S-1/A

As filed with the Securities and Exchange Commission on October 27, 2004

Registration No. 333-118012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Adeza Biomedical Corporation

(Exact name of Registrant as specified in its charter)

Delaware	2835	77-0054952
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

1240 Elko Drive

Sunnyvale, California 94089

(408) 745-0975

(Address, including zip code, and telephone number,

including area code, of Registrant’s principal executive offices)

Emory V. Anderson

President and Chief Executive Officer

Adeza Biomedical Corporation

1240 Elko Drive

Sunnyvale, California 94089

(408) 745-0975

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copies to:

Sarah A. O’Dowd
Heller Ehrman White & McAuliffe LLP
275 Middlefield Road
Menlo Park, California 94025
(650) 324-7000 Frederick W. Kanner
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
(212) 259-8000

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

     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. o

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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. o

     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. o

     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. o

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

     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 Section 8(a), may determine.

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

PRELIMINARY PROSPECTUS Subject to Completion October 27, 2004

3,750,000 Shares

Adeza Biomedical Corporation

Common Stock

This is the initial public offering of our common stock. No public market currently exists for our common stock. We are offering all of the shares of common stock offered by this prospectus. We expect the public offering price to be between $14.00 and $16.00 per share.

We have applied to have our common stock approved for quotation on The Nasdaq National Market under the symbol “ADZA.”

Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in “Risk factors” beginning on page 7 of this prospectus.

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.

	Per share	Total
Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to us	$	$

The underwriters may also purchase up to an additional 562,500 shares of our common stock at the public offering price, less the underwriting discounts and commissions payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $                    and our total proceeds, before expenses, will be $                    .

The underwriters are offering the common stock as set forth under “Underwriting.” Delivery of the shares will be made on or about                          , 2004.

UBS Investment Bank

SG Cowen & Co.

Thomas Weisel Partners LLC

William Blair & Company

________________________________________________________________________________

Through and including                     , 2004 (the 25th day after the date of this prospectus), federal securities laws may require all dealers that effect transactions in our common stock, whether or not participating in this offering, 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.

TABLE OF CONTENTS

Prospectus summary	1
Risk factors	7
Special note regarding forward-looking statements	24
Use of proceeds	25
Dividend policy	26
Capitalization	27
Dilution	29
Selected financial data	31
Management’s discussion and analysis of financial condition and results of operations	33
Business	42
Management	60
Certain relationships and related party transactions	73
Principal stockholders	76
Description of capital stock	79
Shares eligible for future sale	84
Underwriting	86
Legal matters	89
Experts	89
Where you can find more information	90
Index to financial statements	F-1
EXHIBIT 4.1
EXHIBIT 5.1
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 10.8
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 10.16
EXHIBIT 10.17
EXHIBIT 23.1

Adeza Biomedical Corporation Trademarks and Registered Trademarks are trademarks of Adeza. Our trademarks and trade names include the stylized A, Adeza®, E-tegrity® Test, Full Term and TLi_IQ® System. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners.

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Prospectus summary

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be the most important information about us, you should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our common stock, especially the risks of investing in our common stock, which we discuss later in “Risk factors,” and our financial statements and related notes beginning on page F-1. Unless the context requires otherwise, the words “Adeza,” “we,” “Company,” “us” and “our” refer to Adeza Biomedical Corporation.

OUR BUSINESS

We design, develop, manufacture and market innovative products for women’s health. Our initial focus is on reproductive healthcare, using our proprietary technologies to predict preterm birth and assess infertility. Our principal product is a patented diagnostic test, the Fetal Fibronectin Test, that utilizes a single-use, disposable cassette and is analyzed on our patented instrument, the TLi_IQ System. This product is approved by the Food and Drug Administration, or FDA, for broad use in assessing the risk of preterm birth.

Our Fetal Fibronectin Test is designed to objectively determine a woman’s risk of preterm birth by detecting the presence of a specific protein, fetal fibronectin, in vaginal secretions during pregnancy. Testing for fetal fibronectin during pregnancy provides a more accurate assessment of the likelihood of a preterm birth than traditional methods. According to the New England Journal of Medicine, preterm births have historically accounted for up to 85% of all pregnancy-related complications and deaths in the United States. The March of Dimes estimated that over $13 billion in costs were associated with the care of preterm or low birth weight infants in 2001. By correctly identifying women at risk for preterm birth, we believe our Fetal Fibronectin Test leads to improved patient care and significant cost savings and has the potential to fundamentally change how healthcare providers select the appropriate course of treatment for pregnant women.

The patient population for which our Fetal Fibronectin Test is approved can be divided into three patient categories. The first category consists of women who present with signs and symptoms of preterm labor and are typically directed to the hospital. The second and third categories include women designated as either “high-risk” or “low-risk” for preterm birth by their healthcare providers, and who currently exhibit no signs and symptoms of preterm labor. We believe that by using the Fetal Fibronectin Test periodically during a pregnancy, healthcare providers can more accurately assess the likelihood that women in all three categories will not deliver preterm.

As of September 30, 2004, we have shipped more than 1,270 TLi_IQ Systems and over 1.1 million Fetal Fibronectin Test cassettes for use in hospital and clinical laboratories. As of September 30, 2004, our direct sales force consisted of 67 representatives who sell to hospital and clinical laboratories, health plans and healthcare providers. Our Fetal Fibronectin Test has been assigned a reimbursement code used for insurance processing of claims for the Fetal Fibronectin Test, and we believe that reimbursement for our Fetal Fibronectin Test has been regularly available through health plan organizations and most state Medicaid programs.

We also market and sell our E-tegrity Test, an infertility-related test based on a proprietary analyte specific reagent, to assess receptivity of the uterus to embryo implantation in women with unexplained infertility. The E-tegrity Test can be particularly useful for women who are considering assisted reproductive technologies, including in vitro fertilization, or IVF. We are also seeking to expand the indications for use of our Fetal Fibronectin Test.

1

We were profitable for both the year ended December 31, 2003 and for the nine months ended September 30, 2004. For the year ended December 31, 2001, we had product sales of approximately $6.7 million and a net loss of approximately $5.7 million. For the year ended December 31, 2002, we had product sales of approximately $14.3 million and a net loss of approximately $0.3 million. For the year ended December 31, 2003, we had product sales of approximately $26.5 million and net income of $3.2 million. For the nine months ended September 30, 2004, we had product sales of approximately $24.4 million and net income of approximately $7.3 million, including a one-time reduction in cost of product sales for accrued royalties of $2.7 million. Our accumulated deficit incurred from inception through September 30, 2004 is approximately $46.4 million.

OUR PRIMARY MARKET

Preterm birth

There are approximately four million births in the United States annually. Births occurring before 37 weeks of pregnancy are defined as preterm, and in recent years, according to a 2003 publication by the Centers for Disease Control and Prevention, preterm births represent approximately 12% of all births. On average, this equates to over 1,300 preterm births per day, or 480,000 preterm births per year. According to the Centers for Disease Control and Prevention, the percentage of preterm births in the United States grew to 12% of all births in 2002, an increase of 29% since 1981. This increase in the preterm birth rate is a growing public health concern. In January 2003, the March of Dimes launched a five-year, $75 million campaign to reduce the number of preterm births.

Historically, healthcare providers have had difficulty accurately predicting the likelihood of preterm birth, which has contributed to increased costs and complications. According to a 1994 publication from the National Conference of State Legislators, the costs of newborn intensive care in the United States ranged between $20,000 and $400,000 per infant. According to a 2001 study from the March of Dimes, the average hospital charge for preterm/low birth weight infants was $75,000, compared to $1,300 for an uncomplicated newborn stay.

OUR SOLUTION

We believe that our proprietary, FDA-approved diagnostic test and instrument, the single-use, disposable Fetal Fibronectin Test and the TLi_IQ System, have the potential to fundamentally change how healthcare providers select the appropriate course of treatment for pregnant women and to become a standard of care for use in pregnancy. The clinical efficacy of our Fetal Fibronectin Test for preterm birth has been demonstrated in numerous peer-reviewed clinical publications, including two multi-center clinical trial publications.

The Fetal Fibronectin Test and the TLi_IQ System have the following key characteristics:

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

We believe women who present with signs and symptoms of preterm labor are candidates for one Fetal Fibronectin Test per episode, and women designated as “high-risk” may be tested multiple times

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during their pregnancy. We estimate that our product has a potential market size in these two patient populations of over $400 million annually. If we are able to expand the use of our Fetal Fibronectin Test for women designated as “low-risk” and for other uses, we estimate that the potential annual market size can be greater than $1 billion.

OUR STRATEGY

Our goal is to be a leader in the development and commercialization of proprietary diagnostic products for reproductive healthcare. We believe that our products can assist healthcare providers in making more timely and accurate diagnoses, leading to improved quality of care and significant cost savings for the healthcare system. In order to effectively execute this strategy, we plan to:

4	leverage existing sales and marketing infrastructure to increase market penetration;
4	increase marketing for women designated as “high-risk”;
4	expand marketing to “low-risk” patient population;
4	expand international sales;
4	seek additional indications for our Fetal Fibronectin Test;
4	develop products for applications in oncology; and
4	strategically acquire or in-license complementary businesses, products and technologies.

RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties, including those that we highlight under “Risk factors” beginning on page 7. For example, substantially all of our revenue has resulted from sales of our principal product line, consisting of our Fetal Fibronectin Test, the TLi_IQ System and related consumables. Our commercial success depends on our ability to expand sales of our principal product line in hospitals and clinical laboratories. Our accumulated deficit incurred from inception through September 30, 2004 is approximately $46.4 million. Our business strategy includes expanding international sales, which will require that we obtain and maintain foreign regulatory approval to market our products and rely on international distributors to sell our products in those markets. We also intend to develop and market our Fetal Fibronectin Test in new pregnancy-related applications and for applications in oncology, which will require that we expand our research and development efforts and seek regulatory approvals in domestic and international markets.

OUR CORPORATE INFORMATION

Our business was incorporated in California in 1985 as Aspen Diagnostics Corporation. We changed our name to Adeza Biomedical Corporation in 1989, and in 1996 we re-incorporated in the State of Delaware. Our principal executive offices are located at 1240 Elko Drive, Sunnyvale, CA 94089, and our telephone number is (408) 745-0975. Our websites are located at http://www.adeza.com and http://www.ffntest.com. We do not intend for the information contained on our websites to be incorporated by reference into, or to form any part of, this prospectus.

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The offering

Common stock offered by us	3,750,000 shares
Common stock to be outstanding after this offering	15,889,841 shares
Use of proceeds	We estimate that the net proceeds from this offering will be approximately $50.5 million, or approximately $58.4 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $15.00 per share. We expect to use the net proceeds from this offering to expand our sales and marketing efforts in the United States and internationally, for research and development activities, to acquire or invest in complementary businesses, products or technologies and for other general corporate purposes. See “Use of proceeds.”
Proposed Nasdaq National Market symbol	ADZA

The number of shares of our common stock to be outstanding immediately after this offering is based on 12,139,841 shares of common stock outstanding as of September 30, 2004 after giving effect to the conversion of all 15,409,062 shares of preferred stock outstanding as of September 30, 2004 into 11,957,322 shares of common stock, which will become effective at the closing of this offering.

The number of shares of our common stock outstanding immediately after this offering excludes:

4	2,163,582 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2004 under our 1995 Stock Option and Restricted Stock Plan at a weighted average exercise price of $4.70 per share;
4	196,915 shares of our common stock issuable upon the exercise of warrants outstanding as of September 30, 2004 at an exercise price of $3.50 per share;
4	17,056 shares of our common stock available for future grant under our 1995 Stock Option and Restricted Stock Plan as of September 30, 2004; and
4	1,875,000 shares of our common stock available for future grant under our 2004 Equity Incentive Plan, which will become effective upon the completion of this offering.

Unless otherwise indicated, all information in this prospectus:

4	assumes that the underwriters do not exercise their option to purchase up to 562,500 additional shares of our common stock to cover over-allotments, if any;
4	assumes a three-for-four reverse split of our common stock to be effected prior to the closing of this offering;
4	assumes the conversion, upon the closing of this offering, of all of the outstanding shares of preferred stock into common stock;
4	gives effect to the amendment and restatement of our certificate of incorporation and bylaws, which will become effective at the completion of this offering; and
4	gives effect to the adoption of our 2004 Equity Incentive Plan, which will become effective upon the completion of this offering.

4

Summary financial data

The following summary financial data for the years ended December 31, 2001, 2002 and 2003 have been derived from our financial statements audited by Ernst & Young LLP, which appear elsewhere in this prospectus. The summary financial data for the nine months ended September 30, 2003 and 2004 have been derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited summary 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 results for the interim unaudited periods. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The summary financial data set forth below should be read together with the financial statements and the related notes to those statements, as well as “Management’s discussion and analysis of financial condition and results of operations,” appearing elsewhere in this prospectus.

											Nine months ended
		Years ended December 31,									September 30,
Statement of
operations data:		2001			2002			2003			2003			2004
											(unaudited)
		(in thousands, except share and per share data)
Product sales			$6,742			$14,277			$26,499			$19,185			$24,405
Cost of product sales			2,521			3,715			6,087			4,621			895	(1)
Gross profit			4,221			10,562			20,412			14,564			23,510
Contract revenues			811			1,059			—			—			—
Operating costs and expenses:
	Selling and marketing		6,437			7,819			12,259			9,023			11,638
	General and administrative		2,033			2,069			2,730			1,791			2,631
	Research and development		2,145			2,047			2,001			1,519			1,755
Total operating costs and expenses			10,615			11,935			16,990			12,333			16,024
Income (loss) from operations			(5,583	)		(314	)		3,422			2,231			7,486
Other expenses, net			(21	)		(8	)		(33	)		(10	)		—
Interest income (expense), net			(85	)		(7	)		(19	)		(23	)		104
Income (loss) before income taxes			(5,689	)		(329	)		3,370			2,198			7,590
Provision for income taxes			—			—			135			113			307
Net income (loss)			$(5,689	)		$(329	)		$3,235			$2,085			$7,283
Net income (loss) per share:
	Basic		$(36.27	)		$(1.82	)		$17.78			$11.46			$39.97
	Diluted		$(36.27	)		$(1.82	)		$0.26			$0.17			$0.55
	Pro forma basic (unaudited)								$0.27						$0.60
	Pro forma diluted (unaudited)								$0.26						$0.55
Shares used in computing net income (loss) per share:
	Basic		156,857			181,188			181,965			181,965			182,223
	Diluted		156,857			181,188			12,515,063			12,429,763			13,364,494
	Pro forma basic (unaudited)								11,986,026						12,139,545
	Pro forma diluted (unaudited)								12,515,063						13,364,494

(1) Cost of product sales for the nine months ended September 30, 2004 reflects a one-time reduction of accrued royalties of $2.7 million.

5

The following table contains a summary of our balance sheet as of September 30, 2004:

4	on an actual basis;
4	on a pro forma basis to give effect to the conversion of all 15,409,062 shares of our preferred stock outstanding as of September 30, 2004 into 11,957,322 shares of our common stock, which will become effective at the closing of this offering; and
4	on a pro forma as adjusted basis to give further effect to the sale of the shares of our common stock we are offering at an assumed initial public offering price of $15.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses to be paid by us.

	As of September 30, 2004
							Pro forma
Balance sheet data:	Actual			Pro forma			as adjusted
	(unaudited, in thousands)
Cash and cash equivalents		$14,638			$14,638			$65,151
Working capital		17,454			17,454			67,967
Total assets		23,813			23,813			74,326
Convertible preferred stock		61,484			—			—
Accumulated deficit		(46,354	)		(46,354	)		(46,354	)
Total stockholders’ equity (deficit)		(43,541	)		17,943			68,456

6

Risk factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before deciding to invest in our common stock. If any of the following risks actually occur, they may materially harm our business and our financial condition and results of operations. In this event, the market price of our common stock could decline and you could lose part or all of your investment.

RISKS RELATING TO OUR BUSINESS

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

To date, substantially all of our revenue has resulted from sales of our principal product line, our Fetal Fibronectin Test, the TLi_IQ System (and its predecessor, the TLi System) and related consumables. Although we have introduced new products such as the E-tegrity Test, and intend to introduce additional products, we expect sales of the Fetal Fibronectin Test to account for substantially all of our near-term revenue. Because our business is highly dependent on our Fetal Fibronectin Tests, the TLi_IQ System and the related consumables, factors adversely affecting the pricing of or demand for these products could have a material and adverse effect on our business and cause the value of our securities to decline substantially. We will lose revenue if alternative diagnostic products or technologies gain commercial acceptance or if reimbursement is limited. We cannot assure you that we will be able to continue to manufacture these products in commercial quantities at acceptable costs. Our inability to do so would adversely affect our operating results and cause our business to suffer.

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

Our commercial success depends in large part on our ability to achieve and sustain market acceptance of our principal product line, the Fetal Fibronectin Test and the TLi_IQ System. A key element of our business plan calls for us to expand sales of our TLi_IQ System in hospitals and clinical laboratories and increase the related sales of the Fetal Fibronectin Test and other consumables used in conjunction with the TLi_IQ System. To accomplish this, we will need to convince healthcare providers of the benefits of our products through various means, including through published papers, presentations at scientific conferences and additional clinical trials. If existing users of our products determine that these products do not satisfy their requirements, or if our competitors develop a product perceived to better satisfy their requirements, our sales of Fetal Fibronectin Tests and other consumables may decline, and our revenues may correspondingly decline.

In addition, our commercial success may depend on our ability to gain market acceptance for our other products and product candidates. Market acceptance of our product portfolio will depend on our ability to develop additional applications of our existing products and to introduce new products to additional markets, including the oncology diagnostic market, the reproductive endocrinology and infertility markets and other women’s health markets.

Other factors that might influence market acceptance of our products include the following:

4	evidence of clinical utility;
4	convenience and ease of use;
4	availability of alternative and competing diagnostic products;
4	cost-effectiveness;

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Risk factors

4	effectiveness of marketing, distribution and pricing strategy; and
4	publicity concerning these products or competitive products.

In addition, our marketing and development efforts could require us to expend significant time and resources, and we cannot assure you that we will succeed in these efforts. If our products are unable to achieve or maintain broad market acceptance, our revenues and operating results may be negatively impacted and our business would suffer.

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

As of September 30, 2004, we had an accumulated deficit of $46.4 million. For the nine months ended September 30, 2004, we had net income of $7.3 million, including a one-time reduction in cost of product sales for accrued royalties of $2.7 million. However, we cannot assure you that we will sustain profitability or that losses will not occur in the future. Our quarterly revenues and operating results are difficult to predict and have in the past and may in the future fluctuate significantly from quarter to quarter due to a number of factors, many of which are outside our control. These factors include, but are not limited to:

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

These and other factors make it difficult for us to predict sales for subsequent periods and future performance. If our quarterly operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price could drop suddenly and significantly. We believe quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

In addition, we expect to incur additional expenses to execute our business plan, and these expenses will increase as we expand our marketing efforts, research and development activities, clinical testing and manufacturing capacity. These expenses, among other things, may cause our net income and working capital to decrease. If sales do not continue to grow, we may not be able to maintain profitability. Our expansion efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues sufficiently to offset these higher expenses. If we fail to do so, the market price for our common stock will likely decline.

8

Risk factors

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

Market acceptance of our products and the majority of our sales depend, in large part, on the availability of adequate reimbursement for the use of our products from government insurance plans, including Medicare and Medicaid, managed care organizations, private insurance plans and other third-party payors in the United States and abroad. Third-party payors are often reluctant to reimburse healthcare providers for the use of medical diagnostic products incorporating new technology.

Because each third-party payor individually approves reimbursement, obtaining these approvals can be a time-consuming and costly process that requires us to provide scientific and clinical support for the use of each of these products to each third-party payor separately with no assurance that approval will be obtained. For example, while the policies of some third-party payors limit reimbursement for the use of our Fetal Fibronectin Test to women with signs and symptoms of preterm labor, other third-party payors provide reimbursement for broader use of our Fetal Fibronectin Test. This individualized process can delay the market acceptance of new products and may have a negative effect on our revenues and operating results.

Market acceptance of our products internationally may depend in part upon the availability of reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country and include both government sponsored healthcare and private insurance. We may not obtain international reimbursement approvals in a timely manner, if at all. Our failure to receive international reimbursement approvals may negatively impact market acceptance of our products in the international markets in which those approvals are sought.

We believe third-party payors are increasingly limiting coverage for medical diagnostic products in the United States and internationally, and in many instances are exerting pressure on medical products suppliers to reduce their prices. Consequently, third-party reimbursement may not be consistently available or adequate to cover the cost of our products. Additionally, third-party payors who have previously approved a specific level of reimbursement may reduce that level. We cannot assure you that under prospective payment systems, in which healthcare providers may be reimbursed a set amount based on the type of diagnostic procedure performed, such as those utilized by Medicare and in many privately managed care systems, the cost of our products will be justified and reimbursed. This could limit our ability to commercialize and sell new products and continue to sell our existing products, or may cause the prices of our existing products to be reduced, which may adversely affect our revenues and operating results.

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

Rapid growth of our business is likely to place a significant strain on our managerial, operational and financial resources and systems. In the United States, while we anticipate hiring additional personnel to assist in the planned expansion of sales efforts for our current products and the development of future products, we cannot assure you that we will be able to successfully increase sales of current products or introduce new products and meet our growth goals. To manage our anticipated growth, we must attract and retain qualified personnel and manage and train them effectively. We will depend on our personnel and third parties to effectively market our products to an increasing number of hospitals, physicians and other healthcare providers. We will also depend on our personnel to develop next generation technologies. Further, our anticipated growth will place additional strain on our suppliers and manufacturers, as well as our own internal manufacturing processes, resulting in an increased need for us to carefully monitor for quality assurance. In addition, we may choose or be required to relocate or expand our manufacturing facility to accommodate potential growth in our business. Any

9

Risk factors

failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our revenue and profitability goals.

Our plans to significantly expand our presence in international markets will cause us to incur various costs and expenses and may strain our operating and financial systems and resources in a manner that could materially and adversely affect our operating results. We will be subject to the regulatory oversight of additional authorities as we expand internationally. These authorities may impose regulations and restrictions on the sales and marketing of our products that are different and potentially more restrictive than those placed on us by regulators in the United States. We may be required to expend considerable resources to comply with these requirements. We cannot assure you that we will ultimately be able to comply with such regulations in a timely manner, if at all. If we are unable to satisfy these requirements on commercially reasonable terms, our ability to commercialize our products would be hampered and our revenues may be adversely affected.

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

We are directly or indirectly through our customers subject to extensive regulation by both the federal government and the states and foreign countries in which we conduct our business. Companies such as ours are required to expend considerable resources complying, in particular, with laws such as the following:

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

Companies such as ours are also required to comply with laws and regulations regarding the practice of medicine by non-physicians, consumer protection and Medicare and Medicaid payments. If our past or present operations are found to be in violation of any of the laws described above or the other governmental regulations to which we or our customers are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations. If we are required to obtain permits or licenses under these laws that we do not already possess, we may become subject to substantial additional regulation or incur significant expense. Any penalties, damages, fines, curtailment or restructuring of our operations may adversely affect our ability to operate our business and our financial results. Because many of these laws have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations and additional legal or regulatory change, we may be at a heightened risk of being found to be in violation of these laws. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation.

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Risk factors

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

The US Food and Drug Administration, or FDA, and comparable agencies of other countries generally regulate our products as medical devices. In the United States, FDA regulations govern, among other things, the activities that we perform, including product development, product testing, product labeling, product storage, manufacturing, advertising, promotion, product sales, reporting of certain product failures and distribution. Most of the new products that we plan to develop and commercialize in the United States will require either pre-market notification, also known as 510(k) clearance, or pre-market approval, from the FDA prior to marketing. The 510(k) clearance process requires us to notify the FDA of our intent to market a medical device. The overall 510(k) clearance process usually takes from three to twelve months from the time of submission to being able to sell a product in the market, but can take significantly longer. The pre-market approval process, often referred to as the PMA process, is much more costly, lengthy, uncertain and generally takes between one and three years from submission to PMA approval, but may take significantly longer and such clearance or approval may never be obtained.

All of the products that we have submitted and may submit in the future for FDA clearance or approval are or will be subject to substantial restrictions, including, among other things, restrictions on the indications for which we may market our products, which could result in reductions in or an inability to grow our revenues. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or certain requirements for costly post-marketing testing and surveillance to monitor the performance and clinical utility of the product. For example, any of our products that have received FDA approval, such as our Fetal Fibronectin Test or TLi_IQ System, remain subject to ongoing post-marketing regulation and oversight by the FDA. The marketing claims that we are permitted to make in labeling our diagnostic products, if cleared or approved by the FDA, are limited to those specified in any clearance or approval. Our intention to expand the use of our products into new areas such as the prediction of successful induction of labor and oncology will require us to make new submissions to the FDA.

In addition, we are subject to review, periodic inspection and marketing surveillance by the FDA to determine our compliance with regulatory requirements for any product for which we obtain marketing approval. Following approval, our manufacturing processes, subsequent clinical data and promotional activities are subject to ongoing regulatory obligations. If the FDA finds that we have failed to comply with these requirements or later discovers previously unknown problems with our products, including unanticipated adverse events of unanticipated severity or frequency, manufacturer or manufacturing processes or failure to comply with regulatory requirements, it can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions, including:

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

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Any of these enforcement actions could affect our ability to commercially distribute our products in the United States and may also harm our ability to conduct the clinical trials necessary to support the marketing, clearance or approval of these products and could materially and adversely affect our business.

Our PMA supplement seeking approval for use of our Fetal Fibronectin Test in predicting successful induction of labor has been submitted to the FDA. The FDA has placed its review of the application on hold while a third party we have engaged conducts an audit of all of the clinical study sites because of the number of protocol deviations, in order to confirm the accuracy of the data. Upon completion of the third-party audit, we will need to submit new analyses of the data and a corrective action plan to the FDA before it will resume its review of the application. We cannot assure you that the new analyses of the data or the corrective action plan will be acceptable to us or to the FDA or that we will continue to pursue or obtain FDA approval for this application.

We rely on our CLIA-certified laboratory located at our facility in Sunnyvale, California to process E-tegrity Tests. The Centers for Medicare and Medicaid Services, or the CMS, requires that operators of CLIA-certified laboratories submit to surveillance and follow-up inspections. If we are unable to meet the CMS’s requirements for continued operation pursuant to CLIA, our laboratory may lose its CLIA certification, and we may be unable to continue to process E-tegrity Tests. As a result, our business may be harmed.

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

Any modification to a 510(k)-cleared or pre-market approved diagnostic device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or PMA, such as the development of our Fetal Fibronectin Test as a diagnostic test for the induction of labor. The FDA requires every manufacturer to make the determination of whether new clearance or approval is required for 510(k)-cleared devices. The FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. If the FDA requires us to seek 510(k) clearance or PMA for any modification to a previously cleared or approved product, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. Any recall or FDA requirement that we seek additional approvals or clearances could result in delays, fines, costs associated with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA.

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

We and any third-party manufacturers that we currently rely on or will rely on in the future, including those we rely on to produce components of our products, must continuously adhere to the current good manufacturing practices, or cGMP, set forth in the FDA’s Quality System Regulations, or QSR, and enforced by the FDA through its facilities inspection program. In complying with QSR, we and our third-party manufacturers must expend significant time, money and effort in design and development, testing, production, record keeping and quality control to assure that our products meet applicable specifications and other regulatory requirements. The failure to comply with these specifications and other requirements could result in an FDA enforcement action, including the seizure of products and shutting down of production. We or any of these third-party manufacturers may also be subject to comparable or more stringent regulations of foreign regulatory authorities. In any of these circumstances, our ability to develop, produce and sell our products could be impaired.

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We have received regulatory approvals for some of the operations located at our Sunnyvale, California headquarters, including our CLIA-certified laboratory. Should we choose to relocate, or if for some reason we are required to relocate some or all of our facilities from this location, we may be required to apply for regulatory approvals for the new location. It may be difficult or impossible for us to obtain the necessary approvals to continue our business in its present form at any such new location, and our business may be harmed as a result.

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

To improve our competitive position, we believe that we will need to develop new products as well as improve our existing instruments, reagents and ancillary products. Improvements in automation and the number of tests that can be performed in a specified period of time will be important to the competitive position of our products as we market to a broader, perhaps less technically proficient, group of customers. Our ability to develop new products and make improvements in our products may face difficult technological challenges leading to delays in development. If we are unable to successfully complete development of new products or if we are unable to successfully complete the planned enhancements to our products, in each case without significant delays, our future competitive position may be adversely affected.

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

The extent to which any of our technologies and products achieve and sustain market acceptance will depend on numerous competitive factors, many of which are beyond our control. Competition in the medical devices and diagnostic products industries, is intense and has been accentuated by the rapid pace of technological development. While no company directly competes with us in our core markets, there are other diagnostic techniques currently in use to diagnose the likelihood of preterm birth, such as ultrasound. In addition, other companies may develop new diagnostic products or technologies that could compete with or entirely displace our products and technologies. For example, other biomarkers, including cytokines and other proteins indicative of infection, and proteomics are the subject of research that may yield new products or technologies. The effectiveness of these alternative techniques may improve with time and additional research by clinicians or manufacturers. The medical devices and diagnostic products industries include large diagnostics and life sciences companies. Most of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing, sales and service resources than we do. Some of them also have more experience than we do in research and development, clinical trials, regulatory matters, manufacturing, marketing and sales. These organizations also compete with us to:

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

If we cannot successfully compete with new products or technologies, sales of our products and our competitive position will suffer, and our stock price might be adversely affected. Because of their greater experience with commercializing technologies and larger research and development capabilities, other companies might succeed in developing and commercializing technologies or products earlier and obtaining regulatory approvals and clearances from the FDA more rapidly than we do. Other companies also might develop more effective technologies or products that are more predictive, more

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highly automated or more cost-effective, which may render our technologies or products obsolete or non-competitive.

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

We rely on a limited number of suppliers for both raw materials and components necessary for the manufacture of our products, including our Fetal Fibronectin Test and TLi_IQ System. We acquire all of these components, assemblies and raw materials on a purchase-order basis, which means that the supplier is not required to supply us with specified quantities over a certain period of time or to set aside part of its inventory for our forecasted requirements. If we need alternative sources for key components, assemblies or raw materials for any reason, such components, assemblies or raw materials may not be immediately available. If alternative suppliers are not immediately available, we will have to identify and qualify alternative suppliers, and delivery of such components, assemblies or raw materials may be delayed. Consequently, if we do not forecast properly, or if our suppliers are unable or unwilling to supply us in sufficient quantities or on commercially acceptable terms, we may not have access to sufficient quantities of these components, assemblies and raw materials on a timely basis and may not be able to satisfy product demand. We also rely upon a fulfillment provider to process orders for our products, coordinate invoicing and collections, as well as ship our products to customers in the United States. We may not be able to find an adequate alternative supplier or fulfillment provider in a reasonable time period, or on commercially acceptable terms, if at all. Our inability to obtain a supplier for the manufacture of our products may force us to curtail or cease operations, which would have a material adverse effect on our product sales and profitability.

In addition, if any of these components, assemblies or raw materials are no longer available in the marketplace, we will be forced to further develop our technologies to incorporate alternate components, assemblies and raw materials and to do so in compliance with QSR. If we incorporate new components, assemblies or raw materials into our products, we may need to seek and obtain additional approvals or clearances from the FDA or foreign regulatory agencies, which could delay the commercialization of these products.

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

Our international sales currently depend upon the marketing efforts of and sales by certain distributors in Europe, Australia, the Pacific Rim region and South America. In most instances, our distribution arrangements are governed by short-term purchase orders. We also rely upon certain of these distributors to assist in obtaining product registration and reimbursement approvals in certain international markets, and we may not be able to engage qualified distributors in our targeted markets. The distributors that we are able to obtain may not perform their obligations. If a distributor fails to invest adequate resources and support in promoting our products and training physicians, hospitals and other healthcare providers in the proper techniques for using our products or in awareness of our products, or if a distributor ceases operations, we would likely be unable to achieve significant sales in the territory represented by the distributor. If we decide to market new products abroad, we will likely need to educate our existing or new distributors about these new products and convince them to distribute the new products. If these distributors are unwilling or unable to market and sell our products, we may experience delayed or reduced market acceptance and sales of our products outside the United States. Our failure to engage adequate distributors, or the failure of the distributors to perform their obligations as expected, may harm our ability to effectively market our products and our business.

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Risk factors

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

To market any of our products outside of the United States, we and our collaborative partners, including certain of our distributors, are subject to numerous and varying foreign regulatory requirements, implemented by foreign health authorities, governing the design and conduct of human clinical trials and marketing approval for diagnostic products. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process includes all of the risks associated with obtaining FDA approval set forth above, and approval by the FDA does not ensure approval by the health authorities of any other country, nor does the approval by foreign health authorities ensure approval by the FDA.

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

Our success depends on the market’s confidence that we can provide reliable, high quality medical diagnostic devices. Our customers are particularly sensitive to product defects and errors because of the use of our products in medical practice. Our reputation and the public image of our products may be impaired for any of the following reasons:

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

Even after any underlying problems are resolved, any manufacturing defects or performance errors in our products could result in lost revenue, delay in market acceptance, damage to our reputation, increased service and warranty costs and claims against us.

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

Our business exposes us to potential product liability claims and field action risks that are inherent in the testing, manufacturing, marketing and sale of diagnostic products. We may be unable to avoid product liability claims or field actions, including those based on claims that the use or failure of our products resulted in a misdiagnosis or harm to a patient. Although we believe that our liability coverage is adequate for our current needs, and while we intend to expand our product liability insurance coverage to any products for which we obtain marketing approval, insurance may be unavailable, prohibitively expensive or may not fully cover our potential liabilities. If we are unable to maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims or field actions, we may be unable to continue to market our products and develop new markets. Defending a lawsuit could be costly and significantly divert management’s attention from conducting our business. A successful product liability claim brought against us in excess of any insurance coverage we have at that time could cause us to incur substantial liabilities, potentially in excess of our total assets, and our business to fail. In addition, we are a specialty company focused on women’s health. We have a narrow customer base that is subject to significant malpractice litigation that may place us at risk of the same. In addition, product liability claims or product field action or other regulatory proceedings may damage our reputation by raising questions about our products’ safety and efficacy, could significantly harm our reputation, interfere with our

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efforts to market our products and make it more difficult to obtain the funding and commercial relationships necessary to maintain our business.

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

Our success depends, in large part, on the efforts and abilities of Emory Anderson, who is our President and Chief Executive Officer, Dr. Durlin Hickok, who is our Vice President, Medical Affairs, Dr. Robert Hussa, our Vice President, Research and Development, Mark Fischer-Colbrie, who is our Vice President of Finance and Administration and Chief Financial Officer, and Marian Sacco, our Vice President, Sales and Marketing, as well as the other members of our senior management and our scientific and technical personnel. While we have executed management continuity agreements, we do not currently have employment agreements with any of these individuals. We do not currently carry key person insurance on the lives of any of these executives. Many of these people have been members of our executive team for several years, and their knowledge of our business would be difficult or time-consuming to replace. We also depend on our scientific collaborators and other advisors, particularly with respect to our research and development efforts. If we lose the services of one or more of our key officers, employees or consultants, or are unable to retain or attract the services of existing or new scientific collaborators and other advisors, our research and development and product development efforts could be delayed or curtailed, our ability to execute our business strategy would be impaired, and our stock price might be adversely affected.

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

We currently conduct all of our manufacturing, development and management activities at a single location in Sunnyvale, California near known fault zones. In addition, our E-tegrity Tests are currently processed solely through our CLIA-certified laboratory located at our Sunnyvale facility. Despite precautions taken by us, any future natural or man-made disaster, such as a fire, earthquake or terrorist activity, could cause substantial delays in our operations, damage or destroy our equipment or inventory, and reduce our sales or cause us to incur additional expenses. In addition, the facility and some pieces of manufacturing equipment would be difficult to replace and could require substantial replacement lead-time. A disaster could seriously harm our business and results of operations. While we carry insurance for certain business interruptions, some natural and man-made disasters are excluded from our insurance policies, including those caused by terrorist acts or earthquakes. We believe that our insurance coverage is generally adequate for our current needs in the event of losses not caused by excluded events, but we may be subject to interruptions caused by excluded events or extraordinary events resulting in losses in excess of our insurance coverage or for which we have no coverage. This could impair our operating results and financial condition.

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

Our research and development activities sometimes involve the controlled use of potentially harmful biological materials, hazardous materials and chemicals that are dangerous to human health and safety or the environment. We are subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations might be significant and could negatively affect our profitability. We believe our safety procedures for handling and disposing of these materials comply in all material aspects with federal, state and local laws and regulations and to date, we have not been required to take any action to correct any noncompliance. However, we cannot completely eliminate the risk of accidental contamination or injury to third parties from the use, storage, handling or

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disposal of these materials. Although we believe our insurance coverage is adequate for our current needs, in the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have.

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

If we become aware of potential business combination candidates that are complementary to our business, we may decide to combine with such businesses or acquire their assets in the future. We have acquired businesses or product lines in the past. For example, we acquired exclusive rights to the SalEst Test in 2003. While we have not encountered such difficulties following our prior acquisitions, business combinations generally involve a number of additional difficulties and risks to our business, including:

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

In addition, we may not realize benefits from any business combination we may undertake in the future. If we fail to successfully integrate such businesses, or the technologies associated with such business combinations into our company, the revenue and operating results of the combined company could be adversely affected. Any integration process would require significant time and resources, and we may not be able to manage the process successfully. If our customers are uncertain about our ability to operate on a combined basis, they could delay or cancel orders for our products. We may not successfully evaluate or utilize the acquired technology or accurately forecast the financial impact of a combination, including accounting charges or volatility in the stock price of the combined entity. If we fail to successfully integrate other companies with which we may combine in the future, our business and your investment could be harmed.

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

We expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure, commercialization, manufacturing, clinical trials and research and development activities. We believe the net proceeds of this offering, together with our cash and cash equivalents, will be sufficient to meet our operating and capital requirements for at least the next two years. However, our present and future funding requirements will depend on many factors, including, among other things:

4	the level of research and development investment required to maintain and improve our technology position;
4	costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
4	the success of our product sales and related collections;

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4	our need or decision to acquire or license complementary businesses, products or technologies or acquire complementary businesses;
4	maintaining or expanding our manufacturing or commercialization capacity;
4	competing technological and market developments; and
4	costs relating to changes in regulatory policies or laws that affect our operations.

As a result of these factors, we may need to raise additional funds, and we cannot be certain that such funds will be available to us on acceptable terms when needed, if at all. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our future products or proprietary technologies, or grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to expand our operations, develop new products, take advantage of future opportunities or respond to competitive pressures or unanticipated customer requirements.

RISKS RELATING TO OUR INTELLECTUAL PROPERTY

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

Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual restrictions, to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. For example, our pending US and foreign patent applications may not issue as patents at all, or if they do, they may not issue as patents in a form that will be advantageous to us or may issue and be subsequently successfully challenged by others and invalidated. Additionally, our family of issued patents and patent applications, if and when issued, relating to our Fetal Fibronectin Test and TLi_IQ System, have a range of expiration dates from 2007 to 2025. We cannot assure you that, upon the expiration of one or more patents relating to our Fetal Fibronectin Test and TLi_IQ System, we will be able to protect our proprietary rights relating to the technologies used in these products. In addition, our pending patent applications include claims to material aspects of our products and procedures that are not currently protected by issued patents. Both the patent application process and the process of managing patent disputes can be time-consuming and expensive. Competitors may be able to design around our patents or develop products that provide outcomes comparable to ours. Although we have taken steps to protect our intellectual property and proprietary technology, including entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants and advisors, such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.

Although we may initiate litigation to stop the infringement of our patent claims or to attempt to force an unauthorized user of our patented inventions or trade secrets to compensate us for the infringement or unauthorized use, patent and trade secret litigation is complex and often difficult and expensive, and would consume the time of our management and other significant resources. If the outcome of litigation is adverse to us, third parties may be able to use our technologies without payments to us. Moreover, other companies against whom we might initiate litigation may be better able to sustain the costs of litigation because they have substantially greater resources. Because of these factors relating to litigation, we may be effectively unable to prevent misappropriation of our patent and other proprietary rights.

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

We have licensed a number of patents, including patents related to our Fetal Fibronectin Test and our E-tegrity Test from third parties, including the Fred Hutchinson Cancer Research Center, Inverness Medical and the University of Pennsylvania. Our business may significantly suffer if one or more of these licenses terminate, if we or our licensors fail to abide by the terms of the licenses or fail to prevent infringement by third parties or if the licensed patents are found to be invalid.

If we violate the terms of our licenses, or otherwise lose our rights to these patents, we may be unable to continue developing and selling our products. Our licensors or others may dispute the scope of our rights under any of these licenses. The licensors under these licenses may breach the terms of their respective agreements or fail to prevent infringement of the licensed patents by third parties. Loss of any of these licenses for any reason could materially harm our financial condition and operating results.

In addition, if we determine that our products do not incorporate the patented technology that we have licensed from third parties, or that one or more of the patents that we have licensed is not valid, we may dispute our obligation to pay royalties to our licensors.

Any dispute with a licensor could be complex, expensive and time-consuming and an outcome adverse to us could materially harm our business and impair our ability to commercialize our products. As a result, our stock price might be adversely affected.

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

Other companies may have or acquire patent rights that they could enforce against us. If they do so, we may be required to alter our technologies, pay licensing fees or cease activities. If our technologies conflict with patent rights of others, third parties could bring legal action against us or our licensees, suppliers, customers or collaborators, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we might have to obtain a license in order to continue to manufacture or market the affected products. A required license under the related patent may not be available on acceptable terms, if at all.

Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, that may later result in issued patents upon which our technologies may infringe. There could also be existing patents of which we are unaware that our technologies may infringe. In addition, if third parties file patent applications or obtain patents claiming technology also claimed by us in pending applications, we may have to participate in interference proceedings in the US Patent and Trademark Office to determine priority of invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals to defend the patentability of the filed foreign patent applications. We may have to participate in interference proceedings involving our issued patents or our pending applications.

If a third party claims that we infringe upon its proprietary rights, it could cause our business to suffer in a number of ways, including:

4	we may become involved in time-consuming and expensive litigation, even if the claim is without merit;
4	we may become liable for substantial damages for past infringement if a court decides that our technologies infringe upon a competitor’s patent;

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4	a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; and
4	we may have to redesign our product so that it does not infringe upon others’ patent rights, which may not be possible or could require substantial funds or time.

If any of these events occur, our business will suffer and the market price of our common stock may decline.

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

In order to protect or enforce our patent rights, we may initiate patent litigation. In addition, others may initiate patent litigation against us. We may become subject to interference proceedings conducted in patent and trademark offices to determine the priority of inventions. There are numerous issued and pending patents in the medical device field. The validity and breadth of medical technology patents may involve complex legal and factual questions for which important legal principles may remain unresolved.

Litigation may be necessary to assert or defend against infringement claims, enforce our issued and licensed patents, protect our trade secrets or know-how or determine the enforceability, scope and validity of the proprietary rights of others. Our involvement in intellectual property claims and litigation could:

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

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

Many of our employees were previously employed at universities or other diagnostic companies, including our potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise 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 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.

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

We are developing diagnostic products designed to expand the utility of fetal fibronectin in multiple applications. The technology that we ultimately may use in the development and commercialization of

20

Risk factors

these future products may be protected by patent and other intellectual property rights owned by third parties. If we are unable to obtain rights to use necessary third-party intellectual property under commercially reasonable terms, or at all, we may be unable to develop these products, and this could harm our ability to expand our commercial products offerings and to generate additional revenue from these products.

RISKS RELATING TO THIS OFFERING

You will suffer immediate and substantial dilution.

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

4	pay a price per share that substantially exceeds the value of our tangible assets after subtracting liabilities; and
4	contribute approximately 46.4% of the total amount invested to date to fund us but own only approximately 23.6% of the shares of common stock outstanding after this offering.

To the extent outstanding stock options, warrants or the underwriters’ over-allotment option are exercised after this offering, there will be further dilution to new investors. See “Dilution.”

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

Our executive officers, directors and principal stockholders, and entities affiliated with them, will beneficially own in the aggregate approximately 64.86% of our common stock following this offering. This significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. These stockholders, acting together, 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, they could 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 of us or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.

The future sale of our securities could dilute your investment and negatively affect our stock price.

After this offering, we will have approximately 15,889,841 shares of common stock outstanding, or 16,452,341 shares if the underwriters exercise their over-allotment option in full. The 3,750,000 shares sold in this offering, or 4,312,500 shares if the underwriters exercise their over-allotment option in full, will be freely tradable without restriction under the federal securities laws unless purchased by our affiliates. The remaining shares of common stock outstanding after this offering will be available for public sale subject in some cases to volume and other limitations. See “Shares eligible for future sale.” We, our executive officers and directors and our existing stockholders holding an aggregate of over      % of our shares outstanding after this offering have entered into lock-up agreements with the underwriters that generally expire 180 days after the completion of the offering as described under “Underwriting.”

If our common stockholders sell substantial amounts of common stock in the public market, or the market perceives that such sales may occur, the market price of our common stock could fall. After this offering, the holders of approximately 12,139,841 shares of our common stock and the holders of warrants to purchase 196,915 shares of our common stock will have rights, subject to some

21

Risk factors

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 registrations rights, the sale of those shares could impair our ability to raise needed capital by depressing the price at which we could sell our common stock.

If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. Furthermore, we may enter into financing transactions at prices that represent a substantial discount to market price. Raising funds through the issuance of equity securities will dilute the ownership of our existing stockholders. A negative reaction by investors and securities analysts to any sale of our equity securities could result in a decline in the trading price of our common stock.

If an active, liquid trading market for our common stock does not develop, you may be unable to sell your shares quickly or at the market price.

Prior to this offering, there was no public market for our common stock. An active trading market for our common stock may not develop following this offering. You may not be able to sell your shares quickly or at the market price if trading in our stock is not active. The initial public offering price may not be indicative of prices that will prevail in the trading market. See “Underwriting” for more information regarding the factors considered in determining the initial public offering price.

If the price and volume of our common stock experience extreme fluctuations, this could lead to costly litigation for us.

Because we operate within the medical devices and diagnostic products industries, our stock price is likely to be volatile. The market price of our common stock may fluctuate substantially due to a variety of factors, including:

4	media reports and publications and announcements about women’s health and cancer diagnostic products or new cancer treatments or innovations that could compete with our products;
4	new regulatory pronouncements, changes in regulatory guidelines, such as adverse changes in reimbursement for women’s health and cancer diagnostic products, and timing of regulatory approvals concerning the products in our pipeline;
4	market conditions or trends related to the medical devices and diagnostic products industries or the market in general;
4	changes in financial estimates or recommendations by securities analysts;
4	the seasonal nature of our revenues and expenses;
4	variations in our quarterly operating results; and
4	changes in accounting principles.

The market prices of the securities of medical devices and diagnostic products companies, particularly companies like ours without consistent product sales and earnings, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. Moreover, market prices for stocks of biotechnology-related companies, particularly following an initial public offering, frequently reach levels that bear no relationship to the operating performance of these companies. These market prices generally are not sustainable and are highly volatile. In the past, companies that experience volatility in the market price of their securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could result in substantial costs, divert our management’s attention and resources and harm our ability to grow our business.

22

Risk factors

We have reserved discretion in how we allocate our use of the net proceeds of this offering and if we do not use these proceeds effectively, we may fail to achieve our objectives and our stock price could decline.

We will have flexibility in applying the net proceeds of this offering among the categories of identified uses described in the “Use of proceeds” section of this prospectus. Although we expect to use the net proceeds in the approximate allocations described elsewhere in this prospectus, if we use the net proceeds for corporate purposes that do not yield a significant return or any return at all for our stockholders, our stock price could decline, and you may also not agree with how we allocate the net proceeds of this offering.

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

Provisions in our certificate of incorporation and bylaws could delay or prevent a change of control or change in management that would provide you with a premium to the market price of your common stock. These provisions include those:

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

In addition, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% stockholders that have not been approved by our board of directors. These provisions and others could make it difficult for a third party to acquire us, or for members of our board of directors to be replaced, even if doing so would be beneficial to our stockholders. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace the current management team. If a change of control or change in management is delayed or prevented, you may lose an opportunity to realize a premium on your shares of common stock or the market price of our common stock could decline.

We do not expect to pay dividends in the foreseeable future. As a result, you must rely on stock appreciation for any return on your investment.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Accordingly, you will have to rely on capital appreciation, if any, to earn a return on your investment in our common stock. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends.

23

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Special note regarding forward-looking statements

This prospectus, including the sections titled “Prospectus summary,” “Risk factors,” “Management’s discussion and analysis of financial condition and results of operations” and “Business,” contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in this prospectus other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “may,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “could,” “would,” “anticipate” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:

4	the unpredictability of our quarterly revenues and results of operations;
4	our estimates regarding market size, future revenues, expenses and capital requirements and needs for additional financing;
4	the rate and degree of market acceptance of our products;
4	our marketing and manufacturing capacity and strategy;
4	our ability to develop and market new and enhanced products;
4	the timing of and our ability to obtain and maintain regulatory clearances for our products;
4	the timing of and ability to obtain reimbursement for our diagnostic products; and
4	our competitors.

Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in “Risk factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

These forward-looking statements speak only as of the date of this prospectus. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See “Where you can find additional information.”

24

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Use of proceeds

We estimate that the net proceeds to us from the sale of the shares of common stock we are offering will be approximately $50.5 million, assuming an initial public offering price of $15.00 per share, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate the net proceeds to us from this offering will be approximately $58.4 million.

The primary purposes of this offering are to create a public market for our common stock, raise additional equity capital and facilitate future access to public markets. We intend to use the net proceeds of this offering as follows:

4	approximately $15.0 million to expand our sales and marketing efforts in the United States and internationally;
4	approximately $8.0 million for research and development activities related to product development, clinical trials and regulatory approvals for additional indications for our Fetal Fibronectin Test in the United States and internationally. Potential additional indications include induction of labor, prediction of delivery date and bladder cancer monitoring. We believe that completing clinical programs and preparing FDA submissions required in connection with any FDA approval or clearance for the induction of labor, delivery date and bladder cancer indications would require investments of at least $0.5 million, $2.0 million and $2.0 million, respectively. In addition, we believe that completing the work related to the FDA submission that would be required to apply for FDA reapproval of the SalEst Test would require at least $0.5 million;
4	approximately $7.0 million for research and development activities for oncology-related products and other areas; and
4	the balance for working capital and other general corporate purposes, including approximately $5.0 million for investment in working capital related to expected increases in accounts receivable and inventory and approximately $2.5 million for increases in general and administrative costs, in particular those associated with being a publicly-held company, support of our information technology and communication systems and costs related to human resources. We have no specific plan for use of the remaining proceeds.

We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products or technologies. Although we have no specific arrangements with respect to acquisitions, we evaluate acquisition opportunities and engage in related discussions from time to time. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds from this offering. We reserve the right to change the allocation of the net proceeds based on the changing needs of our business, including the progress and results of our research and development activities, the results of our sales and marketing efforts, acquisition opportunities and competitive developments. Accordingly, our management will have broad discretion in the application of the net proceeds and investors will be relying on the judgment of our management regarding the application of the proceeds of this offering.

Pending use of the proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments.

25

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Dividend policy

We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance operations. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants and other factors that our board of directors may deem relevant.

26

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Capitalization

The following table summarizes our capitalization as of September 30, 2004:

4	on an actual basis;
4	on a pro forma basis to give effect to:

4	the conversion of all 15,409,062 shares of our preferred stock outstanding as of September 30, 2004 into 11,957,322 shares of our common stock, which will become effective at the closing of this offering; and
4	the filing of an amended and restated certificate of incorporation to provide for an authorized capital stock of 5,000,000 shares of preferred stock and 100,000,000 shares of common stock; and

4  on a pro forma as adjusted basis to further reflect the sale of the shares of our common stock we are offering at an assumed public offering price of $15.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read the following table in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and related notes appearing elsewhere in this prospectus.

			As of September 30, 2004
									Pro forma
			Actual			Pro forma			as adjusted
			(in thousands, except share and
			per share data)
Cash and cash equivalents			$	14,638		$	14,638		$	65,151
Convertible preferred stock, $0.001 par value, 16,516,335 shares authorized, actual; 5,000,000 shares authorized, pro forma and pro forma as adjusted; 15,409,062 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted			$	61,484		$	—		$	—
Stockholders’ equity (deficit):
	Common stock, $0.001 par value, 25,000,000 shares
		authorized, actual; 100,000,000 shares authorized, pro forma and pro forma as adjusted; 182,519 shares issued and outstanding, actual; 12,139,841 shares issued and outstanding, pro forma; 15,889,841 shares issued and outstanding, pro forma as adjusted		—			12			16
	Additional paid-in capital			6,272			67,744			118,253
	Deferred compensation			(3,459	)		(3,459	)		(3,459	)
	Accumulated deficit			(46,354	)		(46,354	)		(46,354	)
Total stockholders’ equity (deficit)				(43,541	)		17,943			68,456
	Total capitalization		$	17,943		$	17,943		$	68,456

The number of shares of our common stock to be outstanding immediately after this offering is based on 12,139,841 shares of common stock outstanding as of September 30, 2004 after giving effect to the conversion of all 15,409,062 shares of preferred stock outstanding as of September 30, 2004 into 11,957,322 shares of common stock, which will become effective at the closing of this offering.

27

Capitalization

The number of shares of our common stock outstanding immediately after this offering excludes:

4	2,163,582 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2004 under our 1995 Stock Option and Restricted Stock Plan, at a weighted average exercise price of $4.70 per share;
4	196,915 shares of our common stock issuable upon the exercise of warrants outstanding as of September 30, 2004 at an exercise price of $3.50 per share;
4	17,056 shares of our common stock available for future grant under our 1995 Stock Option and Restricted Stock Plan as of September 30, 2004; and
4	1,875,000 shares of our common stock available for future grant under our 2004 Equity Incentive Plan, which will become effective upon the completion of this offering.

We expect to effect a three-for-four reverse split of our common stock prior to the closing of this offering. All common stock share prices and amounts set forth in the table above have been adjusted to give effect to this stock split.

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________________________________________________________________________________

Dilution

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share you will pay in this offering and the pro forma net tangible book value per share of our common stock immediately after this offering.

Our net tangible book value as of September 30, 2004 was approximately $(43.7) million, or $(239.59) per share of common stock. Net tangible book value per share is equal to our total tangible assets minus total liabilities, all divided by 182,519 shares of common stock outstanding as of September 30, 2004.

Our pro forma net tangible book value per share as of September 30, 2004 was approximately $1.46 per share. Pro forma net tangible book value per share gives effect to the conversion of all outstanding shares of our preferred stock as of September 30, 2004 into 11,957,322 shares of our common stock, which will become effective at the closing of this offering.

After giving effect to the sale of the 3,750,000 shares of common stock we are offering at an assumed initial public offering price of $15.00 per share, and after deducting underwriting discounts and commissions and our estimated offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2004 would have been approximately $68.3 million, or $4.30 per share.

This represents an immediate increase in pro forma net tangible book value of $2.84 per share and an immediate dilution of $10.70 per share to new investors. The following table illustrates this calculation on a per share basis:

Assumed initial public offering price per share				$	15.00
Net tangible book value per share as of September 30, 2004	$	(239.59	)
Pro forma increase in net tangible book value per share attributable to conversion of preferred stock outstanding at September 30, 2004		241.05
Pro forma net tangible book value per share of common stock as of September 30, 2004		1.46
Pro forma increase per share attributable to the offering		2.84
Pro forma as adjusted net tangible book value per share of common stock after this offering					4.30
Pro forma dilution per share to new investors				$	10.70

If the underwriters exercise their over-allotment option in full, our pro forma as adjusted book value will increase to $4.63 per share, representing an increase to existing holders of $3.17 per share, and there will be an immediate dilution of $10.37 per share to new investors.

The following table summarizes, on a pro forma as adjusted basis as of September 30, 2004, after giving effect to this offering, and the pro forma adjustments referred to above, the total number of shares of our common stock purchased from us and the total consideration and average price per share by existing stockholders and by new investors:

		Total shares					Total consideration
												Average price
		Number		Percent			Amount		Percent			per share
Existing stockholders			12,139,841		76.4	%	$	64,917,000		53.6	%	$	5.35
New investors			3,750,000		23.6			56,250,000		46.4			15.00
	Total		15,889,841		100.0	%	$	121,167,000	$	100.0	%

29

Dilution

If the underwriters exercise their over-allotment option in full, the following will occur:

4	the pro forma as adjusted percentage of shares of our common stock held by existing stockholders will decrease to approximately 73.8% of the total number of pro forma as adjusted shares of our common stock outstanding after this offering; and
4	the pro forma as adjusted number of shares of our common stock held by new public investors will increase to 4,312,500, or approximately 26.2% of the total pro forma as adjusted number of shares of our common stock outstanding after this offering.

The tables and calculations above are based on 182,519 shares of our common stock outstanding as of September 30, 2004 and excludes:

4	2,163,582 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2004 under our 1995 Stock Option and Restricted Stock Plan at a weighted average exercise price of $4.70 per share;
4	196,915 shares of our common stock issuable upon the exercise of warrants outstanding as of September 30, 2004 at an exercise price of $3.50 per share;
4	17,056 shares of our common stock available for future grant under our 1995 Stock Option and Restricted Stock Plan as of September 30, 2004; and
4	1,875,000 shares of our common stock available for future grant under our 2004 Equity Incentive Plan, which will become effective upon the completion of this offering.

If all of our outstanding options and warrants as of September 30, 2004 were exercised, the pro forma as adjusted net tangible book value per share after this offering would be $4.34 per share, representing an increase to existing holders of $2.88 per share, and there will be an immediate dilution of $10.66 per share to new investors.

30

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Selected financial data

We have derived the following statements of operations data for each of the three fiscal years ended December 31, 2001, 2002 and 2003 and the balance sheet data at December 31, 2002 and 2003 from our financial statements which have been audited by Ernst & Young LLP, independent registered public accounting firm, and which financial statements and the report thereon we include elsewhere in this prospectus. We have derived our statements of operations data for the fiscal years ended December 31, 1999 and 2000 and the balance sheet data at December 31, 1999, 2000 and 2001 from our audited financial statements that we do not include in this prospectus. The selected financial data at September 30, 2004 and for the nine months ended September 30, 2003 and 2004 have been 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. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. You should read the selected financial data 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.

31

Selected financial data

																	Nine months ended
		Years ended December 31,															September 30,
Statement of
operations data:		1999			2000			2001			2002			2003			2003			2004
		(in thousands, except share and per share data)
																	(unaudited)
Product sales			$3,776			$3,404			$6,742			$14,277			$26,499			$19,185			$24,405
Cost of product sales			1,880			2,023			2,521			3,715			6,087			4,621			895	(1)
Gross profit			1,896			1,381			4,221			10,562			20,412			14,564			23,510
Contract revenues			444			515			811			1,059			—			—			—
Operating costs and expenses:
	Selling and marketing		3,630			5,337			6,437			7,819			12,259			9,023			11,638
	General and administrative		1,481			1,641			2,033			2,069			2,730			1,791			2,631
	Research and development		2,014			1,893			2,145			2,047			2,001			1,519			1,755
Total operating costs and expenses			7,125			8,871			10,615			11,935			16,990			12,333			16,024
Income (loss) from operations			(4,785	)		(6,975	)		(5,583	)		(314	)		3,422			2,231			7,486
Other expenses, net			(11	)		(17	)		(21	)		(8	)		(33	)		(10	)		—
Interest income (expense), net			(779	)		(646	)		(85	)		(7	)		(19	)		(23	)		104
Income (loss) before income taxes			(5,575	)		(7,638	)		(5,689	)		(329	)		3,370			2,198			7,590
Provision for income taxes			—			—			—			—			135			113			307
Net income (loss)			$(5,575	)		$(7,638	)		$(5,689	)		$(329	)		$3,235			$2,085			$7,283
Net income (loss) per share:
	Basic		$(28.11	)		$(45.75	)		$(36.27	)		$(1.82	)		$17.78			$11.46			$39.97
	Diluted		$(28.11	)		$(45.75	)		$(36.27	)		$(1.82	)		$0.26			$0.17			$0.55
	Pro forma basic (unaudited)														$0.27						$0.60
	Pro forma diluted (unaudited)														$0.26						$0.55
Shares used in computing net income (loss) per share:
	Basic		198,358			166,942			156,857			181,188			181,965			181,900			182,223
	Diluted		198,358			166,942			156,857			181,188			12,515,063			12,429,763			13,364,494
	Pro forma basic (unaudited)														11,986,026						12,139,545
	Pro forma diluted (unaudited)														12,515,063						13,364,494

	As of December 31,
																As of September 30,
Balance sheet data:	1999			2000			2001			2002			2003			2004
																(unaudited)
	(in thousands)
Cash and cash equivalents		$3,071			$6,515			$16,674			$10,751			$12,092		$	14,638
Working capital		(2,586	)		(1,888	)		7,094			6,195			9,653			17,454
Total assets		6,137			8,234			17,714			15,731			18,716			23,813
Convertible preferred stock		36,577			45,637			60,984			60,984			61,484			61,484
Accumulated deficit		(43,216	)		(50,854	)		(56,543	)		(56,872	)		(53,637	)		(46,354	)
Total stockholders’ equity (deficit)		(42,188	)		(48,540	)		(54,217	)		(54,537	)		(51,279	)		(43,541	)

(1)  Cost of product sales for the nine months ended September 30, 2004 reflects a one-time reduction of accrued royalties of $2.7 million.

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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.

OVERVIEW

We design, develop, manufacture and market innovative products for women’s health. Our initial focus is on reproductive healthcare, using our proprietary technologies to predict preterm birth and assess infertility. Our principal product is a patented diagnostic test, the Fetal Fibronectin Test, that utilizes a single-use, disposable cassette and is analyzed on our patented instrument, the TLi_IQ System. This FDA-approved product is designed to objectively determine a woman’s risk of preterm birth by detecting the presence of a specific protein, fetal fibronectin, in vaginal secretions during pregnancy. We began selling our single-use, disposable Fetal Fibronectin Test in 1999 and launched our second-generation system, the TLi_IQ System, in 2001. Sales of TLi_IQ Systems to hospital and clinical laboratories allow healthcare providers access to the Fetal Fibronectin Test, resulting in the potential for better patient care and for significant cost savings by avoiding unnecessary medical treatment. To date, we have shipped over 1,270 TLi_IQ Systems and over 1.1 million Fetal Fibronectin Test cassettes.

We believe the key factors underlying our growth since 1999 include greater healthcare provider acceptance, demonstrated cost savings, expanded reimbursement coverage by insurance companies, expansion of our sales force and increased marketing efforts. Continued growth in test volume and revenue will depend on a number of factors, including placing additional TLi_IQ Systems in hospitals and clinical laboratories, increasing utilization of existing TLi_IQ Systems and developing additional applications or products.

Product sales

Our product sales are derived primarily from the sale of our disposable Fetal Fibronectin Test cassettes. In addition, we derive a small portion of our revenues from the sale of TLi_IQ Systems and other consumables. Sales in the United States accounted for 97% of our product sales in both the nine months ended September 30, 2004 and the year ended December 31, 2003. International sales accounted for 3% of our product sales in both the nine months ended September 30, 2004 and the year ended December 31, 2003. We currently use distributors for sales outside of the United States and Canada. Our business has been in the past and may continue to be seasonal and is affected by customer ordering patterns, which may involve quarterly or semi-annual orders, as well as other factors which may cause quarterly variances in our revenue. As such, revenue may not increase in sequential quarters and our net income may fluctuate significantly.

