0.20		N/A	(1)	None
03/24/05	Kristen Nawrocki	Employee	Stock option to purchase Common Stock	15,000	$	0.20		N/A	(1).	None
03/24/05	Michael Nazak	Employee	Stock option to purchase Common Stock	40,000	$	0.20		N/A	(1)	None
04/25/05	B.F. Saul Company Employees’ Profit Sharing Retirement Plan	Existing stockholder	Nonconvertible promissory note and warrant to purchase shares issued in next equity financing	To be determined		N/A	$	148,990.19	(4)	None
04/25/05	MPM Asset Management Investors 2000 B LLC	Existing stockholder; affiliate serves on HemoSense Board of Directors	Nonconvertible promissory note and warrant to purchase shares issued in next equity financing	To be determined		N/A	$	17,999.35	(4)	None

Date Issued/Granted	Name of Recipient	Relationship to HemoSense	Type of Security	Number of Shares (Pre-Split)	Purchase/Exercise Price Per Share (Pre-Split)	Note Amount		Restriction or Vesting Terms	Nature and Terms of Concurrent Transactions with Recipient
04/25/05	MPM Bio Ventures GmbH & Co., Parallel-Beteiligungs KG	Existing stockholder; affiliate serves on HemoSense Board of Directors	Nonconvertible promissory note and warrant to purchase shares issued in next equity financing	To be determined	N/A	$	275,215.80	(4)	None
04/25/05	MPM Bio Ventures II-QP, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Nonconvertible promissory note and warrant to purchase shares issued in next equity financing	To be determined	N/A	$	781,752.23	(4)	None
04/25/05	MPM Bio Ventures II, L.P.	Existing stockholder; affiliate serves on HemoSense Board of Directors	Nonconvertible promissory note and warrant to purchase shares issued in next equity financing	To be determined	N/A	$	86,280.73	(4)	None
04/25/05	W Capital Partners Ironworks, L.P.	Existing stockholder	Nonconvertible promissory note and warrant to purchase shares issued in next equity financing	To be determined	N/A	$	189,761.70	(4)	None

⁽¹⁾ 25% of the shares subject to the option vest one year after the vesting commencement date; 1/48 vest on the first day of each month thereafter.

⁽²⁾ 25% of the shares subject to the option vest one year after the vesting commencement date; 1/48 vest on the first day of each month thereafter. Vesting as to 20% of the shares accelerate upon the IPO.

⁽³⁾ Warrant expires on 3/5/11 or earlier upon certain events.

⁽⁴⁾ Warrant expires on 4/25/10 or earlier upon change of control.