Cost of product sales

Our cost of product sales represents the cost of materials, overhead associated with the manufacture of our products, direct labor, delivery charges, lab services, royalties and product warranty obligations.

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Management’s discussion and analysis of financial condition and results of operations

Selling and marketing expenses

Selling and marketing expenses consist primarily of sales and marketing personnel compensation, sales force incentive compensation, travel, trade-shows, promotional materials and programs, advertising and healthcare provider education materials and events.

General and administrative expenses

Our general and administrative expenses consist primarily of personnel expenses for accounting, human resources, information technology and corporate administration functions. Other costs include facility costs and professional fees for legal and accounting services.

Research and development expenses

Our research and development expenses consist of costs incurred for company-sponsored and collaborative research and development activities. These expenses consist primarily of direct and research-related allocated overhead expenses such as facilities costs, salaries and benefits, and material and supply costs.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. 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

Our revenue from product sales is recognized when there is persuasive evidence an arrangement exists, the price is fixed or determinable, delivery to the customer has occurred and collectibility is reasonably assured. We use contracts and customer purchase orders to determine the existence of an arrangement. We assess whether the fee is fixed or determinable based on the terms of the agreement associated with the transaction. We use shipping documents and, if necessary, third-party proof of delivery to verify delivery. In order to determine whether collection is probable, we assess a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. Revenue from our laboratory services is recognized as tests are performed. Contract revenues are recorded over the life of the contract or as performance occurs and the related earnings process is completed based on the performance requirements of the contract.

With respect to sales to distributors, revenue is generally recognized upon shipment, as the title, risks and rewards of ownership of the products pass to the distributors and the selling price of our product is fixed and determinable at that point. The selling prices on sales to a certain distributor through June 30, 2002 were not fixed and determinable until the distributor shipped the products to the end user. Consequently, for this distributor, we recognized revenue only after the shipment of product to the end user. Additionally, on July 1, 2002, we entered into a services agreement with a laboratory and fulfillment company that performs diagnostic tests. Under the terms of the agreement, this company provides certain domestic product distribution and testing services for us. We recognize revenue upon the shipment of products from this company to the end user as the title, risks and rewards of ownership of the products pass from us to the end user at that time. Any advance payments received in excess of revenue recognized are classified as deferred revenue.

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Management’s discussion and analysis of financial condition and results of operations

Valuation of inventory

Inventories are stated at the lower of standard cost (which approximates actual cost) or market. We calculate an inventory reserve for estimated obsolescence or excess inventory based upon historical demand and assumptions about future demand for our products and market conditions. If our current assumptions about future demand change and if actual market conditions are less favorable than anticipated, additional inventory reserves may be required which would negatively impact our gross profit.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts related to the estimated losses that may result from the inability of our customers to make required payments. This allowance is determined based upon historical experience and any specific customer collection issues that have been identified. Historically, we have not experienced significant credit losses related to an individual customer or groups of customers in any particular industry or geographic area. However, deterioration in our ability to collect our receivables could result in an increase in our allowance for doubtful accounts and increase our general and administrative expenses.

Stock-based compensation expense

In connection with the grant of stock options to employees and directors, we record deferred stock compensation as a component of stockholders’ equity. Deferred stock compensation for options granted to employees and directors is recorded if the estimated fair value of our common stock on the date the options are granted is greater than their exercise prices. Deferred stock compensation is amortized as a charge to operations over the vesting periods of the options using the straight-line method. Additionally, for options granted to non-employees, the fair value of the options, estimated using the Black-Scholes valuation model, is periodically re-measured with the resulting value charged to expense over the period of the related services being rendered. We recorded stock-based compensation expense related to all of our options of $0, $5,000, and $23,000 for the years ended December 31, 2001, 2002 and 2003, respectively, and $454,000 for the nine months ended September 30, 2004. As of September 30, 2004, we had $3.5 million of deferred stock compensation that will be expensed over the next four years. The amount of stock-based compensation expense to be recorded in future periods may decrease if unvested options, for which deferred stock compensation has been recorded, are subsequently canceled.

RESULTS OF OPERATIONS

Nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003

Product sales

Product sales for the nine months ended September 30, 2004 were $24.4 million, an increase of 27.2%, or $5.2 million, from $19.2 million for the nine months ended September 30, 2003. The growth in sales was primarily due to an approximate $5.4 million increase in sales of Fetal Fibronectin Test cassettes, partially offset by slight decreases in other revenue of approximately $0.2 million.

Cost of product sales

Cost of product sales for the nine months ended September 30, 2004 was $0.9 million, a decrease of $3.7 million from $4.6 million for the nine months ended September 30, 2003. The decrease in cost of product sales was primarily the result of reduced royalty costs of $1.0 million and a one-time reduction in accrued royalties of $2.7 million that we determined were in excess of amounts actually due. In addition, decrease in other product costs of $0.6 million was offset by $0.6 million of costs related to increased unit volumes for the nine months ended September 2004 as compared to the

35

Management’s discussion and analysis of financial condition and results of operations

nine months ended September 2003. Non-royalty related costs were unchanged for the period ended September 30, 2004 from the period ended September 30, 2003 as costs related to increased unit sales were offset by lower unit manufacturing costs. As a percent of revenue, cost of sales was 14.9% of revenue for the nine months ended September 30, 2004, excluding the effect of the one-time reduction in accrued royalties, as compared to 24.1% for the same period in the prior year due to the reduction in royalty costs.

Gross profit

Our gross profit for the nine months ended September 30, 2004 was $23.5 million, an increase of $8.9 million from $14.6 million in the nine months ended September 30, 2003. The gross profit increase was primarily due to increased sales adding $4.6 million, a one-time reduction of accrued royalties of $2.7 million, and $1.6 million in reduced product costs. Gross margin was 85.1%, excluding a one-time reduction in accrued royalties, for the nine months ended September 30, 2004 as compared to 75.9% for the same period in 2003.

Selling and marketing expenses

Selling and marketing expenses for the nine months ended September 30, 2004 were $11.6 million, an increase of approximately 29% from $9.0 million for the nine months ended September 30, 2003. Selling and marketing expenses as a percentage of product sales increased slightly to 47.7% in the nine months ended September 30, 2004 from 47.0% in the nine months ended September 30, 2003. The increase was largely attributable to $1.4 million related to the expansion of our direct sales force, $0.6 million in increased marketing expenses to support the growth in product sales, and $0.3 million in stock-based compensation expense.

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2004 were $2.6 million, an increase of $0.8 million or 46.9% from $1.8 million for the nine months ended September 30, 2003. General and administrative expenses as a percentage of product sales were 10.8% and 9.3% for the nine months ended September 30, 2004 and 2003, respectively. The increase was primarily attributable to patent and legal expense increases of $0.5 million and increased personnel related expenses of $0.3 million.

Research and development expenses

Research and development expenses for the nine months ended September 30, 2004 were $1.8 million, an increase of 15.5% from $1.5 million for the same period in 2003. The increase was attributable to increased clinical trial expenses related to the induction of labor indication for the Fetal Fibronectin Test and personnel and related costs. Research and development expenses as a percentage of revenue decreased to 7.2% for the nine months ended September 30, 2004 from 7.9% for the same period in 2003.

Interest income (expense)

We recognized interest income of $104,000 for the nine months ended September 30, 2004, an increase of $18,000 from the same period in 2003, primarily due to higher cash balances earning interest. There was no interest expense for the nine months ended September 30, 2004 as compared to $109,000 of interest expense in the same period of 2003. The interest expense in 2003 was primarily related to notes payable in conjunction with the conclusion of a co-promotion and distribution agreement with a major US distributor. The note was repaid by June 30, 2003.

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Management’s discussion and analysis of financial condition and results of operations

Provision for income taxes

We recorded a provision for income taxes of $307,000 for the nine months ended September 30, 2004 related to federal alternative minimum taxes and state taxes compared to approximately $113,000 for the same period in 2003.

Our effective tax rate for the nine months ended September 30, 2004 was 4.0% compared to 5.1% for the nine months ended September 30, 2003. The effective tax rate for both periods is lower than the statutory rate due primarily to tax benefits arising from the utilization of net operating losses to the extent allowable under current law.

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

Product sales

Product sales for the year ended December 31, 2003 were $26.5 million, an increase of 85.6%, or $12.2 million from $14.3 million in 2002. The increase was primarily attributable to growth in unit sales of $6.0 million. The increase was also attributable to the reduction in revenue sharing of $4.8 million relating to the conclusion of our co-promotion and distribution agreement with a major US distributor, as well as an increase in average selling prices of $0.9 million. Under the terms of our co-promotion and distribution agreement, we recognized only a portion of US product sales. After June 30, 2002, we began to recognize 100% of US product sales, leading to significantly increased revenue during the second half of 2002.

Cost of product sales

Cost of product sales for the year ended December 31, 2003 was $6.1 million, an increase of 63.8% from $3.7 million in 2002. The increase was related primarily to the conclusion of the co-promotion and distribution agreement and the resulting increase in our product sales of Fetal Fibronectin Test cassettes. As a percentage of product sales, cost of product sales in 2003 decreased to 23.0% in the year ended December 31, 2003 from 26.0% in the year ended December 31, 2002.

Gross profit

Gross profit was $20.4 million in the year ended December 31, 2003 and $10.6 million in the year ended December 31, 2002. Gross margin for the year ended December 31, 2003 was 77.0%, as compared to 74.0% in 2002. The increase in gross profit was primarily due to the conclusion of the co-promotion and distribution agreement and the resulting increase in our product sales.

Contract revenue

We had no contract revenue in the year ended December 31, 2003. Contract revenue of $1.1 million was recognized in the year ended December 31, 2002. In 1999, we entered into a co-promotion and distribution agreement with a major US distributor. Under the agreement, the distributor paid us a nonrefundable one-time payment of $2.0 million in 1999. This one-time payment was being recognized as revenue over the estimated five-year life of the agreement. At the termination of the agreement in 2002, we recognized the balance of this deferred contract revenue. The distributor was also to pay us a total of up to $2.0 million during 2001 and 2002 to fund certain portions of the research and development efforts related to the products and services covered by this agreement. During the year ended December 31, 2002, we recognized $176,000 of such research and development revenue.

Selling and marketing expenses

Selling and marketing expenses for the year ended December 31, 2003 were $12.3 million, an increase of 56.8% from $7.8 million for the same period in 2002. The increase was primarily due to $3.0 million in costs associated with the expansion of our direct sales force and $0.9 million related to marketing expenditures.

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Management’s discussion and analysis of financial condition and results of operations

General and administrative expenses

General and administrative expenses for the year ended December 31, 2003 were $2.7 million, an increase of 31.9% from $2.1 million for the same period in 2002. The increase was primarily attributable to increased patent and other legal fees of approximately $0.4 million and increased insurance expense of $0.2 million.

Research and development expenses

Research and development expenses for the year ended December 31, 2003 were $2.0 million, unchanged from the same period in 2002. Lower clinical trial expenses in 2003 were offset by higher usage of supplies and service charges relating to FDA filing and user fees.

Interest income (expense)

We recognized interest income of $112,000 in 2003, a decrease of 47.2% from $212,000 in 2002. The decrease was primarily due to a higher average cash balance in 2002 and lower interest rates in 2003. We recognized interest expense of $131,000 in 2003, a decrease of 40.2% from $219,000 in 2002. The decrease is attributable to interest on capital lease obligations and notes payable which were fully paid in 2002, and interest from the note payable related to the terminated co-promotion and distribution agreement issued in June 2002.

Provision for income taxes

We recorded an income tax provision of $135,000 for the year ended December 31, 2003 related to federal alternative minimum taxes and state taxes. There was no tax provision recorded for the year ended December 31, 2002 due to an operating loss.

Because of our lack of earnings history, the deferred tax assets have been fully offset by a valuation allowance.

As of December 31, 2003, we had federal and state net operating loss carryforwards of approximately $40.3 million and $22.8 million, respectively. We also had federal and state research and development tax credit carryforwards of approximately $1.1 million and $0.9 million, respectively. The federal net operating loss and tax credit carryforwards will expire at various dates beginning in 2004 through 2022, if not utilized. The state net operating loss carryforwards will expire at various dates beginning in 2004 through 2013, if not utilized. The state research and development tax credits carry forward indefinitely.

Utilization of our net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating losses before utilization.

Year ended December 31, 2002 as compared to year ended December 31, 2001

Product sales

Product sales for the year ended December 31, 2002 were $14.3 million, an increase of 111.8% from $6.7 million for 2001. The increase was mainly attributable to an increase in unit sales of Fetal Fibronectin Test cassettes of $3.3 million and the favorable impact of $3.0 million from the conclusion of the co-promotion and distribution agreement with a major US distributor on June 30, 2002 with the addition of $1.2 million due to an increase in average selling price.

Cost of product sales

Cost of product sales for the year ended December 31, 2002 was $3.7 million, an increase of 47.4% from $2.5 million in 2001. The absolute dollar increase was primarily due to the favorable impact of the conclusion of the co-promotion and distribution agreement with a major US distributor. As a

38

Management’s discussion and analysis of financial condition and results of operations

percentage of product revenue, cost of product sales in 2002 was 26.0%, significantly lower than the 37.4% in 2001.

Gross profit

Gross profit was $10.6 million in the year ended December 31, 2002 and $4.2 million in the year ended December 31, 2001. Gross margin was 74.0% in 2002 and 62.6% in 2001. The increase was primarily attributable to the conclusion of the co-promotion and distribution agreement with a major US distributor and the resulting increase in our sales.

Contract revenue

Contract revenue for the year ended December 31, 2002 was $1.1 million, an increase of 30.6% from $0.8 million for 2001. In the years ended December 31, 2002 and 2001, respectively, we recognized $176,000 and $244,000 of research and development revenue from a co-promotion and distribution agreement with a major US distributor. Additionally, the Company received a nonrefundable, one-time $2.0 million payment from the distributor in 1999 that was being recognized as revenue over the estimated five-year life of the agreement. The amount of revenue recognized for the years ended December 31, 2002 and 2001 from this one-time payment was $574,000 and $400,000, respectively. Also included in contract revenue are reimbursements for research and development expenses from National Institutes of Health, or NIH, grants. Reimbursements recognized as revenue in 2002 and 2001 were $35,000 and $167,000, respectively.

Selling and marketing expenses

Selling and marketing expenses for the year ended December 31, 2002 were $7.8 million, an increase of 21.5% from $6.4 million in 2001. The increase was primarily due to $0.9 million of expenses related to the expansion of our direct sales force.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2002 were $2.1 million, relatively consistent with $2.0 million in 2001. Increases in personnel related expenses of $171,000, and legal fees of $47,000 were partially offset primarily by reduced bad debt expenses of $73,000.

Research and development expenses

Research and development expenses for the year ended December 31, 2002 were $2.0 million, a decrease of 4.6% from $2.1 million in 2001. The decrease was primarily due to lower clinical trial expenses partially offset by increased personnel expenses.

Interest income (expense)

We recognized interest income of $212,000 in the year ended December 31, 2002, a decrease of 22.1% from $272,000 in 2001. The decrease was primarily due to lower interest rates.

We recognized interest expense of $219,000 in the year ended December 31, 2002, a decrease of 38.7% from $357,000 in 2001. The decrease was attributable to declining interest expense related to capital lease obligations and notes payable.

Provision for income taxes

We recorded no income tax provision for 2002 or 2001 due to operating losses.

Because of our lack of earnings history, the deferred tax assets have been fully offset by a valuation allowance.

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Management’s discussion and analysis of financial condition and results of operations

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, our operations have been primarily financed through private equity investments, with the addition of capital leases, and research and development contracts. As of September 30, 2004 our cash and cash equivalents were $14.6 million. All of our cash equivalents have original maturities of three months or less.

During the nine months ended September 30, 2004, our operating activities provided cash of approximately $2.7 million, compared to approximately $3.7 million during the nine months ended September 30, 2003. The decrease was due primarily to an increase in net income more than offset by changes in working capital including increases in accounts receivable, prepaid and other assets and decreases in accrued royalties and accrued compensation.

Our investing activities used cash of approximately $138,000 during the nine months ended September 30, 2004 compared to $357,000 for the nine months ended September 30, 2003. Investing activities in 2004 were related to investments in equipment, while the investing activity in 2003 was primarily due to our acquisition of the SalEst Test.

No cash was used for financing activities during the nine months ended September 30, 2004 compared to $4.3 million used during the nine months ended September 30, 2003. The $4.3 million used during the nine months ended September 30, 2003 was primarily related to repayments of notes payable.

For the year ended December 31, 2003 our operating activities provided cash of approximately $5.5 million. This was an increase of $9.4 million from the cash used in operating activities of $3.9 million for the year ended December 31, 2002. This change was primarily due to a loss of $0.3 million in the year ended December 31, 2002 in comparison to net income of $3.2 million in 2003. Additionally, accounts receivable increased by $1.3 million in the year ended December 31, 2003, in comparison to an increase of $3.9 million in 2002, and deferred revenue increased by $0.2 million in 2003, in comparison to a decrease of $1.9 million in 2002. These changes in accounts receivable and deferred revenue were due primarily to the conclusion of the co-promotion and distribution agreement with a major US distributor.

For the year ended December 31, 2003 our investing activities used cash of approximately $0.4 million. This was an increase of $0.2 million from cash used in investing activities of $0.1 million for the year ended December 31, 2002. The increase was due to the purchase of intangible assets and equipment.

For the year ended December 31, 2003 our financing activities used $3.8 million. This was an increase of $1.9 million from cash used in financing activities of approximately $1.9 million for the year ended December 31, 2002. The increase was primarily attributable to payments on notes payable.

As of September 30, 2004, we had no long-term debt, capital lease obligations or long-term purchase agreements or commitments other than a facility lease which we have for a one-year term with two one-year renewal options and an operating lease for a new telephone system. Future operating lease payments under both of these leases are included in the table below. The table also reflects our expectations regarding reductions in accrued royalties.

	Payments due in
Contractual obligations	Total		2004		2005		2006		2007		2008		After 2008
Operating leases	$	254,000	$	77,000	$	148,000	$	13,000	$	13,000	$	3,000		—
Accrued royalties	$	547,000		—	$	547,000		—		—		—		—
Total	$	801,000	$	77,000	$	695,000	$	13,000	$	13,000	$	3,000		—

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Management’s discussion and analysis of financial condition and results of operations

In addition to cash generated from product sales, we believe our existing cash and cash equivalents, together with the estimated net proceeds from this offering, will be sufficient to meet our anticipated cash requirements for at least the next two years. However, future research and development, clinical trials and sales and marketing expenses, as well as administration support, may require additional capital resources. We may raise additional funds through public or private equity offerings, debt financings, capital lease transactions, corporate collaborations or other means. Due to the uncertainty of financial markets, financing may not be available to us on acceptable terms or at all. Therefore, we may raise additional capital from time to time due to favorable market conditions or strategic considerations even if we have sufficient funds for planned operations.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

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

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, clinical, sales and marketing programs or our entire business.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. Our adoption of the requirements of FIN 46 did not have an impact on our financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To date, all of our sales have been denominated in US dollars. Accordingly, we believe that there is no material exposure to risk from changes 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 at December 31, 2003 and September 30, 2004 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 in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies 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 interest rate risk arising from them.

41

________________________________________________________________________________

Business

OVERVIEW

We design, develop, manufacture and market innovative products for women’s health. Our initial focus is on reproductive healthcare, using our proprietary technologies to predict preterm birth and assess infertility. Our principal product is a patented diagnostic test, the Fetal Fibronectin Test, that utilizes a single-use, disposable cassette, and is analyzed on our patented instrument, the TLi_IQ System. This test is approved by the FDA for broad use in assessing the risk of preterm birth.

Our Fetal Fibronectin Test is designed to objectively determine a woman’s risk of preterm birth by detecting the presence of a specific protein, fetal fibronectin, in vaginal secretions during pregnancy. Testing for fetal fibronectin during pregnancy provides a more accurate assessment of the likelihood of a preterm birth than traditional methods. According to the New England Journal of Medicine, preterm births have historically accounted for up to 85% of all pregnancy-related complications and deaths in the United States. The March of Dimes estimated that over $13 billion in costs were associated with the care of preterm or low birth weight infants in 2001. By correctly identifying women at risk for preterm birth, we believe our Fetal Fibronectin Test leads to improved patient care and significant cost savings and has the potential to fundamentally change how healthcare providers select the appropriate course of treatment for pregnant women.

Healthcare providers have historically had difficulty with accurately predicting when a woman is likely to give birth. Data from numerous clinical studies have demonstrated that our Fetal Fibronectin Test has a greater predictive value than traditional risk assessment methods for identifying women at risk of preterm birth. For example, a negative Fetal Fibronectin Test for a woman presenting with signs and symptoms of preterm labor indicates a 99.5% probability that she will not deliver in the next 7 days. A negative test result enables the healthcare provider to avoid unnecessary and costly hospitalization and drug treatment. Although a positive Fetal Fibronectin Test result does not have the same predictive value as a negative test result, if the Fetal Fibronectin Test result is positive, the healthcare provider may proactively prescribe various treatments to delay or manage preterm labor and birth.

The patient population for which our Fetal Fibronectin Test is approved can be divided into three patient categories. The first category consists of women who present with signs and symptoms of preterm labor and are typically directed to the hospital. The second and third categories include women designated as either “high-risk” or “low-risk” for preterm birth by their healthcare providers, and who currently exhibit no signs and symptoms of preterm labor. We believe that by using the Fetal Fibronectin Test periodically during a pregnancy, healthcare providers can more accurately assess the likelihood that women in all three categories will not deliver preterm.

As of September 30, 2004, we have shipped more than 1,270 TLi_IQ Systems and over 1.1 million Fetal Fibronectin Test cassettes for use in hospital and clinical laboratories. As of September 30, 2004, our direct sales force consisted of 67 representatives who sell to hospital and clinical laboratories, health plans and healthcare providers. Our Fetal Fibronectin Test has been assigned a reimbursement code used for insurance processing of claims for the Fetal Fibronectin Test, and we believe that reimbursement for our Fetal Fibronectin Test has been regularly available through health plan organizations and most state Medicaid programs.

We also market and sell the E-tegrity Test, an infertility-related test based on a proprietary analyte specific reagent, to assess receptivity of the uterus to embryo implantation in women with unexplained infertility. The E-tegrity Test can be particularly useful for women who are considering assisted reproductive technologies, including in vitro fertilization, or IVF. We are also seeking to expand the indications for use of our Fetal Fibronectin Test for predicting successful induction of labor, for predicting delivery at term and for diagnostic applications in oncology, including bladder cancer.

42

Business

OVERVIEW OF TARGETED MARKETS

Preterm birth

There are approximately four million births in the United States annually. Births occurring before 37 weeks of pregnancy are defined as preterm, and in recent years, according to a 2003 publication by the Center for Disease Control and Prevention, or CDC, preterm births represent approximately 12% of all births. On average, this equates to over 1,300 preterm births per day, or 480,000 preterm births per year. According to the Centers for Disease Control and Prevention, the percentage of preterm births in the United States grew to 12% of all births in 2002, an increase of 29% since 1981. This increase in the preterm birth rate is a growing public health concern. In January 2003, the March of Dimes launched a five-year, $75 million campaign to reduce the number of preterm births.

According to a 1994 publication from the National Conference of State Legislators, the costs of newborn intensive care in the United States ranged between $20,000 and $400,000 per infant. According to a 2001 study from the March of Dimes, the average hospital charge for preterm/low birth weight infants was $75,000, compared to $1,300 for an uncomplicated newborn stay. Infants born preterm often receive specialized care in a neonatal intensive care unit, or NICU, with charges ranging from approximately $800 to $2,700 per day in 1998. In addition, medical costs following discharge for preterm births can be substantial as a result of ongoing physical and mental developmental complications. We believe medical costs can be reduced if women at risk of preterm birth could be identified earlier and appropriately treated.

Preterm birth market segments

Women that are evaluated and potentially treated for preterm birth fall into three categories:

4

Women with signs and symptoms of preterm labor— We believe that there are approximately 1 million episodes each year in the United States where women who were originally designated as either “high- risk” or “low-risk” for preterm birth seek urgent medical care for signs and symptoms of preterm labor. Some of these signs and symptoms include uterine contractions, cervical dilation, vaginal infection, backache, pelvic pain, abdominal fullness or discomfort, change in vaginal discharge and vaginal bleeding. However, as these signs and symptoms are common throughout pregnancy, they do not provide a sufficient basis for making an accurate diagnosis of preterm labor and impending birth. Without a reliable method to assess the risk of preterm birth, the healthcare provider may not be able to make appropriate treatment decisions, such as whether to hospitalize the woman, prescribe medications to delay the onset of labor or accelerate fetal lung development, request expensive transport to an advanced NICU facility, or instruct women to remain home on bed rest and discontinue employment. If appropriate, these interventions can significantly increase the chance of infant survival. If healthcare providers could accurately identify women at risk, they could avoid many unnecessary interventions and their associated costs.

4

Women designated as “high-risk” for preterm birth— We believe that up to 1.2 million women in the United States annually may be designated as “high-risk” for preterm birth during their pregnancy. Risk factors include previous preterm birth, multiple gestation, uterine anomalies, gestational diabetes, hypertension, low pre-pregnancy weight, use of illicit drugs, sexually transmitted diseases, vaginal infections, smoking, consumption of alcohol and demographic factors such as low socioeconomic status, certain ages and races. In addition, some women may also be designated as “high-risk” later in pregnancy when evaluated using a vaginally inserted ultrasound probe to assess cervical length. This method requires specially trained medical personnel, and its accuracy is highly dependent on specific user technique. However, healthcare providers have had limited success in accurately determining the risk of preterm birth based on these risk factors and evaluations. As a result, there is a need for an easy-to-use, objective method to identify women at multiple times during pregnancy who are truly at high risk for preterm birth.

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4 Women designated as “low-risk” for preterm birth— We believe that up to 2.8 million women annually in the United States with no known risk factors are designated as “low-risk.” However, according to the March of Dimes women with no known causes of preterm birth account for approximately 50% of all preterm births. We believe the ability to accurately diagnose which of these women are truly at high risk for preterm birth is currently beyond the scope of traditional evaluation methods. Women who are inaccurately identified as “low-risk” are excluded from the potential benefits of existing interventions. If these women could be accurately identified as “high-risk” by periodic testing, their pregnancies potentially could be prolonged with appropriate medical treatment and lifestyle changes. These treatments could result in substantial medical benefits to the mother and infant, as well as significant cost savings.

Current treatments and interventions for preterm birth

Identification of women at risk for preterm birth can be critical because the use of certain interventions to delay preterm birth may improve infant survival rates and reduce the severity of complications. Interventions may include hospitalization, consultation with a highly-skilled specialist, transport to a more advanced NICU facility, drug treatments such as tocolytics, which are used to delay the onset of birth by reducing contractions, corticosteroids for acceleration of fetal lung development, administration of progesterone to reduce the likelihood of preterm birth, antibiotics, and lifestyle modifications, including bed rest and discontinuing work.

There is ongoing research into the development of medications to further slow or prevent preterm births. For example, a multi-center, randomized, controlled, clinical trial was conducted by the National Institutes of Health and published in the New England Journal of Medicine in 2003 that used a progesterone formulation to prevent preterm birth in a group of “high-risk” women with a prior preterm birth. The study showed that in women with a prior preterm birth, there was a reduction in preterm birth by more than 33% in the treatment group as compared to a group treated with a placebo.

Infertility

According to the CDC National Center for Health Statistics, approximately 6.1 million women in the United States are affected by some form of infertility. It was estimated that approximately 1.2 million women had an infertility appointment in 1995 in the United States. Based upon a 1998 publication by the American Society for Reproductive Medicine, we believe approximately 10% to 15% of infertile women are classified as suffering from unexplained infertility where extensive tests for known factors have failed to reveal a cause. Infertile women are candidates for assisted reproductive technologies, including IVF.

According to the American Society of Reproductive Medicine, the average cost of an IVF cycle is $12,400. Receptivity of the uterus to undergo implantation varies by patient, and we are unaware of any current methods by which to evaluate women on this basis. The ability to predict good candidates for IVF procedures would help prevent unnecessary and costly IVF cycles.

Induction of labor

Induction of labor is the process by which medications and other treatments are used to initiate labor and delivery. According to a 2003 publication by the CDC, in 2002, 820,000 of the estimated four million births in the United States were induced. The same publication indicated that the percentage of induced labor more than doubled from approximately 9% in 1989 to approximately 21% in 2002. Induction of labor may be required for certain maternal or fetal conditions. In addition, we believe a number of inductions are elective in nature and performed for the convenience of the patient or healthcare provider. Healthcare providers have traditionally assessed women as candidates for successful induction of labor through the presence of certain clinical characteristics such as softness, dilation and thickness of the woman’s cervix. These clinical characteristics are not always reliable

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predictors of which women will be successfully induced. As a result, many women who are not good candidates for labor induction may endure prolonged dysfunctional induced labor with exposure to drugs such as cervical ripening agents or oxytocin and an elevated risk of cesarean section.

We believe the current use of subjective evaluation techniques to predict the successful induction of labor contributes to the annual cesarean section rate in the United States. Based upon a 2003 publication by the CDC, cesarean sections represented 26% of all births in the United States in 2002. This is the highest rate ever reported in the United States and has risen 26% since 1996. Delivery by cesarean section typically results in costs of approximately $2,000 more than vaginal delivery based on a 2002 article published by the American Journal of Obstetrics and Gynecology. In addition, unsuccessful induction of labor may be associated with medical complications for both the mother and infant, as well as increased hospital stays and neonatal costs. In addition, women who undergo a cesarean section are often encouraged to continue to have cesarean sections in subsequent pregnancies. An objective diagnostic test to assist healthcare providers in predicting the successful induction of labor would help improve labor success rates and reduce unnecessary cesarean sections.

Oncology — bladder cancer

According to a 2003 publication in the Journal of Clinical Ligand Assay, bladder cancer is the fifth most common cancer in the United States. The American Cancer Society estimates that there will be more than 60,000 new cases diagnosed in the United States in 2004. The National Cancer Institute found in a 1995 study that the existing patient population for bladder cancer is approximately 500,000 cases. According to a 2004 article published in Clinical Chemistry, following treatment, even patients initially diagnosed with superficial tumors must be monitored closely as two-thirds of these patients will experience a recurrence within five years and almost 90% will have a recurrence within 15 years. Current diagnostic tools and techniques include visual observation through cystoscopy, evaluation of potential cancer cells through cytology and assessment of tissue biopsies. There are several FDA-cleared tests for monitoring patients and a limited number of tests that have been approved by the FDA for use in screening for bladder cancer. However, these tests detect bladder cancer with varying degrees of success and are generally more successful in detecting more advanced cancers. We believe there is a market opportunity for a more accurate and reliable test to monitor and screen for bladder cancer at an early stage.

FETAL FIBRONECTIN OVERVIEW

Fetal fibronectin is a protein expressed in the fetal membranes and placenta at the interface between the mother and fetus. Fetal fibronectin is believed to play a role in the adhesion of the fetal membranes to the wall of the uterus. In a normal pregnancy, the level of fetal fibronectin in vaginal secretions is typically elevated through weeks 16 to 20 of gestation as the fetal membranes adhere to the uterine wall. From week 20 through week 35 of gestation, fetal fibronectin levels are typically low. As the pregnancy reaches term, the fetal fibronectin level rises significantly. Therefore, low levels of fetal fibronectin in vaginal secretions between week 20 and week 35 of gestation are highly correlated with a low risk of preterm birth, while high levels of fetal fibronectin during this time period indicate a greater risk of preterm birth. Testing for the presence or absence of fetal fibronectin enables healthcare providers to identify women at risk for preterm birth, and may also be useful in predicting the successful induction of labor.

Fetal fibronectin has also been shown to be present in certain forms of cancer. In oncology, fetal fibronectin is referred to as oncofetal fibronectin. The protein is expressed in several forms of cancer where its adhesive properties may help the cancer to attach to tissue and grow. Oncofetal fibronectin can potentially be detected in cancerous tissues or in fluids that come into contact with those tissues.

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THE ADEZA SOLUTION

We believe that our proprietary, FDA-approved diagnostic test and instrument, the single-use, disposable Fetal Fibronectin Test and the TLi_IQ System have the potential to fundamentally change how healthcare providers select the appropriate course of treatment for pregnant women and to become a standard of care for use in pregnancy. The clinical efficacy of our fetal fibronectin test for preterm birth has been demonstrated in numerous peer-reviewed clinical publications, including the Peaceman et al. trial, published in the American Journal of Obstetrics and Gynecology, and the Goldenberg et al. trial, published in the American Journal of Public Health and Obstetrics & Gynecology, two multi-center clinical trials. Our Fetal Fibronectin Test was used to obtain the results described in each of these publications. In addition, cost savings resulting from the use of our test have also been confirmed in peer-reviewed publications such as articles published by Joffe et al. and Giles et al. in the American Journal of Obstetrics and Gynecology.

The Fetal Fibronectin Test and the TLi_IQ System have the following key characteristics:

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

We market the Fetal Fibronectin Test to healthcare providers for women who are seeking urgent medical care for signs and symptoms of preterm labor in the hospital. While a woman is being evaluated, the Fetal Fibronectin Test is run in the hospital laboratory with the result generated in less than 25 minutes. A negative Fetal Fibronectin Test for women with signs and symptoms of preterm labor effectively rules out the chance of preterm birth in the next seven days, with a 99.5% probability, as reported by Peaceman et al. in the American Journal of Obstetrics and Gynecology and incorporated in our FDA labeling. We believe this avoids unnecessary hospitalization, medications, hospital transport, or bed rest. A positive Fetal Fibronectin Test provides the healthcare provider with a more accurate assessment of who will deliver preterm in the next seven days than traditional risk factors. The probability of a preterm birth within seven days of a positive Fetal Fibronectin Test is 12.7%, according to data collected by Peaceman et al. and incorporated in our FDA labeling. By comparison, the Peaceman et al. data indicates that traditional risk factors such as genital tract infection, uterine activity, vaginal bleeding and cervical dilation have positive predictive values of only 1.7%, 6.3%, 7.6% and 8.5%, respectively. If the Fetal Fibronectin Test is positive, the healthcare provider may proactively prescribe various treatments to delay or manage preterm labor and birth.

We also market the Fetal Fibronectin Test to healthcare providers for women who have been designated as “high-risk.” These women should be carefully monitored throughout their pregnancy, and a Fetal Fibronectin Test can be used multiple times in their pregnancy during their frequent visits to their healthcare provider’s office. In those cases, fetal fibronectin samples are collected from women in healthcare providers’ offices and picked up for testing by a clinical laboratory. Results are typically returned to the healthcare provider within 24 hours. The use of the Fetal Fibronectin Test for this patient population helps to identify women who are not at risk of delivering preterm.

In addition, we believe that our product has the potential to be used in routine patient visits for women who have been designated as “low-risk” by their healthcare providers. According to a 2001 article published in the American Journal of Obstetrics and Gynecology, over 50% of all preterm births occur when no major risk factors are present. Our Fetal Fibronectin Test may provide an

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objective test for identifying additional women who are at risk of preterm birth and, when used in conjunction with traditional diagnostics such as ultrasound, could potentially enable early intervention.

In these “high-risk” and “low-risk” patient categories, a large, multi-center, peer reviewed clinical study by Goldenberg, et al. in the American Journal of Obstetrics and Gynecology comparing the most common predictors of preterm birth demonstrated that the Fetal Fibronectin Test was the single strongest predictor of preterm birth at less than 35 weeks of pregnancy.

A peer-reviewed, cost-benefit study published in 1999 by Joffe, et al. in the American Journal of Obstetrics and Gynecology addressed the potential impact of the Fetal Fibronectin Test in a hospital system. Data obtained from a year when the Fetal Fibronectin Test was utilized was compared to the prior year when the test was not available. Use of the Fetal Fibronectin Test resulted in a significant cost savings for the hospital system by reducing preterm labor hospital admissions, length of stay, and prescriptions for tocolytic agents. Preterm labor hospital admissions alone were decreased by approximately 40%.

We believe our potential aggregate market size is defined by the number of pregnant women who are potential candidates for the Fetal Fibronectin Test and the number of tests they may receive during their pregnancies. We believe that every year approximately 800,000 women with signs and symptoms of preterm labor are candidates for one Fetal Fibronectin Test per episode during their hospital visit, and that there are approximately 1.2 million women each year who are designated as “high-risk” and who are candidates to be tested three times, on average, during their regularly scheduled office visits. We estimate that these two patient populations represent a total market opportunity of approximately 4.4 million tests, or over $400 million, annually. If we are able to expand the use of the Fetal Fibronectin Test with the approximately 2.8 million women per year who we believe are designated as “low-risk” and who are candidates to be tested three times, on average, during their regularly scheduled office visits, this would represent an additional potential market opportunity of 8.4 million tests annually. We estimate that the potential aggregate annual market size for all Fetal Fibronectin Tests, including preterm and other uses, can be greater than $1 billion.

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PRODUCTS

The following table summarizes information related to our principal products and certain products under development.

	Product	Use	Status
Marketed products
Preterm birth	Fetal Fibronectin Test for the TLi IQ System	Prediction of preterm birth 4  Women with signs and symptoms 4  Women at “high-risk” 4  Women at “low-risk”	Commercially available
Infertility	E-tegrity Test	Uterine receptivity	Commercially available
Products under development
Other pregnancy products
Induction of labor	Fetal Fibronectin Test for the TLi IQ System	Successful induction of labor	FDA review pending
Preterm birth	SalEst Test	Prediction of preterm birth	In commercial development
Delivery date	Fetal Fibronectin Test SalEst Test	Prediction of delivery date	In development
Oncology products
Bladder cancer	oncofetal fibronectin test for the TLi IQ System	Monitoring and screening	In development

We also sell certain consumables related to our principal products and a fetal fibronectin test intended for certain international markets. None of these consumable or international specific products represent a material portion of our revenues.

Marketed products

Preterm birth products

Our Fetal Fibronectin Test has been approved by the FDA for assessing the risk of preterm birth. We manufacture and market the patented single-use, disposable Fetal Fibronectin Test, which is performed on our patented instrument, the TLi_IQ System. The Fetal Fibronectin Test cassette is sold directly to hospital and clinical laboratories that perform the test and provide results to healthcare providers.

TLi_IQ System. The TLi_IQ System consists of the TLi_IQ instrument and printer. The TLi_IQ instrument is small and compact, approximately eight inches long by seven inches wide by three inches high, and is composed of:

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

The printer for the TLi_IQ System generates a label with the patient test result.

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Fetal Fibronectin Test cassette. The Fetal Fibronectin Test cassette is a single-use, dry chemistry cassette. All the necessary reagents for one test are contained within the cassette.

Test procedure. A healthcare provider collects a sample of the patient’s vaginal secretions using our Fetal Fibronectin Specimen Collection Kit. The Fetal Fibronectin Specimen Collection Kit contains a sterile polyester swab and specimen transport tube. The swab is placed into the transport tube, which contains a proprietary buffer solution that extracts and stabilizes the fetal fibronectin sample during transport. The transport tube containing the patient sample is sent to the hospital or clinical laboratory for analysis on the TLi_IQ instrument. At the laboratory, the Fetal Fibronectin Test cassette is inserted into the chamber of the TLi_IQ instrument, and then the patient sample is dispensed into the sample well to begin the Fetal Fibronectin Test. The TLi_IQ instrument produces a positive or negative test result in less than 25 minutes and prints the test result on a label that can be affixed to the patient’s record. The Fetal Fibronectin Test can be easily run with minimal training of laboratory personnel required.

Infertility products

E-tegrity Test. The E-tegrity Test is a patented diagnostic test designed to determine receptivity of the uterus to embryo implantation. The E-tegrity Test identifies the presence or absence of a unique protein, alpha-v beta-3 integrin, important for implantation to occur. This unique protein is the basis of our proprietary analyte specific reagent, or ASR, on which the E-tegrity Test is based. If a woman is missing the alpha-v beta-3 integrin protein between days 20 to 24 of her menstrual cycle, the fertilized egg may not attach properly to the epithelial lining of the uterus. As a result, a woman’s chances of a successful pregnancy are significantly decreased.

The E-tegrity Test provides healthcare providers with a new method for potentially explaining the cause of a woman’s infertility. Women who may be helped by the E-tegrity Test include women that are having difficulty getting pregnant by natural means, women who are considering assistive reproductive technologies, and women who have already tried IVF without success. A negative test provides a potential reason for the woman’s infertility, and the healthcare provider can then initiate appropriate treatments to potentially increase the chance for successful embryo implantation. We believe the E-tegrity Test can provide significant cost savings by potentially reducing the number of failed IVF cycles. Peer-reviewed publications have shown that women missing alpha-v beta-3 integrin can benefit from drug therapy that improves uterine receptivity for embryo implantation. We perform the E-tegrity Test exclusively in our CLIA-certified laboratory, Adeza Diagnostic Services.

Products under development

Pregnancy products

Induction of labor

Fetal Fibronectin Test. In addition to the current preterm birth indications for our Fetal Fibronectin Test, we have completed a major multi-center study on over 800 patients evaluating the use of the Fetal Fibronectin Test to predict the successful induction of labor. The results from this study have been incorporated into a PMA supplement which has been submitted to the FDA. The FDA has placed its review of the supplement on hold pending the outcome of a third-party audit of all our clinical sites.

Preterm birth

SalEst Test. In 2003, we acquired the exclusive rights to a proprietary test that measures the level of estriol in a pregnant woman’s saliva. This test, called SalEst, was approved by the FDA in 1998 under a PMA to predict preterm birth, but has not been commercially available since 2001 due to financial difficulties experienced by the company that originally developed the product. Since the acquisition of the SalEst product in late 2003, we have been working to establish the manufacturing of this product in our facility. The SalEst product may offer complementary diagnostic information to the Fetal Fibronectin Test. Before marketing the SalEst product in the United States, we will need to complete a

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change of manufacturing site and ownership amendment to the previously approved PMA. We do not currently recognize any revenue from sales of the SalEst Test.

Delivery date

Fetal Fibronectin Test/ SalEst Test. We are evaluating both the Fetal Fibronectin Test and the SalEst Test to more accurately predict the delivery date in term pregnancies. Several peer-reviewed publications, such as publications by Lockwood, et al. in the American Journal of Obstetrics and Gynecology, Luton, et al. in the European Journal of Obstetrics & Gynecology and Reproductive Biology and Mouw et al. in the New England Journal of Medicine, use the Fetal Fibronectin Test as a predictor of delivery date in which higher levels of fetal fibronectin indicate increased birth probability. Feasibility studies and a PMA supplement would be required to allow for commercial use of the Fetal Fibronectin Test or the SalEst Test for this indication.

Oncology products

We are exploring applications for oncofetal fibronectin in oncology and have initially focused our efforts in the area of bladder cancer. In addition, we are developing and evaluating protocols, and plan to perform preliminary feasibility studies for the use of oncofetal fibronectin for the detection of cervical and ovarian cancer.

Bladder cancer

We are developing an oncofetal fibronectin test for the detection of bladder cancer using urine samples. A third-party preliminary feasibility study conducted in Germany, published in 2001 in the peer-reviewed journal Oncology Reports, on 40 bladder cancer patients and 20 non-cancer control patients evaluated whether oncofetal fibronectin could be detected in the urine of bladder cancer patients using our test. The results of this study showed that 38 of the 40 bladder cancer patients tested positive for oncofetal fibronectin using our test (a 95% detection rate) while all 20 of the control patients tested negative. In this study, the relationship between a positive oncofetal fibronectin test and the presence of bladder cancer was statistically significant (p < .001). This preliminary feasibility study included a small number of patients, and later studies may not confirm the results from this study. We recently initiated another study in Germany to expand on the earlier study and to obtain further clinical data.

OUR STRATEGY

Our goal is to be a leader in the development and commercialization of proprietary diagnostic products for reproductive healthcare. In addition, we intend to commercialize products for diagnostic applications in oncology. We believe that our products can assist healthcare providers in making more timely and accurate diagnoses, leading to improved quality of care and significant cost savings for the healthcare system. The key elements of our strategy are to maximize the value of our commercialized products and build for future growth by continuing to develop our product pipeline. In order to effectively execute this strategy we plan to:

Leverage existing sales and marketing infrastructure to increase market penetration

As of September 30, 2004, our existing sales force consisted of 67 direct sales representatives. We intend to leverage these representatives to increase market penetration of our TLi_IQ System in hospital and clinical laboratories as well as to increase the number of Fetal Fibronectin Tests run on each TLi_IQ System within our current customer base. Our direct sales representatives call on healthcare providers in the hospital and office setting, as well as on clinical laboratories and health plans, to broaden the overall awareness of our Fetal Fibronectin Test and its associated benefits. Our sales representatives use peer-reviewed publications, cost-benefit data, case studies and other marketing materials to promote the benefits of our Fetal Fibronectin Test and drive increased utilization. In addition, our marketing organization has implemented a national speakers program where healthcare providers, such as

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maternal fetal medicine specialists, obstetricians, nurses and midwives conduct educational presentations at hospitals, professional meetings and conferences to increase awareness of our Fetal Fibronectin Test.

Increase marketing for women designated as “high-risk”

We have expanded our target market for the Fetal Fibronectin Test to include women designated as “high-risk” for preterm birth by their healthcare provider. Of our 67 direct sales representatives, 47 are primarily focused on healthcare providers in the office setting to drive utilization of our Fetal Fibronectin Test for “high-risk” women to address a need to more accurately assess risk at multiple times during pregnancy. As we further penetrate the “high-risk” market, we plan to increase the number of direct sales representatives focused on healthcare providers serving this patient population. In addition to targeting healthcare providers, we are increasing our direct marketing efforts to women and health plans for this “high-risk” patient population. We provide specific patient-focused material for placement in healthcare provider offices. We also conduct presentations to medical directors and case managers of health plan organizations, exhibiting the benefits of utilizing our Fetal Fibronectin Test in this “high-risk” patient population.

Expand marketing to “low-risk” patient population

As we further penetrate the market for women with signs and symptoms of preterm birth and women designated as “high-risk,” we plan to expand our focus to market our Fetal Fibronectin Test for routine patient visits in “low-risk” women. By increasing market penetration and continuing to educate healthcare providers on the benefits of our Fetal Fibronectin Test, we believe we have the potential to penetrate the “low-risk” patient population for the assessment of the risk of preterm birth. Because over 50% of all preterm births occur when no major risk factors are present, there is a need to more accurately assess risk at multiple times during pregnancy. Our Fetal Fibronectin Test could be used to predict the likelihood of preterm birth during a woman’s routine visits to her healthcare provider. Our sales and marketing efforts will ultimately be focused on penetrating this “low-risk” patient population for routine patient visits.

Expand international sales

We are currently focused on the US market, but we intend to expand into additional geographic regions. We currently sell directly into Canada and have relationships with approximately 15 international distributors in areas such as Mexico, Europe, the Pacific Rim and South America. Although we have not yet targeted specific foreign countries, we intend to hire additional sales representatives to focus on international markets and to increase our international distribution network through strategic partners and distributors that have significant presence and experience in their local markets. We believe that populous countries with high birth rates may have markets sufficiently large to justify investment in developing distribution channels there. We intend to begin the expansion of our international sales and distribution efforts within 12 months.

Seek additional indications for our Fetal Fibronectin Test

In addition to the current indications for our Fetal Fibronectin Test, we have submitted a PMA supplement for FDA review and approval to expand the labeling of the Fetal Fibronectin Test to be used as a predictor of the successful induction of labor. Of the more than 820,000 births in the United States annually that are induced, we believe a number are elective in nature due to patient or healthcare provider convenience. Many women endure prolonged dysfunctional induced labor, increased hospital stays, elevated risk of cesarean section and increased neonatal costs. Our Fetal Fibronectin Test may provide an objective diagnostic test to assist healthcare providers in predicting the successful induction of labor. In addition, we are developing a product to more accurately predict delivery date in full-term pregnancies.

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Develop products for applications in oncology

We are developing an oncofetal fibronectin test for the detection of bladder cancer. The results from a preliminary feasibility clinical study in Germany suggests that bladder cancer can be detected in the urine of bladder cancer patients with our oncofetal fibronectin test. We recently initiated another study in Germany to expand on the earlier study and to obtain further clinical data from a larger patient population. In addition, we are developing and evaluating protocols for cervical and ovarian cancer detection studies.

Strategically acquire or in-license complementary businesses, products or technologies

In addition to our own product development efforts, we intend to expand our product portfolio by selectively acquiring or in-licensing complementary businesses, products or technologies that could be sold by our existing direct sales force. For example, we acquired the exclusive rights to the SalEst Test in late 2003. We are continually identifying and evaluating new opportunities that would meet these criteria and further strengthen or expand our current programs.

SALES AND MARKETING

We focus our sales and marketing efforts on increasing awareness of our products and services among healthcare providers, hospitals, laboratories, health plans, and patients, where we have initiated branding of our test as Full Term, The Fetal Fibronectin Test. Our strategy is to sell and market our products through our direct sales force in the United States and Canada, and distributors worldwide. We choose our partners and distributors on a country-by-country basis. As of September 30, 2004, we had 67 direct sales representatives in North America, including 16 who have a primary focus on hospital and laboratory sales, 47 who have a primary focus on healthcare providers in the office setting, three health plan sales representatives and one sales representative covering Canada. Our direct sales force includes some full-time sales representatives provided to us by a third party, who are directly managed by us, sell our products exclusively and are an integral part of our sales team.

US sales and marketing

Our hospital and clinical laboratory sales representatives focus primarily on selling the TLi_IQ System and Fetal Fibronectin Test to hospital and clinical laboratories, including some of the leading national laboratories in the United States. Our healthcare provider sales representatives focus on the estimated 1,300 maternal fetal medicine specialists, who focus on high-risk pregnancies, 25,000 Ob/ Gyn physicians, as well as nurses and midwives. Our health plan sales representatives focus on chief medical officers, medical directors, and case managers of health plans.

We are focused on increasing healthcare provider, hospital, laboratory, health plan, and patient awareness of the Fetal Fibronectin Test and its associated benefits through our direct sales and marketing efforts. In our selling process, we use peer-reviewed publications, cost-benefit data and case studies. Peer-to-peer selling is also a critical element of our strategy. Our marketing organization has implemented a national speakers program where healthcare providers such as maternal fetal medicine specialists, obstetricians, nurses, and midwives make educational presentations at hospitals, professional meetings, and conferences to increase awareness of our Fetal Fibronectin Test. We also conduct presentations at health plan organizations to medical directors and case managers. Our marketing professionals support sales of our Fetal Fibronectin Test with product literature and training materials for healthcare providers, laboratories, and health plans.

An additional element of our educational efforts is our relationship with the March of Dimes. We are a national corporate supporter of the March of Dimes Prematurity Campaign. The goals of our relationship are to educate families on the problems associated with preterm birth, as well as to highlight the immediate and long term costs of preterm birth for health plans, through co-branded educational brochures and medical seminars.

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International sales and marketing

Our international sales and marketing efforts address the particular healthcare systems of individual countries through a network of approximately 15 international distributors with expertise in their markets. Our internal marketing professionals support these distributors. We intend to expand our international marketing efforts by increasing our international direct sales force, as well as broadening our international distribution network through strategic partners and distributors that have significant presence and experience in their local markets. In Japan and South Korea, we have a strategic partnership with Daiichi Pure Chemicals Co. Ltd.

We also manufacture and market other fetal fibronectin test formats that are sold in international markets and are designed to meet certain criteria specific to these markets.

MANUFACTURING

We conduct a majority of the manufacturing for our Fetal Fibronectin Test cassettes and TLi_IQ System at our 17,600 square foot manufacturing facility, located in Sunnyvale, California. This facility is subject to the current good manufacturing practices, or cGMP, enforced by the FDA. The manufacturing process for our products includes assembly, testing, packaging, labeling, component inspection and final inspection of products that have been manufactured by us or to our specifications by outside contractors. Our quality assurance group independently inspects our products to verify that all components and finished products comply with our specifications and applicable regulatory requirements.

We are licensed by the State of California, Department of Health Services Food and Drug Branch and are also registered with the FDA as a device manufacturer.

We purchase components for our Fetal Fibronectin Test and TLi_IQ System products from various suppliers. The components we purchase are generally available from more than one supplier. For those components for which there are relatively few alternate sources of supply, we believe that even in the event of a disruption of supply of any required materials, we could establish additional or replacement sources of supply without materially interrupting the availability of our products.

Our quality assurance systems are required to be in conformance with the Quality System Regulations, or QSR, as mandated by the FDA. We have ISO 13485 certification for our quality system which is required in Canada. Our products are CE marked in accordance with the European In Vitro Diagnostic Directive.

RESEARCH AND DEVELOPMENT

Our research and development efforts are conducted internally and through collaborations with academic investigators and clinicians. Our research and development is focused on enhancements to existing products and developing additional products within women’s health, including pregnancy and infertility, and in oncology. As of September 30, 2004, we had 11 employees conducting research and development.

GOVERNMENT REGULATION

United States

The research, development, manufacture, labeling, distribution and marketing of our products are subject to extensive regulation by the Food and Drug Administration and other regulatory bodies. The FDA regulates our currently marketed products as medical devices and we are required to obtain review and clearance or approval from the FDA prior to commercializing our devices.

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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, or PMA, from the FDA. The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risk are placed in either Class I or II, which requires the manufacturer to submit to the FDA a premarket notification requesting permission for commercial distribution of a device that is substantially equivalent to a predicate device that has already received 510(k) clearance or was commercialized prior to May 28, 1976. This process is known as 510(k) clearance and was used for authorization of our Fetal Fibronectin Specimen Collection Kit. Some low-risk Class I devices are exempt from the 510(k) requirement altogether. Devices deemed by the FDA to pose greater risk, or devices deemed not substantially equivalent to a previously cleared 510(k) device are placed in Class III, most of which require premarket approval, such as our Fetal Fibronectin Test and TLi_IQ System. Both premarket clearance and premarket approval applications are subject to the payment of user fees, paid at the time of submission for FDA review.

510(k) clearance pathway

To obtain 510(k) clearance, a premarket notification must be submitted, 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 premarket approval applications. The FDA’s 510(k) clearance pathway usually takes from three to six months from the date the application is submitted, but it can take significantly longer.

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, will require a new 510(k) clearance or could require premarket approval. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or premarket approval is obtained. If the FDA requires us to seek 510(k) clearance or premarket approval for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance or approval. Also, in these circumstances, we may be subject to significant regulatory fines or penalties.

Premarket approval pathway

A PMA application must be submitted if the device cannot be cleared through the 510(k) process, and is usually utilized for Class III medical devices, or devices that pose a significant safety risk, including unknown risks related to the novelty of the device. A PMA application must be supported by extensive data including, but not limited to, technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. Technical performance data required for in vitro diagnostic device PMA applications may include validation of the performance of hardware and software under repeat testing, calibration of mechanical components and stability of reagents and other products used in specimen collection, storage and testing. Preclinical trials may include tests to determine product stability and biocompatibility, among other features. Preclinical studies must be conducted in accordance with Good Laboratory Practices. PMA clinical trials are conducted under an Investigational Device Exemption and are designed to demonstrate the performance characteristics of the device relating to safety and effectiveness for the commercially intended use.

After a PMA approval application is complete, the FDA begins an in-depth review of the submitted information, which generally takes between one and three years, but may take significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. For example, the FDA has placed its review of our PMA supplement seeking

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approval for use of our Fetal Fibronectin Test in predicting successful induction of labor on hold while a third party we have engaged conducts an audit of all of the clinical study sites because of the number of protocol deviations, in order to confirm the accuracy of the data. Upon completion of the third-party audit, we will need to submit new analyses of the data and a corrective action plan to the FDA before it will resume its review of the application.

Also during the PMA review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. In addition, the FDA will conduct a preapproval inspection of the manufacturing facility to ensure compliance with quality system regulations. New PMA applications or PMA supplements are required for significant modifications to the manufacturing process, labeling or design of an approved device. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA, and may not require as extensive clinical data or the convening of an advisory panel, which makes recommendations to the FDA concerning the approval of a PMA.

In vitro diagnostic medical devices

In addition to our FDA-approved and cleared medical devices in distribution, we provide the E-tegrity Test as a test run in our own CLIA-certified laboratory, Adeza Diagnostic Services, for the detection of defects in uterine receptivity. This in-house test is permitted to utilize an analyte specific reagent, an ASR or active ingredient, the use of which has been validated in our clinical laboratory. While we receive specimens in our lab for the E-tegrity Test, the active ingredient of the test itself has not been validated outside of, and is not marketed outside of, our lab. Under the FDA’s requirements, E-tegrity Test results are provided with a disclaimer concerning the absence of an FDA requirement for clearance or approval of ASRs. We do not intend to seek FDA clearance or approval for broader use of the E-tegrity Test.

Continuing FDA regulation

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

4	quality system regulation, or QSR, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process, otherwise known as Good Manufacturing Practices or GMPs;
4	labeling regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and
4	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.

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

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

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We are also subject to unannounced inspections by the FDA and the Food and Drug Branch of the California Department of Health Services.

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.

INTELLECTUAL PROPERTY

Protection of our intellectual property is a strategic priority for our business, and we rely on a combination of patent, trademark, copyright and trade secret laws to protect our interests. Our ability to protect and use our intellectual property rights in the continued development and commercialization of our technologies and products, operate without infringing the proprietary rights of others, and prevent others from infringing our proprietary rights, is crucial to our continued success. We will be able to protect our products and technologies from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents, trademarks or copyrights, or are effectively maintained as trade secrets, know-how or other proprietary information.

We seek US and international patent protection for our reagents, collection kits, diagnostic systems and other components of our products, and all other commercially important technologies we develop.

We devote significant resources to obtaining, enforcing and defending patents and other intellectual property and protecting our other proprietary information. We have already obtained patents or filed patent applications on a number of our technologies, including important patents and patent applications relating to fetal fibronectin, our TLi_IQ System, and the Fetal Fibronectin Test. If valid and enforceable, these patents may give us a means of blocking competitors from using similar or alternative technology to compete directly with our products. We also have certain proprietary trade secrets that are not patentable or for which we have chosen to maintain secrecy rather than file for patent protection. With respect to proprietary know-how that is not patentable, we have chosen to rely on trade secret protection and confidentiality agreements to protect our interests.

We believe that our portfolio of issued patents and patent applications, together with our exclusively licensed patents described under “License and Other Agreements”, provides patent coverage for our proprietary technologies and products. As of September 30, 2004, our intellectual property estate consisted of 157 issued patents or patent applications, as follows:

4	28 issued US patents;
4	8 US non-provisional patent applications;
4	5 US provisional patent applications;
4	102 issued foreign patents;
4	13 foreign patent applications that are in various national stages of prosecution, which means that the applications have been filed in specific foreign jurisdictions; and
4	1 foreign patent application not at the national stage.

Each of the foreign filings corresponds in subject matter to a US patent filing. We solely own or have exclusively licensed all of the patents and patent applications set forth above.

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Our patent portfolio as of September 30, 2004 is summarized in the following table:

					Foreign patents		Foreign applications
Category	US patents granted		US applications filed		granted		filed
Methods of Use		14		7		54		7
Detection Systems		8		3		46		3
Platforms/Other Devices		6		3		2		4
Total		28		13		102		14

We believe that our portfolio of issued patents and patent applications provides patent coverage for our proprietary technologies and products. We have patents and patent applications relating to our Fetal Fibronectin Test and TLi_IQ System in the categories of methods of use, detection systems, platforms and other devices. Our family of issued patents and patent applications, if and when issued, relating to our Fetal Fibronectin Test and TLi_IQ System have a range of expiration dates from 2007 to 2025. Although patents to a reagent used in the Fetal Fibronectin Test expire in 2007, we have additional issued patents that relate to the Fetal Fibronectin Test and the TLi_IQ System. Thus, we believe that our currently issued patents provide protection for our Fetal Fibronectin Test to 2009 by protecting the method upon which the test is based and to 2011 by protecting various reagents and kit embodiments employed in the test. In addition, we have issued patents relating to our TLi_IQ System and the associated Fetal Fibronectin Test that expire in 2018. We have filed patent applications that, if and when issued, could provide protection for measurement and detection of fetal fibronectin for current and additional indications. These patents, if and when issued, could expire as late as 2025. With respect to our E-tegrity Test, we have exclusively licensed patents and pending patent applications involving detection of beta-3 integrin subunit as an infertility/ fertility indicator. The issued patents that involve detection of beta-3 integrin subunit have an expiration of 2012, and any patents that issue based upon the pending applications should have an expiration date of 2012.

LICENSE AND OTHER AGREEMENTS

While we own much of our intellectual property, including patents, patent applications, trademarks, copyrights, trade secrets, know-how and proprietary information, we also license related technology of importance to commercialization of our products. To continue developing and commercializing our current and future products, we may license intellectual property from commercial or academic entities to obtain the rights to technology that may be complementary to, or required for, our research, development and commercialization activities.

In August 1992, we entered into an amended and restated license agreement with the Fred Hutchinson Cancer Research Center under which we were granted a worldwide, exclusive license to a US patent and corresponding foreign patents related to fetal fibronectin and antibodies made against fetal fibronectin. These licensed patents are used in our Fetal Fibronectin Test, and may be used in other fetal fibronectin or oncofetal fibronectin products that we develop. We are obligated to pay royalties to the Hutchinson Center on net product sales in the United States by us during the remainder of the term of a licensed patent, subject to an annual minimum royalty of $10,000, and to date, we have paid approximately $1.1 million. We are also obligated to indemnify the Hutchinson Center for certain claims related to the license agreement. The agreement terminates upon the expiration of the licensed patents in 2007, subject to earlier termination by either party in the event that the other party materially breaches the agreement and fails to correct the breach in a timely manner.

In December 1998, we entered into a license agreement with Unilever plc, which was subsequently assigned to Inverness Medical Inc., under which we were granted a non-exclusive license to five US patents and corresponding foreign patents, relating to the chemistry of our Fetal Fibronectin Test, which expire in 2014. We are obligated to pay royalties on net sales of our Fetal Fibronectin Test until the expiration of the last to expire of the licensed patents, provided that our Fetal Fibronectin Test

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incorporates the technology covered by one or more of the licensed patents, and to date, we have paid approximately $2.3 million. The agreement terminates upon the expiration of the last to expire of the licensed patents, subject to earlier termination by either party in the event that the other party materially breaches the agreement and fails to correct the breach in a timely manner or by Inverness in the event that we file for bankruptcy, challenge any of the licensed patent rights or fail to pay minimum royalties equal to 5,000 pounds sterling for any calendar year.

We were previously party to a marketing agreement with Matria Healthcare, which was terminated as of March 1998 pursuant to the terms of an Agreement and Release. Under the terms of the Agreement and Release, we agreed to pay Matria royalties on sales of certain of our products. To date, we have paid approximately $0.4 million. This agreement has no expiration.

In July 1997, we entered into a license agreement with the University of Pennsylvania under which we were granted a worldwide, sublicensable, exclusive license to three US patents and corresponding foreign patents relating to the use of a specific protein found in the lining of the uterus as a predictor of endometriosis and for the determination of uterine receptivity toward embryo implantation. Our E-tegrity Test incorporates the technology covered by these patents, which expire in 2012 and 2013. We are obligated to pay royalties to the university on net sales of our E-tegrity Test during the remainder of the term to the last to expire of the licensed patents, subject to an annual minimum royalty equal to the greater of $10,000 or 20% of the royalties paid to the university in the prior year, and to date, we have paid approximately $0.2 million. The agreement terminates upon the expiration of the last to expire of the licensed patents, subject to earlier termination by the university in the event that we materially breach the agreement and fail to correct the breach in a timely manner, fail to pay royalties when due or file for bankruptcy.

We also have agreements with other third parties pursuant to which we have royalty-bearing, non-exclusive licenses to patents held by those third parties.

COMPETITION

Rapid product development, technological advances, intense competition and a strong emphasis on proprietary products characterize the medical devices and diagnostic products industries. Our products could be rendered obsolete or uneconomical by the introduction and market acceptance of competing products, by technological advances of potential competitors or by other approaches.

We are currently the only provider of a fetal fibronectin test for predicting preterm birth. However, we could experience competition for our preterm birth diagnostic products from companies that manufacture and market pregnancy-related diagnostic products and services. These companies may be significantly larger and have access to substantially more capital for new product development and sales and marketing. These companies may develop new diagnostic products or technologies that could compete with or entirely displace our products and technologies. For example, other biomarkers, including cytokines and other proteins indicative of infection, and proteomics are the subject of research that may yield new products or technologies.

In addition, healthcare providers use diagnostic techniques such as clinical examination and ultrasound to diagnose the likelihood of preterm birth. Healthcare providers may choose to continue using these techniques to assess their patients, rather than use our Fetal Fibronectin Test. They may also choose to use these techniques in conjunction with our Fetal Fibronectin Test to predict preterm birth.

We believe that in light of the increased rate of preterm birth, cesarean section delivery and assisted reproductive procedures, the market for our products is growing. As a result, we expect additional competition from companies with greater financial, managerial, and technical resources than we have.

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EMPLOYEES

As of September 30, 2004, we had 83 employees, including 44 in sales, marketing and business development, 13 in manufacturing and laboratory services, 11 in research and development, 10 in administration and 5 in quality assurance. In addition, our direct sales force includes some full-time sales representatives provided to us by a third party, who are directly managed by us, sell our products exclusively, and are an integral part of our sales team. The agreement with such third party is currently scheduled to expire on May 14, 2006. 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. We also employ independent contractors to support our development, regulatory, sales, marketing and administrative activities.

FACILITIES

We maintain our headquarters in Sunnyvale, California in one leased facility of approximately 17,600 square feet, which contains laboratory, research and development, manufacturing, sales and marketing, and general administration. We believe that our existing facilities are adequate to meet our immediate needs and that suitable additional space will be available in the future on commercially reasonably terms as needed.

LEGAL PROCEEDINGS

We are not currently party to any material legal proceedings.

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Management

EXECUTIVE OFFICERS, SIGNIFICANT EMPLOYEES, AND DIRECTORS

Set forth below is the name, age, position and a brief account of the business experience of each of our executive officers and directors as of October 12, 2004.

Name	Age		Position(s)
Emory V. Anderson		51	President, Chief Executive Officer and Director
Mark D. Fischer-Colbrie		48	Vice President, Finance and Administration and Chief Financial Officer
Durlin E. Hickok, MD, MPH		56	Vice President, Medical Affairs
Robert O. Hussa, PhD		63	Vice President, Research and Development
Marian E. Sacco		50	Vice President, Sales and Marketing
Andrew E. Senyei, MD(1)(2)		54	Chairman of the Board
Nancy D. Burrus(1)(2)		49	Director
Craig C. Taylor(1)(3)		54	Director
Kathleen D. LaPorte(3)		43	Director

(1)	Member of audit committee
(2)	Member of compensation committee
(3)	Member of nominating and corporate governance committee

Emory V. Anderson has been our President and Chief Executive Officer since February 1997. From October 1992 to February 1997, Mr. Anderson was our Vice President and Chief Financial Officer. Prior to joining us, Mr. Anderson served as Executive Vice President and Chief Operating Officer of Indesys, Inc., which he co-founded in 1984. Previously, he held the position of Director of Finance for Atari, Inc.

Mark D. Fischer-Colbrie has been our Vice President of Finance and Administration and Chief Financial Officer since February 2001. From March 1992 to January 2001, Mr. Fischer-Colbrie served as Vice President, Finance and Administration and Chief Financial Officer for KeraVision, Inc., a company that filed for bankruptcy under federal bankruptcy laws in March 2001. He also held several financial positions at Maxtor Corporation from April 1986 through February 1992, including Vice President of Finance and Corporate Controller.

Durlin E. Hickok, MD, MPH, has been our Vice President of Medical Affairs since November 1998. From 1996 to 1998, Dr. Hickok was Vice President and Medical Director of Omnia, Inc., a women’s healthcare management company. He was also Chief of Obstetrics and Gynecology at the Virginia Mason Medical Center from 1993 to 1996, and Associate Director of Perinatal Medicine at Swedish Hospital Medical Center in Seattle, Washington from 1982 to 1993. Previously, he was an Assistant Professor at the University of Washington.

Robert O. Hussa, PhD, has been our Vice President of Research and Development since May 1993. From January 1990 to May 1993, Dr. Hussa was Vice President of Imaging and Therapeutics Research and Development at Hybritech, Inc. From June 1986 to December 1989, he was Director of Assay Development at Hybritech. Prior to joining Hybritech, Dr. Hussa was a Professor of Gynecology & Obstetrics and of Biochemistry at the Medical College of Wisconsin for 18 years.

Marian E. Sacco has been our Vice President of Sales and Marketing since September 1997. From 1996 to 1997, Ms. Sacco was the Vice President of Marketing at Behring Diagnostics. Previously, Ms. Sacco was the Director of Worldwide Oncology Business and Worldwide Marketing Manager for CBA Corning/ Chiron Diagnostics from 1991 to 1996, and was the US Sales and Marketing Manager for Centocor Diagnostics from 1987 to 1991.

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Andrew E. Senyei, MD, Chairman of the Board, has served as one of our directors since 1987. Dr. Senyei has been a Managing Director and a General Partner of Enterprise Partners, a venture capital firm, since 1987. Dr. Senyei was a founder of Molecular Biosystems and, prior to joining Enterprise Partners, was a practicing clinician and Adjunct Associate Professor of Obstetrics, Gynecology and Pediatrics at the University of California at Irvine. He serves on the boards of directors of numerous private healthcare companies.

Nancy D. Burrus has served as one of our directors since December of 1994. Ms. Burrus has been a general partner of Indosuez Ventures, a venture capital firm, since 1990. Indosuez Ventures manages STF II, L.P., one of our institutional shareholders. Prior to joining Indosuez Ventures, Ms. Burrus was a Vice President with Morgan Stanley Ventures. She serves on the boards of directors of several private companies.

Craig C. Taylor has served as one of our directors since 1986. Mr. Taylor heads the life science investments at Alloy Ventures and has been active in venture capital since 1977 when he joined Asset Management Company. Alloy Ventures is the institutional fund management successor to Asset Management Company, a venture management firm founded in 1965. He serves on the boards of directors of Pharmacyclics and Lynx Pharmaceuticals, both publicly held companies, and several private companies.

Kathleen D. LaPorte has served as one of our directors since April of 2002. Ms. LaPorte has been a general partner of Sprout Group, a venture capital firm, since 1994. Prior to joining the Sprout Group, Ms. LaPorte was a principal at Asset Management Company, a venture capital firm focused on early stage investments. She has also worked as a financial analyst with The First Boston Corporation. She is the past President, and a member of the Board of the Western Association of Venture Capitalists. She serves on the board of directors of ISTA Pharmaceuticals, Inc., a publicly held company, and several private companies.

BOARD COMPOSITION

Our board of directors has five members. Upon the completion of this offering and in accordance with the terms of our amended and restated certificate of incorporation, our board of directors will be divided into three classes:

4	the class I directors are Ms. Burrus and Mr. Taylor, and their term will expire at the annual meeting of stockholders to be held in 2005;
4	the class II director is Dr. Senyei and his term will expire at the annual meeting of stockholders to be held in 2006; and
4	the class III directors are Mr. Anderson and Ms. LaPorte, and their term will expire at the annual meeting of stockholders to be held in 2007.

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 the election or special meeting in lieu thereof. The authorized number of directors may be changed only by resolution adopted by a majority of the board of directors. This classification of the board of directors may have the effect of delaying or preventing changes of control or management.

BOARD COMMITTEES

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Pursuant to our bylaws, our board of directors may from time to time establish other committees to facilitate the management of our business and operations.

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Audit committee

Our audit committee currently consists of Ms. Burrus, Mr. Taylor and Dr. Senyei. Our audit committee is responsible for assuring the integrity of our financial control, audit and reporting functions and reviews with our management and our independent auditors the effectiveness of our financial controls and accounting and reporting practices and procedures. In addition, this committee reviews the qualifications of our independent auditors, is responsible for their appointment, compensation, retention and oversight and reviews the scope, fees and results of activities related to audit and non-audit services. The composition of the audit committee will satisfy the independence requirements of The Nasdaq National Market and the SEC.

Compensation committee

Our compensation committee consists of Ms. Burrus and Dr. Senyei. The compensation committee’s principal responsibility is to administer our stock plans and to set the salary and incentive compensation, including stock option grants, for our Chief Executive Officer and senior staff members. The composition of the compensation committee will satisfy the independence requirements of The Nasdaq National Market.

Nominating and corporate governance committee

Our nominating and governance committee consists of Ms. LaPorte and Mr. Taylor. The nominating and governance committee is responsible for reviewing and making recommendations on the composition of our board and selection of directors, periodically assessing the functioning of our board of directors and its committees, and making recommendations to our board of directors regarding corporate governance matters and practices. The composition of the nominating and governance committee will satisfy the independence requirements of The Nasdaq National Market.

We strive to operate within a comprehensive plan of corporate governance for the purpose of defining responsibilities, setting high standards of professional and personal conduct and assuring compliance with these responsibilities and standards. We have implemented changes to our corporate governance structure and procedures in response to the Sarbanes-Oxley Act of 2002 and the adopted changes in The Nasdaq National Market’s listing standards regarding corporate governance. We believe that our current corporate governance structure and procedures comply with existing corporate governance requirements. We will strive to maintain our board of directors and committees in full compliance with these corporate governance requirements on an ongoing basis. We will also continue to regularly monitor developments in the area of corporate governance.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No interlocking relationship is expected to exist between our board of directors or compensation committee and the board of directors or compensation committee of any other entity, nor has any interlocking relationship existed in the past.

DIRECTOR COMPENSATION

Our 2004 Equity Incentive Plan, or the 2004 Plan, provides for automatic grants of options to purchase shares of our common stock to our non-employee directors. The 2004 Plan provides for the automatic grant to a non-employee director who is on our board of directors upon the completion of this offering, or who is appointed or elected to our board of directors at a later date, of an option to purchase 30,000 shares of our common stock for our chairman, and 22,500 shares of our common stock to each remaining non-employee director. Such grant is referred to as the Initial Option. The 2004 Plan provides for an automatic grant of an option to purchase 11,250 shares to our chairman and 7,500 shares to each remaining non-employee director on the date of each annual meeting of the stockholders that occurs on or after the date that the 2004 Plan first becomes effective, provided that

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the non-employee director continues to serve on our board of directors. Such grant is referred to as the Annual Option. However, a non-employee director who joined our board of directors within a period of six months prior to the date of an annual meeting of stockholders will not be granted an Annual Option with respect to that annual stockholders’ meeting.

Each Initial Option and Annual Option will have an exercise price equal to the fair market value of a share of our common stock on the date of grant and will have a term of ten years. Each Initial Option will vest and become exercisable in 48 equal installments on each monthly anniversary of the date of grant so long as the non-employee director continuously remains a director or consultant to our company. Each Annual Option will vest and become exercisable in 12 equal installments on each monthly anniversary of the date of grant of the option for so long as the non-employee director remains a director or a consultant to, our company. All automatic non-employee director options granted under the 2004 Plan will be non-statutory stock options. Options must be exercised, if at all, within three months after a non-employee director’s termination of service, except in the case of death, in which event the director’s estate shall have one year from the date of death to exercise the option. In no event, however, shall any option granted to a director be exercisable later than the expiration date of the option’s term. In the event of our merger with another corporation or another change of control, the non-employee director options will become fully vested and exercisable. For a description of the 2004 Plan see “Equity Compensation Plan Information.”

We currently do not pay cash compensation to our chairman or other non-employee directors for their service as directors.

LIMITATION ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

Our amended and restated certificate of incorporation limits the liability of our directors to the maximum extent permitted by Delaware law. Delaware law provides that a corporation may eliminate the personal liability of its directors for monetary damages for breach of their fiduciary duties as directors, except liability for any of the following acts:

4	breach of their duty of loyalty to us or our stockholders;
4	acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
4	unlawful payments of dividends or unlawful stock repurchases or redemptions; and
4	any transaction from which the director derived an improper personal benefit.

Our bylaws provide that we will indemnify our directors, officers, employees and other agents to the fullest extent permitted by the Delaware General Corporation Law. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent of ours for any liability arising out of his or her actions in such capacity, regardless of whether the Delaware General Corporation Law would permit a corporation to indemnify for such liability.

We have obtained directors’ and officers’ insurance providing indemnification for all of our directors and officers for certain liabilities. We believe that these provisions and this insurance are necessary to attract and retain qualified directors and officers. At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification would be required or permitted. We are not aware of any pending or threatened litigation or proceeding that might result in a claim for such indemnification.

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EXECUTIVE COMPENSATION

Summary compensation table

The following table summarizes the compensation paid to, awarded to or earned during the fiscal year ended December 31, 2003 by our Chief Executive Officer and each of the four most highly compensated executive officers whose total salary and bonus exceed $100,000 for services rendered to us in all capacities during 2003. The executive officers listed in the table below are referred to in this prospectus as our named executed officers.

								Long-term
								compensation
		Annual compensation
								Securities
						Other annual		underlying		All other
Name and principal position(s)		Salary		Bonus		compensation(1)		options		compensation
Emory V. Anderson(2)			$311,782		$109,124		—		—		—
	President and Chief Executive Officer
Mark D. Fischer-Colbrie(3)			217,342		43,468		—		—		—
	Vice President, Finance and Administration and Chief Financial Officer
Durlin E. Hickok(4)			219,533		43,907		—		—		—
	Vice President, Medical Affairs
Robert O. Hussa(5)			199,510		19,951		—		—		—
	Vice President, Research and Development
Marian E. Sacco(6)			210,223		42,045		—		—		—
	Vice President, Sales and Marketing

(1)	In accordance with the rules of the SEC, the other annual compensation disclosed in this table does not include various perquisites and other personal benefits received by a named executive officer that does not exceed the lesser of $50,000 or 10% of such officer’s salary and bonus disclosed in this table.
(2)	Does not include 168,750 shares underlying options granted by the board of directors on August 4, 2004 that are exercisable within 60 days of September 30, 2004.
(3)	Does not include 37,500 shares underlying options granted by the board of directors on August 4, 2004 that are exercisable within 60 days of September 30, 2004.
(4)	Does not include 37,500 shares underlying options granted by the board of directors on August 4, 2004 that are exercisable within 60 days of September 30, 2004.
(5)	Does not include 18,750 shares underlying options granted by the board of directors on August 4, 2004 that are exercisable within 60 days of September 30, 2004.
(6)	Does not include 37,500 shares underlying options granted by the board of directors on August 4, 2004 that are exercisable within 60 days of September 30, 2004.

Option grants in fiscal year 2003

We did not grant any options to any of our named executive officers during our fiscal year ended December 31, 2003.

Aggregated option exercises in last fiscal year and fiscal year-end option values

There were no option exercises by the named executive officers during our fiscal year ended December 31, 2003. The following table summarizes the value of options held by them as of December 31, 2003. There was no public trading market for our common stock as of December 31, 2003. Accordingly, the value of unexercised in-the-money options listed below has been calculated on

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the basis of the assumed initial public offering price of $15.00 per share, less the applicable exercise price per share multiplied by the number of shares underlying the options.

					Number of securities				Value of unexercised
					underlying unexercised options				in-the-money options
					at December 31, 2003				at December 31, 2003
	Shares acquired		Value
Name	upon exercise		realized		Exercisable(1)		Unexercisable		Exercisable		Unexercisable
Emory V. Anderson		—	$	—		609,540		—	$	7,732,038.87	$	—
Mark D. Fischer-Colbrie		—		—		131,947		—		1,539,381.67		—
Durlin E. Hickok		—		—		131,962		—		1,688,787.25		—
Robert O. Hussa		—		—		54,467		—		790,451.76		—
Marian E. Sacco		—		—		136,187		—		1,812,899.65		—

(1) Each of the outstanding options listed may be exercised at any time, whether vested or unvested. Upon the exercise of an unvested option or the unvested portion of an option, the holder will receive shares of restricted stock that are subject to our repurchase right at the original purchase price of the shares, which repurchase right lapses in accordance with the vesting schedule previously applicable to the option.

EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS

In December 2000, in connection with his offer of employment, we agreed to loan Mark Fischer-Colbrie up to $183,000 in connection with his offer letter. On February 1, 2003, we entered into a promissory note with Mr. Fischer-Colbrie in the amount of $109,800. The terms of the note provided that the principal amount would be due on January 31, 2006, and interest on the unpaid principal balance would accrue at an annual rate of 1.65%. The note also provides that the loan amount is forgiven by $36,600 in principal along with accumulated interest at the end of each 12 months of employment. The full amount of the note, including interest, would be due and payable within 30 days of Mr. Fischer-Colbrie’s resignation from our company or his termination by us for cause. In the event of a change of control transaction, a merger with another company or his termination without cause by us, the loan and any accumulated interest would be forgiven. In August 2004, the $76,000 unpaid balance and interest of Mr. Fischer-Colbrie’s loan was forgiven.

Management continuity agreements

We have entered into a management continuity agreement with each of Mr. Anderson, Mr. Fischer-Colbrie, Dr. Hickok, Dr. Hussa and Ms. Sacco. Mr. Anderson’s agreement provides that if we experience a “change of control” (as defined in the agreement), the vesting of each equity award granted to Mr. Anderson shall accelerate such that 75% of the aggregate number of unvested awards shall become vested immediately prior to the effective date of the transaction. In the event that Mr. Anderson’s employment is terminated other than for “cause” or if he resigns for “good reason” (each as defined in the agreement) at any time within 12 months following a change of control, each equity award shall become 100% vested as of the termination date. In addition, Mr. Anderson will receive severance benefits equal to 18 months of his salary, a lump sum payment equal to 75% of the bonus payment made to Mr. Anderson for the prior fiscal year and continuation of his health insurance benefits at our expense under COBRA for up to 18 months. In the event that Mr. Anderson’s termination or resignation occurs for one of the reasons specified above, at any time prior to, or more than 12 months following, a change of control, he will receive severance benefits equal to 12 months of his base salary, 50% of the prior year’s bonus, continuation of his health insurance benefits at our expense under COBRA for up to 12 months, and 12 months acceleration of his unvested equity awards. In both cases, equity awards granted on or after July 2004 shall remain exercisable for 18 months following his termination date.

Mr. Fischer-Colbrie’s agreement provides that if we experience a “change of control” (as defined in the agreement), the vesting of each equity award granted to Mr. Fischer-Colbrie shall accelerate such that 50% of the aggregate number of unvested awards shall become vested immediately prior to the

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effective date of the transaction. In the event that Mr. Fischer-Colbrie’s employment is terminated other than for “cause” or if he resigns for “good reason” (each as defined in the agreement) at any time within 12 months following a change of control, each equity award shall become 100% vested as of his termination date. In addition, Mr. Fischer-Colbrie will receive severance benefits equal to 12 months of his salary, a lump sum payment equal to 50% of the bonus payment made to Mr. Fischer-Colbrie for the prior fiscal year and continuation of his health insurance benefits at our expense under COBRA for up to 12 months. In the event that Mr. Fischer-Colbrie’s termination or resignation occurs for one of the reasons specified above at any time prior to, or more than 12 months following, a change of control, he will receive severance benefits equal to 6 months of his base salary, 25% of the prior year’s bonus, continuation of his health insurance benefits at our expense under COBRA for up to 6 months, and 12 months acceleration of his unvested equity awards. In both cases, equity awards granted on or after July 2004 shall remain exercisable for 18 months following his termination date.

Under the agreements with Dr. Hickok, Dr. Hussa and Ms. Sacco, if we experience a “change of control” (as defined in the agreement), the vesting of each equity award granted to the officer shall accelerate such that 50% of the aggregate number of unvested awards shall become immediately vested immediately prior to the effective date of the transaction. In the event that the officer’s employment is terminated other than for “cause” or if he or she resigns for “good reason” (each as defined in the agreement) at any time within 12 months following a change of control, the officer will receive severance benefits equal to 9 months of his or her salary, a lump sum payment equal to 37.5% of the bonus payment made to the officer for the prior fiscal year, continuation of his or her health insurance benefits at our expense under COBRA for up to 9 months and 12 months acceleration of his or her unvested equity awards. In addition, equity awards granted on or after July 2004 shall remain exercisable for 18 months following his or her termination date. In the event that the officer’s termination or resignation occurs for one of the reasons specified above, at any time prior to, or more than 12 months following, a change of control, he or she will receive severance benefits equal to 6 months of his or her base salary, 25% of the prior year’s bonus and continuation of his or her health insurance benefits at our expense under COBRA for up to 6 months.

Each of these agreements further provides that, to the extent the severance payments and benefits payable under the agreements would cause the officer to be liable for “parachute payment” excise taxes applicable by reason of Section 4999 of the Internal Revenue Code, the officer will receive an additional “gross up” payment to indemnify the officer for the effect of the excise taxes.

As a condition of receipt of the severance payments and benefits under the agreements, each officer must execute a release of claims agreement in the form we provide and confirm his or her obligations to us under our standard form of proprietary information agreement.

Other agreements

All of our current employees and consultants have entered into agreements with us relating to the protection of our confidential information and the assignment of inventions.

None of our employees are employed for a specified term and each employee’s employment with us is subject to termination at any time by either party for any reason, with or without cause, without further liability or obligation.

EQUITY COMPENSATION PLAN INFORMATION

1995 Stock Option and Restricted Stock Plan

In 1995, our board of directors and stockholders approved the Adeza Biomedical Corporation 1995 Stock Option and Restricted Stock Plan, or the 1995 Plan. The 1995 Plan was adopted as a successor to our 1988 Employee Stock Plan and 1992 Key Executive Stock Plan. The 1995 Plan is designed to provide employees, non-employee members of the board of directors or non-employee members of the board of directors of any parent or subsidiary and consultants who provide services to us or any

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parent or subsidiary with the opportunity to receive grants of incentive stock options, non-statutory stock options and restricted stock issuances. We believe that the 1995 Plan will promote our interests by providing participants with the opportunity to acquire or increase their proprietary interest in our corporation as an incentive for them to remain in the service of the corporation.

Under the 1995 Plan, we are authorized to grant shares and stock options for the purchase of up to a maximum of 2,282,613 shares of our common stock. As of September 30, 2004:

4	2,163,582 shares were issuable upon the exercise of outstanding options granted under the 1995 plan at a weighted average exercise price of $4.70 per share;
4	101,975 shares of common stock were issued upon the exercise of options and pursuant to restricted stock grants at purchase prices ranging between $0.32 and $11.84; and
4	17,056 shares of common stock were available for future grant under the 1995 Plan at the completion of this offering.

Upon the effectiveness of this offering, we will no longer issue any additional options under the 1995 Plan. However, upon the effectiveness of this offering, any shares that are available for future grant under the 1995 Plan, and any shares issuable upon exercise of outstanding options that are subsequently forfeited, expire or are canceled, will be allocated to the 2004 Equity Incentive Plan.

Administration of the 1995 Plan

The 1995 Plan is administered by our board of directors, or a committee thereof, (the plan administrator), which determines all terms of grants under the 1995 Plan. The plan administrator also determines who will receive grants under the 1995 Plan and the number of shares of common stock subject to the grant.

Eligibility

All employees, non-employee members of the board of directors or non-employee members of the board of directors of any parent or subsidiary, and consultants who provide services to us are eligible to participate in the 1995 Plan.

Options

The 1995 Plan authorizes the plan administrator to grant options in an amount and at an exercise price to be determined by it. The exercise price of an incentive stock option cannot be less than 100% of the fair market value of our common stock on the option grant date. The exercise of non-statutory stock options must generally be at least 85% of the fair market value of the common stock on the option grant date. With respect to options granted to a 10% shareholder, the exercise price shall not be less than 110% of the fair market value of common stock on the option grant date. The exercise price shall be immediately due upon the exercise of the option, and is generally payable:

4	in cash or check;
4	by shares of common stock that meet certain holding period requirements (valued at the fair market value of our common stock on the exercise date); or
4	through a special sale and remittance procedure though a brokerage firm if the option is exercised for vested shares.

The 1995 Plan also authorizes the plan administrator to determine the vesting schedule (if any) applicable to the option shares. Generally, options granted under the 1995 plan vest in 48 successive equal monthly installments over four years. The plan administrator also determines the maximum term for which the option is to remain outstanding. The term of an option cannot exceed ten years from the option grant date, and the term of an incentive option granted to a 10% stockholder cannot exceed

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five years. As of September 30, 2004, approximately 59.2% of the shares issuable under outstanding options had vested.

Upon the termination of an optionee’s employment or other relationship with us, such optionee will have a limited time within which to exercise any outstanding options.

The 1995 Plan also authorizes the plan administrator to grant options that are exercisable for unvested shares of common stock. To the extent that an optionee holds unvested shares of common stock upon termination, we will have the right to repurchase any or all of such unvested shares at the exercise price paid by the optionee for such shares. The plan administrator will determine the terms of such options, but the vesting schedule may not be more restrictive than 20% per year vesting, beginning one year after the grant of the option. Such minimum vesting requirement shall not apply to options granted to a highly compensated employee.

Until our common stock is first registered under Section 12(g) of the Securities Exchange Act, we retain a right of first refusal with respect to any disposition by an optionee of any shares of common stock issued under the 1995 Plan. Options issued under the 1995 Plan may not be assigned or transferred other than by will or the laws of descent and distribution following the optionee’s death, except that non-statutory stock options may be assigned in accordance with the terms of a qualified domestic relations order.

The aggregate fair market value of the shares of common stock for which one or more incentive stock options granted to any employee under the 1995 Plan may for the first time become exercisable during any one calendar year shall not exceed the sum of $100,000.

Change in control

Prior to its amendment in August 2004, the 1995 Plan provided that in the event of a corporate transaction where the acquiror does not assume or replace options granted under the 1995 Plan, each outstanding option will terminate on the effective date of the corporate transaction. Options assumed or replaced in connection with a corporate transaction shall be appropriately adjusted.

Following the amendment of the 1995 Plan, the 1995 Plan provides with regard to options granted after that date, that in the event of a corporate transaction where the acquiror does not assume or replace options granted under the 1995 Plan, such outstanding options will become fully vested and exercisable immediately prior to the consummation of the corporate transaction. Additionally the amendment 1995 Plan provides that in the event of a corporate transaction where the acquiror assumes or substitutes options granted under the 1995 Plan, options issued under the 1995 Plan will become fully vested only if the optionee is involuntarily terminated without cause within 12 months of the corporate transaction or if the optionee voluntarily resigns following a relocation of the optionee’s worksite to a location more than 50 miles from the original location within 12 months of the corporate transaction. Options assumed or replaced by an acquiror in connection with a corporate transaction shall be appropriately adjusted.

A “corporate transaction” is defined as either of the following shareholder approved transactions to which we are a party: (i) a merger or consolidation in which securities possessing more than 50% of the total combined voting power of our outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) a sale, transfer or other disposition of all or substantially all of our assets in complete liquidation or dissolution of our company.

All outstanding repurchase rights shall automatically terminate upon a corporate transaction, except to the extent the repurchase rights are assigned to the successor corporation in connection with such corporate transaction. As of August 1, 2004, the 1995 Plan provides that for options granted after that date in the event of a corporate transaction where outstanding repurchase rights are assigned to the successor corporation, all outstanding repurchase rights shall automatically terminate if the

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stockholder is involuntarily terminated without cause within 12 months of the corporate transaction or if the stockholder voluntarily resigns following a relocation of the stockholder’s worksite to a location more than 50 miles from the original location within 12 months of the corporate transaction.

Stock issuances

The plan administrator may grant direct and immediate issuances of shares of common stock pursuant to the 1995 Plan’s stock issuance program. The purchase price of common stock issued under the stock issuance program must be at least 85% of the fair market value of common stock on the stock issuance date. With respect to issuances to a 10% stockholder, the exercise price shall not be less than 110% of the fair market value of common stock on the stock issuance date. Payment for the exercise price may be made in cash, check or past services rendered to us (or any parent or subsidiary).

Shares of common stock issued under the stock issuance program may, in the discretion of the plan administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the term of the recipient’s service or upon attainment of specified performance objectives. The plan administrator may not impose a vesting schedule that is more restrictive than 20% per year vesting, beginning one year after the stock issuance date. Such minimum vesting requirement shall not apply to stock issued to a highly compensated employee. An individual who is issued shares of common stock under the stock issuance program will, upon issuance, have full stockholder rights with respect to such shares whether or not such shares are vested as of the date of issuance. To the extent that an individual who was issued common stock pursuant to the stock issuance program either terminates his or her employment (or other relationship) with us while holding unvested shares of common stock or fails to attain the specified performance objectives upon which such vesting of such common stock was contingent, such shares shall be immediately surrendered to us for cancellation in exchange for a refund of any cash or cash-equivalent consideration paid for such unvested shares. The plan administrator may waive the surrender and cancellation of unvested shares of common stock.

Until our common stock is first registered under Section 12(g) of the Securities Exchange Act, we retain a right of first refusal with respect to any disposition by the participant of any shares of common stock issued under the stock issuance program.

Prior to amendment in August 2004, the 1995 Plan provided that in the event of a corporate transaction where the outstanding repurchase rights under the stock issuance program are not assigned to the successor corporation in connection with such corporate transaction, all of the outstanding repurchase rights under the stock issuance program shall terminate automatically upon a corporate transaction. Following amendment of the 1995 Plan, the 1995 Plan provides that, with regard to shares of common stock issued under the stock issuance program after the date of amendment in the event of a corporate transaction where the repurchase rights are assigned to the successor corporation, the outstanding purchase rights will terminate if the stockholder is involuntarily terminated without cause within 12 months of the corporate transaction or if the stockholder voluntarily resigns following a relocation of the stockholder’s worksite to a location more than 50 miles from the original location within 12 months of the corporate transaction.

Amendment and termination

The board of directors has the complete and exclusive power and authority to amend or modify the 1995 Plan in any or all respects. No such amendment or modification shall adversely affect the rights and obligations with respect to options or unvested stock issuances at the time outstanding under the 1995 Plan, unless the optionee or participant consents to such amendment or modification. To increase the maximum number of shares issuable under the 1995 Plan, to materially modify the eligibility requirements for participation, or to materially increase the benefits accruing to plan participants, stockholder approval is required.

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The 1995 Plan shall terminate upon the earliest of the expiration of the ten-year period of the 1995 Plan, the date on which all shares available for issuance have been issued, or the termination of all outstanding options in connection with a corporate transaction. Upon termination of the 1995 Plan, all outstanding options and unvested stock issuances shall continue to have full force and effect.

2004 Equity Incentive Plan

In August 2004, our board of directors and stockholders approved the 2004 Equity Incentive Plan, or the 2004 Plan, which will become effective upon the completion of this offering.

Stock options, stock appreciation rights, or SARs, stock awards and cash awards may be granted under the 2004 Plan. Each is referred to as an award in the 2004 Plan. Options granted under the 2004 Plan may be either “incentive stock options,” as defined under Section 422 of the Internal Revenue Code of 1986, as amended, or nonstatutory stock options.

Share reserve

We have reserved a total of 1,875,000 shares of our common stock, subject to adjustment, for issuance under the 2004 Plan, all of which are available for future grant. The number of shares initially reserved under the 2004 Plan will be increased by up to 17,056 shares, represented by shares available for grant under the 1995 Plan as of the completion of the offering. In addition, options outstanding under the 1995 Plan that are forfeited, expire or are cancelled after the date of this prospectus will be available for future grant under the 2004 Plan after the completion of this offering.

Automatic annual increase of share reserve

The 2004 Plan provides that the share reserve will be cumulatively increased on January 1 of each year, beginning January 1, 2005 and for nine years thereafter, by a number of shares that is equal to the lesser of (a) 3% of the number of our company’s shares issued and outstanding as of the preceding December 31, (b) 525,000 shares and (c) a number of shares set by our board.

Automatic grants to non-employee directors

The 2004 Plan provides that non-employee directors will be automatically granted options under the 2004 Plan in the following amounts: (a) an option to purchase 22,500 shares of our common stock to non-employee directors upon the completion of this offering or upon their initial appointment or election, as applicable, to our board, and (b) commencing in 2005 and provided that such individual has served as a non-employee director for at least six months, an option to purchase 7,500 shares annually thereafter on the date of each stockholder meeting following which the non-employee director continues to serve on our board. In the case of a non-employee director who serves as the chairman of the board, such director will receive (a) an option to purchase 30,000 shares of our common stock upon the completion of this offering, or upon initial appointment or election as the chairman, as applicable, and (b) an option to purchase 11,250 shares annually thereafter on the date of each stockholder meeting following which the non-employee director continues to serve as chairman of our board.

Administration

Our board of directors or a committee of the board will administer the 2004 Plan. The board or its committee is referred to in the 2004 Plan as the administrator.

Eligibility

Awards under the 2004 Plan may be granted to our employees, directors and consultants. Incentive stock options may be granted only to our employees. The administrator, in its discretion, approves awards granted under the 2004 Plan.

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Change in control

In the event of a corporate transaction, any or all outstanding awards may be assumed, converted or replaced. Awards assumed, converted or replaced in connection with a corporate transaction shall be appropriately adjusted. In the event of a corporate transaction where the acquiror does not assume or substitute awards granted under the 2004 Plan, the vesting with respect to such awards shall fully and immediately accelerate or the repurchase rights shall fully and immediately terminate, as the case may be, immediately prior to the consummation of the corporate transaction. In the event of a corporate transaction where the acquiror assumes or substitutes awards granted under the 2004 Plan, the vesting with respect to such awards shall fully and immediately accelerate or the repurchase rights shall fully and immediately terminate, as the case may be, if an awardee voluntarily resigns following relocation of the awardee’s workplace to a location more than 50 miles from the original location within 12 months following the corporate transaction.

Termination of awards

Generally, if an awardee’s service to us terminates other than by reason of death or disability, vested options and SARs will remain exercisable for a period of three months following the termination of the awardee’s service, or if earlier, the expiration of the term of such award. Unless otherwise provided for by the administrator in the award agreement, if an awardee’s termination is due to death or disability, the awardee’s vested options and SARs will be exercisable for one year following the awardee’s death or disability, or if earlier, the expiration of the term of such award.

Nontransferability of awards

Unless otherwise determined by the administrator, awards granted under the 2004 Plan are not transferable other than by will, a domestic relations order, or the laws of descent and distribution and may be exercised during the awardee’s lifetime only by the awardee.

Exercise price of stock options

The administrator determines the exercise price of options at the time the options are granted. The exercise price of an incentive stock option may not be less than 100% of the fair market value of our common stock on the date of grant. With respect to incentive stock options granted to a 10% stockholder, the exercise price shall not be less than 110% of the fair market value of our common stock on the date of grant. Unless otherwise determined by the administrator, the exercise price of a nonstatutory stock option will generally not be less than 85% of the fair market value of our common stock on the date of grant. The fair market value of our common stock will generally be the closing sales price as quoted on The Nasdaq National Market on the date of the grant.

Exercise of option; form of payment

The administrator determines when options become exercisable. The means of payment for shares issued on exercise of an option are specified in each award agreement. The 2004 Plan permits payment to be made by cash, check, wire transfer, other shares of our common stock that meet certain holding period requirements (valued at the fair market value of our common stock on the exercise date), a broker-assisted same-day sale transaction or cancellation of any debt owed by us or any of our affiliates to the optionholder.

Term of option

The term of an option may be no more than ten years from the date of grant. No option may be exercised after the expiration of its term. Any incentive stock option granted to a 10% stockholder may not have a term of more than five years.

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Stock appreciation rights

The administrator may grant SARs alone, in addition to, or in tandem with, any other awards under this plan. A SAR entitles the participant to receive the amount by which the fair market value of a specified number of shares on the exercise date exceeds an exercise price established by the administrator. The excess amount will be payable in ordinary shares, in cash or in a combination thereof, as determined by the administrator. The terms and conditions of a SAR will be contained in an award agreement. The grant of a SAR may be made contingent upon the achievement of objective performance conditions.

Stock awards

The administrator may grant stock awards of restricted shares as payment of a bonus, as payment of any other compensation obligation, upon the occurrence of a special event or as otherwise determined by the administrator. The terms and conditions of a stock award will be found in an award agreement. Vesting and restrictions on the ability to exercise such stock awards may be conditioned upon the achievement of one or more goals, as determined by the administrator in its discretion. Recipients of restricted shares may have voting rights and may receive dividends on the granted shares prior to the time the restrictions lapse.

Cash awards

The administrator may grant cash awards, which entitle the recipient to a cash payment on the satisfaction of performance goals described in the award. The administrator determines the terms, conditions and restrictions related to cash awards.

Amendment and termination of the 2004 Plan

Our board of directors may amend, alter, suspend or terminate the 2004 Plan, or any part thereof, at any time and for any reason. However, we will solicit stockholder approval for any amendment to the 2004 Plan to the extent necessary and desirable to comply with applicable laws. Generally, no such action by our board of directors or stockholders may alter or impair any award previously granted under the 2004 Plan without the written consent of the awardee. The 2004 Plan has a term of 10 years, but it may be terminated by our board of directors at any time.

401(k) PLAN

We have established and maintain a retirement savings plan under section 401(k) of the Internal Revenue Code, or the Code, to cover our eligible employees. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a tax-deferred basis through contributions to the 401(k) plan. Our 401(k) plan is qualified under Section 401(a) of the Code and its associated trust is exempt from federal income taxation under Section 501(a) of the Code. Our 401(k) permits us to make matching contributions on behalf of eligible employees; however, we currently do not make any matching contributions.

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Certain relationships and related party transactions

From January 1, 2003 until the date of this prospectus, there has not been any transaction or series of similar transactions, nor is there currently proposed any transaction or series of similar transactions, to which we were, are, or would be a party, and in which the amount involved exceeded or would exceed $60,000 and in which any of our directors or executive officers, any holder of more than 5% of any class of our voting securities or any member of the immediate family of any of these persons had or will have a direct or indirect material interest, other than the compensation arrangements (including with respect to equity compensation) described in “Management,” and the transactions described below.

We believe that we have executed all of the transactions described below on terms no less favorable to us than we could have obtained from unaffiliated third parties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates are approved by a majority of our board of directors, including a majority of the independent and disinterested members of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.

ISSUANCES OF PREFERRED STOCK AND WARRANTS

We have engaged in transactions regarding sales of our preferred stock with one of our directors and with the beneficial owners of at least 5% of our voting securities. On September 19, 2001, we sold an aggregate of 3,247,408 shares of our Series 5 Preferred Stock at a purchase price of $4.63 per share. On September 29, 2000, we sold an aggregate of 2,203,108 shares of our Series 4 Preferred Stock at a purchase price of $4.63 per share. On November 18, 1996, we sold an aggregate of 4,463,100 shares of our Series 3 Preferred Stock at a purchase price of $2.92 per share and an additional 38,832 shares, 114,886 shares and 190,259 shares pursuant to the exercise of warrants on March 27, 2001, April 26, 2001 and December 19, 2003, respectively, for $2.92 per share. On December 21, 1994, we sold 3,322,893 shares of Series 2 Preferred Stock and an additional 183,872 shares and 1,642 shares from warrants exercised on December 23, 1999, and January 10, 2000, respectively, for $2.40 per share. On December 21, 1994, we effectuated a reverse stock split and converted and reconstituted:

4	each share of the then existing Series A Preferred Stock as .08131 shares of Series 1 Preferred Stock;
4	each share of the then existing Series B Preferred Stock as .08131 shares of Series 1 Preferred Stock;
4	each share of the then existing Series C Preferred Stock as .15584 shares of Series 1 Preferred Stock;
4	each share of the then existing Series D Preferred Stock as .31165 shares of Series 1 Preferred Stock;
4	each share of the then existing Series E Preferred Stock as .47429 shares of Series 1 Preferred Stock; and
4	each share of the then existing Series F Preferred Stock into .35234 shares of Series 1 Preferred Stock.

The following table summarizes the shares of our preferred stock purchased in these transactions by our directors, by our 5% stockholders and by the persons and entities associated with them in these private placement transactions. Each share of Series 1 Preferred Stock, Series 2 Preferred Stock, Series 4 Preferred Stock and Series 5 Preferred Stock will convert into 0.75 share of common stock, assuming the three-for-four reverse split of common stock into which the preferred stock will be converted. Each share of Series 3 Preferred Stock will convert into 0.83333 shares of common stock,

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assuming the three-for-four reverse split of the common stock into which the preferred stock will be converted.

	Series 1		Series 2		Series 3		Series 4		Series 5
	Preferred		Preferred		Preferred		Preferred		Preferred
Investor	Stock		Stock		Stock(1)		Stock		Stock
Directors
Craig Taylor(1)		—		—		—		—		21,598
5% Stockholders(2)
Entities affiliated with Sprout Capital(3)		—		—		3,424,658		—		—
Enterprise Partners V, L.P.(4)		—		—		—		1,079,914		1,295,896
Entities affiliated with Charter Venture Capital(5)		180,305		590,904		262,939		204,242		291,577
Aeneas Venture Corporation		338,775		773,890		87,106		—		—
Entities affiliated with Alliance Technology Ventures(6)		130,851		239,230		41,294		647,949		55,076
Entities affiliated with Asset Management (7)		136,735		472,360		207,298		162,399		86,393
Pantheon Global PCC Limited acting in respect and on behalf of Pantheon Secondary Interests Cell		136,735		422,802		207,292		54,349		197,300
STF II, L.P.(8)		—		416,666		314,836		54,255		—

(1)	Craig C. Taylor is a member of our board of directors and is a general partner of Asset Management Associates 1984, L.P. and Asset Management Associates 1989, L.P.
(2)	For additional detail as to the identities of the affiliated entities and additional information related to beneficial ownership of shares, see “Principal stockholders.”
(3)	Includes 68,493 shares of Series 3 Preferred Stock issued to DLJ Capital Corp., 342,466 shares of Series 3 Preferred Stock issued to DLJ First ESC L.P., 1,647,594 shares of Series 3 Preferred Stock issued to Sprout Capital VII, L.P., 19,139 shares of Series 3 Preferred Stock issued to Sprout CEO Fund, L.P., and 1,346,966 shares of Series 3 Preferred Stock issued to Sprout Growth II, L.P. Kathleen LaPorte, a member of our board of directors, is a Managing Director of DLJ Capital Corp. DLJ Capital Corp. is the managing general partner of Sprout Capital VII, L.P., and the general partner of Sprout CEO Fund, L.P. and DLJ LBO Plans Management Corp. and DLJ LBO Plans Management Corp. II, are the general partners of DLJ First ESC, L.P.
(4)	Andrew Senyei, a member of our board of directors, is a general partner of the general partner of Enterprise Partners V, L.P.
(5)	Includes 180,305 shares of Series 1 Preferred Stock, 590,904 shares of Series 2 Preferred Stock, 262,939 shares of Series 3 Preferred Stock, 204,242 shares of Series 4 Preferred Stock and 277,685 shares of Series 5 Preferred Stock issued to CLS-I-IV, LLC, 3,331 shares of Series 5 Preferred Stock issued to Charter Advisors Fund IV, L.P., and 10,561 shares of Series 5 Preferred Stock issued to Charter Entrepreneurs Fund IV, L.P.
(6)	Includes 128,286 shares of Series 1 Preferred Stock, 234,541 shares of Series 2 Preferred Stock and 40,505 shares of Series 3 Preferred Stock, 647,949 shares of Series 4 Preferred Stock and 53,996 shares of Series 5 Preferred Stock issued to Alliance Technology Ventures III, L.P., 2,565 shares of Series 1 Preferred Stock, 4,689 shares of Series 2 Preferred Stock, 789 shares of Series 3 Preferred Stock and 1,080 shares of Series 5 Preferred Stock issued to ATV III Affiliates Fund, L.P.
(7)	Includes 136,735 shares of Series 1 Preferred Stock, 353,223 shares of Series 2 Preferred Stock, 28,689 shares of Series 3 Preferred Stock, 89,110 shares of Series 5 Preferred Stock issued to Asset Management Associates 1984, L.P., 119,137 shares of Series 2 Preferred Stock, 178,609 shares of Series 3 Preferred Stock, 73,289 shares of Series 4 Preferred Stock, and 86,393 shares of Series 5 Preferred Stock issued to Asset Management Associates 1989, L.P. Craig C. Taylor, a member of our board of directors, is a general partner of AMC Partners 84, L.P. and AMC Partners 89, L.P., and the general partner of Asset Management Associates 1984, L.P. and Asset Management Associates 1989, L.P.
(8)	Includes 416,666 shares of Series 2 Preferred Stock, 314,836 shares of Series 3 Preferred Stock and 54,255 shares of Series 4 Preferred Stock issued to STF II, L.P. Nancy Burris, a member of our board of directors, is an affiliate of Indosuez Ventures, which is affiliated with STF II, L.P.

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Certain relationships and related party transactions

INDEMNIFICATION AGREEMENTS

We have entered into indemnification agreements with our directors and executive officers for the indemnification of and advancement of expenses to these persons to the fullest extent permitted by law. We also intend to enter into these agreements with our future directors and executive officers.

EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS

See “Management—Employment, Severance and Change of Control Agreements.”

LOANS TO EXECUTIVE OFFICERS

We loaned Mark Fischer-Colbrie $109,800 in February 2003. In August 2004, the $76,000 unpaid balance and interest of Mr. Fischer-Colbrie’s loan was forgiven. See “Management—Employment, Severance and Change of Control Agreements.”

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Principal stockholders

The following table shows information with respect to the beneficial ownership of our common stock as of September 30, 2004 and as adjusted to reflect the sale of the common stock being offered in this offering by:

4	each of our directors;
4	each of our named executive officers;
4	all of our directors and executive officers as a group; and
4	each person or group of affiliated persons or entities known by us to beneficially own 5% or more of our common stock.

Beneficial ownership and percentage ownership are determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock underlying options and warrants that are exercisable within 60 days of September 30, 2004 are considered to be outstanding. To our knowledge, except as indicated in the footnotes to the following table and subject to community property laws where applicable, the persons named in this table have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them.

The following table reflects the conversion of all shares of our preferred stock outstanding as of September 30, 2004 into an aggregate of 11,957,322 shares of our common stock that will become effective at the closing of this offering (taking into consideration a three-for-four reverse split of our outstanding common stock). This table is based on 12,139,841 shares of our common stock outstanding as of September 30, 2004 and 15,889,841 shares outstanding immediately after this offering.

Unless otherwise indicated, the address of each stockholder is c/o Adeza Biomedical Corporation, 1240 Elko Drive, Sunnyvale, California 94089.

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Principal stockholders

	Number of securities				Percent of shares
	beneficially owned				beneficially owned
	prior to offering
					Before		After
Name and address of beneficial owner	Stock		Options		this offering		this offering
Directors and executive officers
Kathleen D. LaPorte(1)		2,853,875		—		23.51%		17.96%
Andrew E. Senyei(2)(3)		1,793,804		8,729		14.84%		11.34%
Craig C. Taylor(4)		839,183		1,880		6.93%		5.29%
Nancy D. Burrus(5)		615,551		—		5.07%		3.87%
Emory V. Anderson(6)		—		778,290		6.02%		4.67%
Mark D. Fischer-Colbrie(7)		—		169,447		1.38%		1.06%
Robert O. Hussa(8)		—		73,217		*		*
Marian E. Sacco(9)		—		173,687		1.41%		1.08%
Durlin E. Hickok(10)		—		169,462		1.38%		1.06%
All directors and executive officers as a group (9 persons)(15)(16)		6,102,413		1,374,712		55.33%		43.31%
Five percent stockholders
Entities affiliated with Sprout Capital (1)		2,853,875		—		23.51%		17.96%
Enterprise Partners V, L.P.(2)		1,781,857		—		14.68%		11.21%
Entities affiliated with Charter Venture Capital(11)		1,179,981		—		9.72%		7.43%
Aeneas Venture Corporation(12)		907,011		—		7.47%		5.71%
Entities affiliated with Alliance Technology Ventures(13)		845,291		—		6.96%		5.32%
Entities affiliated with Asset Management (4)		822,985		1,880		6.79%		5.19%
Pantheon Global PCC Limited acting in respect and on behalf of Pantheon Secondary Interests Cell(14)		787,958		—		6.49%		4.96%
STF II, L.P.(5)		615,551		—		5.07%		3.87%

    *   Represents beneficial ownership of less than one percent of our outstanding common stock.

(1)	Includes 57,077 shares held of record by DLJ Capital Corp., 285,382 shares held of record by DLJ First ESC L.P., 1,372,993 shares of record held by Sprout Capital VII, L.P., 15,948 shares of record held by Sprout CEO Fund, L.P., and 1,122,470 shares held of record by Sprout Growth II, L.P. Kathleen LaPorte, a member of our board of directors, is a managing director of DLJ Capital Corp. DLJ Capital Corp. is a wholly-owned subsidiary of Credit Suisse First Boston (USA), Inc. Credit Suisse First Boston (USA), Inc. is a subsidiary of Credit Suisse First Boston, Inc. DLJ LBO Plans Management Corp. is the general partner of DLJ First ESC, L.P. DLJ LBO Plans Management Corp. is an indirect subsidiary of Credit Suisse First Boston (USA), Inc. DLJ Capital Corp. is the managing general partner of Sprout Capital VII, L.P. and Sprout Growth II, L.P. and is the sole general partner of Sprout CEO Fund, L.P. According to information provided by DLJ Capital Corp., Credit Suisse First Boston, Inc. is the parent company of Credit Suisse First Boston (USA), Inc. and may be deemed to beneficially own the shares owned by DLJ Capital Corp., Sprout CEO Fund, L.P., DLJ First ESC, L.P., Sprout Capital VII, L.P. and Sprout Growth II, L.P.; however, Credit Suisse First Boston, Inc. disclaims beneficial ownership of these shares except to the extent of its pecuniary interest therein. Ms. LaPorte disclaims beneficial ownership of such shares except to the extent of her pecuniary interest therein. DLJ Capital Corp., Sprout CEO Fund, L.P., DLJ First ESC, L.P. Sprout Capital VII, L.P. and Sprout Growth II, L.P. are located at 1 Madison Avenue, New York, NY 10010.
(2)	Includes 1,781,857 shares held of record by Enterprise Partners V, L.P. Andrew Senyei, M.D., a member of our board of directors, William Stensrud, Thomas Clanoy, Naser Partovi and James H. Berglund are general partners of Enterprise Partners V, L.P. and may be deemed to beneficially own the shares owned by Enterprise Partners V, L.P.; however, each person disclaims beneficial ownership of these shares except to the extent of his proportionate pecuniary interest therein. The address for Enterprise Partners V, L.P. is 2223 Avenida de la Playa, Suite 300, La Jolla, California 92037, attn: Andrew Senyei.
(3)	Includes 8,729 shares underlying options that are exercisable within 60 days of September 30, 2004 and 8,962 shares of record held by Andrew Senyei, a member of our Board of Directors, 995 shares of record held by the Alison Marie Senyei Trust, 995 shares of record held by the Grant Drew Senyei Trust, and 995 shares of record held by the Kelly Joanne Senyei Trust.

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Principal stockholders

(4)

Includes 1,880 shares underlying options that are exercisable within 60 days of September 30, 2004, 465,035 shares held of record by Asset Management Associates 1984, L.P. and 357,950 shares held of record by Asset Management Associates 1989, L.P. Craig Taylor, a member of our board of directors, John Schoch and Franklin P. Johnson, Jr. are the general partners of AMC Partners 84, L.P. and Messrs. Taylor, Schoch, Johnson and Ferrell Sanders are the general partners of AMC Partners 89, L.P. AMC Partners 84, L.P. is the general partner of Asset Management Associates 1984, L.P. and AMC Partners 89, L.P. is the general partner of Asset Management Associates 1989, L.P. AMC Partners 84, L.P. and Messrs. Taylor, Schoch and Johnson may be deemed to beneficially own the shares owned by Asset Management Associates 1984, L.P., and AMC Partners 89, L.P. and Messrs. Taylor, Schoch, Johnson and Ferrell may be deemed to beneficially own the shares owned by Asset Management Associates; however, each entity and person disclaims beneficial ownership of these shares except to the extent of his or its proportionate pecuniary interest therein. The address for the Asset Management Associates funds is 480 Cowper Street, 2nd Floor, Palo Alto, CA 94301.

(5)

Includes 615,551 shares held of record by STF II, L.P., a fund affiliated with Suez Ventures. Nancy D. Burrus, a member of our board of directors, Guy H. Conger and David E. Gold are general partners of STF II, L.P. and may be deemed to beneficially own the shares owned by STF II, L.P.; however each person disclaims beneficial ownership of the shares except to the extent of his or her proportionate pecuniary interest therein. The address for STF II, L.P. is 2180 Sand Hill Road, Suite 450, Menlo Park, CA 94025.

(6)	Includes 516,576 shares underlying options that are exercisable within 60 days of September 30, 2004, and 261,714 shares underlying options that are exercisable and subject to vesting or a right of repurchase within 60 days of September 30, 2004.
(7)	Includes 112,735 shares underlying options that are exercisable within 60 days of September 30, 2004, and 56,712 shares underlying options that are exercisable and subject to vesting or a right of repurchase within 60 days of September 30, 2004.
(8)	Includes 54,858 shares underlying options that are exercisable within 60 days of September 30, 2004 and 18,359 shares of record held by Robert O. Hussa.
(9)	Includes 125,797 shares underlying options that are exercisable within 60 days of September 30, 2004, and 47,890 shares underlying options that are exercisable and subject to vesting or a right of repurchase within 60 days of September 30, 2004.

(10)  Includes 114,057 shares underlying options that are exercisable within 60 days of September 30, 2004, and 55,405 shares underlying options that are exercisable and subject to vesting or a right of repurchase within 60 days of September 30, 2004.

(11)	Includes 2,498 shares held of record by Charter Advisors Fund IV, L.P., 7,920 shares held by record of Charter Entrepreneurs Fund IV, L.P. and 1,169,563 shares held of record by CLS-I-IV, LLC. A. Barr Dolan, Fred M. Schwarzer, Nelson N.H. Teng and Donald C. Harrison are the managers of CLS I-IV, LLC and A. Barr Dolan and Ravi Chiruvolu are the managers of Charter Ventures IV Partners, LLC, the general partner of Charter Entrepreneurs Fund IV, L.P. and Charter Advisors Fund IV, L.P. Messrs. Dolan, Schwarzer, Teng and Harrison may be deemed to beneficially own the shares owned by CLS IV, LLC; however each person disclaims beneficial ownership of the shares except to the extent of his pecuniary interest therein. Charter Ventures IV Partners, LLC and Messrs. Dolan and Chiruvolu may be deemed to beneficially own the shares owned by Charter Entrepreneurs Fund IV, L.P. and Charter Advisors Fund IV, L.P.; however each person and entity disclaims beneficial ownership of the shares except to the extent of his or its proportionate pecuniary interest therein. The address for Charter Venture Capital is 525 University Avenue, Suite 1400, Palo Alto, CA 94301.
(12)	Includes 907,011 shares of record held by Aeneas Ventures Corporation. Aeneas Venture Corporation, a wholly owned subsidiary of the President and Fellows of Harvard College, assists in the investment and management of the Harvard University endowment fund. Voting and investment authority over the shares held by Aeneas Ventures Corporation is shared by Kim Davis, Michael Eisenson, Tim Palmer and Mark Rosen, all of whom are Managing Directors of Charlesbank Capital Partners, LLC, the investment advisor to Aeneas Ventures Corporation. The address for Aeneas Venture Corporation is c/o Charlesbank Capital Partners, LLC, 600 Atlantic Avenue, 26th Floor, Boston, MA 02210.
(13)	Includes 838,269 shares held of record by Alliance Technology Ventures III, L.P., and 7,022 shares held of record by ATV III Affiliates Fund, L.P. The General Partner for both Alliance Technology Ventures III, L.P. and ATV III Affiliates Fund, L.P. is ATV III Partners, LLC. The managers of ATV III Partners, LLC are Michael A. Henos, William L. Lyman, J. Connor Seabrook and Michael R. Slawson. ATV III Partners, LLC and Messrs. Henos, Lyman, Seabrook and Slawson may be deemed to beneficially own the shares owned by Alliance Technology Ventures III, L.P. and ATV III Affiliates Fund, L.P.; however, each person and entity disclaims beneficial ownership of the shares except to the extent of his or its proportionate pecuniary interest therein. The address for the Alliance Technology Ventures is 8995 Westside Parkway, Alpharetta, GA 30004.
(14)	Includes 787,958 shares of record held by Pantheon Global PCC Limited acting in respect and on behalf of Pantheon Secondary Interests Cell. Pantheon Global PCC Limited acting in respect and on behalf of Pantheon Secondary Interests Cell is owned by Pantheon International Participation, plc, Pantheon Global Secondary Fund Limited and Pantheon Global Secondary Fund, L.P. According to information provided by Pantheon Global PCC Limited acting in respect and on behalf of Pantheon Secondary Interests Cell, Pantheon International Participation, plc, Pantheon Global Secondary Fund Limited and Pantheon Global Secondary Fund, L.P. may be deemed to beneficially own the shares; however, each entity disclaims beneficial ownership of the shares except to the extent of its proportionate pecuniary interests therein. The address for the Pantheon funds is 600 Montgomery Street, 23rd Floor, San Francisco, CA 94111.
(15)	Total number of shares includes common stock held by entities affiliated with directors and executive officers. See footnotes 1 through 14 above.
(16)	This list excludes 19,418 shares of common stock and 10,370 shares underlying options that are exercisable within 60 days of September 30, 2004 held by Nelson N.H. Teng, a former member of our board of directors, who resigned from the board effective August 1, 2004.

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________________________________________________________________________________

Description of capital stock

The description below of our capital stock and provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws that will become effective upon closing of this offering. These documents will be filed as exhibits to the registration statement of which this prospectus is a part. The descriptions of the common stock and preferred stock reflect changes to our capital structure that will occur upon the closing of this offering.

GENERAL

Our amended and restated certificate of incorporation, to become effective upon the closing of this offering, authorizes the issuance of up to 100,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. The rights and preferences of the preferred stock may be established from time to time by our board of directors. The following description of our capital stock gives effect to a three-for-four reverse stock split of our common stock that we expect to effect prior to the closing of this offering.

4	As of September 30, 2004, there were issued and outstanding 182,519 shares of common stock, 15,409,062 shares of preferred stock convertible into 11,957,322 shares of common stock upon the completion of this offering, options to purchase 2,163,582 shares of common stock and warrants to purchase 236,301 shares of preferred stock convertible into 196,915 shares of common stock upon the completion of this offering.
4	As of September 30, 2004, we had 108 common stockholders of record and 60 preferred stockholders of record.
4	Immediately after the closing of this offering, we will have approximately 15,889,841 shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of options to acquire 2,163,582 additional shares of common stock.

COMMON STOCK

Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, except matters that relate only to one or more of the series of preferred stock and each holder does 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 from time to time by the board of directors out of legally available funds.

Holders of common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered by us in this offering, when issued and paid for, will be fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock, which we may designate in the future.

PREFERRED STOCK

Upon the closing of this offering, our board of directors will be authorized, subject to any limitations prescribed by law, without stockholder approval, to issue up to an aggregate of 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions

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Description of capital stock

granted to or imposed upon the preferred stock, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of our company. We have no present plans to issue any shares of preferred stock.

WARRANTS

In March 1999, we issued two warrants to purchase a total of 219,718 shares of Series 3 Preferred Stock at a pre-conversion exercise price of $2.92 per share to lenders pursuant to a credit facility. In March 2000, we issued a warrant to purchase 17,123 shares of Series 3 Preferred Stock at a pre-conversion exercise price of $2.92 per share to a lender in connection with a credit facility. After this offering, the warrants will be exercisable for 196,915 shares of common stock at an exercise price of $3.50 per share or expire on the later of ten years from the date of grant or five years after the closing of this public offering.

STOCK OPTIONS

We intend to file a registration statement under the Securities Act covering up to 4,157,613 shares of common stock reserved for issuance under our stock plans as of September 30, 2004. That registration statement is expected to become effective upon filing with the SEC. Accordingly, common stock registered under that registration statement will, subject to vesting provisions and limitations as to the volume of shares that may be held by our affiliates under Rule 144 described below, be available for sale in the open market unless the holder is subject to the 180-day lock-up period.

As of September 30, 2004, options to purchase 2,163,582 shares of common stock were issued and outstanding at a weighted average exercise price of $4.70 per share. Upon the expiration of the lock-up period described above, at least 1,590,575 shares of common stock will be subject to vested options.

REGISTRATION RIGHTS

We and the holders of our preferred stock entered into an amended and restated investor rights agreement, dated September 19, 2001. This agreement provides these holders with customary demand and piggyback registration rights with respect to the shares of common stock to be issued upon conversion of their preferred stock or exercise of their warrants.

Demand registration

According to the terms of the amended and restated investor rights agreement, holders of 40% of common stock issued or issuable upon conversion of the outstanding preferred stock and upon the exercise of stock purchase warrants of the company have the right to require us to register their shares with the SEC for resale to the public. To demand such a registration, holders who hold together an aggregate of at least 40% of the shares having registration rights must request a registration that is reasonably expected to have an aggregate offering price which equals or exceeds $7,500,000 including underwriting discounts and commissions. We are not required to effect more than two demand registrations. We have currently not effected, or received a request for, any demand registrations.

Piggyback registration

If we file a registration statement for a public offering of any of our securities (other than a registration relating solely to employee stock option or purchase plans, or a registration relating solely to an SEC Rule 145 transaction, or a registration on any form other than Form S-1, S-2 or S-3, or any

80

Description of capital stock

successor to such form which does not include substantially the same information as would be required to be included in a registration statement), the holders of common stock issued or issuable upon conversion of the outstanding preferred stock will have the right to include their shares in the registration statement.

Form S-3 registration

At any time after we become eligible to file a registration statement on Form S-3, the holders of common stock issued or issuable upon conversion of the outstanding preferred stock may require us to file a Form S-3 registration statement, provided that the aggregate disposition price of such registration must be at least $500,000. Such holders have the right to request an unlimited number of registrations on Form S-3, but we are obligated to file only one Form S-3 registration statement in any 12-month period.

These registration rights are subject to certain conditions and limitations, including the right of the underwriters of an offering to limit the number of shares of common stock to be included in the registration. We are generally required to bear the expenses of all registrations, except underwriting discounts and commissions. However, we will not pay for any expenses of any demand or S-3 registration if the request is subsequently withdrawn by the holders who requested such registration unless the withdrawal is based on material adverse information about the company not available at the time of the registration request or the right to demand one registration is forfeited by all holders of the right. The investors’ rights agreement also contains our commitment to indemnify the holders of registration rights for losses attributable to statements or omissions by us incurred with registrations under the agreement.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW

Amended and restated certificate of incorporation and bylaws

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:

4	acquisition of us by means of a tender offer;
4	acquisition of us by means of a proxy contest or otherwise; or
4	removal of our incumbent officers and directors.

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids and to promote stability in our management.

4	Undesignated preferred stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of Adeza. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.
4	Stockholder meetings. Our charter documents provide that a special meeting of stockholders may be called only by the chairman of the board or by our president, or by a resolution adopted by a majority of our board of directors.
4	Elimination of stockholder action by written consent. Our amended and restated certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.
4	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.

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Description of capital stock

4	Amendment of bylaws. Any amendment of our bylaws by our stockholders requires approval by holders of at least 66 2/3% of our then outstanding common stock, voting together as a single class.
4	Staggered board. Our amended and restated certificate of incorporation provides for the division of our board of directors into three classes, as nearly equal in size as possible, with staggered three-year terms. Under our amended and restated certificate of incorporation and amended and restated bylaws, any vacancy on the board of directors, including a vacancy resulting from an enlargement of the board, may only be filled by vote of a majority of the directors then in office. The classification of the board of directors and the limitations on the removal of directors and filling of vacancies would have the effect of making it more difficult for a third party to acquire control of us or of discouraging a third party from acquiring control of us.
4	Amendment of amended and restated certificate of incorporation. Amendments to certain provisions of our amended and restated certificate of incorporation require approval by holders of at least 66 2/3% of our then outstanding common stock, voting together as a single class.

These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors.

Delaware anti-takeover statute

We are subject to Section 203 of the Delaware General Corporation Law. This law prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless:

4	prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
4	upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
4	on or subsequent to the date of the transaction, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

Section 203 defines “business combination” to include:

4	any merger or consolidation involving the corporation and the interested stockholder;
4	any sale, transfer, pledge or other disposition of 10% or more of our assets involving the interested stockholder;
4	in general, any transaction that results in the issuance or transfer by us of any of our stock to the interested stockholder; or
4	the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an “interested stockholder” as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

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Description of capital stock

LIMITATION OF LIABILITY

Our amended and restated certificate of incorporation provides that no director shall be personally liable to us or to our stockholders for monetary damages for breach of fiduciary duty as a director, except that the limitation shall not eliminate or limit liability to the extent that the elimination or limitation of such liability is not permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended.

THE NASDAQ NATIONAL MARKET

We intend to apply for the quotation of our common stock on The Nasdaq National Market under the symbol “ADZA.”

TRANSFER AGENT AND REGISTRAR

Upon the closing of this offering, the transfer agent and registrar for our common stock will be Wells Fargo Bank, N.A.

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Shares eligible for future sale

Prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock.

Based on the number of shares outstanding as of September 30, 2004, we will have approximately 15,889,841 shares of our common stock outstanding after the completion of this offering (approximately 16,452,341 shares if the underwriters exercise their over-allotment option in full). Of those shares, the 3,750,000 shares of common stock sold in this offering (4,312,500 shares if the underwriters exercise their over-allotment option in full) will be freely transferable without restriction, unless purchased by our affiliates. The remaining 12,139,841 shares of common stock to be outstanding immediately following the completion of this offering, which are “restricted securities” under Rule 144 of the Securities Act of 1933, or Rule 144, as well as any other shares held by our affiliates, may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144.

The holders of 11,502,448 shares of outstanding common stock as of the closing of this offering, and the holders of 2,247,439 shares of common stock underlying options and warrants as of the closing of this offering, including all of our officers and directors, have entered into lock-up agreements pursuant to which they have generally agreed, subject to certain exceptions, not to offer or sell any shares of common stock or securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days from the date of this prospectus without the prior written consent of UBS Securities LLC. See “Underwriting.”

After the offering, the holders of 11,957,322 shares of our common stock, and the holders of warrants to purchase 196,915 shares of our common stock will be entitled to certain registration rights. For more information on these registration rights, see “Description of capital stock— Registration Rights.”

In general, under Rule 144, as currently in effect, an affiliate of ours who beneficially owns shares of our common stock that are not restricted securities, or a person who beneficially owns for more than one year shares of our common stock that are restricted securities, may generally sell, within any three-month period, a number of shares that does not exceed the greater of:

4	1% of the number of shares of our common stock then outstanding, which will equal approximately 158,898 shares immediately after this offering (approximately 164,523 shares if the underwriters exercise their over-allotment option in full); and
4	the average weekly trading volume of our common stock on The Nasdaq National Market during the four preceding calendar weeks.

Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice and the availability of current public information about us. Generally, a person who was not our affiliate at any time during the three months before the sale, and who has beneficially owned shares of our common stock that are restricted securities for at least two years, may sell those shares without regard to the volume limitations, manner of sale provisions, notice requirements or the requirements with respect to availability of current public information about us.

Generally, an employee, officer, director or consultant who purchased shares of our common stock before the effective date of the registration statement of which this prospectus is a part, or who holds options as of that date, pursuant to a written compensatory plan or contract, may rely on the resale provisions of Rule 701 under the Securities Act. Under Rule 701, these persons who are not our affiliates may generally sell their eligible securities, commencing 90 days after the effective date of the registration statement of which this prospectus is a part, without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. These persons who

84

Shares eligible for future sale

are our affiliates may generally sell their eligible securities under Rule 701, commencing 90 days after the effective date of the registration statement of which this prospectus is a part, without having to comply with Rule 144’s one-year holding period restriction.

Neither Rule 144 nor Rule 701 supersedes the contractual obligations of our security holders set forth in the lock-up agreements described above.

The 12,139,841 pro forma shares of our common stock that were outstanding on September 30, 2004 will, assuming conversion of our preferred stock in connection with this initial public offering, and assuming no shares are released from the lock-up agreements described above prior to 180 days after the date of this prospectus, become eligible for sale pursuant to Rule 144 or Rule 701 without registration approximately as follows:

4	637,478 shares of common stock that are not subject to the 180-day lock-up period described above will be immediately eligible for sale in the public market without restriction upon the effective date of the registration statement of which this prospectus is a part;
4	1,678,882 shares of common stock that are subject to the 180-day lock-up period described above will be eligible for sale in the public market without restriction immediately upon expiration of the 180-day lock-up period described above; and
4	9,823,481 shares of common stock that are subject to the 180-day lock-up period described above will be eligible for sale in the public market under Rule 144 or Rule 701, immediately upon expiration of the 180-day lock-up period described above, subject to the volume, manner of sale and other limitations under those rules.

Additionally, of the 2,360,497 shares issuable upon exercise of options or warrants to purchase our common stock outstanding as of September 30, 2004, approximately 1,496,150 shares will be vested and eligible for sale 180 days after the date of this prospectus.

EQUITY COMPENSATION

We have reserved an aggregate of 4,157,613 shares of our common stock for issuance under our stock plans as of the completion of this offering. We intend to register the shares reserved for issuance under our 1995 Plan and 2004 Plan on a registration statement under the Securities Act of 1933 on Form S-8 following this offering. Subject to the lock-up agreements and the restrictions imposed under our 1995 Plan and 2004 Plan, shares of common stock issued under our 1995 Plan and 2004 Plan after the effective date of any registration statement on Form S-8 will be available for sale in the public market without restriction to the extent that they are held by persons who are not our affiliates.

85

________________________________________________________________________________

Underwriting

We are offering the shares of our common stock described in this prospectus through the underwriters named below. UBS Securities LLC, SG Cowen & Co., LLC, Thomas Weisel Partners LLC, and William Blair & Company, L.L.C. are the representatives of the underwriters. UBS Securities LLC is the sole book-running manager of this offering. We have entered into an underwriting agreement with the representatives. Subject to the terms and conditions of the underwriting agreement, each of the underwriters has severally agreed to purchase the number of shares of common stock listed next to its name in the following table:

		Number of
Underwriters		shares
UBS Securities LLC
SG Cowen & Co., LLC
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
	Total		3,750,000

The underwriting agreement provides that the underwriters must buy all of the shares if they buy any of them. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

Our common stock is offered subject to a number of conditions, including:

4	receipt and acceptance of our common stock by the underwriters; and
4	the underwriters’ right to reject orders in whole or in part.

The representatives have advised us that the underwriters intend to make a market in our common stock but that they are not obligated to do so and may discontinue making a market at any time without notice.

In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses electronically.

Sales of shares made outside of the United States may be made by affiliates of the underwriters.

OVER-ALLOTMENT OPTION

We have granted the underwriters an option to buy up to 562,500 additional shares of our common stock. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. The underwriters have 30 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will each purchase additional shares approximately in proportion to the amounts specified in the table above.

COMMISSIONS AND DISCOUNTS

Shares sold by the underwriters to the public will initially be offered at the initial offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $           per share from the initial public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $           per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. Upon execution of the underwriting agreement, the underwriters will be obligated to

86

Underwriting

purchase the shares at the prices and upon the terms stated therein and, as a result, will thereafter bear any risk associated with changing the offering price to the public or other selling terms. The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock to be offered.

The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional 562,500 shares.

		No exercise	Full exercise
Per share		$	$
	Total	$	$

We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $1,800,000.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and directors and our existing stockholders holding an aggregate of over        % of our shares outstanding have entered into lock-up agreements with the underwriters. Under these agreements, subject to certain exceptions, we and each of these persons may not, without the prior written approval of UBS Securities LLC, offer, sell, contract to sell or otherwise dispose of, directly or indirectly, or hedge our common stock or securities convertible into or exchangeable or exercisable for our common stock. These restrictions will be in effect for a period of 180 days after the date of this prospectus. The 180-day lock-up period may be extended under certain circumstances where we release, or pre-announce a release of, our earnings or material news or a material event shortly before or after the termination of the 180-day period. At any time and without public notice, UBS Securities LLC may in its sole discretion release all or some of the securities from these lock-up agreements.

INDEMNIFICATION

We have agreed to indemnify the underwriters against certain liabilities, including certain liabilities under the Securities Act. If we are unable to provide this indemnification, we have agreed to contribute to payments the underwriters may be required to make in respect of those liabilities.

NASDAQ NATIONAL MARKET QUOTATION

We have applied to have our common stock approved for quotation on The Nasdaq National Market under the trading symbol “ADZA.”

PRICE STABILIZATION, SHORT POSITIONS

In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including:

4	stabilizing transactions;
4	short sales;
4	purchases to cover positions created by short sales;
4	imposition of penalty bids; and
4	syndicate covering transactions.

Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering is in progress. These transactions

87

Underwriting

may also include making short sales of our common stock, which involve the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be “covered short sales,” which are short positions in an amount not greater than the underwriters’ over-allotment option referred to above, or may be “naked short sales,” which are short positions in excess of that amount.

The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, 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 sales in excess of the over-allotment option. 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 that could adversely affect investors who purchased in this offering.

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

As a result of these activities, the price of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. The underwriters may carry out these transactions on The Nasdaq National Market, in the over-the-counter market or otherwise.

DETERMINATION OF OFFERING PRICE

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiation by us and the representatives of the underwriters. The principal factors to be considered in determining the initial public offering price include:

4	the information set forth in this prospectus and otherwise available to the representatives;
4	our history and prospects, and the history of and prospects for the industry in which we compete;
4	our past and present financial performance and an assessment of our management;
4	our prospects for future earnings and the present state of our development;
4	the general condition of the securities markets at the time of this offering;
4	the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and
4	other factors deemed relevant by the underwriters and us.

AFFILIATIONS

Certain of the underwriters and their affiliates have in the past provided and may from time to time provide certain commercial banking, financial advisory, investment banking and other services for us for which they were and will be entitled to receive separate fees.

We retained UBS Securities LLC, one of the underwriters, to act as our exclusive financial advisor and capital markets advisor in connection with strategic alternatives and, subject to the execution of a satisfactory underwriting agreement, as bookrunner and lead manager of the initial public offering of our common stock. UBS Securities LLC would be entitled to receive additional compensation if certain strategic transactions were to be consummated.

88

________________________________________________________________________________

Legal matters

The validity of the common stock offered hereby will be passed upon for us by Heller Ehrman White & McAuliffe LLP, Menlo Park, California. Dewey Ballantine LLP, New York, New York, is counsel for the underwriters in connection with this offering.

Experts

Ernst & Young LLP, independent registered public accounting firm, have audited our financial statements at December 31, 2002 and 2003, and for each of the three years in the period ended December 31, 2003, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

89

________________________________________________________________________________

Where you can find more information

We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock we are offering. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement and the exhibits of the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and to the exhibits to the registration statement.

You may read and copy the registration statement of which this prospectus is a part at the SEC’s Public Reference Room, which is located at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of the registration statement by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC’s Public Reference Room. In addition, the SEC maintains an Internet web site, which is located at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SEC’s Internet web site. Upon completion of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, and we will file reports, proxy statements and other information with the SEC.

We maintain Internet websites at http://www.adeza.com and http://www.ffntest.com. We have not incorporated by reference into this prospectus the information on our web sites, and you should not consider them to be a part of this prospectus.

This prospectus includes statistical data obtained from industry publications. These industry publications generally indicate that the authors of these publications have obtained information from sources believed to be reliable but do not guarantee the accuracy and completeness of their information. While we believe these industry publications to be reliable, we have not independently verified their data.

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock.

90

Adeza Biomedical Corporation

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		F-2
Balance Sheets		F-3
Statements of Operations		F-4
Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)		F-5
Statements of Cash Flows		F-6
Notes to Financial Statements		F-7

F- 1

Report of Ernst & Young LLP, independent registered public accounting firm

The Board of Directors and Stockholders

Adeza Biomedical Corporation

We have audited the accompanying balance sheets of Adeza Biomedical Corporation as of December 31, 2003 and 2002, and the related statements of operations, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Adeza Biomedical Corporation at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with U.S. generally accepted accounting principles.

ERNST & YOUNG LLP       

Palo Alto, California

March 8, 2004, except for Note 12,

as to which the date is August 4, 2004

and except for the sixth paragraph

of Note 1, as to which the

date is October 13, 2004.

The foregoing report is in the form that will be signed upon the completion of the reverse stock split described in the sixth paragraph of Note 1 to the financial statements.

/s/ ERNST & YOUNG LLP

Palo Alto, California

October 26, 2004

F- 2

Adeza Biomedical Corporation

BALANCE SHEETS

(in thousands, except share and per share information)

		December 31,									Pro forma at
								September 30,			September 30,
		2002			2003			2004			2004
								(unaudited)			(unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	10,751		$	12,092		$	14,638
	Accounts receivable, net of allowance of $335, $264 and $249 at December 31, 2002 and 2003 and September 30, 2004 (unaudited), respectively		4,042			5,294			6,541
	Inventories		513			590			597
	Prepaid and other current assets		173			188			1,548
Total current assets			15,479			18,164			23,324
Property and equipment, net			252			252			301
Note receivable-related party			—			76			—
Intangible assets, net			—			224			188
Total assets		$	15,731		$	18,716		$	23,813
Liabilities and stockholders’ equity (deficit)
Current liabilities:
	Accounts payable	$	1,716		$	2,428		$	3,287
	Accrued compensation		1,421			1,675			1,228
	Accrued royalties		1,483			3,449			547
	Other accrued liabilities		221			545			751
	Notes payable		4,222			—			—
	Deferred revenue		218			414			57
	Capital lease obligations		3			—			—
Total current liabilities			9,284			8,511			5,870
Convertible preferred stock, $0.001 par value; issuable in series; 16,516,335 shares authorized, actual; 5,000,000 shares authorized pro forma; 15,218,803, 15,409,062 and 15,409,062 shares issued and outstanding, actual at December 31, 2002 and 2003, and September 30, 2004 (unaudited), respectively; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference of $76,872 at December 31, 2003 and September 30, 2004 (unaudited)			60,984			61,484			61,484		$	—
Commitments and contingencies
Stockholders’ equity (deficit):
	Common stock, $0.001 par value; 25,000,000 shares authorized, actual; 100,000,000 shares authorized, pro forma; 181,380, 182,160 and 182,519 shares issued and outstanding, actual at December 31, 2002 and 2003, and September 30, 2004 (unaudited), respectively; 12,139,841 shares issued and outstanding pro forma (unaudited)		—			—			—			12
	Additional paid-in capital		2,335			2,358			6,272			67,744
	Deferred compensation		—			—			(3,459	)		(3,459	)
	Accumulated deficit		(56,872	)		(53,637	)		(46,354	)		(46,354	)
Total stockholders’ equity (deficit)			(54,537	)		(51,279	)		(43,541	)		17,943
Total liabilities and stockholders’ equity (deficit)		$	15,731		$	18,716		$	23,813

See accompanying notes.

F- 3

Adeza Biomedical Corporation

STATEMENTS OF OPERATIONS

(in thousands, except share and per share information)

											Nine months ended
		Years ended December 31,									September 30,
		2001			2002			2003			2003			2004
											(unaudited)
Product sales		$	6,742		$	14,277		$	26,499		$	19,185		$	24,405
Cost of product sales			2,521			3,715			6,087			4,621			895
Gross profit			4,221			10,562			20,412			14,564			23,510
Contract revenues			811			1,059			—			—			—
Operating costs and expenses:
	Selling and marketing		6,437			7,819			12,259			9,023			11,638
	General and administrative		2,033			2,069			2,730			1,791			2,631
	Research and development		2,145			2,047			2,001			1,519			1,755
Total operating costs and expenses			10,615			11,935			16,990			12,333			16,024
Income (loss) from operations			(5,583	)		(314	)		3,422			2,231			7,486
Interest income			272			212			112			86			104
Interest expense			(357	)		(219	)		(131	)		(109	)		—
Other expenses, net			(21	)		(8	)		(33	)		(10	)		—
Income (loss) before income taxes			(5,689	)		(329	)		3,370			2,198			7,590
Provision for income taxes			—			—			135			113			307
Net income (loss)		$	(5,689	)	$	(329	)	$	3,235		$	2,085		$	7,283
Basic net income (loss) per share		$	(36.27	)	$	(1.82	)	$	17.78		$	11.46		$	39.97
Diluted net income (loss) per share		$	(36.27	)	$	(1.82	)	$	0.26		$	0.17		$	0.55
Pro forma basic net income per share (unaudited)								$	0.27					$	0.60
Pro forma diluted net income per share (unaudited)								$	0.26					$	0.55
Shares used to compute basic net income (loss) per share			156,857			181,188			181,965			181,900			182,223
Shares used to compute diluted net income (loss) per share			156,857			181,188			12,515,063			12,429,763			13,364,494
Shares used to compute pro forma basic net income per share (unaudited)									11,986,026						12,139,545
Shares used to compute pro forma diluted net income per share (unaudited)									12,515,063						13,364,494

See accompanying notes.

F- 4

Adeza Biomedical Corporation

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share and per share information)

	Convertible															Total
	preferred stock				Common stock			Additional								stockholders’
								paid-in		Deferred			Accumulated			equity
	Shares		Amount		Shares	Amount		capital		Compensation			deficit			(deficit)
Balances at December 31, 2000		11,817,677	$	45,637	151,789	$	—	$	2,314	$	—		$	(50,854	)	$	(48,540	)
Exercise of Series 3 warrants for cash of $2.92 per share		134,357		392	—		—		—		—			—			—
Exercise of Series 3 warrants from net exercise		19,361		—	—		—		—		—			—			—
Issuance of Series 5 convertible preferred stock at $4.63 per share for cash, net of issuance costs of $80		3,247,408		14,955	—		—		—		—			—			—
Exercise of stock options at $0.24 to $2.50 per share for cash		—		—	8,003		—		12		—			—			12
Exercise of common stock warrant for cash of $0.01 per share		—		—	18,750		—		—		—			—			—
Net and comprehensive loss		—		—	—		—		—		—			(5,689	)		(5,689	)
Balances at December 31, 2001		15,218,803		60,984	178,542		—		2,326		—			(56,543	)		(54,217	)
Exercise of stock options at $0.73 to $2.50 per share for cash		—		—	2,838		—		4		—			—			4
Stock-based compensation related to stock options issued to nonemployees		—		—	—		—		5		—			—			5
Net and comprehensive loss		—		—	—		—		—		—			(329	)		(329	)
Balances at December 31, 2002		15,218,803		60,984	181,380		—		2,335		—			(56,872	)		(54,537	)
Exercise of Series 3 preferred stock warrants for cash at $2.63 per share		190,259		500	—		—		—		—			—			—
Stock-based compensation related to stock options issued to nonemployees		—		—	—		—		23		—			—			23
Exercise of stock options at $0.24 per share for cash		—		—	780		—		—		—			—			—
Net and comprehensive income		—		—	—		—		—		—			3,235			3,235
Balances at December 31, 2003		15,409,062		61,484	182,160		—		2,358		—			(53,637	)		(51,279	)
Deferred compensation related to stock options issued to employees		—		—	—		—		3,625		(3,625	)		—			—
Stock-based compensation related to stock options issued to nonemployees		—		—	—		—		288		—			—			288
Amortization of deferred compensation related to stock options issued to employees		—		—	—		—		—		166			—			166
Exercise of stock options at $2.50 per share for cash		—		—	359		—		1		—			—			1
Net and comprehensive income		—		—	—		—		—		—			7,283			7,283
Balance at September 30, 2004		15,409,062		61,484	182,519		—		6,272		(3,459	)		(46,354	)		(43,541	)

See accompanying notes.

F- 5

Adeza Biomedical Corporation

STATEMENTS OF CASH FLOWS

(in thousands)

												Nine months ended
			Years ended December 31,									September 30,
			2001			2002			2003			2003			2004
												(unaudited)
Operating activities
Net income (loss)			$	(5,689	)	$	(329	)	$	3,235		$	2,085		$	7,283
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation and amortization			147			129			142			96			90
	Noncash charges			174			5			(3	)		20			490
	Non-cash interest expense			—			204			106			81			—
	Changes in operating assets and liabilities:
		Accounts receivable		665			(3,919	)		(1,252	)		(450	)		(1,247	)
		Inventories		(47	)		22			(77	)		(126	)		(7	)
		Prepaid and other assets		(28	)		(34	)		(91	)		(145	)		(1,285	)
		Accounts payable		325			206			712			581			859
		Accrued royalties		—			1,483			1,966			1,239			(2,902	)
		Accrued compensation		379			491			254			310			(447	)
		Other accrued liabilities		340			(312	)		324			191			206
		Deferred revenue		293			(1,854	)		196			(195	)		(357	)
Net cash provided by (used in) operating activities				(3,441	)		(3,908	)		5,512			3,687			2,683
Investing activities
Purchase of intangible assets				—			—			(240	)		(240	)		—
Purchases of property and equipment				(64	)		(140	)		(125	)		(117	)		(138	)
Proceeds from sales of property and equipment				6			2			—			—			—
Net cash used in investing activities				(58	)		(138	)		(365	)		(357	)		(138	)
Financing activities
Payments on capital lease obligations				(101	)		(38	)		(3	)		(3	)		—
Payment of notes payable				(1,600	)		(1,843	)		(4,303	)		(4,303	)		—
Net proceeds from issuance of common stock				12			4			—			—			1
Net proceeds from the issuance of convertible preferred stock				15,347			—			500			—			—
Net cash provided by (used in) financing activities				13,658			(1,877	)		(3,806	)		(4,306	)		1
Net increase (decrease) in cash and cash equivalents				10,159			(5,923	)		1,341			(976	)		2,546
Cash and cash equivalents at beginning of period				6,515			16,674			10,751			10,751			12,092
Cash and cash equivalents at end of period			$	16,674		$	10,751		$	12,092		$	9,775		$	14,638
Supplemental cash flow information
Cash paid for interest			$	206		$	48		$	—		$	—		$	—
Cash paid for income taxes			$	—		$	—		$	15		$	15		$	165
Supplemental schedule of noncash investing and financing activities
Conversion of deferred revenue to notes payable upon termination of Distributor contract			$	—		$	5,498		$	—		$	—		$	—

See accompanying notes.

F- 6

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

1. Organization and summary of significant accounting policies

Organization and business

Adeza Biomedical Corporation (Adeza or the Company) is a Delaware corporation which was originally incorporated in the state of California on January 3, 1985 and reincorporated in Delaware in 1996. Adeza is engaged in the design, development, manufacturing, sales, and marketing of products for women’s health markets worldwide. The Company designs, develops, manufactures and markets innovative products for women’s health. The Company’s initial focus is on reproductive healthcare, using its proprietary technologies to predict preterm birth and assess infertility. The Company’s primary products consist of:

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

Basis of Presentation

The Company operates in one business segment, women’s health products. Certain reclassifications of prior year amounts have been made to conform to current year presentation.

Use of estimates

The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Unaudited interim results

The accompanying balance sheet as of September 30, 2004, the statements of operations and cash flows for the nine months ended September 30, 2003 and 2004 and the statement of convertible preferred stock and stockholders’ equity for the nine months ended September 30, 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 present fairly the Company’s financial position as of September 30, 2004 and results of operations and cash flows for the nine months ended September 30, 2003 and 2004. The results for the nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the year ended December 31, 2004 or for any future interim period or for any future year.

Unaudited pro forma information

In June 2004, 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 completed under the terms presently anticipated, all of the convertible preferred stock outstanding at the time of the offering will automatically convert into 11,957,322 shares of common stock. Unaudited pro forma convertible preferred stock and stockholders’ equity, as adjusted for the assumed conversion of the preferred stock, is set forth on the accompanying balance sheets and unaudited pro forma earnings per share

F- 7

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

information assuming the conversion of the preferred stock is set forth on the accompanying statements of operations.

Reverse stock split

On October 13, 2004, the Board of Directors approved a three-for-four reverse split of the Company’s common stock which will be effected prior to the closing of the Company’s initial public offering. All common share and per share amounts contained in the financial statements were retroactively adjusted accordingly, assuming the reverse stock split will be completed.

Revenue recognition

Revenue from product sales is recognized when there is persuasive evidence an arrangement exists, delivery to the customer has occurred, the price is fixed or determinable and collectibility is reasonably assured. Contract revenues are recorded as performance occurs and the related earnings process is completed based on the performance requirements of the contract.

In June 1999, Adeza entered into a Co-Promotion and Exclusive Distribution Agreement with a major US distributor (the “Distributor”). The Co-Promotion and Exclusive Distribution Agreement with the Distributor was terminated as of June 30, 2002. Under the terms of the agreement through June 30, 2002, the revenue earned for the sale of products to the Distributor was not fixed and determinable until the time the products were sold by the Distributor to the end user. Consequently, the Company recognized revenue only after the shipment by the Distributor of the products to the end users. Any payments received prior to the point at which the selling price was fixed and determinable were recorded as deferred revenue. Revenue from laboratory tests performed by the Distributor’s contracted laboratory service provider was recognized as tests were performed.

Effective July 1, 2002, Adeza entered into a services agreement with a national laboratory that performs diagnostic tests. Under the terms of the agreement, the laboratory provides certain domestic product distribution and testing services for Adeza. The Company recognizes revenue upon the shipment of products to the end user as the title, risks and rewards of ownership of the products pass from the Company to the end user at that time. Revenue from the Company’s laboratory services is recognized as tests are performed.

Revenue on all other product sales is recognized upon shipment to distributors as the title, risks, and rewards of ownership of the products pass to the distributors and the selling price of Adeza products is fixed and determinable at that point. Any advance payments received in excess of revenue recognized are classified as deferred revenue on the accompanying balance sheets. Customers have the right to return products that are defective. There are no other return rights.

During the years ended December 31, 2001, 2002 and 2003, 87%, 94%, and 97% and the periods ended September 30, 2003 and 2004, 96% and 97%, respectively, of the Company’s product revenues were derived from customers located in the United States.

Warranty policy

The Company records a liability for product warranty obligations at the time of sale based upon historical warranty experience. The term of the warranty is generally twelve months. The Company also records any additional liability required for specific warranty matters when they become known

F- 8

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

and are reasonably estimable. The Company’s product warranty obligations are included in other accrued liabilities as follows:

											Nine months
		Years ended									ended
		December 31,									September 30,
		2001			2002			2003			2003			2004
											(unaudited)
		(in thousands)
Balance at beginning of period		$	97			$56			$20		$	20			$16
	Charges to cost of product sales		25			4			8			6			14
	Warranty costs incurred		(10	)		(22	)		(12	)		(10	)		(21	)
	Change in estimate related to accrued warranty costs		(56	)		(18	)		—			—			—
Balance at end of period		$	56			$20			$16		$	16			$9

Research and development

Research and development expenses consist of costs incurred for Company-sponsored and collaborative research and development activities. These costs include direct and research-related allocated overhead expenses such as facilities costs, salaries and benefits, and material and supply costs. The Company expenses research and development costs as such costs are incurred. Research and development expenses under collaborative agreements and other contracts are also recorded as incurred and approximate the revenue recognized under such agreements that is recorded as earned based on the performance requirements of the underlying contracts.

Concentrations of risk

Cash and cash equivalents, and accounts receivable are financial instruments which potentially subject Adeza to concentrations of credit risk. Adeza primarily invests in money market funds, and, by policy, limits the amount in any one type of investment, other than securities issued or guaranteed by the U.S. government. Adeza has not experienced any material credit losses and does not generally require collateral on receivables. For the year ended December 31, 2003 and the nine months ended September 30, 2003 and 2004, no single customer represented greater than 5% of total revenues. For the year ended December 31, 2001 and 2002, sales through the Distributor accounted for 86% and 24%, respectively, of Adeza’s total product sales.

Cash and cash equivalents

Cash equivalents consist of highly liquid financial instruments with original maturities of three months or less at the time of acquisition. Cash equivalents consist of money market funds held by a high-credit quality financial institution. Cash and cash equivalents are stated at cost which approximates fair value at December 31, 2002 and 2003 and September 30, 2004 based on available market information.

Derivative financial instruments

The Company holds no derivative financial instruments and does not currently engage in hedging activities.

Property and equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method, and the cost is amortized over the estimated useful lives of the assets, generally three to five years.

F- 9

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the term of the lease, whichever is shorter.

Intangible assets

Intangible assets consist of purchased patents. Accumulated amortization at December 31, 2003 and September 30, 2004, was $16,000 and $36,000, respectively. Intangible assets are amortized over their estimated useful lives of 5 years. Amortization expense is expected to be $48,000 per year in 2004 through 2007 and $32,000 for the year ended December 31, 2008.

Long-lived assets

The Company reviews long-lived assets, including property and equipment, and intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amounts 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 are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. Through September 30, 2004, there have been no such impairment losses.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance to the amount that is more likely than not, in the opinion of management, to be realized.

Stock-based compensation

As permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123) as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure (SFAS 148), the Company has elected to account for stock options granted to employees and directors using the intrinsic value method and, accordingly, does not recognize compensation expense for stock options granted to employees and directors with exercise prices equal to the fair value of the underlying common shares. Options granted to nonemployees have been accounted for in accordance with SFAS 123 and Emerging Issues Task Force Consensus No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, and are periodically remeasured with the resulting value charged to expense over the period of the related services being rendered.

Pro forma information regarding net loss is required by SFAS 123, as if Adeza had accounted for its employee and director stock options granted under the fair value method of SFAS 123. The fair value

F- 10

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

for these options was estimated at the date of grant using the Black-Scholes option pricing model and the following weighted-average assumptions:

							Nine months ended
	Years ended December 31,						September 30,
	2001		2002		2003		2003		2004
							(unaudited)
Volatility factor		50%		85%		85%		85%		85%
Risk-free interest rate		4.3%		3.9%		3.4%		3.4%		3.1%
Dividend yield		0%		0%		0%		0%		0%
Expected life of options		4.9  years		4.9 years		4.0  years		4.0  years		4.0  years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, the model requires the input of highly subjective assumptions, including the expected life of the option. Because Adeza’s employee and director stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee and director stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The pro forma information is as follows:

											Nine months ended
		Years ended December 31,									September 30,
		2001			2002			2003			2003			2004
											(unaudited)
		(in thousands, except per share information)
Net income (loss):
	As reported	$	(5,689	)	$	(329	)	$	3,235		$	2,085		$	7,283
	Add: Total stock based employee and director compensation expense determined under intrinsic value method for all awards		—			—			—			—			166
	Less: Total stock based employee and director compensation expense determined under fair value method for all awards		(37	)		(916	)		(670	)		(544	)		(1,309	)
	Pro forma	$	(5,726	)	$	(1,245	)	$	2,565		$	1,541		$	6,140
Reported basic net income (loss) per share		$	(36.27	)	$	(1.82	)	$	17.78		$	11.46		$	39.97
Reported diluted net income (loss) per share		$	(36.27	)	$	(1.82	)	$	0.26		$	0.17		$	0.55
Pro forma basic net income (loss) per share		$	(36.51	)	$	(6.87	)	$	14.10		$	8.47		$	33.69
Pro forma diluted net income (loss) per share		$	(36.51	)	$	(6.87	)	$	0.21		$	0.12		$	0.46

Allowance for doubtful accounts

The Company maintains an allowance for doubtful accounts related to the estimated losses that may result from the inability of its customers to make required payments. This allowance is determined based upon historical experience and any specific customer collection issues that have been identified.

F- 11

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

Historically, the Company has not experienced significant credit losses related to an individual customer or groups of customers in any particular industry or geographic area.

The Company’s allowance for bad debt is included in accounts receivable as follows:

											Nine months
		Years ended									ended
		December 31,									September 30,
		2001			2002			2003			2003			2004
											(unaudited)
		(in thousands)
Balance at beginning of period		$	27		$	5		$	95		$	95		$	164
	Charges to bad debt expense		22			—			112			29			5
	Bad debt costs incurred		(11	)		(4	)		(43	)		(43	)		—
	Change in estimate		(33	)		94			—			—			—
Balance at end of period		$	5		$	95		$	164		$	81		$	169

In addition to the bad debt reserve, the Company’s allowance for sales returns is included in accounts receivable as follows:

										Nine months
		Years ended								ended
		December 31,								September 30,
		2001		2002			2003			2003			2004
										(unaudited)
		(in thousands)
Balance at beginning of period		$	—	$	—		$	240		$	240		$	100
	Charges to product sales returns		—		159			9			48			—
	Sales returns incurred		—		(2	)		(4	)		—			—
	Change in estimate		—		83			(145	)		(109	)		(20	)
Balance at end of period		$	—	$	240		$	100		$	179		$	80

Inventories

Inventories are stated at the lower of standard cost (which approximates actual cost) or market.

Advertising expense

The cost of advertising is expensed as incurred. Advertising expense for the years ended December 31, 2001, 2002, and 2003 was approximately $124,000, $334,000, and $941,000, respectively, and $790,000 and $236,000 for the nine months ended September 30, 2003 and 2004, respectively. The cost of advertising was included in selling and marketing expenses in the statements of operations.

Shipping and handling costs

Shipping and handling costs incurred for inventory purchases and product shipments are included within cost of product sales in the statements of operations.

Recent accounting pronouncements

In January 2003, the Financial Accounting Standards Board (FASB), issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 requires a variable interest entity to be

F- 12

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The Company’s adoption of the requirements of FIN 46 did not have an impact on its financial position or results of operations.

Net income (loss) per share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the income (loss) by the weighted-average number of common shares outstanding for the period and dilutive potential common shares. For purposes of this calculation, common stock subject to repurchase by the Company, preferred stock, options, and warrants are considered to be potential common shares and are only included in the calculation of diluted net income (loss) per share when their effect is dilutive.

F- 13

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

											Nine months ended
			Years ended December 31,								September 30,
			2001			2002			2003		2003		2004
											(unaudited)
			(in thousands, except share and per share information)
Numerator:
Net income (loss)			$	(5,689	)	$	(329	)	$	3,235	$	2,085	$	7,283
Denominator:
Denominator for basic earnings per share-weighted-average common shares outstanding				156,857			181,188			181,965		181,900		182,223
	Effect of dilutive securities:
		Stock options		—			—			500,988		440,654		1,092,208
		Warrants		—			—			28,049		8,433		132,741
		Convertible preferred stock		—			—			11,804,061		11,798,776		11,957,322
	Dilutive potential common shares			—			—			12,333,098		12,247,863		13,182,271
Denominator for diluted earnings per share-weighted-average common shares outstanding and dilutive potential common shares				156,857			181,188			12,515,063		12,429,763		13,364,494
Denominator for basic earnings per share										181,965				182,223
	Assumed conversion of preferred stock (unaudited)									11,804,061				11,957,322
Denominator for pro forma basic earnings per share (unaudited)										11,986,026				12,139,545
	Effect of other dilutive securities:
		Stock options (unaudited)								500,988				1,092,200
		Warrants (unaudited)								28,049				132,741
Denominator for pro forma dilutive earnings per share (unaudited)										12,515,063				13,364,494
Basic net income (loss) per share			$	(36.27	)	$	(1.82	)	$	17.78	$	11.46	$	39.97
Diluted net income (loss) per share			$	(36.27	)	$	(1.82	)	$	0.26	$	0.17	$	0.55
Pro forma basic net income per share (unaudited)									$	0.27			$	0.60
Pro forma diluted net income per share (unaudited)									$	0.26			$	0.55
Weighted average common shares related to securities not included above as anti-dilutive:
		Stock options		701,478			1,145,449			—		—		—
		Warrants		371,748			355,465			—		196,915		—
		Convertible preferred stock		11,756,719			11,798,776			—		—		—
		Total		12,829,945			13,299,690			—		196,915		—

F- 14

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

2. ACQUISITION OF BIEX, INC. ASSETS

On September 9, 2003, the Company completed the acquisition of substantially all of the assets of Biex, Inc. to expand its diagnostic product pipeline. Biex’s assets primarily consisted of several patents relating to FDA-approved preterm labor diagnostic testing products. The Biex acquisition has been accounted for as an acquisition of assets rather than as a business combination in accordance with the criteria outlined in Emerging Issues Task Force 98-3, because, at the date of acquisition, Biex lacked all of the elements of a business because it did not have any employees or processes.

The aggregate purchase price of the Biex assets was $250,000 in cash. The following table summarizes the purchase price allocation (in thousands):

Fixed assets	$	10
Patents		240
Total purchase price	$	250

The purchased patents relate to methods of predicting premature labor. The Company believes that the patents may allow for complementary products to its existing product lines.

The Company allocated the purchase price to the tangible and intangible assets acquired based on their estimated fair values. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

3. LICENSE ARRANGEMENTS

Adeza has entered into license, clinical trial, supply, and sponsored research and development agreements with universities, research organizations, and commercial companies. Certain of these agreements require payments of royalties on future sales of products resulting from such agreements and may subject Adeza to minimum annual royalty payments to such contract partners. During the years ended December 31, 2001, 2002, and 2003, the total of such royalty costs recorded were approximately $98,000, $253,000 and $3,330,000, respectively, and $2,449,000 and $2,909,000 for the nine months ended September 30, 2003 and 2004, respectively. The royalty costs are included in cost of product sales. Cost of product sales for the nine months ended September 30, 2004 includes a one-time reduction in accrued royalties of $2.7 million that Adeza determined were in excess of amounts actually due.

4. MARKETING AND CO-PROMOTIONAL DISTRIBUTION AGREEMENT

In June 1999, Adeza entered into a Co-Promotion and Exclusive Distribution Agreement with the Distributor. This agreement was mutually terminated by both parties as of June 30, 2002. Under the terms of this agreement, the Distributor had the right to co-market and distribute, within the United States of America and its territories and possessions excluding the Commonwealth of Puerto Rico, certain existing products and next-generation improvements to those existing products related to their use for certain clinical indications owned by Adeza.

In consideration of the co-promotion and exclusive distribution rights, and other terms and conditions, the Distributor paid Adeza a nonrefundable one-time payment of $2,000,000 in 1999. The Distributor was also to pay Adeza a total of up to $2,000,000 during 2001 and 2002 to fund certain portions of the research and development efforts related to the products and services covered by this agreement.

F- 15

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

During the years ended December 31, 2001, 2002 and 2003, the Company received $244,000, $176,000, and $0, respectively, of such research and development funding. No amounts were received in the nine months ended September 30, 2003 and 2004. This funding is included within contract revenue in the statements of operations.

The 1999 nonrefundable, one-time $2,000,000 payment received from the Distributor was deferred and was being recognized as revenue over the estimated five-year life of the agreement. At the termination of the agreement, Adeza recognized the balance of the deferred contract revenue in 2002, net of costs related to the contract termination. The amount of revenue recognized for the years ended December 31, 2001, 2002 and 2003 was $400,000, $574,000, and $0, respectively.

As a result of the mutual termination of the contract, Adeza agreed to pay the Distributor $5,771,000. This amount, primarily related to deferred product revenue received by Adeza from sales to the Distributor, was reclassified from deferred revenue to notes payable excluding $273,000 of imputed interest to be recorded over the repayment period, in 2002 (see Note 7).

5. INVENTORIES

Inventories consist of the following (in thousands):

	December 31,
					September 30,
	2002		2003		2004
					(unaudited)
Raw materials	$	252	$	320	$	308
Work in process		158		136		145
Finished goods		103		134		144
	$	513	$	590	$	597

6. PROPERTY AND EQUIPMENT

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

	December 31,
							September 30,
	2002			2003			2004
							(unaudited)
Laboratory and other equipment	$	2,033		$	2,120		$	2,217
Furniture and fixtures		150			152			156
Leasehold improvements		130			130			130
		2,313			2,402			2,503
Less accumulated depreciation and amortization		(2,061	)		(2,150	)		(2,203	)
Total net property and equipment	$	252		$	252		$	301

Included in laboratory and other equipment at December 31, 2002 are assets with a cost of $70,000 acquired pursuant to capital lease obligations. Related accumulated amortization for these leased assets was $51,000 as of December 31, 2002. During 2003, the capital lease reached its term. As such, the assets underlying this lease were purchased and are no longer carried under capital lease. The assets continue to be included within laboratory and other equipment.

F- 16

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

7. COMMITMENTS AND OBLIGATIONS

Leases

Future minimum obligations under noncancelable operating leases at December 31, 2003 are as follows (in thousands):

Year ending December 31, 2004 $ 59

In October 2004, the Company entered into a facility lease for a one-year term with two one-year renewal options. Future minimum obligations under this lease at September 30, 2004 are payments totaling $200,000 through October 2005.

Rent expense was approximately $300,000, $297,000, $195,000, $146,000, and $153,000 for the years ended December 31, 2001, 2002, 2003, and the nine-month periods ended September 30, 2003 and 2004 (unaudited), respectively.

Notes payable

In March 1999, Adeza entered into a loan and security agreement with MMC/ GATX Partnership No. 1 and Transamerica Business Credit Corporation. Under the terms of the agreement, Adeza had $4,000,000 available as a loan for a period of 36 months, against which it borrowed $3,000,000 in March 1999 and an additional $1,000,000 in July 1999. Monthly payments under the notes were interest only through May 2000 and then reverted to combined principal and interest payments. The interest rate applicable to the borrowings was 13.66%. Adeza’s assets secured this borrowing. The final principal and interest payments were made as of March 31, 2002.

In June 2002, Adeza entered into an agreement to terminate the Co-Promotion and Distribution Agreement between Adeza and the Distributor (see Note 4). Under the terms of the agreement, Adeza agreed to pay the Distributor $5,771,000 under a note payable due through June 30, 2003. In December 2002, $1,443,000 was paid to the Distributor. The remaining payments were paid in March and June 2003. The note was secured by Adeza’s assets. In the years ended December 31, 2002 and 2003, Adeza recorded $167,000 and $106,000, respectively, of interest expense related to this note. $106,000 was recorded in the nine-month period ended September 30, 2003. No interest expense was recorded in the nine-month period ended September 30, 2004.

8. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

Convertible preferred stock

Convertible preferred stock consists of the following (in thousands, except share information):

	December 31, 2003 and September 30, 2004
			Shares
	Shares		issued and		Liquidation
	authorized		outstanding		preference
Series 1		1,880,572		1,654,719	$	3,971
Series 2		3,591,087		3,496,750		8,392
Series 3		5,084,676		4,807,077		14,037
Series 4		2,700,000		2,203,108		20,401
Series 5		3,260,000		3,247,408		30,071
Total		16,516,335		15,409,062	$	76,872

F- 17

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

Upon completion of, and subordinate to, the distribution of any Series 5 convertible preferred stock dividends, each share of Series 4 convertible preferred stock entitles the holder to receive, if and as declared, cumulative dividends of $0.463. Upon completion of and subordinate to the distribution to holders of Series 4 convertible preferred stock dividends, each share of Series 1, 2, and 3 convertible preferred stock entitles the holder to receive, if and as declared, noncumulative dividends of $0.24, $0.24, and $0.292 per share, respectively. If dividends are declared on Series 1, 2, 3, or 4 convertible preferred stock, all such series of convertible preferred stock must receive dividends. Series 5 convertible preferred stock entitles the holder to receive, if and as declared, cumulative dividends of $0.463 per share. No dividends have been declared to date.

Each share of Series 1, 2, 4, and 5 convertible preferred stock is convertible, at the option of the holder, into 0.75 of a share of common stock. Each share of Series 3 convertible preferred stock is convertible, at the option of the holder, into 0.83333 of a share of common stock. The Series 1, 2, 3, 4, and 5 convertible preferred stock is convertible at the option of the holder, automatically upon a public offering with a price per share of at least $9.27 and aggregate proceeds greater than $15,000,000 or on the affirmative vote or written consent of the holders of at least 66 2/3% of Series 1, 2, 3, 4, or 5 convertible preferred stockholders consenting as a single class, respectively.

Upon liquidation of Adeza, the holders of Series 5 convertible preferred stock shall have a liquidation preference, prior and in preference to any distribution to the holders of Series 1, 2, 3, and 4 convertible preferred stock of $9.26 per share plus any declared but unpaid dividends. Following the liquidation payments to the holders of Series 5 preferred stock, the holders of Series 4 convertible preferred stock shall have a liquidation preference, prior and in preference to any distribution to the holders of Series 1, 2, or 3 convertible preferred stock of $9.26 per share plus any declared but unpaid dividends. Following the liquidation payments to the holders of Series 4 and 5 preferred stock, the holders of Series 1, 2, and 3 convertible preferred stock shall be entitled to $2.40, $2.40, and $2.92 per share, respectively, plus any declared but unpaid dividends. A merger or consolidation of the Company in which the Company receives a distribution in cash or securities of another company shall be treated as a liquidation unless the stockholders of the Company will hold at least 50% of the voting equity securities of the surviving company. This change-in-control provision requires the convertible preferred stock to be classified outside of stockholders’ equity as a purchaser of the Company could acquire the required percentage of the voting power of the outstanding stock without company approval. Therefore, such a payment to the preferred stockholders is not solely within the Company’s control. The carrying value of the convertible preferred stock has not been adjusted to the liquidation value of such shares as it is not probable that such a payment will occur due to the potential for conversion of the preferred stock prior to any such change-in-control.

After the payments to holders of preferred stock as described above, the holders of common stock are entitled to receive $0.3867 per share. Any remaining assets of Adeza available for distribution shall be distributed ratably among the holders of common stock and preferred stock on an as-if-converted basis.

The Series 1, 2, 3, 4, and 5 preferred stockholders have voting rights equal to the common stockholders on an as-if-converted basis.

The Company has reserved 236,301 shares of convertible preferred stock for issuance upon the exercise of warrants at December 31, 2003 and September 30, 2004.

F- 18

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

Warrants

In conjunction with a convertible note financing, Adeza issued warrants to purchase 190,259 shares of the Company’s Series 3 convertible preferred stock, at a per-share exercise price of $2.92. The warrants were exercised in December 2003.

In conjunction with the loan and security agreement with MMC/ GATX Partnership No. 1 and Transamerica Business Credit Corporation, Adeza issued warrants to purchase 236,301 shares of Series 3 convertible preferred stock at an exercise price of $2.92 per share. The warrants are scheduled to expire on the later of ten years from the date of the grant or five years after the closing of a public offering. The fair value assigned to these warrants, as determined using the Black-Scholes valuation model, was approximately $475,000. In determining the fair value of the warrants the following assumptions were used: expected volatility of 50%; expected life of 10 years; expected dividend yield of 0%; risk-free interest rate of 6%; stock price at date of grant and exercise price of $2.92 per share. The fair value of these warrants was netted against the related debt and was amortized to interest expense over the terms of the various notes. In the years ended December 31, 2001, 2002 and 2003, and the nine month periods ended September 30, 2003 and 2004, Adeza amortized as interest expense $150,000, $33,000, $24,000, $2,600 and $0, respectively, related to these warrants. The warrants are outstanding and exercisable at September 30, 2004.

All preferred stock underlying the warrants is convertible into common stock at a conversion ratio of 1:0.83333.

Common stock

The Company has reserved the following shares of common stock for the issuance of options and rights granted under the Company’s stock option plans, the conversion of preferred stock and the exercise of warrants after giving effect to the three-for-four reverse stock split, as follows:

	December 31,
					September 30,
	2002		2003		2004
					(unaudited)
Options outstanding		1,446,429		1,471,404		2,163,582
Shares reserved for future option grants		160,119		140,715		17,056
Convertible preferred stock issued and outstanding		11,798,776		11,957,322		11,957,322
Warrants outstanding— convertible preferred stock		339,612		196,915		196,915
		13,744,936		13,766,356		14,334,875

Stock option plan

The Company adopted the 1995 Stock Option and Restricted Stock Plan (the 1995 Plan) under which options and purchase rights can be issued to employees, officers, directors, consultants, and promotional representatives of Adeza. The 1995 Plan provides that the exercise price for incentive stock options will be no less than 100% of the fair value of Adeza’s common stock (no less than 85% of the fair value for nonqualified stock options), as determined by the Board of Directors on the date of grant. Generally, these options are immediately exercisable, subject to repurchase rights which lapse ratably over four years and have a term of 10 years. There were no shares subject to repurchase as of December 31, 2002 and 2003 or at September 30, 2004. No restricted stock purchase rights had been issued as of December 31, 2003 or September 30, 2004.

F- 19

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

Option activity under the 1995 Plan is as follows:

		Options			Options			Weighted-
		available			outstanding			average
		for grant			and exercisable			exercise price
Balance at December 31, 2001			890,458			712,677		$	2.29
	Shares authorized		6,251			—
	Options granted		(745,390	)		745,390		$	3.33
	Options exercised		—			(2,838	)	$	1.44
	Options canceled		8,800			(8,800	)	$	2.92
Balance at December 31, 2002			160,119			1,446,429		$	2.29
	Shares authorized		6,351			—			—
	Options granted		(34,622	)		34,622		$	3.33
	Options exercised		—			(780	)		0.32
	Options canceled		8,867			(8,867	)	$	3.05
Balance at December 31, 2003			140,715			1,471,404		$	2.32
	Shares authorized (unaudited)		568,878			—			—
	Options granted (unaudited)		(703,276	)		(703,276	)	$	9.65
	Options exercised (unaudited)		—			(359	)		—
	Options canceled (unaudited)		10,739			(10,739	)	$	2.99
Balance at September 30, 2004 (unaudited)			17,056			2,163,582		$	4.70

The following summarizes options outstanding and exercisable as of December 31, 2003:

	Options outstanding and exercisable
			Weighted-
			average
			remaining
			contractual		Weighted-
	Number		life		average
Exercise prices	outstanding		(in years)		exercise price
$0.24		141,726		1.42	$	0.32
$0.73		452,948		3.91	$	0.97
$2.50		872,980		8.29	$	3.33
$4.63		3,750		9.58	$	6.17
		1,471,404		6.28	$	2.32

F- 20

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

The following summarizes options outstanding and exercisable as of September 30, 2004:

	Options outstanding and exercisable
			Weighted-
			average
			remaining
			contractual		Weighted-
	Number		life		average
Exercise price	outstanding		(in years)		exercise price
$0.24		141,463		0.68	$	0.32
$0.73		451,705		3.16	$	0.97
$2.50		883,414		7.58	$	3.33
$4.63		3,750		8.83	$	6.17
$6.38		76,125		13.84	$	8.51
$7.50		607,125		9.84	$	10.00
		2,163,582		7.06	$	4.70

During the nine months ended September 30, 2004, the Company recorded deferred stock compensation for the excess of the estimated fair value of its common stock over option exercise prices at the date of grant of approximately $3,625,000 related to options granted to employees and directors. Stock-based compensation expense is being recognized over the option vesting period of four years using the straight-line method.

For options granted to nonemployees, the Company determined the estimated fair value of the options using the Black-Scholes option pricing model. Compensation expense is generally being recognized over the option vesting period. For the years ended December 31, 2002 and 2003 and the nine months ended September 30, 2004, the Company recorded stock-based compensation expense of approximately $5,000, $23,000 and 288,000, respectively, in connection with options granted to nonemployees. No stock-based compensation expense was recorded for the years ended December 31, 2001 and the nine months ended September 30, 2003.

9. INCOME TAXES

The Company’s accumulated deficit differs from the federal net operating loss carryforwards due to the losses of Adeza’s former foreign subsidiary and temporary differences, which consist primarily of certain expenses not currently deductible for tax reporting purposes.

The provision for income taxes consists of the following:

		Years ended
		December 31,
		2001		2002		2003
		(in thousands)
Current:
	Federal	$	—	$	—	$	65
	State		—		—		70
Total current		$	—	$	—	$	135

F- 21

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

The Company’s income tax provision differs from the amounts computed by applying the federal statutory income tax rate of 34% to pretax income (loss) as follows:

		Years ended December 31,
		2001			2002			2003
		(in thousands)
U.S. federal taxes (benefit)
	Expected provision at federal statutory rate	$	(1,934	)	$	(112	)	$	1,146
	State taxes, net of federal benefit		—			—			46
	Net operating losses not benefitted (benefitted)		1,899			61			(1,132	)
	Other individually immaterial items		35			51			75
Total		$	—		$	—		$	135

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets are as follows:

		December 31,
		2001			2002			2003
		(in thousands)
Deferred tax assets:
	Net operating losses	$	15,500		$	15,900		$	15,040
	Research credits		1,400			1,500			1,740
	Capitalized research and development		600			900			180
	Deferred revenue		3,100			100			—
	Other, net		400			800			380
Total deferred tax assets			21,000			19,200			17,340
Valuation allowance			(21,000	)		(19,200	)		(17,340	)
Net deferred tax assets		$	—		$	—		$	—

Because of Adeza’s lack of earnings history, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance (increased) decreased by $(3,200,000), $1,800,000 and $1,860,000 during the years ended December 31, 2001, 2002 and 2003, respectively.

As of December 31, 2003, the Company had federal and state net operating loss carryforwards of approximately $40,300,000 and $22,800,000, respectively. The Company also had federal and state research and development tax credit carryforwards of approximately $1,100,000 and $900,000, respectively. The federal net operating loss and tax credit carryforwards will expire at various dates beginning in 2004 through 2022, if not utilized. The state net operating loss carryforwards will expire at various dates beginning in 2004 through 2013, if not utilized. The state research and development tax credits carry forward indefinitely.

Utilization of the Company’s net operating losses and research and development tax credits may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating losses and research and development tax credits before utilization.

F- 22

Adeza Biomedical Corporation

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 2003 (Information pertaining to September 30, 2004 and the nine months ended September 30, 2004 and 2003 is unaudited)

10. BENEFIT PLAN

The Company’s 401(k) Plan allows eligible employees to make contributions of their qualified compensation subject to IRS limits. The Company has the discretion to make matching contributions each year. The Company has not made any matching contributions to date.

11. RELATED PARTY TRANSACTIONS

In 2000, a loan offer was made to an officer of the Company. The agreement to the loan was ratified by the Board of Directors on April 21, 2001, for an amount of $183,000, with the minimum interest rate allowed by the internal revenue service. According to the terms agreed upon, 20% of the loan would be forgiven in principal and accrued interest at the end of each twelve months of employment. The loan would be due and payable within 30 days following termination by Adeza for cause. In the event of a change of control or merger with another company or of termination without cause, the loan and accumulated interest would be forgiven. The loan contemplated was executed on February 28, 2003 for $109,800 which was paid to the officer at that time. All other terms were in accordance with the original loan offer. Subject to the officer’s continued employment, the loan and related interest would have been forgiven in 2003 to 2006. On August 4, 2004, the Company, upon approval of its Board of Directors, forgave the remaining balance of the loan. In the year ended December 31, 2003 and the nine months ended to September 30, 2004, $33,550 and $76,000, respectively, of the principal was forgiven and recorded to general and administrative expenses.

12. SUBSEQUENT EVENTS

Employee option plans

2004 Equity Incentive Plan

In August 2004, the Company’s board of directors and stockholders approved the 2004 Equity Incentive Plan (the 2004 Plan), which will become effective upon the completion of its initial public offering. The Company has reserved a total of 1,875,000 shares of its common stock for issuance under the 2004 Plan, all of which are available for future grant.

1995 Stock Option and Restricted Stock Plan

In August 2004, the Company’s board of directors and stockholders approved amendments to the 1995 Plan so that, upon completion of the Company’s initial public offering, any shares that are available for future grant under the 1995 Plan, and any shares that are issuable upon exercise of options outstanding under the 1995 Plan that are forfeited after the completion of the Company’s initial public offering, will be allocated to the 2004 Plan.

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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 underwriting discounts and commissions, to be paid by the Registrant in connection with the sale of the common stock being registered. All amounts other than the SEC registration fee, the NASD filing fees and the Nasdaq National Market listing fee are estimates.

		Amount
		to be paid
SEC registration fee		$	8,742.30
NASD filing fee			7,400.00
Nasdaq National Market application fee			5,000.00
Nasdaq National Market entry fee			95,000.00
Nasdaq National Market annual fee (prorated for 2004)			4,416.67
Legal fees and expenses			900,000.00
Accounting fees and expenses			500,000.00
Printing and engraving			200,000.00
Blue Sky fees and expenses (including legal fees)			20,000.00
Transfer agent and registrar fees			5,000.00
Miscellaneous			54,441.03
	Total	$	1,800,000.00

Item 14.     Indemnification of directors and officers

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the “Securities Act”).

As permitted by the Delaware General Corporation Law, the Registrant’s amended restated certificate of incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director.

As permitted by the Delaware General Corporation Law, the bylaws of the Registrant provide that (1) the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions, (2) the Registrant is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions and (3) the rights conferred in the restated bylaws are not exclusive.

The Registrant has entered into indemnification agreements with each of its directors and executive officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant’s restated certificate of incorporation and to provide additional procedural protections. The Registrant also intends to enter into indemnification agreements with any new directors and executive officers in the future. At present, there is no pending litigation or proceeding involving any of our directors, officers, employees, or agents, where indemnification by us will be required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.

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Part II

The Underwriting Agreement provides for indemnification by the underwriters of the officers, directors and controlling persons of the Registrant against certain liabilities, including liabilities arising under the Securities Act. Reference is made to the form of underwriting agreement filed as Exhibit 1.1 hereto.

The indemnification provisions in the Registrant’s restated certificate of incorporation, restated bylaws and the indemnification agreements entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant’s directors and executive officers for liabilities arising under the Securities Act.

The Registrant has obtained liability insurance for its officers and directors.

Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere in this prospectus:

	Exhibit
Document	number
Form of Underwriting Agreement		1.1
Form of Restated Certificate of Incorporation of Registrant		3.2
Form of Restated Bylaws of Registrant		3.4
Form of Indemnification Agreement for Directors and Officers		10.12

Item 15.     Recent sales of unregistered securities

In the preceding three years, beginning October 1, 2001 and ending September 30, 2004, the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”). The offers, sales and issuances of these securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, and/or Regulation D and the other rules and regulations promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions not involving a public offering or transactions under compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intention 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 share certificates and warrants issued in such transactions. All common share amounts give effect to a three-for-four reverse stock split of our common stock to be effected prior to the closing of this offering.

1. We have issued options to purchase an aggregate of 1,483,438 shares of common stock to our directors, employees and consultants, of which options to purchase 796,438 shares were granted at an exercise price of $3.33 per share, options to purchase 607,125 shares were granted at an exercise price of $10.00 per share, 3,750 shares were granted at an exercise price of $6.17, options to purchase 76,125 shares were granted at an exercise price of $8.51 and 9,266 shares of common stock have been issued upon exercise of options. The sales of the above securities were deemed to be exempt from registration pursuant to either Section 4(2) of the Securities Act (in the case of our officers) or Rule 701 promulgated under the Securities Act (in the case of optionees other than officers).

2. In September 2001, we issued 3,247,408 shares of our Series 5 preferred stock to accredited investors for an aggregate cash consideration of approximately $15,035,500. The issuance of these securities was exempt from registration under the Securities Act pursuant to Rule 506 under Regulation D promulgated under the Securities Act, and a Form D was filed with respect to this issuance.

3. In November 2001, we issued 18,750 shares of our common stock to Fred Hutchinson Cancer Research Center, Inc. for an aggregate cash consideration of $250. The sale of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act.

4. In December 2003, we issued 190,259 shares of our Series 3 preferred stock upon exercise of warrants to STF II L.P., Asset Management Associates 1984, L.P., Asset Management Associates 1989, L.P., Pantheon Global PLC Limited acting in respect and on behalf of Pantheon Secondary Interests

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Part II

Cell and CIS-I-IV, LLC. for an aggregate cash consideration of approximately $500,000. The sale of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act.

Item 16.     Exhibits and Financial Statement Schedules

Exhibit
number			Description
	1.1*		Form of Underwriting Agreement.
	3.1*	*	Amended and Restated Certificate of Incorporation.
	3.2*	*	Form of Amended and Restated Certificate of Incorporation to be effective upon the completion of the offering.
	3.3*	*	Bylaws.
	3.4*	*	Form of Amended and Restated Bylaws to be effective upon the completion of the offering.
	4.1		Specimen Stock Certificate.
	5.1		Opinion of Heller Ehrman White & McAuliffe LLP.
	10.1*	*	1995 Stock Option and Restricted Stock Plan.
	10.2*	*	2004 Equity Incentive Plan.
	10.3*	*	Exclusive License Agreement, dated August 12, 1992, between Adeza and the Fred Hutchinson Cancer Research Center, together with the First Amendment to Exclusive License Agreement and Consent dated May 9, 1996 and Amendment No. 1 to Exclusive License Agreement dated April 30, 1998.†
	10.4*	*	Investors’ Rights Agreement, dated September 19, 2001, between Adeza and certain Stockholders of Adeza.
	10.5		License Agreement, dated July 25, 1997, between Adeza and the Trustees of the University of Pennsylvania.†
	10.6		Agreement and Release, dated March 3, 1998, between Adeza and Matria Healthcare, Inc.†
	10.7*	*	Net Industrial Space Lease, dated July 7, 1999, between Adeza and Tasman V, LLC.
	10.8		Service Agreement, dated as of March 31, 1999, between Adeza and Ventiv Health U.S. Sales LLC (formerly known as Snyder Healthcare Sales Inc.), together with First Amendment to Service Agreement dated March 8, 2002, Second Amendment to Service Agreement dated July 22, 2002, and Third Amendment to Service Agreement dated May 15, 2004.†
	10.9*	*	Warrant to Purchase Shares of Series 3 Preferred Stock, dated March 23, 1999, between Adeza and Transamerica Business Credit Corporation and its assignees.
	10.10	**	Warrant to Purchase Shares of Series 3 Preferred Stock, dated March 31, 2000, between Adeza and TBCC Funding Trust II and its assignees.
	10.11	**	Warrant to Purchase Shares of Series 3 Preferred Stock, dated March 23, 1999, between Adeza and MMC/GATX Partnership No. I and its assignees.
	10.12	**	Form of Indemnification Agreement for Directors and Officers.
	10.13	**	Agreement, dated December 24, 1998, between Adeza and Unilever PLC.†
	10.14		Second Amendment to Lease, dated October 12, 2004, between Adeza and Tasman V, LLC.
	10.15		Management Continuity Agreement, dated October 21, 2004, between Adeza and Emory Anderson.
	10.16		Management Continuity Agreement, dated October 21, 2004, between Adeza and Mark Fischer-Colbrie.
	10.17		Form of Management Continuity Agreement, dated October 21, 2004, between Adeza and Durlin Hickok, Robert Hussa and Marian Sacco.
	23.1		Consent of Ernst & Young LLP, independent registered public accounting firm.
	23.2		Consent of Heller Ehrman White & McAuliffe LLP (included in Exhibit 5.1).
	24.1		Powers of Attorney (included on signature page).

* To be filed by amendment.

**  Previously filed.

† Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions of this exhibit under Rule 406 of the Securities Act of 1933. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.

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Part II

Item 17.     Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing 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.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has 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 the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant 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; and

(2) 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- 4

Signatures

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Menlo Park, California on this 27th day of October, 2004.

ADEZA BIOMEDICAL CORPORATION

By:  /s/ EMORY V. ANDERSON

Emory V. Anderson

President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities indicated on October 27, 2004:

Signature	Title(s)
/s/ EMORY V. ANDERSON Emory V. Anderson	President, Chief Executive Officer and Director (principal executive officer)
/s/ MARK D. FISCHER-COLBRIE Mark D. Fischer-Colbrie	Vice President, Finance and Administration and Chief Financial Officer (principal financial and accounting officer)
/s/ ANDREW E. SENYEI, MD* Andrew E. Senyei, MD	Chairman of the Board
/s/ NANCY D. BURRUS* Nancy D. Burrus	Director
/s/ CRAIG C. TAYLOR* Craig C. Taylor	Director
/s/ KATHLEEN D. LAPORTE* Kathleen D. LaPorte	Director
*By:
/s/ EMORY V. ANDERSON Emory V. Anderson   Attorney-in-Fact

II- 5

Exhibit Index

Exhibit
number			Description
	1.1*		Form of Underwriting Agreement.
	3.1**		Amended and Restated Certificate of Incorporation.
	3.2**		Form of Amended and Restated Certificate of Incorporation to be effective upon the completion of the offering.
	3.3**		Bylaws.
	3.4**		Form of Amended and Restated Bylaws to be effective upon the completion of the offering.
	4.1		Specimen Stock Certificate.
	5.1		Opinion of Heller Ehrman White & McAuliffe LLP.
	10.1**		1995 Stock Option and Restricted Stock Plan.
	10.2**		2004 Equity Incentive Plan.
	10.3**		Exclusive License Agreement, dated August 12, 1992, between Adeza and the Fred Hutchinson Cancer Research Center, together with the First Amendment to Exclusive License Agreement and Consent dated May 9, 1996 and Amendment No. 1 to Exclusive License Agreement dated April 30, 1998.†
	10.4**		Investors’ Rights Agreement, dated September 19, 2001, between Adeza and certain Stockholders of Adeza.
	10.5		License Agreement, dated July 25, 1997, between Adeza and the Trustees of the University of Pennsylvania.†
	10.6		Agreement and Release, dated March 3, 1998, between Adeza and Matria Healthcare, Inc.†
	10.7**		Net Industrial Space Lease, dated July 7, 1999, between Adeza and Tasman V, LLC.
	10.8		Service Agreement, dated as of March 31, 1999, between Adeza and Ventiv Health U.S. Sales LLC (formerly known as Snyder Healthcare Sales Inc.), together with First Amendment to Service Agreement dated March 8, 2002, Second Amendment to Service Agreement dated July 22, 2002, and Third Amendment to Service Agreement dated May 15, 2004.†
	10.9**		Warrant to Purchase Shares of Series 3 Preferred Stock, dated March 23, 1999, between Adeza and Transamerica Business Credit Corporation and its assignees.
	10.10*	*	Warrant to Purchase Shares of Series 3 Preferred Stock, dated March 31, 2000, between Adeza and TBCC Funding Trust II and its assignees.
	10.11*	*	Warrant to Purchase Shares of Series 3 Preferred Stock, dated March 23, 1999, between Adeza and MMC/GATX Partnership No. I and its assignees.
	10.12*	*	Form of Indemnification Agreement for Directors and Officers.
	10.13*	*	Agreement, dated December 24, 1998, between Adeza and Unilever PLC.†
	10.14		Second Amendment to Lease, dated October 12, 2004, between Adeza and Tasman V, LLC.
	10.15		Management Continuity Agreement, dated October 21, 2004, between Adeza and Emory Anderson.
	10.16		Management Continuity Agreement, dated October 21, 2004, between Adeza and Mark Fischer-Colbrie.
	10.17		Form of Management Continuity Agreement, dated October 21, 2004, between Adeza and Durlin Hickok, Robert Hussa and Marian Sacco.
	23.1		Consent of Ernst & Young LLP, independent registered public accounting firm.
	23.2		Consent of Heller Ehrman White & McAuliffe LLP (included in Exhibit 5.1).
	24.1		Powers of Attorney (included on signature page).

* To be filed by amendment.

**  Previously filed.

† Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions of this exhibit under Rule 406 of the Securities Act of 1933. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.

EX-4.1 2 f00576a2exv4w1.htm EXHIBIT 4.1

Exhibit 4.1

COMMON STOCKCOMMON STOCKADZATHIS CERTIFICATE IS TRANSFERABLEIN BOSTON, MA OR NEW YORK, NYSEE REVERSE FOR CERTAIN DEFINITIONS AND A STATEMENT AS TO THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS ON SHARESINCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARECUSIP 006864 10 2THIS CERTIFIES THATIS THE RECORD HOLDER OFFULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.001 PAR VALUE PER SHARE, OFBYADEZA BIOMEDICAL CORPORATIONtransferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated:#################################CA ########L###EDI############M #####C #WELLS FARGO BANK####COUNTERSIGNED AND REGISTERED:####PO #O ###, #######I O#R ##RN#OR####A#.#B####CTE P ###A#######.######A SEAL O R #######Z E ###T A ########MAY 7,#D##########I######1996 ####A ###O #PRESIDENT/CEO#E###VICE PRESIDENT FINANCE AND ADMINISTRATION/CFOAUTHORIZED SIGNATURETRANSFER AGENT AND REGISTRAR####N#D E ##L##########AWAR#############################################################

A statement of the powers, designations, preferences and 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 as established, from time to time, by the Certificate of Incorporation of the Corporation and by any certificate of determination, the number of shares constituting each class and series, and the designations thereof, may be obtained by the holder hereof upon request and without charge from the Secretary of the Corporation at the principal office of the Corporation.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:TEN COM — as tenants in

commonUNIF GIFT MIN ACT — ......................... Custodian         ......................... TEN ENT — as tenants by the entireties(Cust) (Minor)JT TEN — as joint tenants with right ofunder Uniform Gifts to Minors survivorship and not as tenantsAct         .............................................................. in common(State) COM PROP — as community property UNIF TRF MIN ACT — ................. Custodian (until age ................)(Cust)............................ under Uniform Transfers(Minor) to Minors Act         ..............................................(State)Additional abbreviations

may also be used though not in the above list.FOR VALUE RECEIVED, hereby sell, assign and transfer untoPLEASE INSERT SOCIAL SECURITY OR OTHERIDENTIFYING NUMBER OF ASSIGNEE(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appointAttorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.Dated X XTHE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE NOTICE: FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANYCHANGE WHATEVER.Signature(s) GuaranteedByTHE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

EX-4.1

exv4w1

EX-5.1

                                                                     Exhibit 5.1

[Heller Ehrman White & McAuliffe Letterhead]


October 27, 2004


Adeza Biomedical Corporation
1240 Elko Drive.
Sunnyvale, California, 94089


                       REGISTRATION STATEMENT ON FORM S-1

Ladies and Gentlemen:

     We have acted as counsel to Adeza Biomedical Corporation, a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-1 (Registration No. 333-118012) filed with the Securities and Exchange
Commission (the "SEC") on August 6, 2004 (as amended by Amendment No. 1 thereto
filed with the SEC on September 22, 2004, Amendment No. 2 thereto with the SEC
filed on October 27, 2004) and as may be further amended or supplemented, the
"Registration Statement") for the purpose of registering under the Securities
Act of 1933, as amended, 4,312,500 shares of its authorized but unissued Common
Stock, par value $0.001 per share (the "Shares"). The Shares, which include up
to 562,500 shares of the Company's Common Stock issuable pursuant to an
over-allotment option granted to the underwriters, are to be sold pursuant to an
Underwriting Agreement (the "Underwriting Agreement") among the Company and UBS
Securities LLC, SG Cowen & Co., LLC, Thomas Weisel Partners LLC, and William
Blair & Company, L.L.C., as representatives of the several underwriters named in
Schedule A to the Underwriting Agreement.

     We have assumed the authenticity of all records, documents and instruments
submitted to us as originals, the genuineness of all signatures, the legal
capacity of natural persons and the conformity to the originals of all records,
documents and instruments submitted to us as copies.

     In rendering our opinion, we have examined the following records, documents
and instruments:

     (a)  The Amended and Restated Certificate of Incorporation of the Company,
          filed as an exhibit to the Registration Statement and to be filed with
          the Delaware Secretary of State in connection with the sale of the
          Shares, and certified to us by an officer of the Company as being the
          form to be filed


[HELLER EHRMAN ATTORNEYS]                           Adeza Biomedical Corporation
                                                                October 27, 2004
                                                                          Page 2

          with the Delaware Secretary of State in connection with the sale of
          the Shares;

     (b)  The Bylaws of the Company certified to us by an officer of the Company
          as being complete and in full force and effect as of the date of this
          opinion;

     (c)  A Certificate of an officer of the Company (i) attaching records
          certified to us as constituting all records of proceedings and actions
          of the Board of Directors, including any committee thereof, and
          stockholders of the Company relating to the Shares and the
          Registration Statement, and (ii) certifying as to certain factual
          matters;

     (d)  The Registration Statement; and

     (e)  A form of the Underwriting Agreement to be filed as Exhibit 1.1 to the
          Registration Statement.

     This opinion is limited to the federal law of the United States of America
and the General Corporation Law of the State of Delaware, and we disclaim any
opinion as to the laws of any other jurisdiction. We further disclaim any
opinion as to any other statute, rule, regulation, ordinance, order or other
promulgation of any other jurisdiction or any regional or local governmental
body or as to any related judicial or administrative opinion.

     Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
assuming that (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and sold, (ii) the Underwriting
Agreement signed by the parties thereto conforms in all material respects to the
form of Underwriting Agreement to be filed as Exhibit 1.1 to the Registration
Statement, (iii) the currently unissued Shares to be sold by the Company are
issued, delivered and paid for in accordance with the terms of the Underwriting
Agreement, (iv) appropriate certificates evidencing the Shares will be executed
and delivered by the Company, (v) the three-for-four reverse split of the
Company's Common Stock described in the Registration Statement will be effected
in accordance with applicable laws, and (vi) all applicable securities laws are
complied with, it is our opinion that, when issued by the Company, the Shares
covered by the Registration Statement will be legally issued, fully paid and
nonassessable.

     This opinion is rendered to you in connection with the Registration
Statement and we disclaim any obligation to advise you of any change of law that
occurs, or any facts of which we may become aware, after the date of this
opinion.

     We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement.

                                   Very truly yours,

                                   /s/  Heller Ehrman White & McAuliffe

EX-10.5

                                                                    Exhibit 10.5

                                                CONFIDENTIAL TREATMENT REQUESTED


                                LICENSE AGREEMENT

                                     BETWEEN

                                -----------------


                          ADEZA BIOMEDICAL CORPORATION

                                       AND

                 THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA

                                     (PENN)

                                      L217

                                  JULY 25, 1997



THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                           EXCLUSIVE LICENSE AGREEMENT

            This Exclusive License Agreement ("AGREEMENT") is between The
Trustees of the University of Pennsylvania, a Pennsylvania nonprofit
corporation, with offices located at 3700 Market Street, Suite 300,
Philadelphia, Pennsylvania 19104-3147 ("PENN") and Adeza Biomedical Corporation,
a corporation organized and existing under the laws of California ("ADEZA")
having a place of business at 1240 Elko Drive, Sunnyvale, CA 94089 and Dr. Bruce
Lessey, formerly of PENN's School of Medicine and now with the University of
North Carolina, Department of Obstetrics and Gynecology ("LESSEY").

            This AGREEMENT is effective as of July 1, 1997 ("EFFECTIVE DATE").

                                    RECITALS

WHEREAS, LESSEY has developed certain technologies described as: [***] and
[***] and related U.S. and foreign patent filing for diagnostic applications;
and


WHEREAS, PENN has developed antibodies against the [***] and other PENN
antibodies (attachment 1) against the [***] owned by PENN (collectively, the
"PENN ANTIBODIES"); and

WHEREAS, PENN has developed viable cell lines with titer capable of producing
sufficient quantities of the PENN ANTIBODIES which ADEZA wishes to utilize for
the purpose of ADEZA's commercialization hereunder (collectively, the "PENN CELL
LINES" (see attachment 1); and

WHEREAS, PENN owns [***], [***], the PENN ANTIBODIES and the PENN CELL LINES;

and

WHEREAS, PENN desires such technology to be commercially used for the benefit of
the public good, and wishes to grant an exclusive worldwide license; and

WHEREAS, LESSEY is an employee of the University of North Carolina and is not
currently an employee or agent of PENN.

NOW, THEREFORE, in consideration of the mutual covenants and promises herein
contained, the parties hereto agree as follows:

1. DEFINITIONS


                                       1

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      1.1   DEVELOPMENT and MARKETING PLAN means ADEZA's plan for the
development and marketing of the PENN PATENT RIGHTS that demonstrate ADEZA's
capability to bring the PENN PATENT RIGHTS to practical application and is
described in summary fashion in Attachment 2.

      1.2   FAIR MARKET VALUE means the cash consideration which ADEZA or its
sublicensee would realize from an unaffiliated, unrelated buyer in an arm's
length sale of in identical item sold in the same quantity and at the same time
and place of the transaction.

      1.3   FIELD means diagnostic applications or uses of PENN PATENT RIGHTS
involving dysfunctions or diseases of the female reproductive system; provided,
however, that applications or uses of the PENN ANTIBODIES and the PENN CELL
LINES capable of producing such PENN ANTIBODIES shall be limited to the specific
claims of the patents included within the definition of PENN PATENT RIGHTS.

      1.4   ADEZA means ADEZA and its AFFILIATES.

      1.5   AFFILIATE means, any legal entity directly or indirectly
      controlling, controlled by or under common control with ADEZA. For
      purposes of this AGREEMENT, "control" means the direct or indirect
      ownership of more than fifty percent (50%) of the outstanding voting
      securities of a legal entity or the right to receive more than fifty
      percent (50%) of the profits or earnings of a legal entity, or the right
      to control the policy decisions of a legal entity.

      1.6   NET SALES means the greater of the consideration or FAIR MARKET
            VALUE attributable to the SALE of any PENN LICENSED PRODUCT, or the
            provision of any PENN LICENSED SERVICE less qualifying costs
            directly attributable to such SALE and actually identified on the
            invoice and borne by ADEZA or its sublicensee.

            1.6.1 Such qualifying costs shall be limited to the following:

                  1.6.1.1 Discounts, in amounts customary in the trade, for
            quantity purchases, prompt payments and for wholesalers and
            distributors.

                  1.6.1.2 Credits or refunds, not exceeding the original invoice
            amount for claims or returns.

                  1.6.1.3 Prepaid outbound transportation expenses and
            transportation insurance premiums.

                  1.6.1.4 Sales and use taxes and other fees imposed by a
            governmental agency.

                                       2

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

      1.7   PENN LICENSED PRODUCT means any product which is made, made for,
used or sold or otherwise distributed by ADEZA, or any sublicensees and which:
(1) in the absence of this AGREEMENT would infringe at least one claim of PENN
PATENT RIGHTS or. (2) use a process or machine covered by a claim of PENN PATENT
RIGHTS.

      1.8   PENN LICENSED SERVICE means the provision of any service by ADEZA or
any sublicensee which, (1) in the absence of this AGREEMENT would infringe at
least one claim of PENN PATENT RIGHTS or (2) use a process or machine covered by
a claim of PENN PATENT RIGHTS.

      1.9   PENN PATENT RIGHTS means all patents issuing from those United
States patent applications, and any foreign counterpart and extension, including
continuation, continuation-in-part, divisional and re-issue application listed
in Attachment 1.

      1.10  SALE means any bona fide transaction for which consideration is
received for the sale, use, lease, transfer or other disposition of any PENN
LICENSED PRODUCT or for the provision of any PENN LICENSED SERVICE
notwithstanding any PENN LICENSED PRODUCT or PENN LICENSED SERVICE for market
research, market promotion, and clinical trials. A SALE of any PENN LICENSED
PRODUCT or PENN LICENSED SERVICE shall be deemed completed at the time ADEZA or
its sublicensee receives payment for such PENN LICENSED PRODUCT or PENN LICENSED
SERVICE.

2.    LICENSE GRANT

      2.1   PENN grants to ADEZA for the term of this AGREEMENT an exclusive,
world-wide right and license, with the right to grant sublicenses, to make, have
made, use, import, sell and otherwise distribute and offer for sale PENN
LICENSED PRODUCT(S) and to provide or have provided PENN LICENSED SERVICES in
the FIELD. No other rights or licenses are granted.

      2.2   PENN agrees to provide ADEZA [***] within twenty-one (21) days of
the EFFECTIVE DATE of this AGREEMENT and other PENN CELL LINES from time to time
at ADEZA's request if PENN is reasonably able to do so.

      2.3   This license grant is exclusive except that PENN may use and permit
other nonprofit organizations to use the PENN PATENT RIGHTS for educational and
research purposes.

      2.4   ADEZA acknowledges that pursuant to Public Laws 96-517, 97-256 and
98-620, codified at 35 U.S.C. 200-212, the United States government retains
certain rights in intellectual property funded in whole or part under any
contract, grant or similar agreement with a Federal agency. Pursuant to these
laws, the government may


                                       3

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


impose certain requirements regarding such intellectual property, including but
not limited to the requirement that products resulting from such intellectual
property sold in the United States must be substantially manufactured in the
United States. This license grant is expressly subject to all applicable United
States government rights as provided in the above-mentioned laws and any
regulations issued under those laws, as those laws or regulations may be amended
from time to time.

      2.5   The right to sublicense granted to ADEZA under this AGREEMENT is
subject to the following conditions:

            2.5.1 In each such sublicense, ADEZA must prohibit the sublicensee
from further sublicensing and require that the sublicensee is subject to the
terms and conditions of the license granted to ADEZA under this AGREEMENT.

            2.5.2 Within thirty (30) days after ADEZA enters into any
sublicense, ADEZA must send to PENN a complete copy of the sublicense written in
the English language.

            2.5.3 If ADEZA enters bankruptcy proceedings, voluntarily or
involuntarily, all payments of sublicense royalties due PENN from ADEZA then or
thereafter, pursuant to Sections 3.1.3, 3.1.4 and 3.1.5 herein shall be paid by
ADEZA's sublicensee(s) directly to PENN. Such direct payment(s) shall be made
incumbent upon ADEZA's sublicensee(s) by express written terms within ADEZA's
sublicense agreement(s) which shall include reporting requirements similar to
Section 3.4 herein, and shall name PENN as a direct recipient of such reports
during ADEZA's bankruptcy term. Such direct payments shall continue until the
bankruptcy trustee arranges otherwise or ADEZA has cleared its responsibilities
to the bankruptcy court.


                                       4

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



            2.5.4 Even if ADEZA enters into sublicenses, ADEZA remains primarily
liable to PENN for all of ADEZA's duties and obligations contained in this
AGREEMENT and any act or omission of a sublicensee, which would be a breach of
this AGREEMENT if performed by ADEZA, shall be deemed to be a breach by ADEZA of
this AGREEMENT. If ADEZA is unable to cure such breach within the sixty (60) day
period pursuant to Section 5.3.2, ADEZA may cure such breach by termination of
the sublicense with such sublicencee. ADEZA will contractually require its
sublicensees to act in a manner consistent with ADEZA's duties and obligations
under this AGREEMENT.

3.    FEES AND ROYALTIES

      3.1   LICENSE INITIATION FEE AND ROYALTIES

            3.1.1 In partial consideration of the exclusive license granted to
ADEZA, ADEZA must pay to PENN a non-refundable license initiation fee of $[***]
less a credit of the total monthly option fees paid by ADEZA to PENN under the
EXCLUSIVE OPTION AGREEMENT between the parties effective as of June 3, 1996.

            3.1.2 In further consideration of the exclusive license granted to
ADEZA, ADEZA must pay to PENN a royalty of [***]% of the NET SALES of PENN
LICENSED PRODUCTS or PENN LICENSED SERVICE sold by ADEZA or any of its agents
(excluding sublicenses). PENN shall not be due any royalty on any part of a PENN
LICENSED PRODUCT or PENN LICENSED SERVICE which does not infringe PENN PATENT
RIGHTS.

            3.1.3 With respect to any PENN LICENSED PRODUCT which is sold in
combination with other products which are made without using the PENN PATENT
RIGHTS (collectively, a "Combination Product"). ADEZA shall pay PENN a reduced
royalty which shall be calculated by [***]. If any portion of any Combination
Product does not have a readily ascertainable list price, then the parties shall
negotiate in good faith to determine fair value therefor. Such reduced royalty
shall in no event be less than the product of the royalty rate set forth in
section 3.1.2 and the actual cost to ADEZA of such PENN LICENSED PRODUCT
included in such Combination Product. ADEZA shall allocate its profit on
each-product included in the Combination Product in a fair and equitable manner
in proportion to tile contribution of each product.

            With respect to any PENN LICENSED SERVICE which is provided in
combination with other services which are provided without using the PENN PATENT
RIGHTS (collectively, a "Combination Service"), ADEZA shall pay PENN a reduced
royalty which shall be calculated by [***]. If any portion of any Combination
Service does not have a readily ascertainable list price, then the parties shall
negotiate in good faith to determine fair value therefor. Such reduced royalty
shall in no event be less than the product of the royalty rate set forth in
section 3.1.2 and the actual cost to ADEZA of such PENN LICENSED SERVICE
included in such Combination Service.

                                       5

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


ADEZA shall allocate its profit on each service included in the Combination
Service in a fair and equitable manner in proportion to the contribution of each
service.

            3.1.4 ADEZA must pay to PENN [***]% of any royalty fees ADEZA
receives from any sublicensee in connection with the sale of any PENN LICENSED
PRODUCT and any PENN LICENSED SERVICE (such payments to PENN hereinafter
referred to as "SUBLICENSE ROYALTIES"); provided that, for each sublicensee, the
SUBLICENSE ROYALTIES shall be paid in an amount not less than [***]% of any
sublicensee's NET SALES. If ADEZA receives consideration from any sublicensee in
lieu of royalties, ADEZA must pay to PENN an amount equal to the SUBLICENSE
ROYALTIES that ADEZA would have paid had such consideration been received by
ADEZA in cash (in accordance with section 3.1.6).

            3.1.5 ADEZA must pay to PENN [***]% of all non-royalty sublicense
fees or consideration received by ADEZA from its sublicensees.

            3.1.6 Any non-cash consideration received by ADEZA under Sections
3.1.2, 3.1.3 and 3.1.4 shall be valued at its FAIR MARKET VALUE as of the date
of receipt.

            3.1.7 NET SALES of any PENN LICENSED PRODUCT or any PENN LICENSED
SERVICE shall not be subject to more than one assessment of the scheduled
royalty; such assessment shall be the highest applicable royalty.

            3.1.8 No royalty shall be payable under this Section 3.1 with
respect to SALES of any PENN LICENSED PRODUCT or any PENN LICENSED SERVICE among
ADEZA and its sublicensees, nor shall a royalty be payable under this Article 3
with respect to any PENN LICENSED PRODUCT or any PENN LICENSED SERVICE for which
no consideration is received in excess of fully burdened costs and which are
distributed (i) for use in research and/or development, (ii) for use in clinical
trials by or on behalf of ADEZA or its sublicensees, or (iii) as promotional
Samples.

      3.2   ANNUAL LICENSE MAINTENANCE FEE

            ADEZA shall pay to PENN an annual license maintenance fee of $[***]
on the first anniversary of the EFFECTIVE DATE and $[***] dollars on each
anniversary of the EFFECTIVE DATE thereafter. Royalty Payments, including annual
minimum royalties, shall be fully creditable against the annual license
maintenance fee.

            3.2.1 ADEZA must use commercially reasonable efforts to develop for
commercial use and to market PENN LICENSED PRODUCTS and/or PENN LICENSED
SERVICES as soon as practicable, consistent with the DEVELOPMENT and MARKETING
PLAN. ADEZA must provide PENN with annual updates of the


                                       6

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


DEVELOPMENT and MARKETING PLAN beginning on the fifteenth (15th) day of August
1999 and continuing annually thereafter until August 15, 2000.

            3.2.2 ADEZA must provide PENN on the fifteenth (15th) day of August
1998 and continuing annually thereafter, written progress reports, setting forth
in such detail as PENN may reasonably request, the progress of the development,
evaluation, testing and commercialization of each PENN LICENSED PRODUCT and each
PENN LICENSED SERVICE. ADEZA shall also notify PENN, within thirty (30) days of
the first commercial sale of each PENN LICENSED PRODUCT or PENN LICENSED
SERVICE, that such sale has occurred.

      3.3   MINIMUM ROYALTIES

            3.3.1 PENN LICENSED PRODUCT.

                  ADEZA must pay to PENN a non-refundable minimum royalty for
each PENN LICENCED PRODUCT made, made for, used or sold by ADEZA., its agents or
sublicensees for the following periods in the corresponding amounts:



                                       7

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED




                                  Due Date - within
                                forty-five (45) days
          Period              after the following dates:      Minimum Royalty
          ------              --------------------------      ---------------
                                                     
1. July 1 - June 30 of the    The first June 30th after    $[***]  This payment
   period which includes      the first commercial sale.   shall be prorated
   the first commercial                                    beginning from the date
   sale.                                                   of the first commercial
                                                           sale.

2. July 1 - June 30 of the    June 30th at the end of      $[***]
   period following Period    Period 2.
   1.

3. July 1 - June 30 of the    June 30th at the end of      $[***]
   period following Period    Period 3.
   2.

4. July 1 - June 30 of the    June 30th at the end of      [***]% [***] $[***]
   period following Period    Period 4 and each
   3.                         successive anniversary
                              thereafter for the term
                              of this AGREEMENT.


            3.3.2 PENN LICENSED SERVICE

            ADEZA must pay to PENN a non-refundable minimum royalty for each
PENN LICENSED SERVICE provided by ADEZA, its agents or sublicensees for the
following periods in the corresponding amounts:



                                  Due Date - within
                                forty-five (45) days
          Period              after the following dates:      Minimum Royalty
          ------              --------------------------      ---------------
                                                     
July 1, 1997 - June 30,       June 30, 1998                $[***]  This payment
   1998                                                    shall be prorated
                                                           beginning from the date
                                                           of the first commercial
                                                           sale.

July 1, 1998 - June 30,       June 30, 1998                $[***]
   1999


July 1, 1999 - June 30,       June 30, 2000                $[***]
   2000


July 1, 2000 - June 30,       June 30, 2001 and each       [***]% [***] $[***]
   2001                       successive anniversary
                              thereafter for the term
                              of this AGREEMENT.



                                       8

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                  Due Date - within
                                forty-five (45) days
          Period              after the following dates:      Minimum Royalty
          ------              --------------------------      ---------------


            3.3.3 For any PENN LICENSED PRODUCT or PENN LICENSED SERVICE, no
separate minimum royalty payment will be made for any twelve (12) month period
referred to in Section 3.3.1 and 3.3.2, as applicable, in the event that for
such twelve (12) month period royalties payable under Section 3.4 exceed the
applicable minimum royalty payable under Section 3.3.1 or 3.3.2. For any PENN
LICENSED PRODUCT or PENN LICENSED SERVICE, in the event that royalties payable
under Section 3.4 for any such twelve (12) month period are less than the
minimum royalty payable under Section 3.3.1 or 3.3.2, as applicable, for such
twelve (12) month Period, ADEZA shall pay PENN the difference on or prior to the
applicable due date set forth in Section 3.3.1 or 3.3.2. For each PENN LICENSED
PRODUCT or PENN LICENSED SERVICE, all minimum royalty payments under Section
3.3.1 or 3.3.2 are paid for the year preceding the Due Date of that PENN
LICENSED PRODUCT or PENN LICENSED SERVICE. The minimum royalty payments due for
the year in which the AGREEMENT terminates under Article 5 shall be pro-rated
for the period between the most recent anniversary of that first commercial sale
and the date of termination.

      3.4   REPORTS AND RECORDS


            3.4.1 ADEZA must deliver to PENN within forty-five (45) days after
the end of each six (6)-month period starting on January 1, 1998 a report,
certified by the chief financial officer of ADEZA, setting forth the calculation
of the royalties due to PENN for such six (6)-month period, including without
limitation:

                  3.4.1.1 Number of PENN LICENSED PRODUCTS and PENN LICENSED
                        SERVICES involved in SALES, listed by country.

                  3.4.1.2 Gross consideration for SALES of PENN LICENSED
                        PRODUCTS and PENN LICENSED SERVICES, including all
                        amounts invoiced or received.

                  3.4.1.3 Qualifying costs, as defined in Section 1.7, listed by
                        category of cost.

                  3.4.1.4 NET SALES of PENN LICENSED PRODUCTS and PENN LICENSED
                        SERVICES listed by country.

                  3.4.1.5 Royalties owed to PENN, listed by category, including
                        without limitation earned sublicensee-derived, and
                        minimum royalty categories.

                  3.4.1.6 Earned royalty amounts credited against minimum
                        royalty payments.


                                       9

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


            3.4.2 ADEZA must pay the royalties due under Sections 3.1 within
forty-five (45) days following the last day of the six (6)-month period, in
which the royalties payable for such six (6) month period accrue. ADEZA must
send with the royalties the report described in Section 3.4.1 starting on
January 1, 1998.

            3.4.3 ADEZA must maintain and cause its sublicensees to maintain,
complete and accurate books and records which enable the royalties payable under
this AGREEMENT to be verified. The records for each six (6)-month period,
starting after January 1, 1998, must be maintained for three years after the
submission of each report under Article 3. Upon reasonable prior notice to
ADEZA, ADEZA must provide PENN with access to all books and records relating to
the SALES of any PENN LICENSED PRODUCT and any PENN LICENSED SERVICE by ADEZA
and its sublicensees to conduct a review or audit of those books and records.
Access to ADEZA's books and records must be available at least once each
CALENDAR YEAR, during normal business hours, and for each of three years after
the expiration or termination of this AGREEMENT. If PENN determines that ADEZA
has underpaid royalties by eight percent (8%) or more, ADEZA must pay the costs
and expenses of PENN and its accountants in connection with their review or
audit.

      3.5   CURRENCY, PLACE OF PAYMENT, INTEREST

            3.5.1 All dollar amounts referred to in this AGREEMENT are expressed
in United States dollars. All payments to PENN under this AGREEMENT must be made
in United States dollars by check payable to "The Trustees of the University of
Pennsylvania." If ADEZA receives revenues from SALES of any PENN LICENSED
PRODUCT or any PENN LICENSED SERVICE in currency other than United States
dollars, revenues shall be converted into United States dollars at the
conversion rate for the foreign currency as published in the eastern edition of
The Wall Street Journal as of the last business day of the applicable six (6)
month period, starting on January 1 or July 1, in which the royalty accrued.

            3.5.2 Amounts that are not paid when due shall accrue interest from
the due date until paid, at a rate equal to one and one-half percent (1.5%) per
month (or the maximum allowed by law, if less).

4.    CONFIDENTIALITY

      4.1   CONFIDENTIAL INFORMATION means and includes all technical
information, inventions, developments, discoveries, software, know-how, methods,
techniques, formulae, data, processes and other proprietary ideas whether or not
patentable or copyrightable, that any party identifies as confidential or
proprietary at the time it is delivered or communicated to the receiving
party(s).

      4.2   Subject to Section 4.3, any party hereto receiving CONFIDENTIAL
INFORMATION hereunder from any other party hereto agrees to maintain in
confidence and not disclose to any third party such


                                       10

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


CONFIDENTIAL INFORMATION. Each party hereto agrees to ensure that its employees
or agents have access to CONFIDENTIAL INFORMATION received from another party
hereto only on a need-to-know basis and are obligated in writing to abide by its
obligations under this AGREEMENT. The foregoing obligation shall not apply to:

            4.2.1 information that is known to the receiving party or
independently developed by the receiving party prior to the time of disclosure,
in each case, to the extent evidenced by written records promptly disclosed to
the disclosing party upon receipt of the CONFIDENTIAL INFORMATION;

            4.2.2 information disclosed to the receiving party by a third party
that has a right to make such disclosure;

            4.2.3 information that becomes patented, published or otherwise part
of the public domain as a result of acts by PENN or a third person obtaining
such information as a matter of right; or

            4.2.4 information that is required to be disclosed by order of
United States governmental authority or a court of competent jurisdiction;
provided that the receiving party must use best efforts to obtain confidential
treatment of such information by the agency or court.

      4.3   PENN shall not be obligated to accept any confidential information
from ADEZA except for the information required to be sent to PENN in Sections
2.5.2, 3.2.1, 3.2.2, 3.2.3, 3.4, 8.9.4, 10 and the DEVELOPMENT and MARKETING
PLAN in Attachment 2. PENN shall use reasonable efforts not to disclose those
reports to any third party (subject to the exceptions of Section 4.2). PENN
bears no institutional responsibility for maintaining the confidentiality of any
other information of ADEZA other than financial records and projections required
in Sections 2.5.2, 3.2.1, 3.2.2, 3.2.3, 3.4, 8.9.4, 10, and the DEVELOPMENT and
MARKETING PLAN in Attachment 2 provided by ADEZA.

5.    TERM AND TERMINATION

      5.1   This AGREEMENT, unless sooner terminated as provided in this
AGREEMENT, terminates upon: expiration of the last to expire or become abandoned
of the PENN PATENT RIGHTS.

      5.2   ADEZA may, upon thirty (30) days written notice to PENN, terminate
this AGREEMENT by doing all of the following:

            5.2.1 ceasing to make, have made, performed or have performed, use,
import, sell and offer for sale all PENN LICENSED PRODUCTS and PENN LICENSED
SERVICES; and


                                       11

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


            5.2.2 terminating all sublicenses, and causing all sublicensees to
cease making, having made, using, importing, selling and offering for sale all
PENN LICENSED PRODUCTS and PENN LICENSED SERVICES; and

            5.2.3 paying all monies owed to PENN under this AGREEMENT.

      5.3   PENN may terminate this AGREEMENT upon written notice if any of the
following occur:

            5.3.1 ADEZA is more than sixty (60) days late in paying to PENN
royalties, expenses, or any other monies due under this AGREEMENT and ADEZA does
not pay PENN in full within seven (7) days of receiving notice of the amount
due, or

            5.3.2 ADEZA breaches this AGREEMENT and does not cure the breach
within sixty (60) days after written notice of the breach.

      5.4   If ADEZA enters bankruptcy proceedings under Chapter 7 of the U.S.
Bankruptcy Act, PENN may terminate this AGREEMENT upon written notice.

      5.5   Upon termination of this AGREEMENT, the recipient party must, at the
provider party's request, return all CONFIDENTIAL INFORMATION received by the
recipient party from the provider party. PENN may notify ADEZA within a period
of thirty (30) days after termination of this AGREEMENT that PENN wishes to
obtain a nonexclusive, royalty-bearing license to use data generated by ADEZA
during the term of this AGREEMENT utilizing the technology licensed under this
AGREEMENT, and the parties will negotiate the terms of such license for a period
of up to sixty (60) days after ADEZA's receipt of such notification from PENN.

      5.6   ADEZA's obligation to pay all monies owed accruing under this
AGREEMENT shall survive termination of this AGREEMENT. In addition, the
provisions of Article 4 - Confidentiality, Article 5 - Term and Termination,
Article 9 - Disclaimer of Warranties; Indemnification, Article 9 - Use of Penn's
Name and Article 11 - Additional Provisions shall survive such termination.

6.    PATENT MAINTENANCE AND REIMBURSEMENT

      6.1   PENN shall control, with input from ADEZA, the prosecution and
maintenance of PENN PATENT RIGHTS. PENN's Patent Counsel shall be selected and
agreed upon to the satisfaction of PENN and ADEZA. ADEZA shall be permitted to
communicate directly with PENN's Patent Counsel to maintain and prosecute the
PENN PATENT RIGHTS provided that ADEZA, PENN, and PENN's Patent Counsel shall
copy one another on all correspondence and documents pertaining to the PENN
PATENT RIGHTS within the FIELD and


                                       12

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


shall not file any document pertaining to the PENN PATENT RIGHTS within the
FIELD with the U.S. or any other country patent office without PENN's prior
review and approval.

      6.2   ADEZA shall enter into a billing agreement, in form and substance
reasonably satisfactory to PENN, ADEZA, and PENN's Patent Counsel with respect
to all of the PENN PATENT RIGHTS within the FIELD, pursuant to which ADEZA shall
agree to pay directly to such counsel on behalf of PENN such counsel's
attorneys' fees, expenses, official fees and other charges in connection with
the filing and prosecution of the patent applications and maintenance of PENN
PATENT RIGHTS within the FIELD that PENN and ADEZA have mutually agreed to
prosecute and maintain. PENN may at PENN's own expense continue to prosecute
such claims that ADEZA does not decide to pursue.

      6.3   PENN shall retain all right, title and interest in and to the PENN
PATENT RIGHTS and other intellectual property protection related thereto except
those rights of ADEZA pursuant to this AGREEMENT.

7.    INFRINGEMENT AND LITIGATION

      7.1   PENN and ADEZA are responsible for notifying each other promptly of
any infringement of PENN PATENT RIGHTS which may come to their attention. PENN
and ADEZA shall consult one another in a timely manner concerning any
appropriate response to the infringement.

      7.2   ADEZA may prosecute such infringement at its own expense. ADEZA must
not settle or compromise any such suit in a manner that imposes any obligations
or restrictions on PENN or grants any rights to the PENN PATENT RIGHTS, without
PENN's prior written permission. Financial recoveries from any such litigation
will first be retained by ADEZA; provided, that ADEZA will pay PENN a royalty on
that portion of the financial recoveries which corresponds to ADEZA's lost
SUBLICENSE ROYALTIES or ADEZA's lost profits from the foregone distribution of
PENN LICENSED PRODUCTS or from the foregone provision of PENN LICENSED SERVICES.
Such royalty shall be based on the provisions of Section 3.1, taking into
account the fact that royalties specified in Section 3.1 are expressed in terms
of revenues received by ADEZA instead of profits made by ADEZA.

      7.3   ADEZA's rights under Section 7.2 are subject to the continuing right
of PENN to intervene at PENN's own expense and assert separately PENN's claim
for infringement of the PENN PATENT RIGHTS or PENN may join ADEZA in any claim
or suit for infringement of the PENN PATENT RIGHTS, subject to ADEZA's control
of such claim or suit. Any consideration received by either party in settlement
of any claim or suit shall first be used to reimburse the parties for their
respective litigation expenses. Any excess over the total litigation expenses of
both parties shall be shared in accordance with Section 7.2. In the event that
the total consideration


                                       13

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


received by the parties in settlement of any claim or suit is less than the
total litigation expenses of both parties, the consideration will be allocated
between the parties in proportion to their respective litigation expense.

      7.4   If ADEZA fails to prosecute any infringement, PENN may prosecute
such infringement at its own expense. In such event financial recoveries will be
entirely retained by PENN.

      7.5   In any action to enforce any of the PENN PATENT RIGHTS, either
party, at the request and expense of the other party shall cooperate to the
fullest extent reasonably possible. This provision shall not be construed to
require either party to undertake any activities. including legal discovery, at
the request of any third party except as may be required by lawful process of a
court of competent jurisdiction.

8.    DISCLAIMER OF WARRANTIES; INDEMNIFICATION

      8.1   THE PENN PATENT RIGHTS, PENN LICENSED PRODUCTS, PENN LICENSED
SERVICES, AND ALL OTHER TECHNOLOGY LICENSED UNDER THIS AGREEMENT, ARE PROVIDED
ON AN "AS IS" BASIS AND PENN MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT THERETO. BY WAY OF EXAMPLE BUT NOT OF LIMITATION, PENN
MAKES NO REPRESENTATIONS OR WARRANTIES (i) OF COMMERCIAL UTILITY; (ii) OF
MERCHANTABILlTY OR FITNESS FOR A PARTICULAR PURPOSE; OR (iii) THAT THE USE OF
THE PENN PATENT RIGHTS, PENN LICENSED PRODUCTS, PENN LICENSED SERVICES, AND ALL
TECHNOLOGY LICENSED UNDER THIS AGREEMENT WILL NOT INFRINGE ANY PATENT, COPYRIGHT
OR TRADEMARK OR OTHER PROPRIETARY RIGHTS OF OTHERS. PENN shall NOT BE LIABLE TO
ADEZA, ADEZA's SUCCESSORS OR ASSIGNS OR ANY THIRD PARTY WITH RESPECT TO ANY
CLAIM ARISING FROM ADEZA'S USE OF THE PENN PATENT RIGHTS, PENN LICENSED
PRODUCTS, PENN LICENSED SERVICES, AND ALL TECHNOLOGY LICENSED UNDER THIS
AGREEMENT OR FROM THE MANUFACTURE, USE OR SALE OF PENN LICENSED PRODUCTS OR PENN
LICENSED SERVICES; OR ANY CLAIM FOR LOSS OF PROFITS, LOSS OR INTERRUPTION OF
business OR FOR INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND.

      8.2   Lessey personally represents and warrants that he has assigned his
entire right, title, and interest in and to the PENN PATENT RIGHTS to PENN and
that he has not assigned and will not assign any interest in the PENN PATENT
RIGHTS to any other party. Lessey further represents that he has the right to
make such assignment to PENN.

      8.3   Lessey personally represents and warrants that Lessey has no actual
knowledge that any claim has been asserted against Lessey concerning the PENN
PATENT RIGHTS, and Lessey has no reason to believe that ADEZA's use of the PENN
PATENT RIGHTS hereunder infringes any third party proprietary rights.


                                       14


THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      8.4   Lessey personally represents and warrants that his entire right,
title and interest in and to the PENN PATENT RIGHTS has been assigned to PENN,
and Lessey has not granted and will not grant any interest in the PENN PATENT
RIGHTS to any third party that conflicts with the LICENSE granted to ADEZA under
this AGREEMENT.

      8.5   To the actual knowledge of PENN, without independent investigation,
the entire right, title and interest in and to the PENN PATENT RIGHTS has been
assigned to PENN, and PENN has not granted and will not grant any interest in
the PENN PATENT RIGHTS to any third party that conflicts with the LICENSE
granted to ADEZA under this AGREEMENT. PENN represents and warrants to ADEZA
that PENN has the right to grant exclusive licenses to the PENN PATENT RIGHTS.

      8.6   To the actual knowledge of PENN's Center for Technology Transfer and
PENN's Office of the General Counsel, without independent investigation, PENN
has not received any written notice or claim contesting PENN's rights in the
PENN PATENT RIGHTS asserted against PENN concerning the PENN PATENT RIGHTS, and,
based upon ADEZA's disclosure to PENN regarding ADEZA's permitted use of the
PENN PATENT RIGHTS, PENN has no reason to believe that ADEZA's use of the PENN
PATENT RIGHTS hereunder infringes any third party proprietary rights.

      8.7   ADEZA must defend, indemnify and hold harmless PENN, its trustees,
officers, agents and employees (individually, an "Indemnified Party", and
collectively, the "Indemnified Parties"), from and against any and all
liability, loss, damage, action, claim or expense suffered or incurred by the
Indemnified Parties (including attorney's fees) (individually, a "Liability",
and collectively, the "Liabilities") that result from or arise out of (a) the
development, use, manufacture, promotion, sale or other disposition of any PENN
PATENT RIGHTS, PENN LICENSED PRODUCT or PENN LICENSED SERVICE by ADEZA, its
assignees, sublicensees, vendors or other third parties; (b) any breach by ADEZA
of this AGREEMENT; and (c) the enforcement by an Indemnified Party of this
Section. Without limiting the foregoing. ADEZA must defend, indemnify and hold
harmless the Indemnified Parties from and against any Liabilities resulting
from:

            8.7.1 any product liability or other claim of any kind related to
the use by a third party of a PENN LICENSED PRODUCT that was manufactured, sold
or otherwise disposed by ADEZA, its assignees, sublicensees, vendors or other
third parties;

            8.7.2 a claim by a third party that ADEZA's design, composition,
manufacture, use, sale or other disposition of any PENN LICENSED PRODUCT or the
provisions of any PENN LICENSED SERVICE infringes or violates any patent,
copyright, trademark or other intellectual property rights of such third party;
provided, that ADEZA shall have no obligation to defend or indemnify PENN to the
extent that such claim is due to the sole negligence or willful misconduct of
PENN.


                                       15

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


            8.7.3 clinical trials or studies conducted by or on behalf of ADEZA
relating to the PENN PATENT RIGHTS, PENN LICENSED PRODUCT or PENN LICENSED
SERVICE, including, without limitation, any claim by or on behalf of a human
subject of any such clinical trial or study.

      8.8   ADEZA is not permitted to settle or compromise any claim or action
giving rise to Liabilities in a manner that imposes any restrictions or
obligations on PENN or grants any rights to the PENN PATENT RIGHTS. PENN
LICENSED PRODUCT or PENN LICENSED SERVICE without PENN's prior written consent,
which shall not be unreasonably withheld. If ADEZA fails or declines to assume
the defense of any such claim or action within thirty (30) days after notice
thereof, PENN may assume the defense of such claim or action for the account and
at the risk of ADEZA, and any Liabilities related thereto shall be conclusively
deemed a liability of ADEZA if such claim or action is held by a court of
competent jurisdiction to be within ADEZA's indemnification obligation. The
indemnification rights of PENN or other Indemnified Party contained herein are
in addition to all other rights which such Indemnified Party may have at law or
in equity or otherwise.

      8.9   INSURANCE

            8.9.1 ADEZA must procure and maintain a policy or policies of
comprehensive general liability insurance, including broad form and contractual
liability, in a minimum amount of $[***] combined single limit per occurrence
and in the aggregate as respects personal injury, bodily injury and property
damage arising out of ADEZA's performance of this AGREEMENT.

            8.9.2 ADEZA must, upon commencement of clinical trials involving
PENN LICENSED PRODUCTS, procure and maintain a policy or policies of product
liability insurance in a minimum amount of $[***] combined single limit per
occurrence and in the aggregate as respects bodily injury and property damage
arising out of ADEZA's performance of this AGREEMENT.

            8.9.3 The policy or policies of insurance described in this Section
8.4 must be issued by an insurance carrier with an A.M. Best rating of "A" or
better. ADEZA must provide PENN with certificates evidencing the insurance
coverage required herein and all subsequent renewals thereof.

            8.9.4 PENN may periodically review the adequacy of the minimum
limits of liability insurance specified in this Section. At PENN's request,
ADEZA and PENN shall confer to discus the adequacy of the coverage figures in
Sections 8.9.1 and 8.9.2 and shall adjust those coverage figures together to a
commercially reasonable level as circumstances warrant. The specified minimum
insurance amounts do not constitute a limitation on ADEZA's obligation to
indemnify PENN under this AGREEMENT.

9.    USE OF PENN'S NAME


                                       16

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


            ADEZA and its employees and agents must not use and ADEZA must not
permit its sublicensees to use PENN's name or any adaptation thereof, or any
PENN seal, logotype, trademark or service mark, or the name, mark, or logotype
of any PENN representative or organization in any way without the prior written
consent of PENN.

10.   ADEZA is not permitted to assign this AGREEMENT or any part of it, either
directly or by merger or other operation of law, without the prior written
consent of PENN which shall not be unreasonably withheld. To the extent
permitted by ADEZA's Confidential Disclosure Agreement with the proposed
ASSIGNEE, ADEZA shall provide to PENN under a confidentiality agreement, at
least 120 days prior to such proposed assignment background, information
reasonably sufficient for PENN to make an initial assessment of the proposed
assignment for a period of thirty (30) days and any further information
regarding such proposed assignment as PENN may reasonably request to make a
final decision in a timely manner not to exceed forty-five (45) days from the
completion of the initial assessment. Any prohibited assignment of this
AGREEMENT or the rights hereunder shall be null and void. No assignment relieves
ADEZA of responsibility for the performance of any accrued obligations which it
has prior to such assignment.

11.   ADDITIONAL PROVISIONS

      11.1  Nothing in this AGREEMENT shall be deemed to establish a
relationship of principal and agent between PENN and ADEZA, nor any of their
agents or employees for any purpose whatsoever, nor shall this AGREEMENT be
construed as creating any other form of legal association or arrangement which
would impose liability upon one party for the act or failure to act of the other
party.

      11.2  A waiver by either party of a breach of any provision of this
AGREEMENT will not constitute a waiver of any subsequent breach of that
provision or a waiver of any breach of any other provision of this AGREEMENT.

      11.3  If any provision of this AGREEMENT is found by a court to be void,
invalid or unenforceable, that provision shall be reformed to comply with
applicable law or stricken if not so conformable, so as not to affect the
validity or enforceability of the remainder of this AGREEMENT.

      11.4  Notices, payments, statements reports and other communications under
this AGREEMENT shall be in writing and shall be deemed to have been received as
of the date sent if sent by public courier (e.g. Federal Express), or by Express
Mail, receipt requested, and addressed as follows:


                                       17

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


If for PENN:                                with a copy to:
      University of Pennsylvania               Office of General Counsel
      Center for Technology Transfer           University of Pennsylvania
      3700 Market Street, Suite 300            221 College Hall
      Philadelphia, PA 19104-3147              Philadelphia, PA 19104-6303
      Attention: Managing Director             Attention; General Counsel


If for ADEZA:
      Attention: The President
      Adeza Biomedical Corporation
      1240 Elko Drive
      Sunnyvale, CA 94089
      Attention:

Either party may change its official address upon written notice to the other
party.

      11.5  This AGREEMENT shall be construed and governed in accordance with
the laws of the Commonwealth of Pennsylvania, without giving effect to conflict
of law provisions. In the event that a party to this AGREEMENT perceives the
existence of a dispute with the other party concerning any right or duty
provided for herein, the parties will, as soon as practicable, confer in an
attempt to resolve the dispute. If the parties are unable to resolve such
dispute amicably within thirty (30) days of the inception of the dispute, then
the parties hereby submit to the exclusive jurisdiction of and venue in the
courts located in the Eastern District of the Commonwealth of Pennsylvania with
respect to any and all disputes concerning the subject of this AGREEMENT.

      11.6  PENN and ADEZA shall not discriminate against any employee or
applicant for employment because of race, color, sex, sexual or affectional
preference, age, religion, national or ethnic origin, handicap, of because he or
she is a disabled veteran or a veteran of the Vietnam Era.

      11.7  ADEZA must comply with all prevailing laws, rules and regulations
that apply to its activities or obligations under this AGREEMENT. Without
limiting the foregoing, it is understood that this AGREEMENT may be subject to
United States laws and regulations controlling the export of technical data,
computer software, laboratory prototypes and other commodities, articles and
information, including the Arms Export Control Act as


                                       18

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


amended in the Export Administration Act of 1979, and that the parties'
obligations are contingent upon compliance with applicable United States export
laws and regulations. The transfer of certain technical data and commodities may
require a license from the cognizant agency of the United States Government
and/or written assurances by ADEZA that ADEZA shall not export data or
commodities to certain foreign countries without prior approval of such agency.
PENN neither represents that a license is not required nor that, if required, it
will issue.

      11.8  This AGREEMENT constitutes the entire agreement of the parties. Any
modification of this AGREEMENT must be in writing and signed by an authorized
representative of each party.

            IN WITNESS WHEREOF, the parties have caused duly authorized
representatives to execute this Agreement.

                                                        
THE TRUSTEES OF THE UNIVERSITY                             ADEZA BIOMEDICAL CORPORATION
OF PENNSYLVANIA

By: /s/ Louis P. Berneman                                  By: /s/ Emory Anderson

Name: Louis P. Berneman                                    Name: Emory Anderson

Title: Managing Director, Center for Technology Transfer   Title: President


Date:                                                      Date: 8/22/97



DR. BRUCE A. LESSEY

By: /s/ Bruce A. Lessey

Name: Bruce A. Lessey, Ph.D., M.D.

Title: Associate Professor & Medical Doctor

Date:



                                       19

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                                                CONFIDENTIAL TREATMENT REQUESTED



                                  ATTACHMENT 1

                               PENN PATENT RIGHTS


PATENTS

Domestic

1. U. S. Serial No. [***].


2. U. S. Serial No. [***].


3. U.S. Serial No. [***].


4. U.S. Serial No. [***].


5. U.S. Serial No. [***].


6. U.S. Serial No. [***].


Foreign

 U.S. - Serial No. [***] was foreign filed as follows:


                   Penn Ref.: [***]     PCT                  Germany

                                        filed 11/19/94       Greece

                                        PCT/US94/13299       Ireland

                                        Abstract             Italy

                                        Canada               Luxembourg

                                        EPO                  Monaco

                                        95902592.5           Netherlands

                                        Australia            Portugal

                                        Belgium              Spain

                                        Denmark              Sweden




                                       20

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                        France               Switzerland

                                        G. Britain           Japan


PENN ANTIBODIES and CELL LINES


I.    PENN ANTIBODIES


      [***]


      Other ANTIBODIES against the [***] owned by PENN which use of such
      ANTIBODIES shall be limited to the claims of the patents included in the
      definition of PENN PATENT RIGHTS under Section 1.10 of this AGREEMENT.

II.   CELL LINES


      1.    Cell Line producing [***]


      2.    Cell lines producing [***] owned by PENN as of the EFFECTIVE DATE of
this AGREEMENT, which use of such call line shall be limited to the claims of
the patents included in the definition of PENN PATENT RIGHTS under Section 1.10
of this AGREEMENT.



                                       21

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                  ATTACHMENT 2

                          ADEZA BIOMEDICAL CORPORATION

                         DEVELOPMENT AND MARKETING PLAN

[***] has already been transferred and approved by the Laboratory Director, CLIA
and the State of California. The following action items are listed below.

- -      [***]

- -      [***]

      -     [***]

      -     [***]

- -      [***]

- -      [***]

      -     [***]

      -     [***]

- -      [***]

- -      [***]

- -      [***]

- -      [***]

- -      [***]

      -     [***]



                                       22

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

EX-10.6

                                                                    Exhibit 10.6

                                                CONFIDENTIAL TREATMENT REQUESTED

                              AGREEMENT AND RELEASE

      THIS AGREEMENT AND RELEASE ("Agreement and Release") is made and entered
into as of March 3, 1998 (the "Effective Date"), by and between Adeza Biomedical
Corporation, a Delaware corporation ("Adeza"), and Matria Healthcare, Inc., a
Delaware corporation ("Matria").

                                    RECITALS

      WHEREAS, Adeza has developed and manufactures certain fetal fibronectin
pre-term delivery tests (the "fFN Tests"), which are useful in the diagnosis of
pre-term delivery risks for pregnant women;

      WHEREAS, Adeza and Matria's predecessor, Tokos Medical Corporation
("Tokos"), entered into an Exclusive Marketing Agreement with respect to the fFN
Tests effective as of December 31, 1991 (the "Exclusive Marketing Agreement");

      WHEREAS, under the Exclusive Marketing Agreement, Tokos was granted the
exclusive right to market, sell, use and otherwise dispose of the fFN Tests in
the United States, Puerto Rico and Canada (the "Territory");

      WHEREAS, Adeza and Tokos entered into amendments of the Exclusive
Marketing Agreement dated December 20, 1994 and January 13, 1995;

      WHEREAS, on March 8, 1996, Tokos and Healthdyne, Inc. ("Healthdyne")
merged with and into Matria, a newly-formed Delaware corporation. Pursuant to
the merger agreement between Tokos and Healthdyne, Matria assumed all of Tokos'
rights and obligations under the Exclusive Marketing Agreement;

      WHEREAS, on May 8, 1996, Adeza and Matria entered into an amendment to the
Exclusive Marketing Agreement (hereafter, the term "Exclusive Marketing
Agreement" shall mean the Exclusive Marketing Agreement, as amended to date);

      WHEREAS, disputes have arisen under the Exclusive Marketing Agreement
between Adeza and Matria;

      WHEREAS, on February 20, 1997, Adeza served notice of termination of the
Exclusive Marketing Agreement to Matria;

      WHEREAS, on March 7, 1997, Adeza served Matria with a complaint for
damages declaratory relief and injunctive relief naming Matria and various
unnamed defendants, Docs 1-100, which complaint has been amended subsequent to
March 7, 1997 (as amended to date, the "Complaint") in the Superior Court of the
State of California in the County of Santa Clara in Adeza Biomedical Corporation
v. Matria Healthcare, Inc., Case No. CV 764258 (the "Litigation") in which Adeza
pled, inter alia, that it was entitled to terminate the Exclusive Marketing
Agreement as a result of Matria's breach of the terms thereof;



                                      -1-

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                                                CONFIDENTIAL TREATMENT REQUESTED

         WHEREAS, Matria has brought counterclaims against Adeza with respect to
the claims asserted by Adeza in the Litigation (the "Counterclaims");

      WHEREAS, the parties in entering into this Agreement and Release do not
admit any liability or obligation to the other party arising out of, in
connection with, or in any way related to the facts, actions, failures to act,
transactions or occurrences alleged or which could have been alleged in the
Complaint or the Counterclaims, as the case may be; and

      WHEREAS, without admitting any issue of fact, law or equity, Matria and
Adeza agree that the settlement of this matter and entry of this Agreement and
Release are in good faith, in an effort to avoid expensive and protracted
litigation, and in the public interest.

                                    AGREEMENT

      NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

                                   ARTICLE 1

                               MARKETING AGREEMENT

      1.1 Termination. As of the Effective Date, the Exclusive Marketing
Agreement, together with all rights and obligations contained therein or related
thereto, is terminated and is of no further force or effect and, except as
otherwise set forth in Section 1.2 below, as between the parties, all rights to
promote, market and sell the fFN Tests and related services will have reverted
to Adeza, and Matria shall retain no such rights under the Exclusive Marketing
Agreement or otherwise.

      1.2 Transition.

            (a) The parties agree to perform in good faith the duties and
responsibilities set forth in the attached Exhibit A (the "Transition
Responsibilities") during the period of time commencing upon the Effective Date
and concluding on the earlier of August 31, 1998 or the Acceleration Date (as
defined below) (the "Transition Period").

            (b) Matria shall, at least thirty (30) days (but no more than ninety
(90) days) prior to the conclusion of the Transition Period, send written
notification to all third parties with which it has an agreement related to the
fFN Tests at the address maintained by Matria that Matria will, effective upon
the conclusion of the Transition Period, cease to be a distributor of fFN Tests.
Adeza may, in its sole discretion, elect to conclude the Transition Period prior
to August 31, 1998, in which case Adeza will give Matria notice at least
forty-five (45) days prior to the desired date of conclusion (which desired date
of conclusion shall be referred to herein as the "Accelerated Date"), whereupon
Matria shall, within fifteen (15) days following receipt of such notice from
Adeza, notify in the manner described above in this subsection 1.2(b) all third
parties with which it has an agreement related to the fFN Tests that Matria
will, effective upon the Accelerated Date, cease to be a distributor of fFN
Tests. If Adeza determines that Matria's obligation to perform any specific
Transition Responsibility should be terminated at least thirty (30) days prior
to the conclusion of the Transition Period as a result of a good faith
determination

                                      -2-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

that such termination is necessary or appropriate to effect the orderly
transition of the fFN business to Adeza, Adeza may terminate Matria's obligation
to perform such Transition Responsibility upon forty-five (45) days written
notice to Matria. Matria shall, within fifteen (15) days following receipt of
such notice, notify all third parties with which Matria has an agreement that
are affected by such change that Matria will, effective upon the expiration of
such forty-five (45) day period, cease to be responsible for the performance of
such Transition Responsibility. Under no circumstances shall Matria be required
to provide more than two (2) such notices of partial termination (unless
required to be given to less than fifty (50) entities or individuals) unless
Adeza reimburses Matria for the cost and expense of such additional notices.
Notwithstanding the foregoing, in the event that Adeza elects to terminate,
pursuant to this Section 1.2(b), all or any portion of the Transition
Responsibilities prior to August 31, 1998, Matria shall continue to perform its
Transition Responsibilities with respect to any of Matria's contractual
relationships that require ninety (90) days notice for termination until the
earlier of (i) one hundred (100) days following Matria's receipt of written
notice from Adeza regarding the intended termination of the applicable
Transition Responsibilities, (ii) the actual termination of such relationship or
(iii) August 31, 1998.

            (c) In the event that either party believes, in good faith, that the
other party is in material default with respect to the performance of its
Transition Responsibilities, such party may provide written notice of default to
the other party describing in sufficient detail the alleged deficiencies in
performance, whereupon the allegedly defaulting party shall have a period of
fifteen (15) days in which to cure such default. If the alleged breach is not
cured within such fifteen (15) day period, the party providing notice thereof
may request, upon further written notice by electronic mail or facsimile (with
original to follow via U.S. mail) to the allegedly defaulting party, the
initiation of arbitration proceedings, which arbitration proceedings shall be
conducted in accordance with the rules of the American Arbitration Association.
In the event that the parties cannot agree on an appropriate arbitrator within
five (5) business days following the date of the written request, then an
arbitrator shall be appointed pursuant to the rules of the American Arbitration
Association. All such arbitration proceedings shall take place at a mutually
convenient time and place in Chicago, Illinois and a decision shall be rendered
within thirty (30) days of the commencement of such proceeding. Any decision by
such arbitrator shall be final and binding upon the parties. If the arbitrator
determines that Matria has materially defaulted in its performance of the
Transition Responsibilities, the parties acknowledge that the arbitrator may, as
one of its available remedies, reduce all further percentage royalty payment
obligations of Adeza to Matria as set forth in subsections 3.2(a) and (b) below;
provided, however, that the arbitrator shall not reduce the royalty payment
obligations under Section 3.2(a) to an amount less than 0.75% of Net Sales and
shall not reduce the royalty payment obligation under Section 3.2(a) to an
amount less than 0.375% of Net Sales. If the arbitrator determines that Adeza
has materially defaulted in its performance of the Transition Responsibilities,
the parties acknowledge that the arbitrator may, as one of its available
remedies, terminate Adeza's right to receive payment of any revenues from Matria
that have accrued, but have not yet been paid, as of the date of such
determination, along with any revenues that accrue thereafter during the
Transition Period.

            (d) The party asserting any claim pursuant to (c) above shall bear
(i) its own attorney's fees arising out of the proceedings described in
subsection 1.2(c) and (ii) the costs of arbitration; provided, however, that in
the event that a party is determined by the arbitrator to be the prevailing
party in such proceedings, the arbitrator, at its discretion, may recommend that
the

                                      -3-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

prevailing party be reimbursed by the non-prevailing party for all reasonable
expenses and costs incurred by the prevailing party in protecting or enforcing
its rights hereunder, including, without limitation, its reasonable attorneys'
fees. The parties shall direct the arbitrator to have the time and expense of
the arbitration minimized to the maximum extent practicable under the
circumstances.

            (e) The remedies set forth in this Section 1.2 shall be the
exclusive remedy of the parties with respect to any alleged failure on the part
of any such party to fulfill its Transition Responsibilities. Unless a party
shall have notified the other party of any alleged default by such other party
in the performance of its Transition Responsibilities (other than a payment
default with respect to payments due after the end of the Transition Period)
during the Transition Period or during the fifty (50) day period immediately
following the conclusion of the Transition Period, that party shall be deemed to
have waived all rights with respect to any such default by such other party.
Notwithstanding the foregoing, nothing in this Section 1.2(e) shall limit either
party's rights and obligations under Article 13 of this Agreement and Release.

                                   ARTICLE 2

                          SURRENDER OF ADEZA SECURITIES

      2.1 Surrender and Cancellation of Securities. Upon the Effective Date,
Matria shall surrender to Adeza for cancellation (a) certificates representing
(i) 1,142,858 shares of Adeza's Series E Preferred Stock, no par value, and (ii)
11,657 shares of Adeza's Series 2 Preferred Stock, par value $0.001 per share,
and (b) a Warrant to purchase 1,702 shares of Adeza's Series 2 Preferred Stock
(collectively, the "Surrendered Securities"), which securities represent all of
the Adeza capital stock, or rights to acquire Adeza capital stock, held
beneficially or of record by Matria or its affiliates. Matria acknowledges and
agrees that following the Effective Date it will have no right to receive any
shares of the Adeza Series 1 Preferred Stock for which the Adeza Series E
Preferred Stock was to be exchanged. To properly effect the surrender of the
Preferred Stock, Matria shall, on or prior to the Effective Date, complete,
execute and deliver to Adeza the assignments separate from certificate attached
as Exhibit B hereto.

      2.2 Representations Regarding Ownership. Matria hereby represents and
warrants that, as of the Effective Date:


            (a) It is the sole record and beneficial owner of the Surrendered
Securities and has good and valid title to such Surrendered Securities free and
clear of all restrictions, claims, liens, charges, pledges and encumbrances
whatsoever, except for such restrictions, claims, liens, charges, pledges or
encumbrances as may have been created by Adeza;

            (b) It has full right, power and authority to transfer and deliver
such Surrendered Securities to Adeza, and, upon delivery of the securities or
any certificates therefor along with the executed assignments separate from
certificate attached hereto as Exhibit B, and following Adeza's acceptance
thereof, will transfer to Adeza good and valid title thereto free and clear of
any restriction, claim, lien, charge or encumbrance whatsoever;

                                      -4-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
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                                                CONFIDENTIAL TREATMENT REQUESTED


            (c) It is not a party to any voting trust, voting proxy, agreement
or arrangement affecting the exercise of the voting rights of the Surrendered
Securities;

            (d) Other than the Litigation, there is no action, proceeding, claim
or, to its knowledge, investigation or threatened investigation against it or
its assets or properties, at law or in equity, or before any court, arbitrator
or other tribunal, or before any administrative law judge, hearing officer or
administrative agency relating to or in any other manner impacting upon the
Surrendered Securities and the cancellation of the Surrendered Securities
contemplated hereby; and

            (e) With the exception of the Surrendered Securities, it, together
with its affiliates, does not hold any interest in any capital stock of Adeza or
any securities convertible into or exercisable for the capital stock of Adeza.

                                    ARTICLE 3

                                    ROYALTIES

      3.1 Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:


            (a) "fFN ELISA Test" shall mean Adeza's fFN qualitative,
enzyme-linked immunosorbant assay diagnostic test, in such form as it shall
exist during the period that royalties are due hereunder, as used to measure the
presence of fetal fibronectin in the vaginal fluid of pregnant women in order to
assess the likelihood of birth.

            (b) "fFN Rapid Assay Test" shall mean the disposable, dry chemistry
derivative of the fFN ELISA Test, in such form as it shall exist during the
period that royalties are due hereunder. For the purposes of this Article 3, the
term "fFN Rapid Assay Test" shall include any biochemical diagnostic test
incorporating any material portion of Adeza's fFN technology as contained in the
fFN ELISA Test or fFN Rapid Assay Test as of the Effective Date.

      The terms fFN ELISA Test or fFN Rapid Assay Test shall include: fFN
specimen collection kits, fFN control kits and fFN analyzers distributed for fFN
ELISA Test and fFN Rapid Assay Test-specific uses; products that are directly
and integrally related to the obtaining of a fFN ELISA Test result or a fFN
Rapid Assay Test result; and the processing and analyzing of a specimen, but
shall exclude printers and other peripherals attached to the analyzers.

            (c) "Net Sales" for a fFN ELISA Test or a fFN Rapid Assay Test shall
mean all amounts actually received by Adeza, any Adeza Affiliate (as defined
below) or any successor-in-interest to all or substantially all of Adeza's fFN
ELISA Test business and/or fFN Rapid Assay Test business (a "Successor"), from
the sale, processing or analyzing of such test by Adeza and such Adeza Affiliate
(or such Successor and its affiliates) in the Territory to any unaffiliated
third party, whether or not for resale to others, less the following deductions
actually paid or allowed by Adeza or such Adeza Affiliate (or such Successor):
quantity and cash discounts normal and customary in the trade; sales, use and
other similar taxes; amounts repaid or credited by reason of rejection or
return; and any transportation, delivery and insurance charges related thereto
paid by Adeza or such Adeza Affiliate (or such Successor); provided, however,
that to

                                      -5-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


the extent that the fFN ELISA Tests or the fFN Rapid Assay Tests are sold in the
form of bundling with other products or services which are also sold by Adeza or
an Adeza Affiliate (or such Successor) in material quantities on a stand alone
basis for use other than with an fFN Test (other than the service performed in
processing such fFN ELISA Tests or fFN Rapid Assay Tests), the Net Sales for the
fFN ELISA Test or fFN Rapid Assay Test included therein shall be the sum
obtained by multiplying the Net Sales for the sale of the bundled package as a
whole by a fraction, the numerator of which shall be the list price of such fFN
ELISA Test or fFN Rapid Assay Test (calculated as set forth above in this
subsection 3.1(c)) and the denominator of which shall be the sum of the list
prices of each component included within such bundled package. Amounts received
upon sales of fFN ELISA Tests and fFN Rapid Assay Tests (including the
processing and analyzing of tests) to an Adeza Affiliate shall not be included
within the definition of Net Sales and shall be disregarded for purposes of
determining the amounts due Matria under this Article 3.

            (d) "Marketing Fee" shall mean the portion of any up-front or lump
sum payment (either in the form of cash or property) from a third party received
by Adeza or an Adeza Affiliate (or any Successor) that would appropriately be
characterized as a payment made by such third party in consideration for the
granting of rights to such third party by Adeza or an Adeza Affiliate (or such
Successor) to market, sell, distribute or provide to patients the fFN ELISA
Tests or fFN Rapid Assay Tests, less sales or use taxes actually paid by Adeza
or such Adeza Affiliate (or such Successor) on such portion and any amount of
such portion subsequently forfeited by Adeza or such Adeza Affiliate (or such
Successor). In the event that a Marketing Fee is paid in the form of property,
that Marketing Fee shall be deemed to be the fair market value of such property
on the date of transfer for purposes of Section 3.2. All payments received upon
the granting to an Adeza Affiliate (after becoming an Adeza Affiliate) of rights
to market, sell, distribute or provide to patients the fFN ELISA Tests or fFN
Rapid Assay Tests shall not be deemed a Marketing Fee and shall be disregarded
for purposes of determining the amounts due Matria under this Article 3.

            (e) "Adeza Affiliate" shall mean any corporation, company or other
entity controlling, controlled by, or under common control with Adeza, where
control means the ownership of thirty percent (30%) or more of an entity's
outstanding voting securities; provided, however, that such corporation, company
or other entity shall be considered an Adeza Affiliate only for the time during
which such control exists.

      3.2 Royalty Obligations. Adeza shall pay to Matria a royalty equal to:


            (a) One Percent (1%) of (i) the Net Sales from all fFN ELISA Tests
sold to an unaffiliated third party following the Effective Date and (ii) the
Marketing Fees with respect to the grant of rights to the fFN ELISA Tests (which
grant is independent from a grant of rights to the fFN Rapid Assay Tests)
following the Effective Date;

            (b) One-Half of One Percent (0.5%)  of (i) the Net Sales from all
fFN Rapid Assay Tests sold to an unaffiliated third party following the
Effective Date and (ii) the Marketing Fees with respect to the grant of rights
to the fFN Rapid Assay Tests (which grant is independent from a grant of rights
to the fFN ELISA Tests) following the Effective Date; and

                                      -6-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


            (c) Three-Quarters of One Percent (0.75%) of the Marketing Fees with
respect to the grant, in a single transaction, of rights to both the fFN ELISA
Tests and the fFN Rapid Assay Tests;

      provided, however, that in the event that Adeza's or an Adeza Affiliate's
(or any Successor's) aggregate royalty obligations hereunder for sales of any
fFN ELISA Test or fFN Rapid Assay Test, when combined with (i) [***] and (ii)
[***], as the case may be, exceed Five Percent (5%) of the Net Sales from such
test, the royalty payment obligations set forth in subsections 3.2(a) and (b)
above shall be reduced pro rata with the royalty obligations due all other
royalty payees (presuming reduction of the royalty payment obligations due all
other royalty payees regardless of whether Adeza or such Adeza Affiliate (or
such Successor) is legally entitled to actually reduce or pro rate such other
royalties) such that the total royalties payable by Adeza (or such Successor) to
Matria for the sale of such fFN ELISA Test or fFN Rapid Assay Test shall presume
that all royalties payable by Adeza or such Adeza Affiliate (or such Successor)
for the sale of such test shall not exceed Five Percent (5%) of the Net Sales
for such test sale [***]; and, provided, further that in no event shall the
aggregate royalties payable to Matria under this Section 3.2 exceed Twelve
Million Dollars ($12,000,000). The foregoing example is presented for
illustration purposes only and is not intended to imply that any royalties are
actually owing to third parties or that the amount of any such royalty, if
deemed to be owing, is or should be equal to the percentages set forth above.

      3.3 Payment; Reports. Until such time as Matria has been paid aggregate
royalties in the amount of Twelve Million Dollars ($12,000,000) pursuant to
Section 3.2 above (the "Royalty Period"), Adeza shall submit to Matria, and
shall require each Successor to submit to Matria, within thirty (30) days
following each March 31, June 30, September 30 and December 31 hereafter, (a)
the royalties payable under Section 3.2 above on all fFN ELISA Tests and fFN
Rapid Assay Tests sold by Adeza, Adeza Affiliates and Successors during the
three (3) month period preceding such date and (b) a report identifying (i) the
aggregate Net Sales on such tests and (ii) the royalties payable to Matria as a
result of the fFN ELISA Test and fFN Rapid Assay Test sales during such period
determined in accordance with Section 3.2 above. In the event that the royalties
payable to Matria are prorated in accordance with Section 3.2 above, Adeza
shall, upon Matria's request, certify that such proration was appropriate under
Section 3.2 as a result of royalties paid, or to be paid, on the fFN Test sales
by Adeza to third parties holding rights in the patents set forth on Schedule
3.2. Adeza represents to Matria that, as of the Effective Date, Adeza is
obligated pursuant to the FHCRC Agreement to pay to FHCRC a royalty of [***]% of
the net sales from the fFN ELISA Tests and fFN Rapid Assay Tests and Adeza, to
its knowledge, does not have any obligation to pay royalties to any other third
party on sales of the fFN ELISA Tests or fFN Rapid Assay Tests. If no royalties
are due Matria for any reporting period, the report shall so indicate. Adeza
shall cause the Successors, if any, to assume their obligations under this
Article 3 expressly in writing and shall deliver the same to Matria.

      3.4 Audit Rights. During the Royalty Period and for a period of one (1)
year thereafter, Adeza (and any Successor) shall maintain complete and accurate
records in accordance with generally accepted methods of accounting for all
transactions which would require a royalty payment to Matria pursuant to Section
3.2. An independent accounting firm retained by Matria and reasonably acceptable
to Adeza shall have access to such records (including agreements setting forth
any third party royalty payment obligations that necessitate proration in
accordance with Section 3.2 above) no more than once per year, upon reasonable
notice and during Adeza's, or such Successor's (as the case may be), normal
business hours, for the purposes of auditing such records for so long as such
records are required to be maintained hereunder. As a condition to such audit,
the independent accountant selected by Matria shall execute a written agreement,
reasonable satisfactory to Adeza, to maintain in confidence all information
obtained during the course of any such audit except for disclosure to Matria
regarding the existence or non-existence and amount, if applicable, of any
discrepancy between Adeza's or its Successor's records and

                                      -7-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


their payment of royalties to Matria under this Agreement and Release. Adeza (or
such Successor) shall pay to Matria the amount of any underpayment so discovered
and Matria shall refund the amount of any overpayment so discovered. Matria
shall pay the expenses of the audit, unless the audit reveals an underpayment of
royalties in excess of ten percent (10%) during the audited period, in which
case Adeza (or such Successor) shall pay Matria the reasonable fees and expenses
of such audit, and shall pay the amount of any underpayment so revealed.

                                   ARTICLE 4

                                 NON-COMPETITION

      During the period of time from the Effective Date up to and including
December 31, 1998, Matria shall not, directly or indirectly, develop, market,
sell or otherwise distribute any biochemical markers or biochemical tests that
are competitive with fFN Tests (e.g., salivary estriol).

                                   ARTICLE 5

                        FULL CONSIDERATION AND SETTLEMENT

      5.1 Settlement of Adeza Claims. Adeza, for itself and its successors,
subsidiaries, directors, officers, stockholders, employees, representatives,
distributors, agents, legal representatives and assigns (the "Adeza Affiliated
Entities"), does hereby agree that the obligations and restrictions imposed upon
Matria pursuant to the terms of this Agreement and Release represent settlement
in full of any and all Adeza and Adeza Affiliated Entity claims, assertions of
claims, demands, actions, causes of action, suits, debts, losses, executions,
judgments, settlements, liabilities, damages, costs and expenses (including
attorney's fees) of any nature, direct or indirect, known or unknown, suspected
or unsuspected, matured or unmatured, past, present and future, or any other
form of legal or equitable relief, arising from or relating to the Exclusive
Marketing Agreement and/or the matters set forth in the Complaint (collectively,
the "Adeza Claims"); provided, however, that nothing contained in this Section
5.1 shall relieve Matria of its obligations under this Agreement and Release
including, without limitation, Section 13.2 below.

      5.2 Settlement of Matria Claims. Matria for itself and its successors,
subsidiaries, predecessors, directors, officers, stockholders, employees,
representatives, distributors, agents, legal representatives and assigns (the
"Matria Affiliated Entities"), does hereby agree that the obligations and
restrictions imposed upon Adeza pursuant to the terms of this Agreement and
Release represent settlement in full of any and all Matria and Matria Affiliated
Entity claims, assertions of claims, demands, actions, causes of action, suits,
debts, losses, executions, judgments, settlements, liabilities, damages, costs
and expenses (including attorney's fees) of any nature, direct or indirect,
known or unknown, suspected or unsuspected, matured or unmatured, past present
and future, or any other form of legal or equitable relief, arising from or
relating to the Exclusive Marketing Agreement and/or the matters set forth in
the Counterclaims (collectively, the "Matria Claims"); provided, however, that
nothing contained in this Section 5.2 shall relieve Adeza of its obligations
under this Agreement and Release including, without limitation, Section 13.1
below.

                                      -8-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                   ARTICLE 6

                         RELEASE AND COVENANT NOT TO SUE

      6.1 Release and Covenant Not to Sue by Adeza. With the exception of the
obligations of Matria set forth in this Agreement and Release, Adeza, on behalf
of itself, the Adeza Affiliated Entities, and any other persons or entities
which may or could assert claims by or through it, hereby agrees to release,
covenant not to sue, acquit and forever discharge, both individually and
collectively, Matria as well as any Matria Affiliated Entity of and from any and
all Adeza Claims.

      6.2 Release and Covenant Not to Sue by Matria. With the exception of the
obligations of Adeza set forth in this Agreement and Release, Matria, on behalf
of itself, the Matria Affiliated Entities and any other persons or entities
which may or could assert claims by or through it, hereby agree to release,
covenant not to sue, acquit and forever discharge, both individually and
collectively, Adeza as well as any Adeza Affiliated Entity of and from any and
all Matria Claims.

      6.3 California Civil Code Section 1542 and Related Statutes. Adeza and
Matria each understand, and for valuable consideration do hereby waive, all of
the rights and benefits they may have under Section 1542 of the California Civil
Code, which section reads as follows:

      "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED THIS SETTLEMENT WITH THE
DEBTOR;"

along with all rights and benefits they may have under analogous provisions of
the laws of the State of Georgia.

                                   ARTICLE 7

                                    DISMISSAL

      The Parties agree to take any and all steps necessary to accomplish the
immediate dismissal of the various claims and crossclaims by each of them
against the other in the Litigation within five (5) business days following the
Effective Date. The dismissals shall be with prejudice and with each party to
assume responsibility for its own costs.

                                   ARTICLE 8

                                  NO ADMISSION

      8.1 No Admission by Matria. Adeza acknowledges that Matria's agreement to
be bound by the obligations and restrictions set forth in this Agreement and
Release does not constitute an admission of liability, express or implied, on
the part of Matria with respect to any fact or matter alleged in the Complaint
and that such agreement is being provided solely for the purpose of amicably
resolving the claims by Adeza against Matria.

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                                                CONFIDENTIAL TREATMENT REQUESTED


      8.2 No Admission by Adeza. Matria acknowledges that Adeza's agreement to
be bound by the obligations and restrictions set forth in this Agreement and
Release does not constitute an admission of liability, express or implied, on
the part of Adeza with respect to any fact or matter alleged in the
Counterclaims and that such agreement is being provided solely for the purpose
of amicably resolving the claims by Matria against Adeza.

                                   ARTICLE 9

                               NO PRIOR ASSIGNMENT

      9.1 No Prior Assignment by Adeza. Adeza represents and warrants that no
portion of any Adeza Claim to which Adeza might be entitled has been assigned,
subrogated or transferred to any other person, firm, corporation or other
entity, by operation of law or otherwise. In the event that any Adeza Claim
should be made or instituted against Matria or a Matria Affiliated Entity
because of any such purported assignment or subrogation or transfer, Adeza
agrees to indemnify and hold harmless Matria and the Matria Affiliated Entities,
as the case may be, against any such Adeza Claim, and to pay and satisfy any
such Adeza Claim, including necessary expenses of investigation, attorneys' fees
and costs.

      9.2 No Prior Assignment by Matria. Except for any assignment or transfer
that may be deemed to have occurred from Tokos to Matria in connection with the
merger of Tokos and Healthdyne into Matria, Matria represents and warrants that
no portion of any Matria Claim to which Matria might be entitled has been
assigned, subrogated or transferred to any other person, firm, corporation or
other entity, by operation of law or otherwise. In the event that any Matria
Claim should be made or instituted against Adeza or an Adeza Affiliated Entity
because of any such purported assignment or subrogation or transfer, Matria
agrees to indemnify and hold harmless Adeza and the Adeza Affiliated Entities,
as the case may be, against any such Matria Claim, and to pay and satisfy any
such Matria Claim, including necessary expenses of investigation, attorneys'
fees and costs.

                                   ARTICLE 10

                        NON-DISPARAGEMENT; PRESS RELEASES

      10.1 Non-Disparagement. Each party agrees not to disparage the other
party, its directors, officers, employees, contractors, agents, products or
services. Each party shall institute appropriate policies and guidelines
(collectively "Policies") for its directors, officers, employees, contractors,
agents and other representatives that prohibit the disparagement of the other
party, its directors, officers, employees, contractors, agents, products or
services, and shall use reasonable efforts to disseminate copies of all such
Policies to such persons and to instruct such persons in good faith on the
importance of adhering to such Policies. Each party agrees that, in the event an
alleged violation of such party's Policies is brought to the attention of such
party's management, such management will again instruct in good faith the person
alleged to have violated such Policies as to the existence of the Policies and
the importance of his or her adherence thereto. So long as a party has complied
with its obligations as specifically set forth in this Section 10.2, such party
shall not be obligated to take any other measures by way of enforcing such
Policies, nor be liable in any respect for any violation of the Policies. The
parties

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                                                CONFIDENTIAL TREATMENT REQUESTED


acknowledge and agree, however, that, on and after January 1, 1999, either party
may, as otherwise permitted by this Agreement and Release, make accurate,
non-misleading factual statements regarding the other party's products or
services that may have a disparaging effect.

      10.2 Press Releases. On the Effective Date or shortly thereafter, the
parties shall issue a joint press release in the form attached as Exhibit C
hereto; provided, however, that in the event that a third party publishes or
broadcasts information that, in the good faith judgment of a party, necessitates
the disclosure of more specific information concerning the financial terms of
this Agreement and Release than was set forth in such press release, such party
shall notify the other party of its intent to respond to such publication or
broadcast, the timing of its response and the specific manner in which it
intends to respond, and may thereafter disclose the additional information
regarding the financial terms of this Agreement and Release as limited by
Article 12 hereof. Except as permitted by the preceding sentence, neither party
shall distribute or publish any press release during the initial thirty (30) day
period following the Effective Date regarding the Litigation, this Agreement and
Release or any dispute between the parties with respect to the matters set forth
in the Complaint or the Counterclaims, as the case may be. After the initial
thirty (30) day period following the Effective Date up until the one (1) year
anniversary of the Effective Date, neither party shall distribute or publish any
press release (a) regarding the Litigation or any dispute between the parties
with respect to the matters set forth in the Complaint or the Counterclaims, as
the case may be, or (b) that references the other party or its products and
services in a manner that could reasonably be deemed to be derogatory or
disparaging, without first obtaining such other party's consent to the contents
of such press release, which consent shall not be unreasonably withheld or
delayed; provided, however, that either party shall be entitled to issue a press
release regarding, the matters set forth in (a) or (b) above without the other
party's consent so long as the description of such matters conforms in general
terms to the description set forth in the joint press release attached as
Exhibit C hereto. Notwithstanding the foregoing, either party shall have the
right to file reports with the Securities and Exchange Commission ("SEC") and
the National Association of Securities Dealers, Inc. ("NASD") regarding the
execution and effect of this Agreement and Release as such party deems necessary
to comply with the rules and regulations of the SEC and the NASD, as the case
may be, without the other party's consent; provided, however, that under no
circumstances shall Matria disclose the information contained in the following
portions of the Agreement and Release: (1) clauses (i) and (ii) in the fourth
paragraph of Section 3.2 (in lieu thereof the parties may simply refer to
"certain royalties"); (2) the example set forth in parentheses in the
penultimate sentence of Section 3.2; (3) the representation set forth in the
third sentence of Section 3.3; (4) Schedule 3.2; and (5) clauses (i), (ii) and
(iii) in the second paragraph of Exhibit A and the numerical reference in the
subsequent sentence of such second paragraph (the "Adeza-Specific Information").
In the event that Matria intends to file this Agreement and Release as an
exhibit to any SEC or other government agency filing, Matria shall so notify
Adeza and shall work with Adeza to file a Confidential Treatment Request with
respect to the Adeza-Specific Information, seeking to preserve the
confidentiality of such Adeza-Specific Information.

                                   ARTICLE 11

                         REPRESENTATIONS AND WARRANTIES

                                      -11-

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                                                CONFIDENTIAL TREATMENT REQUESTED


      11.1 Mutual Representations. Adeza and Matria each hereby represent and
warrant that:


            (a) it has the authority to execute, deliver and perform this
Agreement and Release and bind the entity on whose behalf it purports to execute
this Agreement and Release;

            (b) this Agreement and Release is the result of arms' length
negotiations among the parties, who were each represented by counsel;

            (c) it intends this Agreement and Release to be final and binding
between the parties hereto, including their respective predecessors, successors
and assigns; and

            (d) it will not take, intentionally, any action that would interfere
with or impair the performance of this Agreement and Release, or the
transactions contemplated hereby by any other party hereto.

      11.2 Matria Representations. Matria further represents and warrants that,
as of the date hereof, to the knowledge of its management staff:

            (a) except for the Litigation, there are no claims, actions, suits,
inquiries, proceedings, or investigations pending or threatened, at law or in
equity, or by any federal, state, local or foreign government agency (including,
without limitation, the Food and Drug Administration ("FDA"), the Centers for
Disease Control and Prevention, and the Health Care Finance Administration) or
professional organization (including, without limitation, the American Medical
Association and the College of American Pathologists) against Matria or any of
the Matria Affiliated Entities resulting from or arising out of (i) the use,
sale, distribution or marketing of, or reimbursement, regulatory matters or
clinical trials with respect to, Adeza's products or services or (ii) Matria's
or a Matria, Affiliated Entity's performance under the Exclusive Marketing
Agreement; and

            (b) neither Matria nor any Matria Affiliated Entity has violated any
material provision of an applicable federal, state, local or foreign law,
statute, rule, regulation or guideline (including, without limitation, the
United States Food and Drug Act, good manufacturing practices as outlined by the
FDA, and the United States Clinical Laboratory Improvement Act of 1988, as
amended) (collectively "Violations") in connection with its performance under
the Exclusive Marketing Agreement, performance of fFN Tests, or the use
(internally by Matria or a Matria Affiliated Entity for testing or
demonstrational purposes), sale, distribution, marketing or manufacture of, or
reimbursement, regulatory matters or clinical trials with respect to, Adeza's
products or services; provided, however, that notwithstanding the
representations set forth in Sections 11.2(a) or (b), Matria makes no
representation hereunder with respect to any Violation resulting from (i)
actions taken at the specific request of Adeza or (ii) Adeza's failure to
package materials delivered by Adeza to Matria in accordance with FDA
regulations.

      11.3 Adeza Representations. Adeza further represents and warrants that, as
of the date hereof, to the knowledge of its management staff:

            (a) except for the Litigation, there are no claims, actions, suits,
inquiries, proceedings, or investigations pending or threatened, at law or in
equity, or by any federal, state,

                                      -12-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


local or foreign government agency (including, without limitation, the FDA, the
Centers for Disease Control and Prevention, and the Health Care Finance
Administration) or professional organization (including, without limitation, the
American Medical Association and the College of American Pathologists) against
Adeza or any of the Adeza Affiliated Entities resulting from or arising out of
(i) the use, sale, marketing, distribution, development, or manufacture of, or
reimbursement, regulatory matters or conduct of clinical trials with respect to,
Adeza's products or services or (ii) Adeza's or an Adeza Affiliated Entity's
performance under the Exclusive Marketing Agreement; and

            (b) neither Adeza nor any Adeza Affiliated Entity has committed a
Violation in connection with its performance under the Exclusive Marketing
Agreement, performance of fFN Tests, or the use, sale, marketing, distribution,
development, or manufacture of, or reimbursement, regulatory matters or conduct
of clinical trials with respect to, Adeza's fFN products or services.

                                   ARTICLE 12

                                 CONFIDENTIALITY

      The terms of this Agreement and Release shall be considered strictly
confidential and shall not be disclosed by the parties or their attorneys or
agents to any person or entity not named as a party herein, except: (a) as
necessary for compliance and implementation of the terms of this Agreement and
Release; (b) to the parties' accountants, attorneys or tax advisors who have a
need to know; (c) to the extent that the disclosing party deems it necessary to
comply with the information disclosure requirements under federal and state
securities laws or the rules and regulations of the NASD; (d) to its employees;
(e) as may be appropriately disclosed at that time in a press release permitted
by this Agreement and Release; (f) during the thirty (30) day period immediately
following the Effective Date to investors, securities analysts and others in the
securities business in direct response to specific questions and, following the
initial thirty (30) day period after the Effective Date, to investors,
securities analysts and others in the securities business and (g) as may be
required by applicable law or judicial or government order; provided, however,
that upon receipt of any such legal request to disclose the terms of this
Agreement and Release, the party receiving such request shall promptly notify
the other party of the terms of such request and shall cooperate with the other
party to limit disclosure to the minimum extent necessary to comply with such
law or order. Notwithstanding the foregoing, under no circumstances shall
Matria, its attorneys or agents disclose any Adeza-Specific Information other
than pursuant to subsections (a), (b) or (g) of the immediately preceding
sentence. The parties further acknowledge that the parties shall be entitled to
disclose to parties with whom they have, or are negotiating for, contractual
relationships or customers or potential customers of fFN Tests that upon the
conclusion of the Transition Period Matria will no longer be marketing fFN
products or services.

                                   ARTICLE 13

                                 INDEMNIFICATION


                                      -13-

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                                                CONFIDENTIAL TREATMENT REQUESTED


      13.1 Adeza Obligations. Adeza shall defend, indemnify and hold Matria and
the Matria Affiliated Entities harmless from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including, without
limitation, reasonable attorney's fees and expenses) in connection with,
relating to or arising from: (a) any third party claim alleging (i) that the
use, sale, distribution or marketing of the fFN ELISA Tests or fFN Rapid Assay
Tests infringes the patent, copyright, trademark, trade secret or other
intellectual property right of such third party, except to the extent that such
alleged infringement arises or results from (A) any unauthorized modification or
combination of the fFN ELISA Tests or fFN Rapid Assay Tests as delivered to
Matria by Adeza or (B) any failure by Matria or a Matria Affiliated Entity to
follow the use and distribution guidelines provided by Adeza relating to the fFN
ELISA Tests or fFN Rapid Assay Tests, or (ii) that the use of the fFN ELISA
Tests or fFN Rapid Assay Tests has resulted in property damage or bodily injury
to such third party, except to the extent that such damage or injury arises or
results from (A) Matria's, or a Matria Affiliated Entity's, unauthorized
modification or combination of the fFN ELISA Tests or fFN Rapid Assay Tests as
delivered to Matria by Adeza, (B) any failure by Matria or a Matria Affiliated
Entity to follow the use and distribution guidelines provided by Adeza relating
to the fFN ELISA Tests or fFN Rapid Assay Tests or (C) any reckless or negligent
act or failure to act on the part of Matria or a Matria Affiliated Entity; (b)
damages resulting from a defect in the design or manufacture of an Adeza product
supplied to Matria by Adeza or the failure of any such product, in the form
provided by Adeza, to perform in accordance with Adeza's published
specifications when used in accordance with Adeza's instructions and/or
guidelines; (c) the acts of any third party distributor other than a Matria
Affiliated Entity in selling or distributing Adeza's products and services; (d)
Adeza's breach of its representations, warranties or covenants under this
Agreement and Release; provided, however, that Matria's sole remedy with respect
to a breach by Adeza of its Transition Responsibilities (other than a payment
default with respect to payments due after the end of the Transition Period)
shall be as set forth in Section 1.2 hereof; or (e) a Violation resulting from
or arising out of Adeza's (i) development, manufacture, packaging or processing
of any Adeza fFN products or services or (ii) performance under the Exclusive
Marketing Agreement.

      13.2 Matria Obligations. Matria shall defend, indemnify and hold Adeza and
the Adeza Affiliated Entities harmless from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including, without
limitation, reasonable attorney's fees and expenses) in connection with,
relating to or arising from: (a) any third party claim alleging (i) that, except
as covered by Adeza's indemnification obligations set forth in Section 13.1
above, the use (internally by Matria or a Matria Affiliated Entity for testing
or demonstrational purposes), sale, distribution or marketing of the fFN ELISA
Tests or fFN Rapid Assay Tests infringes the patent, copyright, trademark, trade
secret or other intellectual property rights of such third party, or (ii) that
modifications or combinations made by Matria or a Matria Affiliated Entity to
the fFN ELISA Tests or fFN Rapid Assay Tests have resulted in, or that any
reckless or negligent act or failure to act on the part of Matria or a Matria
Affiliated Entity in connection with the use, sale, distribution or marketing of
such tests has resulted in, property damage or bodily injury to such third party
or the failure of the Adeza products to perform in accordance with Adeza's
published specifications; (b) any unauthorized representations or warranties
made by Matria or a Matria Affiliated Entity with respect to Adeza or its
products and services; (c) Matria's breach of its representations, warranties or
covenants under this Agreement and Release; provided, however, that Adeza's sole
remedy with respect to a breach by Matria of its Transition Responsibilities
(other than a payment default with respect to payments due after the

                                      -14-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


end of the Transition Period) shall be as set forth in Section 1.2 hereof; (d)
Matria's, or a Matria Affiliated Entity's, breach of any agreement with, or
unfulfilled commitment to, a third party, which agreement or commitment is
related to the fFN ELISA Tests or fFN Rapid Assay Tests; provided, however, that
Matria shall not be responsible to the extent that such breach or unfulfillment
resulted from an activity or circumstance for which Adeza would be obligated to
indemnify Matria pursuant to Section 13.1 above; or (e) a Violation resulting
from or arising out of Matria's or any Matria Affiliated Entity's (i) use
(internally by Matria or a Matria Affiliated Entity for testing or
demonstrational purposes), sale, distribution or marketing of, or laboratory
analysis, reimbursement or clinical trials with respect to, any Adeza products
or services or (ii) performance under the Exclusive Marketing Agreement;
provided, however, that Matria shall have no responsibility under this Section
13.2 for any Violation resulting from (A) actions taken at the specific request
of Adeza or (B) Adeza's failure to package materials delivered by Adeza to
Matria in accordance with FDA regulations.

      13.3 Procedural Requirements. In the event that a party seeks
indemnification pursuant to Sections 9.1, 9.2, 13.1 or 13.2 above (the
"Indemnified Party"), such Indemnified Party shall (a) provide prompt written
notice to the other party (the "Indemnifying Party") detailing the claim for
which indemnification is being sought hereunder, (b) allow the Indemnifying
Party to have sole control over the defense or settlement of such claim,
provided that the Indemnifying Party agrees in writing to accept a tender of
defense of such claim and assume full responsibility therefor at the time at
which it assumes such control and, provided further, that the Indemnifying Party
shall not settle any such claim without the prior written consent of the
Indemnified Party if such settlement could reasonably be construed as having an
adverse effect on the rights of the Indemnified Party, which consent, if
required, will not be unreasonably withheld or delayed and (c) upon the request
of the Indemnifying Party, and at the Indemnifying Party's request, provide all
reasonable and necessary assistance to the Indemnifying Party for the purpose of
defending or settling such claim.

                                   ARTICLE 14

                      GOVERNING LAW AND DISPUTE RESOLUTION

      14.1 Governing Law. This Agreement and Release shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without regard to its conflicts of law provisions.

      14.2 Dispute Resolution. In the event that either Adeza or Matria shall
have a dispute regarding the interpretation of any provision of, or the other
party's compliance with any term or condition of, this Agreement and Release
(other than with respect to the performance of the Transition Responsibilities,
which shall be governed by subsections 1.2(c) and (d) above), then the following
procedures shall be followed:

            (a) such claim shall be in the form of a written notice by the party
with the claim ("Claiming Party") to the other party ("Responding Party")
setting forth the nature of the claim, including, without limitation, the
alleged legal basis therefor, the persons or entities against which such claim
is made, and the proposed remedy;


                                      -15-

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                                                CONFIDENTIAL TREATMENT REQUESTED


            (b) within ten (10) business days after receipt of such notice, the
Responding Party shall respond in writing to the Claiming Party either
accepting, denying or proposing a different remedy;

            (c) the parties may continue in such manner until there is a
mutually acceptable resolution of the matter; provided, however, that after (a)
and (b) have occurred at least once, then either party may request, upon written
notice to the other, for the commencement of mediation by a mutually acceptable
third party in no less than thirty (30) business days from the date of such
notice. In the event that the parties cannot agree on an appropriate third party
within ten (10) business days of the date of the notice, then a mediator shall
be appointed pursuant to the rules of JAMS-Endispute;

            (d) the parties may continue in such mediation until there is a
mutually acceptable resolution of the matter; provided, however, that if such
mediation does not result in such resolution within ten (10) business days after
its commencement, then either party may request, upon written notice to the
other, for the commencement of arbitration by a mutually acceptable third party
in no less than sixty (60) business days from the date of such notice, which
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association. In the event that the parties cannot agree on an
appropriate arbitrator within ten (10) business days of the date of the notice,
then an arbitrator shall be appointed pursuant to the rules of the American
Arbitration Association. Any decision by such arbitrator shall be final and
binding upon the parties. The arbitrator shall be required to provide in writing
to the parties the basis for the arbitrator's decision and award, and a court
reporter shall record all hearings for the arbitration with such record
constituting the official transcript of the arbitration proceedings;

            (e) All such mediation and arbitration proceedings shall take place
at a mutually convenient time and place in Chicago, Illinois; and

            (f) The party asserting any claim pursuant to (a) above shall bear
(i) its own attorney's fees arising out of the proceedings described in this
Section 14.2 and (ii) the costs of mediation and arbitration; provided however,
that in the event that a party is determined by the arbitrator to be the
prevailing party in such proceedings (or, in the event the parties do not take
the claim to arbitration, and a party is determined by the mediator to be the
prevailing party in such proceedings) the mediator or arbitrator, at their
discretion, may recommend that the prevailing party be reimbursed by the
non-prevailing party for all reasonable expenses and costs incurred by the
prevailing party in protecting or enforcing its rights hereunder, including,
without limitation, its reasonable attorneys' fees. The parties seek to have the
time and expense of the mediation or arbitration minimized to the maximum extent
practicable under the circumstances.

                                   ARTICLE 15

                         VOLUNTARY AND INFORMED DECISION

      The advice of legal counsel has been obtained by each party prior to
signing this Agreement and Release. The parties each acknowledge and represent
that it is executing this Agreement and Release voluntarily with full knowledge
of its legal significance. The parties further acknowledge that each party, with
the assistance of counsel, has participated in the


                                      -16-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


drafting of this Agreement and Release and that any ambiguity should not be
construed for or against any party on account of such drafting. The parties
agree that this Agreement and Release has been negotiated at arms' length by
parties of equal bargaining power, each of whom was represented by competent
counsel of its own choosing. The parties further acknowledge that the
obligations and releases herein described are in good faith and are reasonable
in the context of the matters released.

                                   ARTICLE 16

                             PROPRIETARY INFORMATION

      Matria shall maintain confidential and shall not use for any purpose other
than that stipulated herein any part of the technical information, proprietary
information or trade secrets received from Adeza in connection with the
Exclusive Marketing Agreement and/or this Agreement and Release; provided,
however, that the obligations of this Article 16 shall not apply to information
which: (a) was in the possession of Matria prior to its receipt from Adeza as
evidenced by written documents; (b) is or hereafter becomes publicly known
through no fault of Matria; or (c) is disclosed to Matria by a third party
entitled to disclose it.

                                   ARTICLE 17

                                NON-SOLICITATION

      Each party agrees that, until December 31, 1998, neither it nor its
affiliates shall solicit any employee or consultant of the other party to
terminate his or her relationship with such other party; provided, however, that
in no event shall either party be prohibited from hiring any employee or
consultant of the other party who makes an unsolicited application or inquiry
for employment or engagement.

                                   ARTICLE 18

                               GENERAL PROVISIONS

      18.1 Further Assurances. The parties represent, warrant and agree to
execute all documents and to do all things necessary to fully effectuate the
terms of this Agreement and Release.

      18.2 Binding Nature. This Agreement and Release shall be binding upon the
administrators, successors and assigns of the respective parties hereto.

      18.3 Survival. The representations, warranties, agreements, and promises
made by each party to this Agreement and Release and contained herein shall
survive the execution of this Agreement and Release.

      18.4 Entire Agreement. This Agreement and Release, along with all exhibits
hereto, contains the entire agreement between the parties hereto and supersedes
all prior and contemporaneous agreements, arrangements, negotiations and
understandings between the parties hereto relating to the subject matter hereof.
No representations, warranties, covenants or

                                      -17-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


conditions, express or implied, whether by statute or otherwise, other than as
set forth herein, have been made by any party hereto regarding the subject
matter hereof.

      18.5 Waiver. The failure to enforce at any time any of the provisions of
this Agreement and Release or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement and
Release, or any part hereof, or the right of any party thereafter to enforce
each and every provision in accordance with the terms of this Agreement and
Release.

      18.6 Severability. If any provision of this Agreement and Release shall be
held to be invalid, illegal or unenforceable by any court of competent
jurisdiction, then such provision shall be limited or eliminated to the minimum
extent necessary so that this Agreement and Release shall otherwise remain in
full force and effect and enforceable.

      18.7 Attorney's Fees. Each parties' attorneys' fees incurred with respect
to the matters resolved hereby, including preparation of this Agreement and
Release, shall be paid by the party incurring the same.

      18.8 Modification. No supplement, modification, amendment, or waiver of
any term, provision or condition of this Agreement and Release shall be binding
or enforceable unless executed in writing by the parties hereto.

      18.9 Headings. The subject headings of the paragraphs and subparagraphs of
this Agreement and Release are included solely for purposes of convenience and
reference only, and shall not be deemed to explain, modify, limit, amplify or
aid in the meaning, construction or interpretation of any of the provisions of
this Agreement and Release.

      18.10 Counterparts. This Agreement and Release may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

      18.11 Satisfaction of Accounts. Adeza shall, within five (5) business days
following the Effective Date, pay to Matria all amounts invoiced to Adeza
pursuant to the Exclusive Marketing Agreement (whether or not such payment is
actually due as of the Effective Date) as itemized on Schedule 18.11 hereto, and
Matria acknowledges and agrees that such payment represents payment-in-full for
all amounts invoiced to Adeza pursuant to the Exclusive Marketing Agreement up
to and including the Effective Date. Matria shall, within five (5) business days
following the Effective Date, pay to Adeza all amounts invoiced to Matria
pursuant to the Exclusive Marketing Agreement (whether or not such payment is
actually due as of the Effective Date) as itemized on Schedule 18.11 hereto, and
Adeza acknowledges and agrees that such payment represents payment-in-full for
all amounts invoiced to Matria, pursuant the Exclusive Marketing Agreement up to
and including the Effective Date.

      18.12 Notice. Any notice required or permitted by this Agreement and
Release shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by courier, overnight delivery service or confirmed
facsimile, or three (3) days after being deposited in the regular mail as
certified or registered mail with postage prepaid, if such notice is addressed
to the party to be notified at such party's address or facsimile number as set
forth below, or as

                                      -18-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


subsequently modified by written notice, and (a) if to Adeza, to the attention
of the Chief Executive Officer, with a copy to Venture Law Group, 2775 Sand Hill
Road, Menlo Park, CA 94025, Attn: Joshua L. Green, or (b) if to Matria, to the
attention of the President, with a copy to the General Counsel.


                                      -19-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.



                                                CONFIDENTIAL TREATMENT REQUESTED

         THIS AGREEMENT AND RELEASE has been duly executed and authorized by the
parties hereto as of the date set forth below.


Dated: March 3, 1998              ADEZA BIOMEDICAL COPORATION

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

                                  Name:    Emory V. Anderson
                                        ----------------------------------------

                                  Title:   President
                                         ---------------------------------------

                                  Address:     1240 Elko Drive
                                               Sunnyvale, CA  94089
                                               fax:  (408) 745-7074


Dated:  March ___, 1998           MATRIA HEALTHCARE, INC.

                                  By:
                                      ------------------------------------------

                                  Name:
                                        ----------------------------------------

                                  Title:
                                         ---------------------------------------

                                  Address:    1850 Parkway Place, 12th Floor
                                              Marietta, GA  30067
                                              fax:  (770) 423-7769

                     SIGNATURE PAGE TO AGREEMENT AND RELEASE


                                      -20-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

         THIS AGREEMENT AND RELEASE has been duly executed and authorized by the
parties hereto as of the date set forth below.

Dated: March 3, 1998              ADEZA BIOMEDICAL COPORATION

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

                                  Name:    Emory V. Anderson
                                        ----------------------------------------

                                  Title:   President


                                  Address:     1240 Elko Drive
                                               Sunnyvale, CA  94089
                                               fax:  (408) 745-7074


Dated:  March ___, 1998           MATRIA HEALTHCARE, INC.

                                  By:   /s/ Donald R. Millard
                                      ------------------------------------------

                                  Name:
                                        ----------------------------------------

                                  Title:
                                         ---------------------------------------

                                  Address:    1850 Parkway Place, 12th Floor
                                              Marietta, GA  30067
                                              fax:  (770) 423-7769

                     SIGNATURE PAGE TO AGREEMENT AND RELEASE


                                      -21-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

                                  SCHEDULE 3.2

                                 List of Patents



                          Patent Number                     Author
                          -------------                     ------
                                                         
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]
                          [***]                             [***]



THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

                                 Schedule 18.11

                           PAYMENTS INVOICED TO MATRIA




                DESCRIPTION          INVOICE #            $ AMOUNT
                -----------          ---------            --------
                                                    
Lab Tests                              22836              $  19,065.00
fFN Complete Kit                       22906              $  14,850.00*
Lab Tests                              22982              $  17,763.00
Lab Tests                              22942              $  20,584.00
     TOTAL OUTSTANDING                                    $  72,262.00



*INVOICE 22906 = $29,850 LESS PAYMENT $15,000 RECEIVED


                           PAYMENTS INVOICED TO ADEZA



                DESCRIPTION         INVOICE DATE         $ AMOUNT
                -----------         ------------         --------
                                                   
FedEx Charges                         December           $ 15,446.52
FedEx Charges                         January            $ 13,247.21
FedEx Charges                         February           $ 16,844.73
     TOTAL OUTSTANDING                                   $ 45,538.46



THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

                                    EXHIBIT A

                           TRANSITION RESPONSIBILITIES

Matria Responsibilities

         Matria shall, during the Transition Period, perform in good faith the
following responsibilities with respect to the fFN ELISA Tests and the fFN Rapid
Assay Tests, in substantially the same manner and with the same degree of care
that it performed such responsibilities during the ninety (90) day period
preceding the Effective Date.

         Matria shall process and fill orders for fFN ELISA Tests and provide
customer service and support. Matria shall pay for the fFN ELISA Tests
distributed by Matria during the Transition Period in accordance with the
payment practices in effect during the ninety (90) day period preceding the
Effective Date, except that (i) the price that Matria will pay for the ELISA
kits purchased during the Transition Period shall be $[***], (ii) the price per
fFN ELISA Test shall be $[***] plus [***]% of all reimbursement amounts in
excess of $[***] collected by Matria for such test and (iii) Adeza shall provide
to Matria, at Adeza's expense, [***] individual specimen collection kits for
each fFN ELISA Test sold to Matria or [***] individual specimen collection kits,
whichever is greater. In the event that Matria requires more than [***]
individual specimen collection kits, it shall so notify Adeza, whereupon the
parties shall cooperate to ensure that Matria receives sufficient quantities of
specimen collection kits at no charge to Matria. Notwithstanding the foregoing,
Matria shall not be deemed to be in breach of its Transition Responsibilities to
the extent that such breach resulted from Adeza's failure to provide sufficient
quantities of specimen collection kits to Matria as set forth in this paragraph.

         Following the conclusion of the Transition Period, Matria shall
continue to pursue collections with respect to fFN ELISA Tests sold by Matria
during the Transition Period in accordance with its standard collection
practices and shall continue to remit to Adeza any share of such collections
owed to Adeza in accordance with the payment practices in effect during the
ninety (90) day period preceding the Effective Date. All payments by Matria to
Adeza as part of the Transition Responsibilities shall be made net thirty (30)
days following Matria's receipt of an invoice from Adeza.

         Matria shall, at its expense, continue the two (2) clinical trials
currently in process in Arizona (the Elliot trials) until the conclusion of the
initial phase. As these trials involve Matria's other services in addition to
fFN, Matria will continue these trials at Matria's expense and, upon conclusion
of the initial phase, will provide Adeza a summary of the data and results
therefrom. Matria shall have no other obligations with respect to such clinical
trials and Matria shall own all right in the data and results of such clinical
trials.

         As more fully set forth in Schedule A, Matria shall use commercially
reasonable efforts to facilitate the transfer of its regional laboratory
relationships to Adeza, provided that Matria makes no representation as to the
willingness of any such laboratory to contract with Adeza and shall not be
liable in any respect by virtue of such laboratory's refusal to enter into a
contractual relationship with Adeza. The parties acknowledge that, as of the
date hereof, Penrose lab has announced its intention to discontinue its role as
a regional fFN testing laboratory effective


THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


March 9, 1998. Moreover, Matria will discontinue its efforts to establish its
own clinical laboratory in New York.

         In addition, in the course of making physician sales calls with respect
to its other products, Matria may market fFN Tests to physicians.
Notwithstanding the foregoing, however, in no event shall Matria be required to
make managed care or physician sales calls (other than in conjunction with Adeza
as specifically outlined on Schedule A hereto), initiate new arrangements with
laboratories, seek Medicaid reimbursement for fFN Test, pursue the assignment of
CPT codes for fFN Tests, or undertake any other forward-looking market
development activities. Moreover, nothing herein shall be deemed to require
Matria to maintain any specific level of fFN Tests per week or month.

         Matria shall not terminate without cause (including constructive
termination) any of its employees or contractors who are, as of the Effective
Date, involved in the marketing or distribution of fFN Tests, nor shall it
reassign any such employees or contractors to a non-fFN related position. In the
event that any such employee or contractor voluntarily terminates his or her
employment or is terminated with cause, Matria shall use commercially reasonable
efforts to temporarily reassign other of its employees or contractors (with
substantially similar skills if possible) as necessary to fulfill its Transition
Responsibilities.

Adeza Responsibilities

         Adeza shall, during the Transition Period, perform in good faith the
following responsibilities with respect to the fFN ELISA Tests and the fFN Rapid
Assay Tests, in substantially the same manner and with the same degree of care
that it performed such responsibilities during the ninety (90) day period
preceding the Effective Date (including, without limitation, its obligations
with respect to product and service shipping charges): laboratory testing
services, reporting of laboratory testing service results, fulfillment of
product orders, regulatory and clinical support. Adeza will reimburse Matria for
actual freight charges related to fFN ELISA Test shipments not to exceed $12.00
per shipment. All payments by Adeza to Matria as part of the Transition
Responsibilities shall be made net thirty (30) days following Adeza's receipt of
an invoice from Matria.

         EXCEPT FOR THE WARRANTIES SET FORTH IN THIS AGREEMENT AND RELEASE,
ADEZA MAKE NO WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE fFN ELISA
TESTS OR OTHER MATERIALS SUPPLIED TO MATRIA HEREUNDER AND EXPRESSLY DISCLAIMS
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

Information Access and Copies

         Within twenty (20) days following the Effective Date, Matria shall,
during Matria's normal business hours, provide Adeza with reasonable access to,
and copies (or, in Adeza's discretion, written summaries in sufficient detail as
to be useful) of, all information within Matria's control, in both electronic
and hard-copy form, that is included within the categories set forth in the
attached Schedule A dating back to September 1, 1995.


THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

         Similarly, within twenty (20) days following the conclusion of the
Transition Period, Matria shall, during Matria's normal business hours, provide
Adeza with reasonable access to, and copies (or, in Adeza's discretion, written
summaries in sufficient detail as to be useful) of, all information within
Matria's control, in both electronic and hard-copy form, that is included within
the categories set forth in the attached Schedule A dating back to the Effective
Date in substantially the same form as provided to Adeza within twenty (20) days
following the Effective Date as required by the preceding paragraph (as updated
to reflect all events occurring during the Transition Period).

Survival of Certain Obligations

         All financial obligations arising from the sale of fFN Tests during the
Transition Period that remain unsatisfied upon the conclusion of the Transition
Period shall survive the conclusion of the Transition Period. Within 30 days
after the end of the Transition Period, Adeza shall repurchase at Matria's
original purchase price from Adeza any inventory in Matria's possession or
control (including inventory consigned to outside laboratories) which was
received by Matria from Adeza during the last ninety (90) days of the Transition
Period and paid for by Matria within thirty (30) days after the conclusion of
the Transition Period. Such repurchase shall be limited to the inventory that
was stored properly by Matria or the outside laboratory in accordance with
labeling requirements and not opened, and shall be repurchased by payment or
credit of the applicable amount, depending upon whether Matria has already paid
for such inventory. Such inventory in Matria's possession (not including
inventory consigned to outside laboratories) shall be shipped to Adeza as soon
as possible after the end of the Transition Period at Adeza's cost; provided,
however, that Adeza shall have the right to select the method of shipment and
carrier.


THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                   Schedule A


Physician Sales / Orders

          1.   Reports of all physicians ordering the fFN ELISA Test by month
               including quantity ordered, physician name, address, telephone
               and fax.

          2.   Reports or partial reports of all fFN Specimen Collection Kit
               shipments by month to physicians including quantity shipped,
               physician name, address, telephone, fax and current pricing.

          3.   A listing of physicians that have not ordered fFN Tests, but have
               expressed an interest in fFN, but Matria is not under any
               obligation to conduct an extensive survey.

          4.   Not more than 30 joint physician calls with Adeza or its agents
               to be scheduled at mutually convenient times. Matria will not be
               required to make a joint physician call with an agent of Adeza
               who is a competitor of Matria (such as Coram).

          5.   All patient outcome data in the form maintained by Matria, with
               all patient identifiers redacted.

Laboratory Sales / Orders

          1.   Copies of all fFN laboratory agreements/contracts (for existing,
               committed to and contemplated agreements/contracts) including
               laboratory name, laboratory contact, address, telephone, fax,
               current status of agreements/contracts and pricing.

          2.   Reports of monthly revenue from all laboratories (other than NYU)
               ordering the fFN ELISA Test by month including quantity ordered,
               laboratory name, laboratory contact, address, telephone, fax and
               current pricing.

          3.   Reports of all fFN ELISA Kit and control kit shipments to
               laboratories by product and month including quantity ordered,
               laboratory name, laboratory contact, address, telephone, fax and
               current pricing.

          4.   A listing of all labs exhibiting interest in fFN, but Matria is
               not under any obligation to conduct an extensive survey.

          5.   Not more than 15 joint laboratory calls with Adeza or its agents
               to be scheduled at mutually convenient times. Matria will not be
               required to make a joint physician call with an agent of Adeza
               who is a competitor of Matria (such as Coram).

          6.   All patient outcome data in the form maintained by Matria, with
               all patient identifiers redacted.

Marketing and Trade Show Materials

          1.   Sample copies of all marketing materials relating to fFN in
               Matria's possession including, but not limited to, the fFN ELISA
               Test, fFN ELISA Kit, Specimen Collection Kits and Control Kits
               (e.g. physician brochures, grand rounds presentations, slide
               presentations, sales lead fulfillment packages, in-service
               education/training materials for physicians, nurses and
               laboratories).

          2.   Copies of all trade show materials and posters relating to fFN
               products and services.

          3.   Copies of all fFN market research, market strategy, new product
               or service opportunities reports related to fFN (including beta
               site data and reports), provided that the report of Cladek &
               Associates shall only be provided upon Adeza's payment of one
               half of Matria's cost therefor.

          4.   All fFN marketing materials in inventory will be destroyed, and
               certified as such in writing, provided that Matria may maintain
               and continue to use materials that describe fFN as part of
               Matria's "continuum of care" or similar service protocol.

Inventory Status

          1.   A report setting forth the inventory of fFN ELISA kits, fFN
               specimen collection kits and fFN control kits maintained at
               Matria's distribution center and, as of the conclusion of the
               Transition Period, at regional laboratories.


THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

Customer Service Inquiries

          1.   To the extent such exists, records and service protocols of all
               fFN patient, physician, laboratory and payor call inquiry
               reports, customer complaint logs, customer complaint handling
               processes and customer complaint resolution logs.

          2.   To the extent such exists, records and service protocols of all
               fFN standard patient, physician, laboratory and payor customer
               service questions and answers including 800 call line reports.

Reimbursement Activities (Payor Means Commercial Payors and Medicaid)


          1.   Sample copies of all presentation materials relating to fFN (e.g.
               payor brochures, slide presentations, education/training
               materials) for presentations made to payors.

          2.   Records of all fFN technology assessment programs, to the extent
               available, completed, in-process and contemplated including
               copies of reports, information provided, payor name, payor
               contact, address, telephone and fax.

          3.   A list of all payors with which Matria has a written contract or
               reimbursement of fFN, including payor name, payor contact,
               address, telephone and fax numbers and the reimbursement amount
               (to the extent confidentiality provisions in the contracts permit
               such disclosure).

          4.   Medicaid fFN status for each state including contact name,
               address, telephone and fax numbers.

          5.   Reports of all fFN payor reimbursement collection histories and
               cash receipts by month, payor name, payor contact, claim number,
               date, address, telephone and fax.

          6.   List of payors with whom Matria is negotiating for fFN
               reimbursement as of the Effective Date and the conclusion of the
               Transition Period including the current status of such
               negotiations, payor name, payor contact, address, telephone and
               fax.

Clinical Trial Activities  Except with respect to the clinical trials referenced
                           in Exhibit A,


          1.   Copies of all fFN clinical trial agreements/contracts (for
               completed, in-process, committed to and contemplated clinical
               trials (including the Lovelace and Kalchbrenner trials))
               including protocols, investigator names, address, telephone and
               fax.

          2.   Records of all fFN clinical trials (including the Lovelace and
               Kalchbrenner trials) completed and in-process including site
               files, raw data, patient outcome information, analyses,
               conclusions, final reports, investigator names, addresses,
               telephone and fax.

Regulatory Communications

          1.   Records of all regulatory communications related to fFN, for all
               agencies identified in Section 11.2 (a).

          2.   Records of all regulatory rulings and actions related to fFN for
               all agencies identified in Section 11.2 (a).

Accounting

          1.   Reports of all fFN Test reserves by laboratory (including Adeza).

          2.   Reports of quantity of fFN Tests performed by region and state.

          3.   Records of all unshipped and open sales orders for fFN ELISA
               Kits, fFN Specimen Collection Kits, and fFN Control Kits as of
               the Effective Date and as of the conclusion of the Transition
               Period by account and required shipping dates.

          4.   Reports of all accounts receivable aging by account as of the
               Effective Date and as of the conclusion of the Transition Period
               for fFN ELISA Tests, fFN ELISA Kits, fFN Specimen Collection
               Kits, fFN Control Kits for laboratories, payors and patients
               (with all patient identifiers redacted).


THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                    EXHIBIT B

                      Assignments Separate from Certificate

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                      ASSIGNMENT SEPARATE FROM CERTIFICATE

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto Adeza Biomedical Corporation 1,142,858 shares of the Series E Preferred
Stock of Adeza Biomedical Corporation, standing in the undersigned's name on the
books of said corporation represented by Certificate No. ___________ - herewith,
and does hereby irrevocably constitute and appoint Venture Law Group as
attorney-in-fact to transfer the said stock on the books of the said corporation
with full power of substitution in the premises.

Dated:
       --------------               --------------------------------------------
                                    Signature

                                    --------------------------------------------
                                    Name

                                    --------------------------------------------
                                    Title

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                      ASSIGNMENT SEPARATE FROM CERTIFICATE

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto Adeza Biomedical Corporation [***] shares of the Series 2 Preferred Stock
of Adeza Biomedical Corporation, standing in the undersigned's name on the books
of said corporation represented by Certificate No. ___________ - herewith, and
does hereby irrevocably constitute and appoint Venture Law Group as
attorney-in-fact to transfer the said stock on the books of the said corporation
with full power of substitution in the premises.

Dated:
       --------------               --------------------------------------------
                                    Signature

                                    --------------------------------------------
                                    Name

                                    --------------------------------------------
                                    Title

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                    EXHIBIT C

                           Form of Joint Press Release

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


FOR RELEASE 8:00 AM, EST (5:00 AM, PST)

Contact:    Donald R. Millard
            Matria Healthcare, Inc.
            (770) 767-4529

            Emory V. Anderson
            Adeza Biomedical Corporation
            (408) 745-0975


               MATRIA AND ADEZA ANNOUNCE SETTLEMENT OF LITIGATION

Marietta, GA and Sunnyvale, CA, March 3, 1998 - Matria Healthcare Inc. (NASDAQ:
MATR) and Adeza Biomedical Corporation announced today that a settlement has
been reached in the litigation over the Exclusive Marketing Agreement under
which Matria, had exclusive distribution rights to Adeza's fetal fibronectin
test ("fFN Test"). The fFN Test is an immunodiagnostic test that assists in
identifying women at risk to give birth prematurely.

Under the term of the settlement, Matria has agreed to relinquish its fFN Test
distribution rights and equity interest in Adeza in exchange for the opportunity
to recoup its investment over time based on future sales of the product. Matria
will continue to distribute the fFN Test during a six-month transition period.
The parties have committed to working together during the transition period to
ensure that there is no disruption to their customers.

With reference to the settlement, Donald R. Millard, president and chief
executive officer of Matria, stated that "The settlement represents a reasonable
compromise of the parties' respective rights and gives Matria an opportunity to
recoup its investment in the product. Additionally, the settlement enables
Matria to focus its energies on its core business, without the expense and
distraction of ongoing litigation."

Emory V. Anderson, president of Adeza, said, "We believe that the resolution of
this litigation is an important step in our ability to serve the patient and
physician community. This settlement allows Adeza to both manufacture and market
the fFN Test, a valuable and cost-effective diagnostic tool for physicians in
their evaluation of expectant mothers."

                                    - more -

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                                                CONFIDENTIAL TREATMENT REQUESTED



Matria Healthcare, Inc. is the leading provider of Comprehensive obstetrical
homecare and maternity management services to HMO's, indemnity carriers and
employers.

Adeza Biomedical Corporation is a Sunnyvale, California-based biotechnology
company that develops, manufactures and markets diagnostic products and services
specifically for women's pregnancy and reproductive health care problems,
including pre-term and late birth, pre-eclampsia, endometriosis and infertility.

This press release contains forward-looking statements that involve risks and
uncertainties, including developments in the healthcare industry, third-party
actions over which Matria and Adeza do not have control, and regulatory
requirements applicable to Matria's and Adeza's businesses, as well as other
risks detailed from time to time in reports filed by Matria with the Securities
and Exchange Commission.

                                      # # #

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EX-10.8

                                                                    EXHIBIT 10.8


                                                CONFIDENTIAL TREATMENT REQUESTED

                                SERVICE AGREEMENT

      This agreement ("Agreement") made as of March 31, 1999 by and between
SNYDER HEALTHCARE SALES INC., a New Jersey corporation ("SHS") and ADEZA
BIOMEDICAL CORPORATION, a Delaware corporation ("CLIENT")

                              W I T N E S S E T H:

      WHEREAS, SHS provides integrated outsourced sales and marketing solutions
worldwide, including client field forces, to the healthcare industry; and

      WHEREAS, CLIENT is in the healthcare industry and has need of certain
services of SHS contained in the Scope of Services set forth in Schedule A to
this Agreement, as the same may be amended from time to time; and

      WHEREAS, SHS and CLIENT desire to enter into an agreement under which SHS
will provide such services to CLIENT.

      NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, it is agreed as follows:

1.    TERM

      The Agreement shall be in effect as of March 31, 1999 and shall remain in
effect through and including May 14, 2001 (the "Term"). This Agreement will
automatically renew for additional periods of one year each (each an "Additional
Term"), unless CLIENT gives written notice of non-renewal to the other at least
sixty (60) days prior to the end of the Term or any Additional Term. The amount
of compensation (both fixed and variable fees) payable to SHS


                                      -1-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


under Section 3.1 of this Agreement during any Additional Term will be as
mutually agreed upon.

2.    SCOPE OF SERVICES AND PROFESSIONALISM AND COMPLIANCE

      2.1   The Scope of Services.

      The Scope of Services to be provided under this Agreement is set forth in
Schedule A to the Agreement as the same may be amended from time to time, each
iteration of which shall be dated and signed by an authorized person of each
party to this Agreement. Included with Schedule A is a Summary of Services,
Expenses, Expense Responsibility and Reimbursements ("Summary of Services")
setting forth services, expenses, responsibility for expenses and reimbursement
obligations; the Summary of Services is a part of this Agreement and not simply
a description of what this Agreement contains. The Summary of Services may be
amended from time to time with each alteration dated and signed by an authorized
person of each party. Should CLIENT elect to change the Scope of Services to be
provided under this Agreement, the compensation paid to SHS will be
appropriately adjusted to reflect the change, upon written agreement of the
parties.

      2.2   Professionalism and Compliance.

      SHS shall perform the Services, and shall require each Representative to
perform the Services (i) in a professional manner consistent with industry
standards; (ii) in conformance with that level of care and skill ordinarily
exercised by other professional contract sales organizations in similar
circumstances; and (iii) in compliance with all applicable local, state and
federal laws and regulations.

                                      -2-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


3.    COMPENSATION AND REIMBURSEMENT

      3.1   Compensation.

      CLIENT shall pay SHS compensation for the Scope of Services performed
under this Agreement. The amount of compensation to be paid to SHS shall consist
of one or more fixed fees for services and may also consist of one or more
variable fees for services, all of the fixed and variable fees being set forth
on Schedule B to this Agreement (as the same may be amended from time to time
with each iteration dated and signed by an authorized person of each party to
this Agreement).

      3.2   Reimbursement.

      CLIENT shall also reimburse SHS, and/or persons provided by SHS to perform
the Scope of Services, for certain expenses incurred in performing the services
to be provided under this Agreement, as more fully set on the Summary of
Services.

      3.3   Payment Due

      Invoices are due and payable [***] following receipt by CLIENT. Invoices
shall be sent to Accounts Payable, Adeza Biomedical Corporation, 1240 Elko Dr.,
Sunnyvale, CA 94089. The invoices will clearly state fixed and variable costs
and their categories. Adeza shall not be liable for any fixed costs incurred
more than ninety (90) days prior to the date on the invoice. Invoices will be
remitted by CLIENT to Accounts Receivable, Snyder Healthcare Sales, Inc., 200
Cottontail Lane, Somerset, NJ 08873.

      In addition to SHS's right to terminate this Agreement under Section 10.2
in the case of non-payment, if SHS elects not to terminate the Agreement, CLIENT
shall pay a finance charge


                                      -3-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

of [***]%[***] for each invoice past due for more than [***] from the receipt
of invoice by the CLIENT.

      3.4   Inspection Right

      Upon prior written notice and at mutually agreeable times, CLIENT has the
right to inspect the books and records of SHS which relate to this Agreement for
the purpose of auditing the documents and invoices with respect to the Scope of
Services provided hereunder.

4.    REPRESENTATIONS OF THE PARTIES

      4.1   SHS Representations.

      SHS represents that:

            a.    it has the requisite expertise, experience and skill to render
                  the Services and that it shall use all reasonable efforts to
                  cause the Services to be performed in a competent, efficient
                  and professional manner.

            b.    the execution, delivery and performance of this Agreement by
                  SHS and the consummation of the transaction contemplated has
                  been duly authorized by all requisite corporate action; that
                  the Agreement constitutes the legal, valid, and binding
                  obligation of SHS, enforceable in accordance with its terms
                  (except to the extent enforcement is limited by bankruptcy,
                  insolvency, reorganization or other laws affecting creditors'
                  rights generally and by general principles of equity); and
                  that this Agreement and performance hereunder does not violate
                  or constitute a breach under any organizational document of
                  SHS or any contract, other form of


                                      -4-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                  agreement, or judgment or order to which SHS is a party or by
                  which it is bound.

            c.    SHS will maintain insurance with financially sound carriers in
                  the amounts and types (with the deductibles or retentions) as
                  set forth in Schedule C to this Agreement, as the same may be
                  amended from time to time; each iteration of which shall be
                  dated and signed by an authorized person of each party to the
                  Agreement.

      4.2   Client Representations.

      CLIENT represents that:

            a.    The execution, delivery and performance of this Agreement by
      CLIENT and the consummation of the transaction contemplated has been duly
      authorized by all requisite corporate action; that the Agreement
      constitutes the legal, valid, and binding obligation of CLIENT,
      enforceable in accordance with its terms (except to the extent enforcement
      is limited by bankruptcy, insolvency, reorganization or other laws
      affecting creditors' rights generally and by general principles of
      equity); and that this Agreement and performance hereunder does not
      violate or constitute a breach under any organizational document of CLIENT
      or any contract, other form of agreement, or judgment or order to which
      CLIENT is a party or by which it is bound.

            b.    CLIENT will maintain insurance with financially sound carriers
      or through one or more financially sound self-insurance arrangements in
      the amounts and types (and with the deductibles or retentions) as set
      forth in Schedule C to this


                                      -5-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      Agreement, as the same may be amended from time to time; each iteration of
      which shall be dated and signed by an authorized person of each party to
      the Agreement.

5.    CONFIDENTIALITY

      During the performance of the Services contemplated by this Agreement,
each party may learn confidential, proprietary, and/or trade secret information
of the other party ("Confidential Information"). The party disclosing
Confidential Information shall be referred to as the "Disclosing Party" and the
party receiving Confidential Information shall be referred to as the "Receiving
Party."

      Confidential Information means any information, unknown to the general
public, which is disclosed by the Disclosing Party to the Receiving Party under
this Agreement. Confidential Information includes, without limitation,
technical, trade secret, commercial and financial information about either
party's (a) research or development; (b) marketing plans or techniques, contacts
or customers; (c) organization or operations; (d) business development plans
(i.e., licensing, supply, acquisitions, divestitures or combined marketing); and
(e) products, licenses, trademarks, patents, other types of intellectual
property or any other contractual rights or interests. The Receiving Party shall
neither use nor disclose Confidential Information from the Disclosing Party for
any purpose other than is specifically allowed by this Agreement.

      Upon the expiration or termination of this Agreement, the Receiving Party
shall return to the Disclosing Party all tangible forms of Confidential
Information, including any and all copies and/or derivatives of Confidential
Information made by either party or their employees as well as any writings,
drawings, specifications, manuals or other printed or electronically stored
material based on or derived from, Confidential Information. Any material or
media not subject to return


                                      -6-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


must be destroyed. The Receiving Party shall not disclose to third parties any
Confidential Information or any reports, recommendations, conclusions or other
results of work under this Agreement without prior consent of an officer of the
Disclosing Party. The obligations set forth in this Article 5, including the
obligations of confidentiality and non-use shall be continuing and shall survive
the expiration or termination of this Agreement and will continue for a period
of five (5) years.

      The obligations of confidentiality and non-use set forth herein shall not
apply to the following: (i) Confidential Information at or after such time that
it is or becomes publicly available through no fault of the Receiving Party;
(ii) Confidential Information that is already independently known to the
Receiving Party as shown by prior written records; (iii) Confidential
Information at or after such time that it is disclosed to the Receiving Party by
a third party with the legal right to do so; (iv) Confidential Information
required to be disclosed pursuant to judicial process, court order or
administrative request, provided that the Receiving Party shall so notify the
Disclosing Party sufficiently prior to disclosing such Information as to permit
the Disclosing Party to seek a protective order.

6.    INDEPENDENT CONTRACTOR

      SHS and its directors, officers, and the persons providing services under
the Agreement are at all times independent contractors with respect to CLIENT.
Persons provided by SHS to perform Services shall not be deemed employees of
CLIENT. CLIENT shall not be responsible for SHS's acts or the acts of its
officers, agents and employees while performing the Services whether on CLIENT
premises or elsewhere.

                                      -7-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      SHS shall not be responsible for any cost, however, attributable to: (i)
any actions by CLIENT that caused a person provided by SHS to perform services
under this Agreement to be reclassified as an employee of CLIENT, (ii) any
unlawful or discriminatory acts of CLIENT, and (iii) language in any CLIENT
benefit plan that is deemed to extend coverage to person provided by SHS to
perform services under the Agreement based on their activities under this
Agreement.

7.    OWNERSHIP OF PROPERTY AND DEVELOPMENTS

      Unless otherwise provided in a Schedule attached to this Agreement
(including without limitation Schedule A-1A), all materials and documents
supplied to either party during the Term of this Agreement, by or through the
other, which relate to the Services shall be the sole and exclusive property of
the originator of those materials and developments. Notwithstanding the
foregoing, all materials and documents or portions thereof, relating to the
fetal fibronectin technology shall be the sole and exclusive property of CLIENT.
Each party agrees to hold all such property and developments, confidential in
accordance with Section 5 of this Agreement. All property and developments,
distributed to licensed practitioners, shall be returned, delivered or assigned
to the originating party upon the expiration or termination of this Agreement.
The provisions of paragraph (b) of Schedule A-1A will survive any expiration or
termination of this Agreement.

8.    FINDER'S FEE AND THIRD PARTY EMPLOYMENT

      8.1   Employment or Retention by CLIENT.

      CLIENT may not employ or retain any person employed by or used by SHS to
provide services under this Agreement on or prior to October 1, 1999 and may not
employ or retain such person thereafter, during the Term of this Agreement,
unless SHS is given [***] advance notice of such employment and the applicable
finder's fee is paid to SHS by CLIENT in the amount set


                                      -8-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


forth in Schedule B to this Agreement (as the same may be amended from time to
time, each iteration of which shall be dated and signed by an authorized person
of each party to this Agreement).

      8.2   Employment or Retention by Third Party.

      Should any third party (which provides integrated outsourced sales and
marketing solutions) with a contract with, or seeking to enter into an
arrangement with, CLIENT (under which the third party is supplying or will
supply services to CLIENT, which services are comparable to the Scope of
Services), employ or retain (as a consultant or otherwise) during the Term of
this Agreement or within [***] after the termination of this Agreement, any
person employed by or used by SHS to provide services under this Agreement, such
third party shall pay SHS $[***] for each person so employed or retained as
liquidated damages. To the extent the amount payable to SHS under the immediate
prior sentence is not paid within two weeks of invoicing, CLIENT shall pay SHS
that amount.

9.    INDEMNIFICATION

      9.1   SHS Indemnifies.

      SHS agrees to indemnify and hold CLIENT, its officers, directors, agents
and employees harmless from and against any and all liabilities, losses,
proceedings, actions, damages, claims or expenses of any kind, including costs
and attorneys' fees which result from (i) any negligent or willful acts or
omissions, (ii) acts or omissions outside the scope of this Agreement or (iii)
any breach of this Agreement by SHS, its agents, directors, officers or
employees, in connection with the representations, duties and obligations of SHS
under this Agreement.

      9.2   CLIENT Indemnifies.

                                      -9-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      CLIENT agrees to indemnify and hold SHS, its officers, directors, agents,
and employees harmless from and against any and all liabilities, losses,
proceedings, actions, damages, claims or expenses of any kind, including costs
and attorneys' fees which result from (i) any negligent or willful acts or
omissions by CLIENT, its agents, directors, officers or employees, in connection
with the representations, duties and obligations of CLIENT under this Agreement
or (ii) products liability claims relating to any product of CLIENT involved
with the services provided by SHS under this Agreement, except to the extent
that such product liability claim would not have arisen but for any action or
omission for which SHS is obligated to indemnify CLIENT pursuant to Section 9.
1.

      9.3   Indemnification Process.

      Any indemnity available hereunder shall be dependent upon the party
seeking indemnity providing prompt notice to the indemnitor of any claim or
lawsuit giving rise to the indemnity provided, however that failure to comply
with this notice requirement shall not reduce the indemnitor's indemnification
obligation except to the extent that the indemnitor is prejudiced as a result.
Thereafter, the indemnitor shall have exclusive control over the handling of the
claim or lawsuit, and the indemnitee shall provide reasonable assistance to the
indemnitor in defending the claim, at indemnitor's expense.

10.   TERMINATION

      10.1  60 Day Notice

      Notwithstanding any implication raised by the renewal provisions of
      Section 2 of this Agreement, CLIENT may terminate this Agreement at any
      time by giving sixty (60) days prior written notice to SHS.

                                      -10-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      10.2  Immediate Termination

            This Agreement may be terminated effective immediately upon giving
            written notice as follows:

            a.    by SHS, if payment to SHS by CLIENT is not made when due and
                  such payment is not made within thirty (30) days from the date
                  of notice to CLIENT of such nonpayment; or

            b.    by either party, in the event that the other party has
                  committed a material breach of this Agreement and such breach
                  has not been cured within thirty (30) days of receipt of
                  written notice from the non-breaching party of such breach; or

            c.    by either party, in the event that the other party has become
                  insolvent or has been dissolved or liquidated, filed or has
                  filed against it, a petition in bankruptcy and such petition
                  is not dismissed within sixty (60) days of the filing, makes a
                  general assignment for the benefit of creditors; or has a
                  receiver appointed for a substantial portion of its assets.

      10.3  Survival

      Upon the effective date of termination or expiration, the parties shall
have no further obligation to each other (other than those set forth in Sections
5, 7, 8 and 9), except that CLIENT shall: (a) pay the amount set forth or
provided for on Schedule B to this Agreement in the case of termination; (b) pay
the amount of any fixed and/or variable fees due under Section 3.1 of this
Agreement for Services actually performed by SHS through the date termination or
expiration is effective; and (c) pay any reimbursement amount due under Section
3.2 of this Agreement for


                                      -11-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


expenses related to the performance of Services through the date termination or
expiration is effective.

11.   MISCELLANEOUS

      11.1  Assignment.

      Neither SHS nor CLIENT may assign this Agreement or any of its rights,
duties or obligations hereunder without the other party's prior written consent,
provided, however, that either SHS or CLIENT may assign its rights, duties and
obligations as part of an acquisition of SHS or CLIENT (whether by merger, sale
of all or substantially all of the assigning parties assets related to the
subject matter of this Agreement, or otherwise), as the case may be, so long as
the acquirer (i) is a financially capable business entity and (ii) expressly
assumes in writing those rights, duties and obligations under this Agreement and
this Agreement itself.

      11.2  Merger.

      This Agreement supersedes all prior arrangements and understandings
between parties related to the subject matter of this Agreement

      11.3  Force Majeure.

      Noncompliance with the obligations of this Agreement due to a state of
force majeure, the laws or regulations of any government, regulatory or judicial
authority, war, civil commotion, destruction of facilities and materials, fire,
earthquake or storm, labor disturbances, shortage of materials, failure of
public utilities or common carriers, and any other causes beyond the reasonable
control of the applicable party, shall not constitute a breach of contract.

      11.4  Severability.

                                      -12-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      If any provision of this Agreement is finally declared or found to be
illegal or unenforceable by a court of competent jurisdiction, both parties
shall be relieved of all obligations arising under such provision, but, if
capable of performance, the remainder of this Agreement shall not be affected by
such declaration or finding. The parties shall endeavor in good faith to agree
to an enforceable provision to replace the illegal or unenforceable provision in
order to effect the intent of the parties in entering into this Agreement.

      11.5  Amendment.

      This Agreement, including any attachments or exhibits entered into
hereunder, contains all of the terms and conditions of the agreement between the
parties and constitutes the complete understanding of the parties with respect
thereto. No modification, extension or release from any provision hereof shall
be affected by mutual agreement, acknowledgment, acceptance of contract
documents, or otherwise, unless the same shall be in writing signed by the other
party and specifically described as an amendment or extension of this Agreement.

      11.6  Governing Law.

      This Agreement shall be construed according to the laws of the State of
California.

      11.7  Counterparts.

      This Agreement may be executed in any number of counterparts, each of
which, when executed, shall be deemed to be an original and all of which
together shall constitute one and the same document.

      11.8  Notices.

      Any notices required or permitted under this Agreement shall be given in
person or sent by first class, certified mail to:

                                      -13-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


            SHS:

            Snyder Healthcare Sales, Inc.
            200 Cottontail Lane
            Somerset, NJ 08873
            Attention: William C. Pollock, President

      with a copy to:

            Peter D. Hutcheon, Esq.
            Norris, McLaughlin & Marcus, P.A.
            721 Route 202-206
            P.O. Box 1018
            Somerville, NJ 08876-1018

            CLIENT:

            Adeza Biomedical Corporation
            1240 Elko Drive
            Sunnyvale, CA 94089
            Attention: Emory Anderson, President

or to such other address or to such other person as may be designated by written
notice given from time to time during the term of this Agreement by one party to
the other.



                                      -14-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      WHEREFORE, the parties hereto have caused this Agreement to be executed by
their duly authorized representatives.


                                              SNYDER HEALTHCARE SALES, INC.


                                              By: /s/ William C. Pollock
                                                  ------------------------
                                                  Name: William C. Pollock
                                                  Title: President
                                                  Date: 8/31/99

                                              ADEZA BIOMEDICAL CORPORATION


                                              By: /s/ Emory Anderson
                                                  ------------------------
                                                  Name: Emory Anderson
                                                  Title: President
                                                  Date: 9/2/99




                                      -15-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                   SCHEDULE A
                                SCOPE OF SERVICES

      SHS will provide the following services (services to be provided must be
initialed).



              INITIAL                       SCHEDULE
              IF SCHEDULE    SCHEDULE       SUBJECT
    DATE      APPLIES        NUMBER         MATTER
    ----      -------        ------         ------
                                   
                             A-1            Detailing to Targets

                             A-2            Sampling of Products to Targets

                             A-3            Manual Design

  N/A           N/A          A-4            Training of CLIENT personnel

  N/A           N/A          A-5            Event Staffing

  N/A           N/A          A-6            Additional/Special Services:



                                            ------------------------------------

                                            ------------------------------------

                                            ------------------------------------

                                            ------------------------------------


      See the Summary of Services, Expenses, Expense Responsibility and
Reimbursement attached for information concerning the services and associated
costs.


                                     -1-A-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                     SUMMARY OF SERVICES, EXPENSES, EXPENSE
                        RESPONSIBILITY AND REIMBURSEMENTS

      SHS and CLIENT agree to the following Services, Expenses, Expense
Responsibility and Reimbursement obligations set out under headings in
alphabetical order. CLIENT shall promptly reimburse SHS (including reimbursement
for the reasonable expenses of individuals employed by SHS or provided by SHS to
perform the Scope of Services under the Agreement to which this Schedule is
attached) for the reasonable cost of the following items listed below under the
heading "SHS Passthrough Expense to CLIENT" within thirty (30) days of receipt
of timely submission of adequate documentation or as may be agreed to by the
parties:




                                             SHS PASSTHROUGH
      CATEGORY           CLIENT EXPENSE     EXPENSE TO CLIENT   INCLUDED IN SHS FEE
      --------           --------------     -----------------   -------------------
                                                       
ADMINISTRATIVE        [***]                 [***]               [***]
Business Cards
Copies
Office Supplies
Phone
Postage
Printing
Stationary
Overnight Courier
Other
ANALYTICS/HPR         [***]                 [***]               [***]
Alignment
Call Plan
ROI Analysis
Other
AUTO COSTS            [***]                 [***]               [***]$[***]
Mileage
Parking
Tolls
Other
BENEFITS              [***]                 [***]               [***]
Medical
Dental
401(k)
Other
BILLABLE HRS          [***]                 [***]               [***]$[***]
PROJECTED
BONUS INCENTIVES      [***]                $[***]               [***]
SHS
Managers
Representatives
Client Server
Other
CALL REPORTING        [***]                 [***]               [***]



                                     -2-A-2-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED




                                             SHS PASSTHROUGH
      CATEGORY           CLIENT EXPENSE     EXPENSE TO CLIENT   INCLUDED IN SHS FEE
      --------           --------------     -----------------   -------------------
                                                       
CLIENT OVERHEAD       [***]                [***]                [***]
CONFERENCE CALLS      [***]                [***]                [***]
EQUIPMENT             [***]                [***]                [***]
Computer
Detail Bags
Faxes
Printer
Other
INSURANCE             [***]                [***]                [***]
Auto
Employment
Liability
Life
Travel
Workers Comp
Other
MAILOUT               [***]                [***]                [***]
Correspondence
Materials
Samples
Other
MANAGERS              [***]                [***]                [***]
Number
Full/Flex time
Dedicated/
Syndicated
MARKETING             [***]                [***]                [***]
MEETINGS              [***]                [***]                [***]
Client
Launch
Manager
Medical
Nat'l
POA
Training
Others
NATIONAL BUSINESS     [***]                [***]                [***]
DIRECTORS
Full/Part time
OTHER SERVICES        [***]                [***]                [***]



                                     -3-A-3-

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OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED





                                             SHS PASSTHROUGH
      CATEGORY           CLIENT EXPENSE     EXPENSE TO CLIENT   INCLUDED IN SHS FEE
      --------           --------------     -----------------   -------------------
                                                       
PROMOTIONAL           [***]                [***]                [***]
Entertainment
Gifts
Meals
Programs
Other
RECRUITING            [***]                [***]                [***]$[***]
Ads
Interviews
Referrals
Reference checks,
screens
Ride alongs
Other
REPORTING SYSTEM      [***]                [***]                [***]
Paper Based
SALARIES/WAGES        [***]                [***]$[***]          [***]
Managers
Reps
Client Services
Other
SALES MATERIALS       [***]                [***]                [***]
SALES REPRESENTATIVES [***]                [***]                [***]
Number
Full/Flex time
Dedicated/
 Syndicated
SAMPLES               [***]                [***]                [***]
SEVERANCE             [***]                [***]                [***]
SHS OVERHEAD          [***]                [***]                [***]
SPECIAL CLIENT        [***]                [***]$[***]          [***]$[***]
REQUESTS
STAFFING SERVICES     [***]                [***]                [***]
Number of Persons
Type of Event
Location
Dates
TARGETS               [***]                [***]                [***]
Physicians
Hospitals
Managed Care Entity
Other customers of
Adeza Products



                                     -4-A-4-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED




                                             SHS PASSTHROUGH
      CATEGORY           CLIENT EXPENSE     EXPENSE TO CLIENT   INCLUDED IN SHS FEE
      --------           --------------     -----------------   -------------------
                                                       
TAXES                 [***]                [***]                [***]
Payroll
(FICA)
Other
TRAINING              [***]                [***]                [***]
Manager
rep
Home Study
Initial Training
Advanced Training
Computer
Selling Skills
Training Materials
Other
TRAVEL EXPENSES       [***]                [***]                [***]
Air
Auto
Hotel
Meals
Shuttle/Taxi
Tips
Incidentals
Other
VOICE MAIL            [***]                [***]$[***]          [***]
ALL OTHER FIELD       [***]                [***]                [***]
EXPENSE





                         TERM OF AGREEMENT
- -------------------------------------------------------------------
TERM                                                      DATE
- ----                                                      ----
                                                  
Start Date
Implementation Date                                  March 31, 1999
End/Renew Date                                        May 14, 1999
                                                      May 14, 2001


                                     -5-A-5-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


Date: 8/31/99                                           Date: 9/2/99


/s/  William C. Pollock                                 /s/    Emory Anderson
- ------------------------                                ------------------------
 Authorized SHS Person                                   Authorized SHS Person






                                     -6-A-6-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


                                                CONFIDENTIAL TREATMENT REQUESTED


                                  SCHEDULE A-1
                    SCOPE OF SERVICES - DETAILING TO TARGETS


      Under the Agreement to which this Schedule A-1 is attached SHS will
provide individuals to serve as Sales Representatives to make Calls pursuant to
the Call Plan on Targets.

DEFINITIONS

      1.    "Call" means the activity undertaken by a Sales Representative to
            detail the Products, further described as a face-to-face
            presentation by a Sales Representative to a Target, which includes a
            discussion with the Target of the features and benefits of the
            Products, their contraindications, appropriate uses and other
            pertinent information, and includes giving the Target Product
            Literature and samples of the Products.

      2.    "Call Plan" means a plan designed by CLIENT or SHS which is intended
            to enhance the efficiency and effectiveness of the Sales
            Representatives in making Calls.

      3.    "Manager" means an individual provided by SHS who is engaged under
            this Agreement to manage the Sales Representatives.

      4.    "National Business Director" means an employee of SHS who is engaged
            under this Agreement to supervise the Manager and Sales
            Representatives and to coordinate activities undertaken under this
            Agreement with the senior management of CLIENT.

      5.    "Product" shall mean the products sold by Client which are listed on
            Schedule A-1A to this Agreement, as the same may be amended from
            time to time; each iteration of which shall be dated and signed by
            an authorized person of each party to the Agreement.

      6.    "Product Literature" shall mean promotional, informative and other
            written information concerning the Products. All Product Literature
            shall be provided by CLIENT and utilized by Sales Representatives
            when making Calls.

      7.    "Reports" means periodic reports of calls and other particular
            reports given to CLIENT, including those set forth on Schedule A-1B.

      8.    "Sales Representative" means an individual provided by SHS who is
            engaged under this Agreement to detail the Products.

      9.    "Targets" means the licensed practitioners or others who are
            identified by CLIENT as potential prescription writers and/or
            customers for the Products as provided by CLIENT to SHS prior to SHS
            beginning the recruitment of Sales Representatives and Managers, as
            the same may be amended from time to time, each iteration of which
            shall be dated and signed by an authorized person of each party to
            the Agreement.

HIRE STATUS AND WORK SCHEDULE

      SHS will provide [***] full-time Sales Representatives under the
      Agreement. Those Sales Representatives will be SHS employees. The work
      schedule for these full-time Sales Representatives will average [***]
      hours per week..

      SHS will provide Sales Representatives as a dedicated field force
      established under the Agreement to which this Schedule is attached. As
      Sales Representatives in a dedicated field force, the Sales
      Representatives may not detail products other than the Products for anyone
      but the CLIENT.

CALLS AND TARGETS

      Generally, a Sales Representative is expected to use the Product
      Literature when making a Call and to leave one or more copies of the
      Product Literature and full prescribing information with a Target as part
      of the Call. SHS shall require each Sales Representative to accurately
      record information concerning each Call and concerning the profile of each
      individual Target on whom the Sales Representative calls.

      The Targets to be called upon by the Sales Representatives under this
      Agreement are:


            -  Users and influencers of CLIENT Products and Services as directed
               by CLIENT.

CALL ACTIVITY

      The average number of Calls to be made by Sales Representatives each year
      is [***], subject to a permitted variance of [***]% plus or minus. The
      estimated total number of Calls to be made during the Term of this
      Agreement is [***], subject to the permitted variance.

CLIENT SERVICES MANAGER

      SHS will also provide approximately [***] of the time of an SHS employee
      based at SHS's headquarters to act as a CLIENT Services Manager. In that
      capacity the CLIENT Services Manager will coordinate the interaction among
      Sales Representatives and CLIENT management and assist the Sales
      Representatives with administrative responsibilities related to their
      selling efforts.

                                     -1-A1-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


ALIGNMENT

      The configurations of the sales districts and of the territories within
      each district have been or will be provided to SHS; will be maintained by
      SHS at its offices; and may be amended or reconfigured from time to time,
      with each iteration dated by SHS.

HIRING PROFILE

      In selecting Sales Representatives and Managers, SHS will use the
      preferred hiring profile approved by CLIENT as set forth on Schedule A-1A
      to the Agreement as the same may be amended from time to time, each
      iteration of which will be initialed by an authorized person of each party
      to this Agreement. SHS will take reasonable steps to confirm the accuracy
      of information concerning background and experience received from
      applicants for positions as Sales Representatives and Managers. SHS will
      ensure that each Sales Representative and Manager receives the appropriate
      new-hire information package.

TRAINING

      SHS will cause each Sales Representative to participate in appropriate
      training (both at home study and class time). CLIENT will cooperate in
      providing training aids and personnel useful in the conduct of such
      training.

MEETINGS

      This Agreement includes the training and sales meeting activities of Sales
      Representatives listed on Schedule A-1E to this Agreement as the same may
      be amended from time to time; each iteration of which shall be dated and
      signed by an authorized person of each party to the Agreement.

      All training and attendance at meetings other than as set out on Schedule
      A-1E (including training for Sales Representatives and Managers in case
      the CLIENT requests that a new Product be detailed) will be on the basis
      of a charge as set out on Schedule B to the Agreement to which this is
      attached plus reimbursement of reasonable costs as provided in the Summary
      of Services attached to the Agreement. After completion of the initial
      training at the New Hire Sales Training Meetings, CLIENT shall be
      responsible for costs and expenses incurred in connection with additional,
      further training for such individuals, but SHS will be responsible for
      costs and expenses incurred in connection with training of replacement
      hires for individuals who terminate employment with SHS.

PERFORMANCE

      In the event that CLIENT reasonably determines that a Sales Representative
      has (i) violated any applicable law, regulation or policy or (ii) has
      failed to provide satisfactory service to CLIENT following specific notice
      from CLIENT identifying the grounds for determination and a sixty (60) day
      period in which the Sales Representative or Manager shall be given the
      opportunity to improve performance, CLIENT shall immediately notify SHS of
      the same. SHS will use its best efforts to determine whether it concurs
      with CLIENT. After such review SHS shall take all reasonable steps to
      correct the situation and/or to prevent a reoccurrence, including
      reassignment or removal of the person involved.

CALL REPORTING

      SHS will utilize a call reporting system for its Sales Representatives as
      more fully described on Schedule A-1F to this Agreement, as the same may
      be amended from time to time; each iteration of which shall be dated and
      signed by an authorized person of each party to the Agreement. Sales
      Representatives and Managers will contribute to and/or produce the Reports
      reflecting that call reporting system. CLIENT will be responsible for
      reasonable costs associated with any customizing, special system
      configuration and the like.

REPRESENTATIONS AND UNDERTAKINGS

      In connection with this Schedule A-1:

      a.    SHS represents:

            i.    that neither SHS nor any person employed by SHS in connection
                  with any work to be performed for or on behalf of CLIENT has
                  been debarred under Section 306(a) or (b) of the Federal Food,
                  Drug and Cosmetic Act, and that no debarred person will in the
                  future be employed by SHS in connection with any work to be
                  performed for or on behalf of CLIENT. If at any time after
                  execution of this Agreement, SHS becomes aware that SHS or any
                  person employed by SHS in connection with any work to be
                  performed for or on behalf of CLIENT shall become or shall be
                  in the process of being debarred, SHS hereby agrees to so
                  notify CLIENT at once.

      b.    SHS will:

            i.    use its best efforts to cause each Sales Representative to
                  make Calls in a professional manner, consistent with the
                  applicable policy and procedure manual, to make calls only on
                  Targets and to present only information about the Products
                  which is consistent with the Product Literature. SHS shall not
                  and shall not permit the Sales Representatives to add, delete
                  or modify claims of efficacy or safety of the Products, nor
                  make any changes (including underlining or otherwise
                  highlighting any language or adding any notes thereto) in the
                  Product Literature. SHS shall use and shall permit the Sales
                  Representatives only to use the Product Literature provided by
                  CLIENT. Under no circumstances shall SHS or the Sales
                  Representatives develop, create, or use any other promotional
                  material or literature or alter Product Literature provided by
                  CLIENT. SHS shall immediately cease the use of any Product
                  Literature when instructed to do so by CLIENT. SHS shall use
                  the Product Literature only for the purposes of this
                  Agreement. All copyright and other intellectual property
                  rights therein shall remain vested in CLIENT.

            ii.   use its best efforts to replace any Sales Representative
                  terminated by it within no more than [***] days of the date of
                  termination.

            iii.  inform CLIENT promptly of any reports of any adverse
                  occurrence involving a Product of which SHS becomes aware or
                  of any information SHS shall receive regarding any threatened
                  or pending action by any governmental agency which may affect
                  the Products. SHS shall, at the request of CLIENT, cooperate
                  with CLIENT in formulating a response to any such action.

            iv.   [***]

      c.    CLIENT will:

            i.    provide SHS with all Product Literature useful to facilitate
                  the detailing of the Products.

            ii.   inform SHS promptly of any changes which CLIENT believes are
                  necessary or appropriate in the Product Literature or in
                  information concerning the Products in order to be in
                  compliance with all applicable Federal and State law,
                  regulations and administrative guidance.

                                     -2-A1-2-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED

            iii.  timely respond to any inquiry concerning a Product from any
                  licensed practitioner and directed to SHS.

SALES FORCE STATUS

      SHS officers, agents and employees are independent from all control by
      CLIENT, except as to how they represent or characterize the Products when
      detailing the Products. They are not now nor will they in the future be
      considered as eligible for any CLIENT employee benefits or compensation as
      a result of being employed by SHS to carry out SHS's obligations under
      this Agreement.

         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/ Illegible                   /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                     -3-A1-3-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                  SCHEDULE A-1A
                              PRODUCTS and SERVICES

"Products and Services" for purposes of Schedule A-1 (to which this Schedule
A-1A is attached) and the Agreement to which Schedule A-1 (including this
Schedule A-1A) is attached means:

Products                             Description
- --------                             -----------

Fetal fibronectin tests              Diagnostic Tests

Etegrity Services                    Diagnostic Service

Other CLIENT Products or Services


      (a) The Products and Services shall be promoted by SHS under trademarks
owned by or licensed to CLIENT. This Agreement does not constitute a grant to
SHS of any property right or interest in the Products and Services or the
trademarks owned by or licensed to CLIENT or an Affiliate of CLIENT and/or any
other intellectual property rights which CLIENT owns now or in the future. SHS
recognizes the validity of and the title of CLIENT to all their trademarks and
trade names in any country in connection with the Products and Services, whether
registered or not.

      (b) All information, data, writings, inventions and other work products,
in any form whatsoever, both tangible and intangible, developed as a result of
or in connection with SHS's performance of the Services, including without
limitation the Product Literature and all information gathered or developed by
the Representatives in the course of the Services (collectively, the "Works"),
shall be considered works made for hire pursuant to the Copyright Act of 1976
(if applicable), and/or shall be the sole and exclusive property of CLIENT.
CLIENT shall be the sole owner of all the rights to such Works in any form and
in all fields of use known or hereafter existing. Upon the request of CLIENT,
and at CLIENT's sole expense, SHS will assist CLIENT in documenting or
perfecting CLIENT's ownership of the Works. Notwithstanding the foregoing,
intellectual property owned by or licensed to SHS prior to the issuance of any
task order, and which is used by SHS to develop any Works, shall remain the
property of SHS (the "Components"). CLIENT agrees not to assert against SHS and
its licensees any ownership interest in the Components. Notwithstanding the
foregoing, CLIENT shall have a non-exclusive, irrevocable, perpetual,
non-transferable (except to affiliates and to other persons CLIENT transfers or
authorizes to use the Works), worldwide, royalty-free license to use such
Components in conjunction with the Works and any subsequent versions or
derivative Works thereof. Upon the termination of this Agreement, SHS shall
return to CLIENT all Works.


                                     -6-A1-6-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/ Illegible                    /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                     -7-A1-7-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                  SCHEDULE A-1B
                                     REPORTS

      The Reports required under the Agreement to which Schedule A-1 (including
this A-1B) is attached are:



Report               By Whom             Frequency           Other Information
- ------               -------             ---------           -----------------
                                                    
Call Report          Sales Reps          [***]               Sent with invoices


         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/ Illegible                    /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                    -1-A1B-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                  SCHEDULE A-1C
                            PREFERRED HIRING PROFILE

Qualifiers

Must have:  [***]
                  [***]
                  [***]
                  [***]
                  [***]

Business Experience Preferences

Most preferable to least preferable:

            [***]
            [***]
            [***]
            [***]

Professional Skills

Desired:    [***]
            [***]
            [***]
            [***]
            [***]
            [***]
            [***]
            [***]
            [***]
            [***]
            [***]


         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/ Illegible                    /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                    -1-A1C-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                  SCHEDULE A-1E
                         MEETINGS INCLUDED IN AGREEMENT

      (indicate number; type, whether national, regional or district, and length
of training and sales meetings; also indicate the party responsible for the
costs incurred in attending)

                                               Party Responsible for Costs

      [***] NEW-HIRE SALES TRAINING MEETINGS   [***]

      Other Meetings, as requested by CLIENT CLIENT


      See the Summary of Services, Expenses, Expense Responsibility and
Reimbursement attached to the Agreement for information concerning CLIENT
responsibility for costs.

         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/ Illegible                   /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                    -1-A1E-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                  SCHEDULE A-1F
                              CALL REPORTING SYSTEM

The Call reporting system to be used is:

      [ ]  automated (specifying the system):

                  [ ]  house

                  [ ]  vendor

      [X]  paper-based

                  [X]  primary

                  [ ]  backup

         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/ Illegible                   /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                    -1-A1F-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                  SCHEDULE A-3
                        SCOPE OF SERVICES - MANUAL DESIGN

      [***]

      [***]





         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/ Illegible                   /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                     -1-A3-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                   SCHEDULE B
           COMPENSATION - FIXED FEES, VARIABLE FEES AND FINDER'S FEES

FIXED FEES

      CLIENT shall pay SHS Fixed Fees (subject to reduction in the part of the
Term ending May 14, 2000) as follows:

      1.    For so much of the Term as ends May 14, 2000 $[***] payable as
            follows:

            (i)   $[***] by April 14, 1999
                        $[***] by May 1, 1999
                        $[***] by June 1, 1999

            (ii)  $[***] per month beginning June 1, 1999

Subject, however, to reduction as follows:

      SHS will conduct [***].

      Number of Sales
      Representatives hired  Amount of
      for First Class        Reduction
      ---------------        ---------
      [***]                   [***]
      [***]                  $[***]
      [***]                  $[***]
      [***]                  $[***]



      Number of Sales
      Representatives hired  Amount of
      for Second Class       Reduction
      ----------------       ---------
      [***]                   [***]
      [***]                  $[***]



      2.    For so much of the Term as begins [***] and ends [***], $[***]
            payable in [***] payments of $[***] beginning [***]. This fee will
            be subject to a proportional reduction based upon the actual hours
            spent related to the Products by the SHS Sales Force as compared
            with the projected hours listed in Schedule A.

If SHS is able to begin implementation earlier than [***] or otherwise to
increase either the number of hours and/or Sales Representatives involved in
making Calls, SHS will request that CLIENT make payment of additional Fixed Fees
at the rate of $[***] per Sales Representative week. Any such enhanced services
under the Agreement to which this Schedule is attached shall be approved in
advance by CLIENT and, thus, the Fixed Fees shall not be increased without the
prior approval of the CLIENT.

VARIABLE FEES

      CLIENT will also pay SHS Variable Fees with the amount due computed based
      upon $[***] at the [***]% performance level for so much of the Term as
      ends [***] and based upon $[***] at the [***]% performance level for the
      Term as begins [***] and ends [***]. SHS will be entitled to receive
      Variable Fees based upon actual sales of the Products in each sales
      territory compared to the sales forecast for each territory as agreed to
      in advance by CLIENT and SHS.

      Sales performance will be evaluated as of [***] and [***] and on [***] and
      [***] for eligibility to receive Variable Fees. The evaluations in [***]
      shall be based on performance in the prior [***] months, and may result in
      the award of up to [***]% of the Variable Fees payable for [***] months
      ending the following [***]. The evaluations in [***] shall be based on
      sales performance during the prior [***] months and may result in the
      award of up to [***]% of the Variable Fees, adjusted for the amount (if
      any) of Variable Fees paid to SHS in the prior [***].

      Entitlement to Variable Fees shall be computed using $[***] as the [***]%
      performance level for the period ending [***] and using $[***] as the
      [***]% performance level for the period from [***] to [***] and in all
      cases shall be based on the following sales performance schedule:

                                     -1-B-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


Percent of Forecast           Percent of Available
Achieved                      Amount of Payment
- -------------------------     -------------------------
[***]%                        [***]%
[***]%                        [***]%
[***]%                        [***]%
[***]%                        [***]%
[***]%                        [***]%
[***]%                        [***]%


                                     -2-B-2-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


FINDER'S FEES

      Should CLIENT employ an employee of SHS or a person provided by SHS to
      perform the Scope of Services under the Agreement to which this Schedule
      is attached, the Finder's Fees payable in accordance with Section 8 of the
      Agreement are as follows:

           Employed by            Finder's Fee and
           CLIENT                 Other Consequence
           --------------------   --------------------

           On or prior to [***]   Breach of Service Agreement

           [***]                  $[***] per Sales Representative
                                        Except, $[***] per Sales Representative
                                        who was originally referred to SHS by
                                        CLIENT

           [***]                  $[***] per Sales Representative
                                        Except, No charge per Sales
                                        Representative who was originally
                                        referred to SHS by CLIENT

           Thereafter             No Charge

         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/ Illegible                   /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                     -3-B-3-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                   SCHEDULE C
                             INSURANCE REQUIREMENTS

      SHS shall maintain the following insurance during the Term of the
Agreement to which this Schedule is attached:

      [***]                            $[***]
      [***]                             [***] $[***]

      [***]                            $[***]
      [***]                             [***]

      [***]                                   $[***]
      [***]                            $[***]
                                                     $[***]


      SHS will provide CLIENT with evidence of SHS's insurance. SHS will name
CLIENT as an additional insured party under SHS's insurance policy, and will
provide to CLIENT at least thirty (30) days prior, written notice of any change
or cancellation to the SHS's insurance program.

CLIENT:

      CLIENT shall maintain the following insurance or self-insurance during the
Term of the Agreement to which this Schedule is attached:

      [***]$[***]


                                     -1-C-1-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



      CLIENT will provide SHS with evidence of CLIENT's insurance. CLIENT will
name SHS as an additional insured party under CLIENT's insurance policy, and
will provide to SHS at least thirty (30) days prior, written notice of any
change or cancellation to the CLIENT's insurance program.



         Date:  8/31/99                   Date:  9/2/99
              ---------------------             ---------------------

          /s/  Illegible                  /s/ Emory V. Anderson
         --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                       -2-

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                 FIRST AMENDMENT
                                       TO
                                SERVICE AGREEMENT

      This first amendment ("First Amendment") made as of March 8, 2002, by and
between VENTIV HEALTH U.S. SALES INC., (formerly known as Snyder Healthcare
Sales, Inc.), a New Jersey corporation ("VHS") and ADEZA BIOMEDICAL CORPORATION,
a Delaware corporation ("CLIENT") to a certain Service Agreement made as of
March 31, 1999 (the "Agreement") by and between VHS and CLIENT.

                                   WITNESSETH:

      WHEREAS, Snyder Healthcare Sales, Inc. changed is corporate name in 1999
to Ventiv Health U.S. Sales, Inc.; and

      WHEREAS, the Agreement by its terms expires May 14, 2001; and

      WHEREAS, VHS and CLIENT desire to amend and extend the Agreement as set
forth in this First Amendment.

      NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, it is agreed as follows:

1.    Wherever "Snyder Healthcare Sales, Inc." appears in the Agreement that
      text shall be amended and deemed to read "Ventiv Health U.S. Sales, Inc."
      and wherever "SHS" appears in the Agreement that text shall be amended and
      deemed to read "VHS".

2.    The Term of the Agreement shall be extended until May 14, 2003, unless
      earlier terminated as provided in the Agreement.



THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


3.    The Summary of Services in the Agreement shall be amended effective May
      15, 2001 by the Amended Summary of Services attached hereto as Exhibit A.

4.    The definition "National Business Director" on Schedule A-1 shall be
      replaced effective May 15, 2001 with "Specialty Business Unit" which means
      the [***]. The definition "Reports" on Schedule A-1 shall be amended to
      read:

            [***].

5,    The paragraph in Schedule A-1 under the heading "CLIENT SERVICES MANAGER"
      shall be deleted from the Agreement effective May 15, 2001. This function
      is included in the services provided by the Specialty Business Unit.

6.    Schedule A-1B shall be amended effective May 15, 2001 by the Amended
      Schedule A-1B attached hereto as Exhibit B.

7.    Schedule A-1F shall be deleted from the Agreement effective May 15, 2001;
      VHS will not provide Call Reports from a Call Reporting System. Instead
      VHS shall file period Sales Reports with CLIENT.

8.    Schedule A-3 concerning Manual Design shall be deleted from the Agreement
      effective May 15, 2001; those services have been completed.

9.    Schedule B in the Agreement shall be amended effective May 15, 2001 by the
      Amended Schedule B attached hereto as Exhibit C.

10.   Except as expressly amended or revised by this First Amendment the
      Agreement shall remain in full force and effect.


                                        2

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


      WHEREFORE, the parties hereto have caused this First Amendment to be
executed by their duly authorized representatives.

                                    VENTIV HEALTH U.S. SALES, INC.



                                    By:  /s/ Patrick Fourteau
                                         -----------------------------
                                         Name:  Patrick Fourteau
                                         Title:  President
                                         Dated: 3/14/02


                                    ADEZA BIOMEDICAL CORPORATION



                                    By:  /s/ Emory V. Anderson
                                         -----------------------------
                                         Name:  Emory V. Anderson
                                         Title:  President and CEO
                                         Dated: 3/8/02


                                        3

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



                                                                       Exhibit A

                      AMENDED SUMMARY OF SERVICES, EXPENSES
                    EXPENSE RESPONSIBILITY AND REIMBURSEMENTS

      VHS and CLIENT agree to the following Services, Expenses, Expense
Responsibility and Reimbursement obligations set out under headings in alpha
order. CLIENT shall promptly reimburse VHS (including reimbursement for the
reasonable expenses of individuals employed by VHS or provided by VHS to perform
the Scope of Services under the Agreement to which this Schedule is attached)
for the reasonable cost of the following items listed below under the heading
"VHS Passthrough Expense to CLIENT":

- --------------------------------------------------------------------------------
CATEGORY                 CLIENT           VHS PASSTHROUGH        INCLUDED IN
                         EXPENSE          EXPENSE TO CLIENT      VHS FEE
- --------------------------------------------------------------------------------
ADMINISTRATIVE           [***]            [***]                  [***]
Business Cards
Photocopies
Office Supplies
Phone
Postage
Printing
Stationary
Overnight Courier
Other
- --------------------------------------------------------------------------------
ANALYTICS/HPR            [***]            [***]                  [***]
Alignment
Call Plan
ROI Analysis
Other
- --------------------------------------------------------------------------------
AUTO COSTS               [***]            [***]                  [***]$[***]
Mileage
Parking
Tolls
Other
- --------------------------------------------------------------------------------


                                       A-1

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


- --------------------------------------------------------------------------------
CATEGORY                 CLIENT           VHS PASSTHROUGH        INCLUDED IN
                         EXPENSE          EXPENSE TO CLIENT      VHS FEE
- --------------------------------------------------------------------------------
BENEFITS                 [***]            [***]                  [***]
Medical
Dental
401(k)
Other
- --------------------------------------------------------------------------------
BILLABLE CALLS           [***]            [***]                  [***]
(Hrs) Projected
Group Calls
- --------------------------------------------------------------------------------
BONUS INCENTIVES         [***]            [***]                  [***]
VHS
Managers
Representatives
Client Serv
Other
- --------------------------------------------------------------------------------
CLIENT OVERHEAD          [***]            [***]                  [***]
- --------------------------------------------------------------------------------
CONFERENCE CALLS         [***]            [***]                  [***]
- --------------------------------------------------------------------------------
EQUIPMENT                [***]            [***]                  [***]
Computer
Detail Bags
Faxes
Printer
Other
- --------------------------------------------------------------------------------
INSURANCE                [***]            [***]                  [***]
Auto
Employment
Liability
Life
Travel
Workers Comp
Other
- --------------------------------------------------------------------------------
MAILOUT                  [***]            [***]                  [***]
Correspondence
Materials
Samples
Other
- --------------------------------------------------------------------------------
MARKETING                [***]            [***]                  [***]
- --------------------------------------------------------------------------------

                                       A-2

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


- --------------------------------------------------------------------------------
CATEGORY                 CLIENT           VHS PASSTHROUGH        INCLUDED IN
                         EXPENSE          EXPENSE TO CLIENT      VHS FEE
- --------------------------------------------------------------------------------
MEETINGS                 [***]            [***]                  [***]
Client
Launch
Manager
Medical
Nat'l
POA
Training
Others
- --------------------------------------------------------------------------------
NATIONAL BUSINESS        [***]            [***]                  [***]
DIRECTOR
Full/Part Time
- --------------------------------------------------------------------------------
OTHER SERVICES           [***]            [***]                  [***]
- --------------------------------------------------------------------------------
PROMOTIONAL              [***]            [***]                  [***]
Entertainment
Gifts
Meals
Programs
Other
- --------------------------------------------------------------------------------
RECRUITING               [***]            [***]                  [***]
Ads
Interviews
Referrals
Reference checks, screens
Ride alongs
Other
- --------------------------------------------------------------------------------
REPORTING SYSTEM         [***]            [***]                  [***]
Paper Based
Back Up
Automated

- ------------
(type)
- --------------------------------------------------------------------------------
SALARIES/WAGES           [***]            [***]$[***]$[***]      [***]
Managers
Reps
Client Services
Other
- --------------------------------------------------------------------------------

                                       A-3

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


- --------------------------------------------------------------------------------
CATEGORY                 CLIENT           VHS PASSTHROUGH        INCLUDED IN
                         EXPENSE          EXPENSE TO CLIENT      VHS FEE
- --------------------------------------------------------------------------------
SALES MATERIALS          [***]            [***]                  [***]
- --------------------------------------------------------------------------------
SALES REPRESENTATIVES    [***]            [***]                  [***]
- --------------------------------------------------------------------------------
Number
Full/Flex time
Dedicated/
  Syndicated
- --------------------------------------------------------------------------------
SALES REPORTS            [***]            [***]                  [***]
- --------------------------------------------------------------------------------
SAMPLES                  [***]            [***]                  [***]
- --------------------------------------------------------------------------------
SEVERANCE                [***]            [***]                  [***]
- --------------------------------------------------------------------------------
VHS OVERHEAD             [***]            [***]                  [***]
- --------------------------------------------------------------------------------
SPECIAL CLIENT REQUESTS  [***]            [***]                  [***]
- --------------------------------------------------------------------------------
STAFFING SERVICES        [***]            [***]                  [***]
Number of Persons
Type of Event
Location
Dates
- --------------------------------------------------------------------------------
TARGETS                  [***]            [***]                  [***]
Physician
Specialty(ies)
PA's/NP's
Pharmacists
Hospitals
Clinics
Managed Care
Entity
- --------------------------------------------------------------------------------
TAXES                    [***]            [***]                  [***]
Payroll
(FICA,...)
Other
- --------------------------------------------------------------------------------


                                       A-4

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


- --------------------------------------------------------------------------------
CATEGORY                 CLIENT           VHS PASSTHROUGH        INCLUDED IN
                         EXPENSE          EXPENSE TO CLIENT      VHS FEE

- --------------------------------------------------------------------------------
TRAINING                 [***]            [***]                  [***]
Manager
Rep
Home Study
Initial Training
Advanced Training
Computer
Selling Skills
Training
Materials
Other
- --------------------------------------------------------------------------------
TRAVEL EXPENSES          [***]            [***]                  [***]
Air
Auto
Hotel
Meals
Shuttle/Taxi
Tips
Incidentals
Other
- --------------------------------------------------------------------------------
VOICE MAIL               [***]            [***]                  [***]
- --------------------------------------------------------------------------------
ALL OTHER FIELD EXPENSE  [***]            [***]                  [***]
- --------------------------------------------------------------------------------


                                       A-5

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


     TERMS OF AGREEMENT
- --------------------------------------------------------------------------------
TERM                                                 Date
Start Date                                           May 15, 2001
End/Renew Date                                       May 14, 2003
- --------------------------------------------------------------------------------





         Date:  3/14/02                   Date:  3/8/02
              ---------------------             ---------------------

          /s/ Patrick Fourteau            /s/ Emory V. Anderson
        --------------------------       ---------------------------
         Authorized SHS Person            Authorized CLIENT Person


                                       A-6

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                                                       Exhibit B

                              AMENDED SCHEDULE A-1B
                                     REPORTS

         The Reports required under the Agreement to which Schedule A-1
(including this A-1B) is attached are:

     Report              By Whom           Frequency           Other Information

[***]                 [***]              [***]                 [***]





Date:       3/14/02                             Date:       3/8/02
     --------------------                            --------------------


/s/ Illegible                                   /s/ Emory V. Anderson
- -------------------------                       -------------------------
Authorized VHS Person                           Authorized CLIENT Person



                                    A-1B-1

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                                                       Exhibit C

                               AMENDED SCHEDULE B
           COMPENSATION - FIXED FEES, VARIABLE FEES AND FINDER'S FEES

FIXED FEES

         CLIENT shall pay VHS Fixed Fees as follows:

for the period May 15, 2001 to May 14, 2002
- -------------------------------------------

          $[***] per Sales Representative for that twelve month period (based on
          a base salary of not more than $[***] per year). CLIENT will pay
          $[***] per Sales Representative per [***] months for any Sales
          Representatives in excess of [***] added during this period (based on
          a base salary of not more than $[***] per year) prorated for the
          applicable portion of the [***] period.

for the Period May 15, 2002 to Mgy 14, 2003
- -------------------------------------------

          $[***] per Sales Representative for that [***] month period (based on
          a base salary of not more than $[***] per year). CLIENT will pay
          $[***] per Sales Representative per [***] months for any Sales
          Representatives added during this period (based on a base salary of
          not more than $[***] per year) prorated for the applicable portion of
          the [***] period.

VARIABLE FEES

          CLIENT shall pay VHS in addition Variable Fees based on performance,
          with the maximum amount due for each [***] period equal to $[***]. VHS
          shall be entitled to receive Variable Fees based upon actual sales of
          the Products in the sales territories as compared to the sales
          forecast for each territory (as agreed to in advance by CLIENT and
          VHS) pursuant to the formula set out below:

                          Adeza-Ventiv Risk Share Pool


RISK POOL CRITERIA

[***]$[***]

[***]%[***]$[***]
[***]%[***]$[***]

Sales Targets (Pool A)

PERFORMANCE                     PAYOUT

[***]%[***]                     [***]%[***]
[***]%[***]                     [***]%[***]
[***]%[***]                     [***]%[***]
[***]%[***]                     [***]%[***]
[***]%[***]                     [***]%[***]

Non-Sales Performance

GOAL                                      PAYOUT

[***]%[***]                               [***]%[***]

                                       B-1

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



[***]                                     [***]%[***]

Example

[***]$[***]

PERFORMANCE                                PAYOUT

[***]$[***]                                [***]%[***]$[***]%[***]$[***]
[***]%                                     [***]%[***]$[***]

[***]                                      [***]%[***]$[***]
[***]$[***]$[***]$[***]

                                       B-2

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED



FINDERS' FEES

         From [***] on, no Finders' Fees are payable with respect to the
         conversion of Sales Representatives. CLIENT shall not solicit, employ
         or retain any VHS personnel other than Sales Representatives without
         the prior written consent of VHS.

Date:       3-14-02                             Date:       3/8/02
     --------------------                            --------------------


/s/ Illegible                                   /s/ Emory V. Anderson
- -------------------------                       -------------------------
Authorized VHS Person                           Authorized CLIENT Person



                                       B-3

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                SECOND AMENDMENT
                                       TO
                                SERVICE AGREEMENT


      This second amendment ("Second Amendment") made as of July 22, 2002, by
and between VENTIV HEALTH U.S. SALES LLC, a New Jersey limited liability company
and successor by merger to Ventiv Health U.S. Sales, Inc., A New Jersey
corporation ("VHS') and ADEZA BIOMEDICAL CORPORATION, a Delaware corporation
("CLIENT') to a certain Service Agreement made as of March 31, 1999 (the
"Agreement') by and between VHS and CLIENT and previously amended by a certain
First Amendment made as of March 8, 2001 (the "First Amendment", the Agreement
as so amended being the "Amended Agreement") by and between VHS and CLIENT.

                                   WITNESSETH:

      WHEREAS, the Amended Agreement by its terms expires May 14, 2003; and

      WHEREAS, VHS and CLIENT desire to amend the Agreement to add a second
field force of VHS personnel (the "Direct Force"; the original field force of
VHS personnel being the "General Force") and to extend the Agreement as set
forth in this Second Amendment.

      NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, it is agreed as follows:

1.    Wherever "Ventiv Health U.S. Sales, Inc." appears in the Amended Agreement
      that text shall be amended and deemed to read "Ventiv Health U.S. Sales
      LLC".

2.    The Term of the Agreement shall be extended until May 14, 2004, unless
      earlier terminated as provided in the Agreement.



THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


3.    The Summary of Services in the Agreement shall be amended effective May
      15, 2002 by the Second Amended Summary of Services attached hereto as
      Exhibit A.

4.    The text of Schedule A-1 in this Agreement under the headings "HIRE STATUS
      AND

      WORK SCHEDULE" and "CALLS AND TARGETS" is replaced in its entirety by the
      following:

      HIRE STATUS AND WORK SCHEDULE

                  VHS will provide up to [***] full-time Sales Representatives
                  under the Agreement. Those Sales Representatives will be VHS
                  employees. The work schedule for these full-time Sales
                  Representatives will average [***] hours per week.

                  VHS will provide [***] of these Sales Representatives as a
                  dedicated field force (the "Wave I Force") established under
                  the Agreement to which this Schedule is attached to detail the
                  Products to users and influencers of CLIENT Products and
                  services, specifically hospitals, physicians and other
                  licensed practitioners (especially those in family practice or
                  practicing in the fields of obstetrics and gynecology), and
                  laboratories. VHS will also provide up to [***] Sales
                  Representatives as a separate dedicated field force (the "Wave
                  II Force") established under the Agreement to which this
                  Schedule is attached to detail physicians and other licensed
                  practitioners (especially those in family practice or
                  practicing in the fields of obstetrics and gynecology).

                  CLIENT shall provide VHS in advance with written directions as
                  to the number of Sales Representatives to provide in the Wave
                  II Force. [***].

      CALLS AND TARGETS

                  Generally, a Sales Representative is expected to use the
                  Product Literature when making a Call and to leave one or more
                  copies of the Product Literature and full prescribing
                  information with a Target as part of the Call. VHS shall
                  require each Sales Representative to accurately record
                  information concerning each Call and concerning the profile of
                  each individual Target on whom the Sales Representative calls.

                  The Targets to be called upon by the Sales Representatives in
                  the Wave I Force includes hospitals and laboratories. Sales
                  Representatives in both the Wave I Force and Wave II Force are
                  to call upon as Targets: physicians and other licensed
                  practitioners (especially those in family practice and
                  obstetrics/gynecology), who are users and influencers of
                  CLIENT Products and Services as identified by CLIENT.

5.    The heading "CALL ACTIVITY" in Schedule A-1 and the text thereunder are
      deleted and the heading "SALES FORCE STATUS" is revised to read "STATUS OF
      SALES FORCES."

6.    Schedule B in the Agreement shall be amended effective May 15, 2002 by the
      Second Amended Schedule B attached hereto as Exhibit B.

                                       2

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


7.    Except as expressly amended or revised by this First Amendment the
      Agreement shall remain in full force and effect.



                                       3

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED




      WHEREFORE, the parties hereto have caused this First Amendment to be
      executed by their duly authorized representatives.



                                                VENTIV HEALTH U.S. SALE LLC

                                                By:  /s/ Terrell G. Herring
                                                   ------------------------
                                                   Name: Terrell G. Herring
                                                   Title: President
                                                   Dated: July 24, 2002


                                                ADEZA BIOMEDICAL CORPORATION

                                                By:  /s/ Emory V. Anderson
                                                   ------------------------
                                                   Name: Emory V. Anderson
                                                   Title: President and CEO
                                                   Dated: July 22, 2002


                                       4

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED
                                                                       Exhibit A

                  SECOND AMENDED SUMMARY OF SERVICES, EXPENSES
                    EXPENSE RESPONSIBILITY AND REIMBURSEMENTS

         VHS and CLIENT agree to the following Services, Expenses, Expense
Responsibility and Rcimbursement obligations set out under headings in alpha
order. CLIENT shall promptly reimburse VHS (including reimbursement for the
reasonable expenses of individuals employed by VHS or provided by VHS to perform
the Scope of Services under the Agreement to which this Schedule is attached)
for the reasonable cost of the following items listed below under the heading
"VHS Passthrough Expense to CLIENT":



CATEGORY                             CLIENT          VHS PASSTHROUGH        INCLUDED IN
                                     EXPENSE         EXPENSE TO CLIENT      VHS FEE
                                                                   
ADMINISTRATIVE                       [***]           [***]                  [***]
Business Cards
Photocopies
Office Supplies
Phone
Postage
Printing
Stationary
Overnight Courier
Other
ANALYTICS/HPR                        [***]           [***]                  [***]
Alignment
Call Plan
ROI Analysis
Other

                                      A-5

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED




CATEGORY                             CLIENT          VHS PASSTHROUGH        INCLUDED IN
                                     EXPENSE         EXPENSE TO CLIENT      VHS FEE
                                                                   
AUTO COSTS                           [***]           [***]                  [***]$[***]$[***]
Mileage
Parking
Tolls
Other
BENEFITS                             [***]           [***]                  [***]
Medical
Dental
401(k)
Other
BILLABLE CALLS                       [***]           [***]                  [***]
(Hrs) Projected
Group Calls
BONUS INCENTIVES                     [***]           [***]                  [***]
VHS
Managers
Representatives
Client Serv
Other
CLIENT OVERHEAD                      [***]           [***]                  [***]

CONFERENCE CALLS                     [***]           [***]                  [***]

EQUIPMENT                            [***]           [***]                  [***]
Computer
Detail Bags
Faxes
Printer
Other
INSURANCE                            [***]           [***]                  [***]
Auto
Employment
Liability
Life
Travel
Workers Comp
Other
MAILOUT                              [***]           [***]                  [***]
Correspondence
Materials
Samples
Other
MARKETING                            [***]           [***]                  [***]




                                      A-6

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED




CATEGORY                             CLIENT          VHS PASSTHROUGH                    INCLUDED IN
                                     EXPENSE         EXPENSE TO CLIENT                  VHS FEE
                                                                               
MEETINGS                             [***]           [***]                              [***]
Client
Launch
Manager
Medical
Nat'l
POA
Training
Others
NATIONAL BUSINESS DIRECTOR           [***]           [***]                              [***]
Full/Part Time

OTHER SERVICES                       [***]           [***]                              [***]

PROMOTIONAL                          [***]           [***]                              [***]
Entertainment
Gifts
Meals
Programs
Other
RECRUITING                           [***]           [***]                              [***]
Ads
Interviews
Referrals
Reference checks, screens
Ride alongs
Other
REPORTING SYSTEM                     [***]           [***]                              [***]
Paper Based
Back Up
Automated
______________
(type)
SALARIES/WAGES                       [***]           [***]$[***]$[***]$[***]$[***]      [***]
Managers
Reps
Client Services
Other
SALES MATERIALS                      [***]           [***]                              [***]

SALES REPRESENTATIVES                [***]           [***]                              [***]
Number
Full/Flex time



                                      A-7

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED




CATEGORY                             CLIENT          VHS PASSTHROUGH        INCLUDED IN
                                     EXPENSE         EXPENSE TO CLIENT      VHS FEE
                                                                   
Dedicated/
  Syndicated
SALES REPORTS                        [***]           [***]                  [***]
SAMPLES                              [***]           [***]                  [***]

SEVERANCE                            [***]           [***]                  [***]
VHS OVERHEAD                         [***]           [***]                  [***]

SPECIAL CLIENT REQUESTS              [***]           [***]                  [***]

STAFFING SERVICES                    [***]           [***]                  [***]
Number of Persons
Type of Event
Location
Dates
TARGETS                              [***]           [***]                  [***]
Physician
Specialty(ies)
PA's/NP's
Pharmacists
Hospitals
Clinics
Managed Care
Entity
TAXES                                [***]           [***]                  [***]
Payroll
(FICA,...)
Other



                                      A-8

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED




CATEGORY                             CLIENT          VHS PASSTHROUGH        INCLUDED IN
                                     EXPENSE         EXPENSE TO CLIENT      VHS FEE
                                                                   
TRAINING                             [***]           [***]                  [***]
Manager
Rep
Home Study
Initial Training
Advanced Training
Computer
Selling Skills
Training
Materials
Other
TRAVEL EXPENSES                      [***]           [***]                  [***]
Air
Auto
Hotel
Meals
Shuttle/Taxi
Tips
Incidentals
Other
VOICE MAIL                           [***]           [***]                  [***]

ALL OTHER FIELD EXPENSE              [***]           [***]                  [***]




                TERMS OF AGREEMENT



TERM                                                  Date
                                                   
Start Date                                            May 15, 2002
End/Renew Date                                        May 14, 2004



Date:       7/23/02                             Date:    July 22, 2002
     --------------------                            --------------------


/s/ Terrell G. Herring                          /s/ Emory V. Anderson
- -------------------------                       -------------------------
Authorized VHS Person                           Authorized CLIENT Person



                                       A-9

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED
                                                                       Exhibit B


                            SECOND AMENDED SCHEDULE B
           COMPENSATION - FIXED FEES, VARIABLE FEES AND FINDER'S FEES

FIXED FEES

         CLIENT shall pay VHS Fixed Fees as follows:

A.       For the Wave I Force:
         --------------------

1.       For the period May 15, 2001 to May 14, 2002
         -------------------------------------------

         $[***] per Sales Representative for that [***] period (based on a base
         salary of not more than $[***] per year). CLIENT will pay $[***] as a
         recruiting fee, plus $[***] per [***] for any Sales Representatives
         added in excess of [***] added during this period (based on a base
         salary of not more than $[***] per year) prorated for the portion of
         the [***] period that the Sales Representatives are employed.

2.       For the period May 15, 2002 to May 14, 2003
         -------------------------------------------

         $[***] per Sales Representative for that [***] period (based on a base
         salary of not more than $[***] per year), CLIENT will pay $[***] as a
         recruiting fee, plus $[***] per [***] for any Sales Representatives
         added during this period (based on a base salary of not more than
         $[***] per year) prorated for the portion of the [***] period that the
         Sales Representatives are employed.

3.       For the period May 15, 2003 to May 14, 2004
         -------------------------------------------

         $[***] per Sales Representative for that [***] month period (based on a
         base salary of not more than $[***] per year). CLIENT will pay $[***]
         as a recruiting fee, plus $[***] per twelve month for any Sales
         Representatives added during this period (based on a base salary of not
         more than $[***] per year), prorated for the portion of the [***]
         period that the Sales Representatives are employed; and

B.       For the Wave II Force 1.
         -----------------------

1.       For the period May 15, 2002 to May 14, 2003
         -------------------------------------------

         $[***] per Sales Representative for that [***] period (based on a base
         salary of not more than $[***] per year) plus a recruiting fee of
         $[***] per Sales Representative. The $[***] recruiting fee for each
         Sales Representative up to [***] which CLIENT has directed VHS to
         provide as the initial component of the Wave II Force is payable upon
         signing the Second Amendment to which this Second Amended Schedule B is
         attached. CLIENT will pay a recruiting fee of $[***], plus a fee of
         $[***] per [***] month for any Sales Representatives added during this
         period (based on a base salary of not more than $[***] per year),
         prorated for the portion of the [***] period that the Sales
         Representatives are employed.

2.       For the period May 15, 2003 to May 14, 2004
         -------------------------------------------

         $[***] per Sales Representative for that [***] period (based on a base
         salary of not more than $[***] per year). CLIENT will pay $[***] as a
         recruiting fee, plus $[***] per [***] for any Sales Representatives
         added during this period (based on a base salary of not more than
         $[***] per year), prorated for the portion of the [***] period that the
         Sales Representatives are employed.

VARIABLE FEES

         CLIENT pay VHS in addition Variable Fees based on performance, with the
         maximum amount due for each of the [***] periods [***] to [***] and
         [***] to [***] is $[***]; and for the [***] month period [***] to
         [***], is $[***]. VHS shall be entitled to receive Variable Fees based
         upon actual sales of the Products in the sales territories as compared
         to the sales forecast for each territory (as agreed to in advance by
         CLIENT and VHS) pursuant to a formula to be agreed upon between the
         parties.

                                      B-2

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


FINDERS' FEES

         From [***] on, no Finders' Fees are payable with respect to the
         conversion of Sales Representatives. CLIENT shall not solicit, employ
         or retain any VHS personnel other than Sales Representatives without
         the prior written consent of VHS.


Date:       7/23/02                             Date:    July 22, 2002
     --------------------                            --------------------


/s/ Terrell G. Herring                          /s/ Emory V. Anderson
- -------------------------                       -------------------------
Authorized VHS Person                           Authorized CLIENT Person



                                      B-3

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED
                                                                       Exhibit B

                          Adeza-Ventiv Risk Share Pool


RISK POOL CRITERIA

Through May 14, 2003

[***]$[***]

[***]%[***]$[***]
[***]%[***]$[***]

Through May 15, 2003

[***]$[***]

[***]%[***]$[***]
[***]%[***]$[***]

Sales Targets (Pool A)

PERFORMANCE                                 PAYOUT

[***]%[***]                                 [***]%[***]
[***]%[***]                                 [***]%[***]
[***]%[***]                                 [***]%[***]
[***]%[***]                                 [***]%[***]
[***]%[***]                                 [***]%[***]

Non-Sales Performance

GOAL                                                      PAYOUT

[***]%[***]                                               [***]%[***]

[***]                                                     [***]%[***]

Example (computed prior to May 15, 2003)

[***]$[***]

                                      B-3

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


                                 THIRD AMENDMENT
                                       TO
                                SERVICE AGREEMENT

      This third amendment ("Third Amendment") made as of May 15, 2004, by and
between VENTIV HEALTH U.S. SALES LLC, a New Jersey limited liability company
("VHS") and ADEZA BIOMEDICAL CORPORATION, a Delaware corporation ("CLIENT"`) to
a certain Service Agreement made as of March 31, 1999 (the "Agreement") by and
between VHS and CLIENT, as amended by a First Amendment made as of March 8, 2001
(the "First Amendment") and a Second Amendment made as of July 22, 2002 (the
"Second Amendment").

                                   WITNESSETH:

      WHEREAS, on or about February 2, 2004, VHS commenced providing sales force
automation services to CLIENT.

      WHEREAS, VHS and CLIENT desire to further amend the Agreement by extending
the term and changing the [***] as set forth in this Third Amendment (the
Agreement as amended by the First Amendment, Second Amendment and this Tbird
Amendment referred to herein as the "Amended Agreement").

      NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, it is agreed as follows:

1. Construction. All terms not otherwise defined in this Amendment shall have
the meanings set forth in the Amended Agreement. Except as set forth herein, the
Amended Agreement shall remain unaffected by execution of this Third Amendment.



THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


2. The Extended Term. The Term of the Amended Agreement shall be extended until
May 14, 2006 (the "Extended Term"), unless earlier terminated as provided in the
Amended Agreement.

3. The Fixed Fess payable by CLIENT to VHS during the Extended Term, as set
forth in Exhibit B attached to the Second Amendment ("Second Amended Schedule B,
Compensation -Fixed Fees, Variable Fees and Finder's Fees), are revised to
provide for the payment of the following Fixed Fees from CLIENT to VHS:



         PERIOD                   YEARLY COST PER
                                       SALES                     YEARLY COST PER
                                   REPRESENTATIVE               DISTRICT MANAGER
                                                          
     May 15, 2004 -                   $[***]$[***]                   $[***]$[***]

     May 15, 2005 -                   $[***]$[***]
      May 14, 2006                                                   $[***]$[***]



4. The Variable Fees payable by CLIENT to VHS during the Extended Term are as
follows: CLIENT shall pay to VHS, Variable Fees based on performance, with the
maximum amount due during the Extended Term of $[***] (the "Variable Fees"). VHS
shall be entitled to receive the Variable Fees based upon actual sales of the
Products in the sales territories as compared to the sales forecasted for each
territory (as agreed to in advance, in writing by CLIENT and VHS) pursuant to a
formula to be agreed upon between the parties.

5. Schedule A-1F Call Reporting System shall be replaced by the First Amended
Schedule A-1F attached to this Third Amendment as Exhibit I. CLIENT may
terminate the automated call reporting services being provided by VHS by
providing VHS with written termination notice at least [***] days prior to the
proposed termination date. If CLIENT terminates the automated call reporting
services being provided by VHS, as of the termination date, the "Yearly Cost Per
Sales Representative" as set forth in Section 3 hereof, shall be reduced by
$[***] per representative in the [***] period and $[***] per representative in
the [***] period.

6. Representatives must be provided with internet service either paid for by VHS
(as is assumed in the pricing set forth in Schedule B) or by CLIENT. In the
event CLIENT elects to utilize and pay for CLIENT'S own internet service, CLIENT
shall be eligible for a credit of $[***] per representative per [***].

7. In the event of termination of the Amended Agreement in accordance with
Sections 10.1 or Section 10.2, or at the end of the Extended Term, CLIENT shall
be responsible for payment to VHS of the [***] value of the hand held data
recording devices provided to the Sales Representatives for the Call Reporting
System, as such [***] value is shown [***] of VHS at the time of such
termination or at the end of the Extended Tenn. VHS will upon receipt of such
payment transfer ownership of the handheld devices to CLIENT with all data and
software removed.

                                        2

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

                                                CONFIDENTIAL TREATMENT REQUESTED


8. In the event a Sales Representative is terminated (voluntarily or
involuntarily), VHS shall use [***] efforts to assist CLIENT in its effort to
retrieve from such terminated sales representative the laptop computer provided
to such sales representative by CLIENT.

9. If CLIENT converts any or all Sales Representatives, VHS shall not provide
the Call Reporting System for such converted Sales Representatives, unless the
parties agree, in writing, to acceptable terms upon which VHS shall supply the
Call Reporting System. In addition, upon conversion, CLIENT shall pay VHS the
[***] value of the hand held device(s) (as reflected [***] at the time of such
conversion) for such converted Sales Representative(s)

10 Notwithstanding anything to the contrary set forth in this Amended Agreement
all office supplies, printing, postage, costs associated with phone service, in
addition to all travel costs, Sales Representative and District Manager bonuses
(including employer portion of travel), and marketing funds will be [***].

11. All references in the Amended Agreement to a maximum number of Sales
Representatives or District Managers are hereby removed, it being understood
that the CLIENT and VHS may agree, in writing, to increase the number of VHS
employees providing services under the Amended Agreement.

      WHEREFORE, the parties hereto have caused this Third Amendment to be
executed by their duly authorized representatives.


                                       VENTIV HEALTH U.S. SALE LLC

                                       By:  /s/ Terrell G. Herring
                                          ------------------------
                                       Name: Terrell G. Herring
                                       Title: President
                                       Dated: 7/29/04


                                       ADEZA BIOMEDICAL CORPORATION

                                       By:  /s/ Emory V. Anderson
                                          ------------------------
                                          Name: Emory V. Anderson
                                          Title: President and CEO
                                          Dated: 7/27/04


                                        3

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.


                                                CONFIDENTIAL TREATMENT REQUESTED
                                                                       Exhibit I


                           First Amended SCHEDULE A-IF
                              CALL REPORTING SYSTEM



      The Call Reporting system to be used is hand held solution (does not
include laptops) that is:

                  [***] X automated (specifying the system)
                               [***] X house
                               [***] X vendor



Date:       7/29/04                             Date:    7/27/04
     --------------------                            --------------------


/s/ Terrell G. Herring                          /s/ Emory V. Anderson
- -------------------------                       -------------------------
Authorized VHS Person                           Authorized CLIENT Person

                                     A1F-1

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

EX-10.14

                                                                   EXHIBIT 10.14

                           SECOND AMENDMENT TO LEASE
                           -------------------------

     This Amendment dated October 12, 2004 (for reference purposes only) is
made by and between Tasman V, LLC (hereinafter sometimes called "Landlord") and
Adeza Biomedical Corporation (hereinafter sometimes called "Tenant") for the
Premises commonly known as 1240 Elko Drive, Sunnyvale, California.

                                    RECITAL
                                    -------

     A.   Tenant entered into that certain Lease Agreement dated July 7, 199
          with Landlord for the premises.

     B.   On August 8, 2002, Tenant extended the Lease according to the First
          Amendment to Lease.

     C.   The current lease term and extension expired on April 14, 2004 and
          Tenant has remained month-to-month.

     D.   Subject to the provisions of the Lease Agreement and this Second
          Amendment, Tenant wishes to renew the Lease.

                                   AGREEMENT
                                   ---------

     For and in consideration of the mutual covenants and undertakings set
forth hereinafter, the parties agree as follows:

     1.   EXTENSION OF THE LEASE TERM: The Lease shall be extended an
          additional one (1) year from October 1, 2004 to September 30, 2005.

     2.   BASE MONTHLY RENT: The monthly rent due under said Lease shall remain
          unchanged at Sixteen Thousand Seven Hundred Twenty and 00/100 Dollars
          ($16,720.00).

     3.   OPTION TO RENEW: Tenant shall have the option to extend the term of
          the Lease on all of the provisions contained in the Lease for one (1)
          three (3) month period following the expiration of the term as
          specified in Paragraph 1 of this Agreement by giving written notice of
          exercise of the option to Landlord not less than one hundred twenty
          (120) days before the expiration of the Lease. The base monthly rent
          to be paid by Tenant during the option term shall remained unchanged
          from the rent specified in Paragraph 2 of this agreement.

     4.   ADDITIONAL TERMS: Should Tenant choose to exercise the option to
          extend the Lease as provided in Paragraph 3 above, Tenant shall have
          the option to extend the term of the Lease on all of the provisions
          contained in the Lease, except for rent, for two (2) additional one
          (1) year periods following the expiration of the Lease term by giving



                                  Page 1 of 2

          written notice to Landlord not less than sixty (60) days prior to the
          expiration of the three (3) month option, and not less than one
          hundred twenty (120) days before the expiration of the first one (1)
          year option as specified in this Agreement. The minimum rent to be
          paid to by Tenant during each of the option periods shall be at fair
          market value.

     5.   TENANT IMPROVEMENTS: Landlord agrees to fund Six Thousand and 00/100
          Dollars ($6,000.00) to Tenant for improvements to the leased space, to
          be used by Tenant, and at Tenant's discretion.

     6.   EFFECT OF AMENDMENT: Each term used herein with initial capital
          letters shall have the meaning ascribed to such term in the Lease
          unless specifically otherwise defined herein. Time is of the essence
          as to each and every provision of this Amendment.

     7.   ENTIRE UNDERSTANDING: This Amendment and Lease shall constitute the
          entire agreement between the parties and no other written or oral
          agreement or understanding exists between the parties. All other terms
          and conditions of the Lease shall remain the same. In the event of any
          inconsistency between this Amendment and the Lease, the terms of this
          Amendment shall prevail.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the date
written below.

LANDLORD: Tasman V, LLC                     TENANT: Adeza Biomedical Corporation

By: /s/ Jack E. Horton                      By: /s/ Mark Fischer - Colbrie
   ---------------------------------           ---------------------------------
Printed Name: Jack E. Horton                Printed Name: Mark Fischer - Colbrie
             -----------------------                     -----------------------
Title: Mgmr Member                          Title: VP Finance & Administration
      ------------------------------              ------------------------------
Date:  October 19, 2004                            Date: October 15, 2004
     ------------------------------              -------------------------------



                                  Page 2 of 2

EX-10.15

                                                                   EXHIBIT 10.15

                          ADEZA BIOMEDICAL CORPORATION

                         MANAGEMENT CONTINUITY AGREEMENT

      This Management Continuity Agreement (the "Agreement") is dated as of
October 21, 2004 by and between Emory V. Anderson ("Employee") and Adeza
Biomedical Corporation., a Delaware corporation (the "Company" or "Adeza"). This
Agreement is intended to provide Employee with certain benefits described herein
upon the occurrence of specific events.

                                    RECITALS

      A.    It is expected that another company may from time to time consider
the possibility of acquiring the Company or that a change in control may
otherwise occur, with or without the approval of the Company's Board of
Directors. The Board of Directors recognizes that such consideration can be a
distraction to Employee and can cause Employee to consider alternative
employment opportunities. The Board of Directors 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 below) of the Company.

      B.    The Company's Board of Directors believes it is in the best
interests of the Company and its stockholders to retain Employee and provide
incentives to Employee to continue in the service of the Company.

      C.    The Board of Directors further believes that it is imperative to
provide Employee with certain benefits upon a Change of Control and, under
certain circumstances, upon termination of Employee's employment, which benefits
are intended to provide Employee with financial security and provide sufficient
income and encouragement to Employee to remain with the Company, notwithstanding
the possibility of a Change of Control.

      D.    To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by Employee, to agree to
the terms provided in this Agreement.

      Now therefore, in consideration of the mutual promises, covenants and
agreements contained herein, and in consideration of the continuing employment
of Employee by the Company, the parties hereto agree as follows:

      1.    AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, award or compensation other than as provided in this
Agreement. The terms of this Agreement shall terminate upon the earlier of (i)
the date on which Employee ceases to be employed as an executive corporate
officer of the Company, other than as a result of an involuntary termination by
the Company without Cause (as defined below) or Employee's resignation for Good
Reason (as defined below); or (ii) the date that all obligations



of the parties hereunder have been satisfied. A termination of the terms of this
Agreement pursuant to the preceding sentence shall be effective for all
purposes, except that such termination shall not affect the payment or provision
of compensation or benefits on account of a termination of employment occurring
prior to the termination of the terms of this Agreement. The rights and duties
created by this Section 1 may not be modified in any way except by a written
agreement executed by an officer of the Company upon direction from the Board of
Directors.

      2.    BENEFITS UPON A CHANGE OF CONTROL; TERMINATION OF EMPLOYMENT.

            (a)   TREATMENT OF STOCK OPTIONS AND OTHER EQUITY AWARDS UPON A
CHANGE OF CONTROL. In the event of a Change of Control and regardless of whether
Employee's employment with the Company is terminated in connection with the
Change in Control, the vesting of each stock option and other equity award to
purchase the Company's Common Stock granted to Employee over the course of his
employment with the Company and held by Employee on the effective date of a
Change of Control shall accelerate such that 75% of the aggregate number of
unvested option shares and other equity awards shall become immediately vested
immediately prior to the effective date of the Change of Control, with the
vesting acceleration applied with respect to each outstanding option or equity
award in the order in which the award was granted. Each such option and equity
award shall be exercisable in accordance with the provisions of the agreement
and plan pursuant to which such option or award was granted.

            (b)   TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that
Employee's employment is terminated as a result of an involuntary termination
other than for Cause or if Employee resigns for Good Reason at any time within
12 months following the effective date of a Change of Control, then Employee
will be entitled to receive severance benefits as follows: (i) severance
payments during the period from the date of Employee's termination until the
date 18 months after the effective date of the termination (the "Severance
Period") equal to the base salary which Employee was receiving immediately prior
to the Change of Control, which payments shall be paid during the Severance
Period in accordance with the Company's standard payroll practices, (ii) a lump
sum payment as soon as practicable after the date of termination of employment
equal to 75% of the bonus payment made to Employee for the Company's fiscal year
prior to the Company's fiscal year in which the termination occurs, (iii)
continuation of the health insurance benefits provided to Employee immediately
prior to the Change of Control at Company expense pursuant to the terms of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") or
other applicable law through the earlier of the end of the Severance Period or
the date upon which Employee is no longer eligible for such COBRA or other
benefits under applicable law; (iv) each stock option and equity award to
purchase the Company's Common Stock granted to Employee over the course of his
employment with the Company and held by Employee on the date of termination of
employment shall become immediately vested as to 100% of the then unvested
option shares; and (v) each equity award granted on or after July 23, 2004 shall
remain exercisable for a period of eighteen (18) months following Employee's
termination date (but not later than the expiration date of the award as set
forth in the applicable award agreement). Each such option and equity award
shall otherwise be exercisable in accordance with the provisions of the
agreement and plan pursuant to which such option or award was granted. In
addition, Employee will receive payment(s) for all

                                      - 2 -


salary, bonuses and unpaid vacation accrued as of the date of Employee's
termination of employment.

            (c)   TERMINATION NOT FOLLOWING A CHANGE OF CONTROL. In the event
that Employee's employment is terminated as a result of an involuntary
termination other than for Cause or if Employee resigns for Good Reason at any
time prior to or more than 12 months following the effective date of a Change of
Control, then Employee will be entitled to receive severance benefits as
follows: (i) severance payments during the period from the date of Employee's
termination until the date 12 months after the effective date of the termination
(the "Benefit Period") equal to the base salary which Employee was receiving
immediately prior to the Change of Control, which payments shall be paid during
the Benefit Period in accordance with the Company's standard payroll practices,
(ii) a lump sum payment as soon as practicable after the date of termination of
employment equal to 50% of the bonus paid to Employee for the Company's fiscal
year prior to the Company's fiscal year in which the termination occurs, (iii)
continuation of the health insurance benefits provided to Employee immediately
prior to the Change of Control at Company expense pursuant to COBRA or other
applicable law through the earlier of the end of the Benefit Period or the date
upon which Employee is no longer eligible for such COBRA or other benefits under
applicable law; (iv) each stock option and equity award to purchase the
Company's Common Stock granted to Employee over the course of his employment
with the Company and held by Employee on the date of termination of employment
shall become immediately vested on such date as to that number of shares that
would have vested in accordance with the terms of such option or equity award as
of the date 12 months after the date of termination of employment (assuming that
Employee had remained an employee of the Company for 12 months after the date of
termination of employment) and each such option and equity award shall be
exercisable in accordance with the provisions of the agreement and plan pursuant
to which such option or award was granted, provided however that the vested
shares underlying an equity award granted on or after July 23, 2004, shall
remain exercisable for a period of eighteen (18) months following Employee's
termination date (but not later than the expiration date of the award as set
forth in the applicable award agreement). In addition, Employee will receive
payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of
Employee's termination of employment.

            (d)   TERMINATION FOR CAUSE. If Employee's employment is terminated
for Cause at any time, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment(s) for all salary, bonuses
and unpaid vacation accrued as of the date of Employee's termination of
employment and Employee's benefits will be continued under the Company's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination and in accordance with applicable law.

            (e)   VOLUNTARY RESIGNATION OTHER THAN FOR GOOD REASON. If Employee
voluntarily resigns from the Company for any reason other than Good Reason, then
Employee shall not be entitled to receive payment of any severance benefits.
Employee will receive payment(s) for all salary, bonuses and unpaid vacation
accrued as of the date of Employee's termination of employment and Employee's
benefits will be continued under the terms of the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.

                                      - 3 -


      3.    DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:

            (a)   CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:

                  (i)   OWNERSHIP. Any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities without the approval of the Board;

                  (ii)  MERGER/SALE OF ASSETS. A merger or consolidation of the
Company whether or not approved by the Board, 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 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 the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets; or

                  (iii) CHANGE IN BOARD COMPOSITION. A change in the composition
of the Board, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of August 1, 2004 or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but an Incumbent Director shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company).

            (b)   CAUSE. "Cause" for termination of Employee's employment will
exist if Employee is terminated by the Company, for any of the following
reasons, as determined in good faith by the Company: (i) Employee's gross
negligence or willful failure substantially to perform his duties and
responsibilities to the Company or deliberate violation of a Company policy;
(ii) Employee's commission of any act of fraud, embezzlement, dishonesty or any
other willful misconduct that has caused or is reasonably expected to result in
material injury to the Company; (iii) unauthorized use or disclosure by Employee
of any proprietary information or trade secrets of the Company or any other
party to whom the Employee owes an obligation of nondisclosure as a result of
his relationship with the Company; or (iv) Employee's willful breach of any of
his obligations under any written agreement or covenant with the Company.

            (c)   GOOD REASON. "Good Reason" for Employee's resignation of his
employment will exist if Employee tenders his resignation to the Company with 30
days prior written notice to the Company within 120 days of the occurrence of
any of the following events: (i) a material reduction in the Employee's job
responsibilities, as of immediately prior to the

                                      - 4 -


Change of Control for purposes of Section 2(b) above and as of immediately prior
to the termination date for purposes of Section 2(c) above; (ii) relocation by
the Company of the Employee's work site which has the effect of increasing
Employee's then-current commute by more than 50 miles; (iii) any reduction in
Employee's then-current base salary and/or target bonus (other than in
connection with a general decrease in the base salaries and target bonus for all
other executives of the Company); (iv) a material reduction in Employee's
benefits (other than a general decrease in the benefit programs offered to all
other executives of the Company); or (v) the Company's failure to obtain
agreement from any acquiror or successor to assume the Company's obligations
under this Agreement.

      4.   PARACHUTE PAYMENTS. In the event that the severance and other
benefits provided for in this Agreement to Employee (the "Benefit"), determined
without regard to any additional payment required under this section 4, would
(i) constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) be subject to
the excise tax imposed by Section 4999 of the Code or any interest or penalties
payable with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Employee shall be entitled to receive from the Company an additional
payment (the "Gross-Up Payment") in an amount sufficient to reimburse Employee
for both (A) such Excise Tax, and (B) the income, excise, employment and any
other taxes imposed on the Gross Up Payment provided under this Section 4. The
accounting firm engaged by the Company for general audit purposes as of the day
prior to the effective date of the Change of Control shall perform the foregoing
calculations. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder. The
accounting firm engaged to make the determinations hereunder shall provide its
calculations, together with detailed supporting documentation, to the Company
and to Employee within fifteen (15) calendar days after the date on which
Employee's right to the Benefit is triggered (if requested at that time by the
Company or by Employee) or such other time as requested by the Company or by
Employee. If the accounting firm determines that no Excise Tax is payable with
respect to the Benefit, it shall furnish the Company and Employee with an
opinion reasonably acceptable to Employee that no Excise Tax will be imposed
with respect to such Benefit. Any good faith determinations of the accounting
firm made hereunder shall be final, binding and conclusive upon the Company and
Employee.

      5.    LIMITATIONS AND CONDITIONS ON BENEFITS

            (a)   WITHHOLDING OF TAXES. The Company shall withhold appropriate
federal, state, local (and foreign, if applicable) income and employment taxes
from any payments hereunder.

            (b)   RELEASE PRIOR TO RECEIPT OF BENEFITS. Prior to the receipt of
any benefits under this Agreement, Employee shall execute a release of claims
agreement (the "Release") in the form provided by the Company. Such Release
shall specifically relate to all of Employee's rights and claims in existence at
the time of such execution and shall confirm Employee's obligations under the
Company's standard form of proprietary information agreement.

      6.    CONFLICTS. Employee represents that his performance of all the
terms of this Agreement will not breach any other agreement to which Employee is
a party. Employee has

                                      - 5 -


not, and will not during the term of this Agreement, enter into any oral or
written agreement in conflict with any of the provisions of this Agreement.
Employee further represents that he is entering into or has entered into an
employment relationship with the Company of his own free will and that he has
not been solicited as an employee in any way by the Company.

      7.    SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, 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. The terms of this Agreement and all of Employee's rights hereunder
and thereunder shall inure to the benefit of, and be enforceable by, Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.

      8.    NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.

      9.    MISCELLANEOUS PROVISIONS.

            (a)   NO DUTY TO MITIGATE. Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that 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 Employee and by an authorized officer of the Company
(other than 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)   WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes any agreement concerning similar subject matter dated prior to the
date of this Agreement, and by execution of this Agreement both parties agree
that any such predecessor agreement shall be deemed null and void.

            (d)   CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.

                                      - 6 -


            (e)   SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.

            (f)   ARBITRATION. Employee and the Company agree to attempt to
settle any disputes arising in connection with this Agreement through good faith
consultation. In the event that Employee and the Company are not able to resolve
any such disputes within fifteen (15) days after notification in writing to the
other, Employee and the Company agree that any dispute or claim arising out of
or in connection with this Agreement will be finally settled by binding
arbitration in Santa Clara County, California in accordance with the rules of
the American Arbitration Association by one arbitrator mutually agreed upon by
the parties. The arbitrator will apply California law, without reference to
rules of conflicts of law or rules of statutory arbitration, to the resolution
of any dispute. Except as set forth in Subparagraph (e) above, the arbitrator
shall not have authority to modify the terms of this Agreement. The Company
shall pay the costs of the arbitration proceeding. Each party shall, unless
otherwise determined by the arbitrator, bear its or his own attorneys' fees and
expenses, provided however that if Employee prevails in an arbitration
proceeding, the Company shall reimburse Employee for his reasonable attorneys'
fees and costs. Judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. Notwithstanding the foregoing, the
Company and Employee may apply to any court of competent jurisdiction for
preliminary or interim equitable relief, or to compel arbitration in accordance
with this paragraph, without breach of this arbitration provision.

            (g)   LEGAL FEES AND EXPENSES. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with the execution of
this Agreement.

            (h)   NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this Section 10(h) shall be
void.

            (i)   ASSIGNMENT BY COMPANY. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company. In the
case of any such assignment, the term "Company" when used in a section of this
Agreement shall mean the corporation that actually employs the Employee.

            (j)   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.

                                      - 7 -


      The parties have executed this Agreement on the date first written above.

                                       ADEZA BIOMEDICAL CORPORATION.

                                       By:  /s/ Mark Fischer-Colbrie
                                           -------------------------------------

                                       Title: VP Finance and Administration

                                       Address: 1240 Elko Place
                                                Sunnyvale, California  94086

                                       EMORY V. ANDERSON

                                       Signature:  /s/ Emory V. Anderson
                                                  ------------------------------

                                       Address:


                                      - 8 -

EX-10.16

                                                                   EXHIBIT 10.16

                          ADEZA BIOMEDICAL CORPORATION

                         MANAGEMENT CONTINUITY AGREEMENT

      This Management Continuity Agreement (the "Agreement") is dated as of
October 21, 2004 by and between Mark Fischer-Colbrie ("Employee") and Adeza
Biomedical Corporation., a Delaware corporation (the "Company" or "Adeza"). This
Agreement is intended to provide Employee with certain benefits described herein
upon the occurrence of specific events.

                                    RECITALS

      A.    It is expected that another company may from time to time consider
the possibility of acquiring the Company or that a change in control may
otherwise occur, with or without the approval of the Company's Board of
Directors. The Board of Directors recognizes that such consideration can be a
distraction to Employee and can cause Employee to consider alternative
employment opportunities. The Board of Directors 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 below) of the Company.

      B.    The Company's Board of Directors believes it is in the best
interests of the Company and its stockholders to retain Employee and provide
incentives to Employee to continue in the service of the Company.

      C.    The Board of Directors further believes that it is imperative to
provide Employee with certain benefits upon a Change of Control and, under
certain circumstances, upon termination of Employee's employment, which benefits
are intended to provide Employee with financial security and provide sufficient
income and encouragement to Employee to remain with the Company, notwithstanding
the possibility of a Change of Control.

      D.    To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by Employee, to agree to
the terms provided in this Agreement.

      Now therefore, in consideration of the mutual promises, covenants and
agreements contained herein, and in consideration of the continuing employment
of Employee by the Company, the parties hereto agree as follows:

      1.    AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, award or compensation other than as provided in this
Agreement. The terms of this Agreement shall terminate upon the earlier of (i)
the date on which Employee ceases to be employed as an executive corporate
officer of the Company, other than as a result of an involuntary termination by
the Company without Cause (as defined below) or Employee's resignation for Good
Reason (as defined below); or (ii) the date that all obligations



of the parties hereunder have been satisfied. A termination of the terms of this
Agreement pursuant to the preceding sentence shall be effective for all
purposes, except that such termination shall not affect the payment or provision
of compensation or benefits on account of a termination of employment occurring
prior to the termination of the terms of this Agreement. The rights and duties
created by this Section 1 may not be modified in any way except by a written
agreement executed by an officer of the Company upon direction from the Board of
Directors.

      2.    BENEFITS UPON A CHANGE OF CONTROL; TERMINATION OF EMPLOYMENT.

            (a)   TREATMENT OF STOCK OPTIONS AND OTHER EQUITY AWARDS UPON A
CHANGE OF CONTROL. In the event of a Change of Control and regardless of whether
Employee's employment with the Company is terminated in connection with the
Change in Control, the vesting of each stock option and other equity award to
purchase the Company's Common Stock granted to Employee over the course of his
employment with the Company and held by Employee on the effective date of a
Change of Control shall accelerate such that 50% of the aggregate number of
unvested option shares and other equity awards shall become immediately vested
immediately prior to the effective date of the Change of Control, with the
vesting acceleration applied with respect to each outstanding option or equity
award in the order in which the award was granted. Each such option and equity
award shall be exercisable in accordance with the provisions of the agreement
and plan pursuant to which such option or award was granted.

            (b)   TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that
Employee's employment is terminated as a result of an involuntary termination
other than for Cause or if Employee resigns for Good Reason at any time within
12 months following the effective date of a Change of Control, then Employee
will be entitled to receive severance benefits as follows: (i) severance
payments during the period from the date of Employee's termination until the
date 12 months after the effective date of the termination (the "Severance
Period") equal to the base salary which Employee was receiving immediately prior
to the Change of Control, which payments shall be paid during the Severance
Period in accordance with the Company's standard payroll practices, (ii) a lump
sum payment as soon as practicable after the date of termination of employment
equal to 50% of the bonus payment made to Employee for the Company's fiscal year
prior to the Company's fiscal year in which the termination occurs, (iii)
continuation of the health insurance benefits provided to Employee immediately
prior to the Change of Control at Company expense pursuant to the terms of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") or
other applicable law through the earlier of the end of the Severance Period or
the date upon which Employee is no longer eligible for such COBRA or other
benefits under applicable law; (iv) each stock option and equity award to
purchase the Company's Common Stock granted to Employee over the course of his
employment with the Company and held by Employee on the date of termination of
employment shall become immediately vested as to 100% of the then unvested
option shares; and (v) each equity award granted on or after July 23, 2004,
shall remain exercisable for a period of eighteen (18) months following
Employee's termination date (but not later than the expiration date of an award
as set forth in the applicable award agreement). Each such option and equity
award shall otherwise be exercisable in accordance with the provisions of the
agreement and plan pursuant to which such option or award was granted. In
addition, Employee will receive payment(s) for all

                                     - 2 -


salary, bonuses and unpaid vacation accrued as of the date of Employee's
termination of employment.

            (c)   TERMINATION NOT FOLLOWING A CHANGE OF CONTROL. In the event
that Employee's employment is terminated as a result of an involuntary
termination other than for Cause or if Employee resigns for Good Reason at any
time prior to or more than 12 months following the effective date of a Change of
Control, then Employee will be entitled to receive severance benefits as
follows: (i) severance payments during the period from the date of Employee's
termination until the date 6 months after the effective date of the termination
(the "Benefit Period") equal to the base salary which Employee was receiving
immediately prior to the Change of Control, which payments shall be paid during
the Benefit Period in accordance with the Company's standard payroll practices,
(ii) a lump sum payment as soon as practicable after the date of termination of
employment equal to 25% of the bonus paid to Employee for the Company's fiscal
year prior to the Company's fiscal year in which the termination occurs, (iii)
continuation of the health insurance benefits provided to Employee immediately
prior to the Change of Control at Company expense pursuant to COBRA or other
applicable law through the earlier of the end of the Benefit Period or the date
upon which Employee is no longer eligible for such COBRA or other benefits under
applicable law; and (iv) each stock option and equity award to purchase the
Company's Common Stock granted to Employee over the course of his employment
with the Company and held by Employee on the date of termination of employment
shall become immediately vested on such date as to that number of shares that
would have vested in accordance with the terms of such option or equity award as
of the date 12 months after the date of termination of employment (assuming that
Employee had remained an employee of the Company for 12 months after the date of
termination of employment) and each such option and equity award shall be
exercisable in accordance with the provisions of the agreement and plan pursuant
to which such option or award was granted, provided however that the vested
shares underlying an equity award granted on or after July 23, 2004, shall
remain exercisable for a period of eighteen (18) months following Employee's
termination date (but not later than the expiration date of the award as set
forth in the applicable award agreement). In addition, Employee will receive
payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of
Employee's termination of employment.

            (d)   TERMINATION FOR CAUSE. If Employee's employment is terminated
for Cause at any time, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment(s) for all salary, bonuses
and unpaid vacation accrued as of the date of Employee's termination of
employment and Employee's benefits will be continued under the Company's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination and in accordance with applicable law.

            (e)   VOLUNTARY RESIGNATION OTHER THAN FOR GOOD REASON. If Employee
voluntarily resigns from the Company for any reason other than Good Reason, then
Employee shall not be entitled to receive payment of any severance benefits.
Employee will receive payment(s) for all salary, bonuses and unpaid vacation
accrued as of the date of Employee's termination of employment and Employee's
benefits will be continued under the terms of the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.

                                     - 3 -


      3.    DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:

            (a)   CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:

                  (i)   OWNERSHIP. Any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities without the approval of the Board;

                  (ii)  MERGER/SALE OF ASSETS. A merger or consolidation of the
Company whether or not approved by the Board, 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 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 the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets; or

                  (iii) CHANGE IN BOARD COMPOSITION. A change in the composition
of the Board, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of August 1, 2004 or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but an Incumbent Director shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company).

            (b)   CAUSE. "Cause" for termination of Employee's employment will
exist if Employee is terminated by the Company, for any of the following
reasons, as determined in good faith by the Company: (i) Employee's gross
negligence or willful failure substantially to perform his duties and
responsibilities to the Company or deliberate violation of a Company policy;
(ii) Employee's commission of any act of fraud, embezzlement, dishonesty or any
other willful misconduct that has caused or is reasonably expected to result in
material injury to the Company; (iii) unauthorized use or disclosure by Employee
of any proprietary information or trade secrets of the Company or any other
party to whom the Employee owes an obligation of nondisclosure as a result of
his relationship with the Company; or (iv) Employee's willful breach of any of
his obligations under any written agreement or covenant with the Company.

            (c)   GOOD REASON. "Good Reason" for Employee's resignation of his
employment will exist if Employee tenders his resignation to the Company with 30
days prior written notice to the Company within 120 days of the occurrence of
any of the following events: (i) a material reduction in the Employee's job
responsibilities, as of immediately prior to the

                                     - 4 -


Change of Control for purposes of Section 2(b) above and as of immediately prior
to the termination date for purposes of Section 2(c) above; (ii) relocation by
the Company of the Employee's work site which has the effect of increasing
Employee's then-current commute by more than 50 miles; (iii) any reduction in
Employee's then-current base salary and/or target bonus (other than in
connection with a general decrease in the base salaries and target bonus for all
other executives of the Company); (iv) a material reduction in Employee's
benefits (other than a general decrease in the benefit programs offered to all
other executives of the Company); or (v) the Company's failure to obtain
agreement from any acquiror or successor to assume the Company's obligations
under this Agreement.

      4.    PARACHUTE PAYMENTS. In the event that the severance and other
benefits provided for in this Agreement to Employee (the "Benefit"), determined
without regard to any additional payment required under this section 4, would
(i) constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) be subject to
the excise tax imposed by Section 4999 of the Code or any interest or penalties
payable with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Employee shall be entitled to receive from the Company an additional
payment (the "Gross-Up Payment") in an amount sufficient to reimburse Employee
for both (A) such Excise Tax, and (B) the income, excise, employment and any
other taxes imposed on the Gross Up Payment provided under this Section 4. The
accounting firm engaged by the Company for general audit purposes as of the day
prior to the effective date of the Change of Control shall perform the foregoing
calculations. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder. The
accounting firm engaged to make the determinations hereunder shall provide its
calculations, together with detailed supporting documentation, to the Company
and to Employee within fifteen (15) calendar days after the date on which
Employee's right to the Benefit is triggered (if requested at that time by the
Company or by Employee) or such other time as requested by the Company or by
Employee. If the accounting firm determines that no Excise Tax is payable with
respect to the Benefit, it shall furnish the Company and Employee with an
opinion reasonably acceptable to Employee that no Excise Tax will be imposed
with respect to such Benefit. Any good faith determinations of the accounting
firm made hereunder shall be final, binding and conclusive upon the Company and
Employee.

      5.    LIMITATIONS AND CONDITIONS ON BENEFITS

            (a)   WITHHOLDING OF TAXES. The Company shall withhold appropriate
federal, state, local (and foreign, if applicable) income and employment taxes
from any payments hereunder.

            (b)   RELEASE PRIOR TO RECEIPT OF BENEFITS. Prior to the receipt of
any benefits under this Agreement, Employee shall execute a release of claims
agreement (the "Release") in the form provided by the Company. Such Release
shall specifically relate to all of Employee's rights and claims in existence at
the time of such execution and shall confirm Employee's obligations under the
Company's standard form of proprietary information agreement.

      6.    CONFLICTS. Employee represents that his performance of all the terms
of this Agreement will not breach any other agreement to which Employee is a
party. Employee has

                                     - 5 -


not, and will not during the term of this Agreement, enter into any oral or
written agreement in conflict with any of the provisions of this Agreement.
Employee further represents that he is entering into or has entered into an
employment relationship with the Company of his own free will and that he has
not been solicited as an employee in any way by the Company.

      7.    SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, 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. The terms of this Agreement and all of Employee's rights hereunder
and thereunder shall inure to the benefit of, and be enforceable by, Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.

      8.    NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.

      9.    MISCELLANEOUS PROVISIONS.

            (a)   NO DUTY TO MITIGATE. Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that 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 Employee and by an authorized officer of the Company
(other than 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)   WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes any agreement concerning similar subject matter dated prior to the
date of this Agreement, and by execution of this Agreement both parties agree
that any such predecessor agreement shall be deemed null and void.

            (d)   CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.

                                     - 6 -


            (e)   SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.

            (f)   ARBITRATION. Employee and the Company agree to attempt to
settle any disputes arising in connection with this Agreement through good faith
consultation. In the event that Employee and the Company are not able to resolve
any such disputes within fifteen (15) days after notification in writing to the
other, Employee and the Company agree that any dispute or claim arising out of
or in connection with this Agreement will be finally settled by binding
arbitration in Santa Clara County, California in accordance with the rules of
the American Arbitration Association by one arbitrator mutually agreed upon by
the parties. The arbitrator will apply California law, without reference to
rules of conflicts of law or rules of statutory arbitration, to the resolution
of any dispute. Except as set forth in Subparagraph (e) above, the arbitrator
shall not have authority to modify the terms of this Agreement. The Company
shall pay the costs of the arbitration proceeding. Each party shall, unless
otherwise determined by the arbitrator, bear its or his own attorneys' fees and
expenses, provided however that if Employee prevails in an arbitration
proceeding, the Company shall reimburse Employee for his reasonable attorneys'
fees and costs. Judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. Notwithstanding the foregoing, the
Company and Employee may apply to any court of competent jurisdiction for
preliminary or interim equitable relief, or to compel arbitration in accordance
with this paragraph, without breach of this arbitration provision.

            (g)   LEGAL FEES AND EXPENSES. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with the execution of
this Agreement.

            (h)   NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this Section 10(h) shall be
void.

            (i)   ASSIGNMENT BY COMPANY. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company. In the
case of any such assignment, the term "Company" when used in a section of this
Agreement shall mean the corporation that actually employs the Employee.

            (j)   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.

                                     - 7 -


      The parties have executed this Agreement on the date first written above.

                                       ADEZA BIOMEDICAL CORPORATION.

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

                                       Title:     President and CEO

                                       Address:   1240 Elko Place
                                                  Sunnyvale, California  94086

                                       MARK FISCHER-COLBRIE

                                       Signature:  /s/ Mark Fischer-Colbrie
                                                  ------------------------------

                                       Address:


                                     - 8 -

EX-10.17

                                                                   EXHIBIT 10.17
                          ADEZA BIOMEDICAL CORPORATION

                         MANAGEMENT CONTINUITY AGREEMENT

      This Management Continuity Agreement (the "Agreement") is dated as of
October 21, 2004 by and between [_______________] ("Employee") and Adeza
Biomedical Corporation., a Delaware corporation (the "Company" or "Adeza"). This
Agreement is intended to provide Employee with certain benefits described herein
upon the occurrence of specific events.

                                    RECITALS

      A.    It is expected that another company may from time to time consider
the possibility of acquiring the Company or that a change in control may
otherwise occur, with or without the approval of the Company's Board of
Directors. The Board of Directors recognizes that such consideration can be a
distraction to Employee and can cause Employee to consider alternative
employment opportunities. The Board of Directors 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 below) of the Company.

      B.    The Company's Board of Directors believes it is in the best
interests of the Company and its stockholders to retain Employee and provide
incentives to Employee to continue in the service of the Company.

      C.    The Board of Directors further believes that it is imperative to
provide Employee with certain benefits upon a Change of Control and, under
certain circumstances, upon termination of Employee's employment, which benefits
are intended to provide Employee with financial security and provide sufficient
income and encouragement to Employee to remain with the Company, notwithstanding
the possibility of a Change of Control.

      D.    To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by Employee, to agree to
the terms provided in this Agreement.

      Now therefore, in consideration of the mutual promises, covenants and
agreements contained herein, and in consideration of the continuing employment
of Employee by the Company, the parties hereto agree as follows:

      1.    AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, award or compensation other than as provided in this
Agreement. The terms of this Agreement shall terminate upon the earlier of (i)
the date on which Employee ceases to be employed as an executive corporate
officer of the Company, other than as a result of an involuntary termination by
the Company without Cause (as defined below) or Employee's resignation for Good
Reason (as defined below); or (ii) the date that all obligations



of the parties hereunder have been satisfied. A termination of the terms of this
Agreement pursuant to the preceding sentence shall be effective for all
purposes, except that such termination shall not affect the payment or provision
of compensation or benefits on account of a termination of employment occurring
prior to the termination of the terms of this Agreement. The rights and duties
created by this Section 1 may not be modified in any way except by a written
agreement executed by an officer of the Company upon direction from the Board of
Directors.

      2.    BENEFITS UPON A CHANGE OF CONTROL; TERMINATION OF EMPLOYMENT.

            (a)   TREATMENT OF STOCK OPTIONS AND OTHER EQUITY AWARDS UPON A
CHANGE OF CONTROL. In the event of a Change of Control and regardless of whether
Employee's employment with the Company is terminated in connection with the
Change in Control, the vesting of each stock option and other equity award to
purchase the Company's Common Stock granted to Employee over the course of his
employment with the Company and held by Employee on the effective date of a
Change of Control shall accelerate such that 50% of the aggregate number of
unvested option shares and other equity awards shall become immediately vested
immediately prior to the effective date of the Change of Control, with the
vesting acceleration applied with respect to each outstanding option or equity
award in the order in which the award was granted. Each such option and equity
award shall be exercisable in accordance with the provisions of the agreement
and plan pursuant to which such option or award was granted.

            (b)   TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that
Employee's employment is terminated as a result of an involuntary termination
other than for Cause or if Employee resigns for Good Reason at any time within
12 months following the effective date of a Change of Control, then Employee
will be entitled to receive severance benefits as follows: (i) severance
payments during the period from the date of Employee's termination until the
date 9 months after the effective date of the termination (the "Severance
Period") equal to the base salary which Employee was receiving immediately prior
to the Change of Control, which payments shall be paid during the Severance
Period in accordance with the Company's standard payroll practices, (ii) a lump
sum payment as soon as practicable after the date of termination of employment
equal to 37.5% of the bonus payment made to Employee for the Company's fiscal
year prior to the Company's fiscal year in which the termination occurs, (iii)
continuation of the health insurance benefits provided to Employee immediately
prior to the Change of Control at Company expense pursuant to the terms of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") or
other applicable law through the earlier of the end of the Severance Period or
the date upon which Employee is no longer eligible for such COBRA or other
benefits under applicable law; and (iv) each stock option and equity award to
purchase the Company's Common Stock granted to Employee over the course of his
employment with the Company and held by Employee on the date of termination of
employment shall become immediately vested on such date as to that number of
shares that would have vested in accordance with the terms of such option or
equity award as of the date 12 months after the date of termination of
employment (assuming that Employee had remained an employee of the Company for
12 months after the date of termination of employment). Each such option and
equity award shall be exercisable in accordance with the provisions of the
agreement and plan pursuant to which such option or award was granted, provided
however that the vested shares

                                     - 2 -


underlying an equity award granted on or after July 23, 2004, shall remain
exercisable for a period of eighteen (18) months following Employee's
termination date (but not later than the expiration date of the award as set
forth in the applicable award agreement). In addition, Employee will receive
payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of
Employee's termination of employment.

            (c)   TERMINATION NOT FOLLOWING A CHANGE OF CONTROL. In the event
that Employee's employment is terminated as a result of an involuntary
termination other than for Cause or if Employee resigns for Good Reason at any
time prior to or more than 12 months following the effective date of a Change of
Control, then Employee will be entitled to receive severance benefits as
follows: (i) severance payments during the period from the date of Employee's
termination until the date 6 months after the effective date of the termination
(the "Benefit Period") equal to the base salary which Employee was receiving
immediately prior to the Change of Control, which payments shall be paid during
the Benefit Period in accordance with the Company's standard payroll practices,
(ii) a lump sum payment as soon as practicable after the date of termination of
employment equal to 25% of the bonus paid to Employee for the Company's fiscal
year prior to the Company's fiscal year in which the termination occurs, and
(iii) continuation of the health insurance benefits provided to Employee
immediately prior to the Change of Control at Company expense pursuant to COBRA
or other applicable law through the earlier of the end of the Benefit Period or
the date upon which Employee is no longer eligible for such COBRA or other
benefits under applicable law. In addition, Employee will receive payment(s) for
all salary, bonuses and unpaid vacation accrued as of the date of Employee's
termination of employment.

            (d)   TERMINATION FOR CAUSE. If Employee's employment is terminated
for Cause at any time, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment(s) for all salary, bonuses
and unpaid vacation accrued as of the date of Employee's termination of
employment and Employee's benefits will be continued under the Company's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination and in accordance with applicable law.

            (e)   VOLUNTARY RESIGNATION OTHER THAN FOR GOOD REASON. If Employee
voluntarily resigns from the Company for any reason other than Good Reason, then
Employee shall not be entitled to receive payment of any severance benefits.
Employee will receive payment(s) for all salary, bonuses and unpaid vacation
accrued as of the date of Employee's termination of employment and Employee's
benefits will be continued under the terms of the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.

      3.    DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:

            (a)   CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:

                  (i)   OWNERSHIP. Any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "Beneficial

                                     - 3 -


Owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities without the
approval of the Board;

                  (ii)  MERGER/SALE OF ASSETS. A merger or consolidation of the
Company whether or not approved by the Board, 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 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 the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets; or

                  (iii) CHANGE IN BOARD COMPOSITION. A change in the composition
of the Board, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of August 1, 2004 or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but an Incumbent Director shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company).

            (b)   CAUSE. "Cause" for termination of Employee's employment will
exist if Employee is terminated by the Company, for any of the following
reasons, as determined in good faith by the Company: (i) Employee's gross
negligence or willful failure substantially to perform his duties and
responsibilities to the Company or deliberate violation of a Company policy;
(ii) Employee's commission of any act of fraud, embezzlement, dishonesty or any
other willful misconduct that has caused or is reasonably expected to result in
material injury to the Company; (iii) unauthorized use or disclosure by Employee
of any proprietary information or trade secrets of the Company or any other
party to whom the Employee owes an obligation of nondisclosure as a result of
his relationship with the Company; or (iv) Employee's willful breach of any of
his obligations under any written agreement or covenant with the Company.

            (c)   GOOD REASON. "Good Reason" for Employee's resignation of his
employment will exist if Employee tenders his resignation to the Company with 30
days prior written notice to the Company within 120 days of the occurrence of
any of the following events: (i) a material reduction in the Employee's job
responsibilities, as of immediately prior to the Change of Control for purposes
of Section 2(b) above and as of immediately prior to the termination date for
purposes of Section 2(c) above; (ii) relocation by the Company of the Employee's
work site which has the effect of increasing Employee's then-current commute by
more than 50 miles; (iii) any reduction in Employee's then-current base salary
and/or target bonus (other than in connection with a general decrease in the
base salaries and target bonus for all other executives of the Company); (iv) a
material reduction in Employee's benefits (other than a general decrease in the
benefit programs offered to all other executives of the Company); or (v)

                                     - 4 -


the Company's failure to obtain agreement from any acquiror or successor to
assume the Company's obligations under this Agreement.

      4.    PARACHUTE PAYMENTS. In the event that the severance and other
benefits provided for in this Agreement to Employee (the "Benefit"), determined
without regard to any additional payment required under this section 4, would
(i) constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) be subject to
the excise tax imposed by Section 4999 of the Code or any interest or penalties
payable with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Employee shall be entitled to receive from the Company an additional
payment (the "Gross-Up Payment") in an amount sufficient to reimburse Employee
for both (A) such Excise Tax, and (B) the income, excise, employment and any
other taxes imposed on the Gross Up Payment provided under this Section 4. The
accounting firm engaged by the Company for general audit purposes as of the day
prior to the effective date of the Change of Control shall perform the foregoing
calculations. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder. The
accounting firm engaged to make the determinations hereunder shall provide its
calculations, together with detailed supporting documentation, to the Company
and to Employee within fifteen (15) calendar days after the date on which
Employee's right to the Benefit is triggered (if requested at that time by the
Company or by Employee) or such other time as requested by the Company or by
Employee. If the accounting firm determines that no Excise Tax is payable with
respect to the Benefit, it shall furnish the Company and Employee with an
opinion reasonably acceptable to Employee that no Excise Tax will be imposed
with respect to such Benefit. Any good faith determinations of the accounting
firm made hereunder shall be final, binding and conclusive upon the Company and
Employee.

      5.    LIMITATIONS AND CONDITIONS ON BENEFITS

            (a)   WITHHOLDING OF TAXES. The Company shall withhold appropriate
federal, state, local (and foreign, if applicable) income and employment taxes
from any payments hereunder.

            (b)   RELEASE PRIOR TO RECEIPT OF BENEFITS. Prior to the receipt of
any benefits under this Agreement, Employee shall execute a release of claims
agreement (the "Release") in the form provided by the Company. Such Release
shall specifically relate to all of Employee's rights and claims in existence at
the time of such execution and shall confirm Employee's obligations under the
Company's standard form of proprietary information agreement.

      6.    CONFLICTS. Employee represents that his performance of all the terms
of this Agreement will not breach any other agreement to which Employee is a
party. Employee has not, and will not during the term of this Agreement, enter
into any oral or written agreement in conflict with any of the provisions of
this Agreement. Employee further represents that he is entering into or has
entered into an employment relationship with the Company of his own free will
and that he has not been solicited as an employee in any way by the Company.

      7.    SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this

                                     - 5 -


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. The terms of this
Agreement and all of Employee's rights hereunder and thereunder shall inure to
the benefit of, and be enforceable by, Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.

      8.    NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.

      9.    MISCELLANEOUS PROVISIONS.

            (a)   NO DUTY TO MITIGATE. Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that 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 Employee and by an authorized officer of the Company
(other than 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)   WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes any agreement concerning similar subject matter dated prior to the
date of this Agreement, and by execution of this Agreement both parties agree
that any such predecessor agreement shall be deemed null and void.

            (d)   CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.

            (e)   SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.

                                     - 6 -


            (f)   ARBITRATION. Employee and the Company agree to attempt to
settle any disputes arising in connection with this Agreement through good faith
consultation. In the event that Employee and the Company are not able to resolve
any such disputes within fifteen (15) days after notification in writing to the
other, Employee and the Company agree that any dispute or claim arising out of
or in connection with this Agreement will be finally settled by binding
arbitration in Santa Clara County, California in accordance with the rules of
the American Arbitration Association by one arbitrator mutually agreed upon by
the parties. The arbitrator will apply California law, without reference to
rules of conflicts of law or rules of statutory arbitration, to the resolution
of any dispute. Except as set forth in Subparagraph (e) above, the arbitrator
shall not have authority to modify the terms of this Agreement. The Company
shall pay the costs of the arbitration proceeding. Each party shall, unless
otherwise determined by the arbitrator, bear its or his own attorneys' fees and
expenses, provided however that if Employee prevails in an arbitration
proceeding, the Company shall reimburse Employee for his reasonable attorneys'
fees and costs. Judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. Notwithstanding the foregoing, the
Company and Employee may apply to any court of competent jurisdiction for
preliminary or interim equitable relief, or to compel arbitration in accordance
with this paragraph, without breach of this arbitration provision.

            (g)   LEGAL FEES AND EXPENSES. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with the execution of
this Agreement.

            (h)   NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this Section 10(h) shall be
void.

            (i)   ASSIGNMENT BY COMPANY. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company. In the
case of any such assignment, the term "Company" when used in a section of this
Agreement shall mean the corporation that actually employs the Employee.

            (j)   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.

                                     - 7 -


      The parties have executed this Agreement on the date first written above.

                                       ADEZA BIOMEDICAL CORPORATION.

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

                                       Title:      President and CEO

                                       Address:   1240 Elko Place
                                                  Sunnyvale, California  94086


                                       Signature:
                                                  ------------------------------

                                       Address:


                                     - 8 -

EX-23.1

                                                                    Exhibit 23.1

            Consent of Independent Registered Public Accounting Firm

We consent to the references to our firm under the captions "Summary Financial
Data," "Selected Financial Data" and "Experts" and to the use of our report
dated March 8, 2004 (except for Note 12 as to which the date is August 4, 2004
and except for the sixth paragraph of Note 1, as to which the date is October
13, 2004) in Amendment No. 2 to the Registration Statement (Form S-1 No.
333-118012) and related Prospectus of Adeza Biomedical Corporation for the
registration of 4,312,500 shares of its common stock.

                                   Ernst & Young LLP



Palo Alto, California



The foregoing consent is in the form that will be signed upon the completion of
the reverse stock split described in the sixth paragraph of Note 1 to the
financial statements.

                                   /s/ Ernst and Young LLP



Palo Alto, California
October 26, 2004

CORRESP

October 27, 2004                                              Matthew M. Gosling
                                                               MGosling@hewm.com
                                                           Direct (650) 324-7159
Confidential For Use of the Commission Only            Direct Fax (650) 324-6031
Via EDGAR and FedEx                                          Main (650) 324-7000
                                                              Fax (650) 324-0638

Securities and Exchange Commission                                    24727-0008
Division of Corporation Finance
450 Fifth Street, N.W. - Mailstop 3-9
Washington, D.C. 20549
Attn: Mr. Gregory S. Belliston


RE:  ADEZA BIOMEDICAL CORPORATION
     AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM S-1,
     FILED SEPTEMBER 21, 2004 (FILE NO. 333-118012)

Dear Mr. Belliston:

     On behalf of Adeza Biomedical Corporation ("Adeza"), this letter responds
to the comments of the Staff of the Securities and Exchange Commission (the
"Staff") set forth in the letter dated October 7, 2004 in connection with the
filing of the above-referenced registration statement (the "Registration
Statement"). Adeza is concurrently filing Amendment No. 2 to the Registration
Statement (the "Amendment").

     For your convenience, we are sending a copy of this letter, the Amendment
and supplemental materials in the traditional, non-EDGAR format, including a
version of the Amendment that is marked to show changes from the originally
filed Registration Statement, and will forward a courtesy package of these
documents to our examiners:  Gregory Belliston, Suzanne Hayes and Jeffrey
Riedler.

     The responses below correspond to the paragraph numbers of the Staff's
letter. The pages referenced below correspond to the page numbers in the hard
copy of the Amendment submitted to the Staff.

GENERAL

1.   Adeza notes the Staff's comment.

PROSPECTUS SUMMARY, PAGE 1

2.   Adeza has revised the Registration Statement as requested. See pages 1
     and 2.

3.   Adeza has revised the Registration Statement to remove the references in
     the Prospectus Summary to expansion of the use of the Fetal Fibronectin
     Test for specific additional indications. See page 1.

RISK FACTORS, PAGE 7

IF WE ARE UNABLE TO MAINTAIN OUR EXISTING REGULATORY APPROVALS...PAGE 11

4.   Adeza has revised the Registration Statement as requested. See page 11.

POTENTIAL BUSINESS COMBINATIONS COULD REQUIRE SIGNIFICANT MANAGEMENT
ATTENTION...PAGE 17

5.   Adeza has revised the Registration Statement as requested. See page 17.

USE OF PROCEEDS, PAGE 25

6.   Adeza has revised the Registration Statement as requested. See page 25.

7.   Adeza has revised the Registration Statement as requested. See page 25.

ONCOLOGY - BLADDER CANCER, PAGE 44

8.   Adeza has revised the Registration Statement as requested. See page 45.

THE ADEZA SOLUTION, PAGE 45

9.   Adeza has revised the Registration Statement as requested. See page 46.
     In addition, Adeza is supplementally providing in the attached Exhibit A
     independent, third party support for the certain additional statistical
     data provided in response to the Staff's comment. Exhibit A identifies the
     relevant statement, identifies the location of the statement and cites the
     source supporting such statement.  Also included in Exhibit A are copies of
     all sources relied upon.  In addition, Adeza has cited these sources in the
     prospectus.

10.  Adeza has revised the Registration Statement as requested. See page 47.

11.  Adeza has revised the Registration Statement as requested. See page 47.

PRODUCTS UNDER DEVELOPMENT, PAGE 48

12.  Adeza has revised the Registration Statement as requested. See page 49.

13.  Adeza has revised the Registration Statement as requested. See page 50.
     Adeza has removed the description of one of its studies because the results
     of the study have not been published in a peer-reviewed publication.

14.  Adeza has revised the Registration Statement as requested. See page 50.

EXPAND INTERNATIONAL SALES, PAGE 49

15.  Adeza has revised the Registration Statement as requested. See page 51.

MANUFACTURING, PAGE 51

16.  Adeza has revised the Registration Statement as requested. See page 53.

PREMARKET APPROVAL PATHWAY, PAGE 53

17.  Adeza has revised the Registration Statement as requested. See page 54.

INTELLECTUAL PROPERTY, PAGE 54

18.  Adeza has revised the Registration Statement as requested. See page 57.

LICENSE AGREEMENTS, PAGE 55

19.  Adeza has revised the Registration Statement as requested. See pages 57
     and 58.

PRINCIPAL STOCKHOLDERS, PAGE 73

20.  Adeza has revised the Registration Statement as requested. See page 78.

UNDERWRITING, PAGE 83

21.  Adeza supplementally advises the Staff that it has been informed that
     UBS Securities LLC will not accept indications of interest, offers to
     purchase or confirm sales electronically except for the indications of
     interest accepted by UBS Securities LLC through its DealKey (SM) System.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES, PAGE II-2

22.  Adeza has revised the Registration Statement as requested. See page II-2.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, PAGE II-3

23.  Adeza has revised the Registration Statement as requested. See page 58.

DIRECTED SHARE PROGRAM MATERIALS

24.  Adeza has elected not to pursue a directed share program and has removed
     from the Registration Statement the description of the directed share
     program.


                                 *     *     *

     Please contact me at (650) 324-7159, or Sarah O'Dowd at (650) 324-7045, if
you have any questions regarding the Amendment or the responses to the Staff's
comment letter.

                                        Sincerely,

                                        /s/ Matthew M. Gosling
                                        -----------------------------
                                        Matthew M. Gosling