1127393--12/27/2006--HEMOSENSE

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We have limited operating experience and a history of net losses. Unless we are able to significantly increase our revenue and reduce our costs, we may never achieve or maintain profitability. We expect that the price of our common stock will fluctuate substantially. We may be unable to accurately predict our future performance, which could harm our stock price. We depend upon a single product. If our INRatio System fails to gain market acceptance our business will suffer. We will be unable to achieve profitability unless we increase revenue and decrease the cost of manufacturing our test strips. The performance of our product may not be perceived as being comparable with established laboratory methods, which may limit the market acceptance of our product. We are subject to FDA inspection and possible enforcement action in the event of regulatory violations. We are filing an increasing number of MDRs, which could harm market adoption of our product. The success of our business is largely dependent upon the growth of the PT/INR patient self-testing market. If that market fails to develop as we anticipate, our results will be adversely affected We operate in a highly competitive market and face competition from large, well-established medical device manufacturers with significant resources. If we fail to compete effectively, our business will suffer. If alternative drugs or other treatments reduce the need for warfarin, the market for our product will be limited. Our ability to successfully market and sell our product is dependent on the availability of adequate reimbursement from Medicare and other insurance providers. If we are unable to establish sufficient sales and marketing capabilities or enter into and maintain appropriate arrangements with third parties to sell, market and distribute our product, our business will be harmed. If our commercial partners fail to provide customer service on our behalf, our business will be harmed. We have limited test strip manufacturing capabilities and personnel. If we cannot produce an adequate supply of test strips, our growth will be limited and our business will be harmed. Because of our limited experience, we have in the past manufactured, and may in the future manufacture, defective test strips that have to be discarded, which increases our costs of operations and may delay shipment of product to customers. We depend on clinical sites to assist us in verifying the calibration of our test strips, and if they fail in that role we may be unable to produce test strips in a timely manner. Our product could be misused or produce inaccurate results, which could lead to injury to the patient and potential liability for us. Our manufacturing operations are dependent upon several single source suppliers, making us vulnerable to supply disruption, which could harm our business. Certain of our manufacturing operations are dependent upon a single source contract manufacturer, making us vulnerable to production disruption, which could harm our business. We face the risk of product liability claims or recalls and may not be able to maintain or obtain insurance. We face the risk that modifications to our device may require new 510(k) clearance which may not be obtained. We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and, if we are unable to or have not fully complied with such laws, could face substantial penalties. We may be subject to false claims laws which could result in substantial penalties. Our financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm our stock price and AMEX listing. We may have warranty claims that exceed our reserves, which could adversely affect our operating results. Our inability to adequately protect our intellectual property could allow our competitors and others to produce products based on our technology, which could substantially impair our ability to compete. We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could be costly and harm our business. The prosecution and enforcement of patents licensed to us by third parties are not within our control, and without these technologies, our product may not be successful and our business would be harmed if the patents were infringed or misappropriated without action by such third parties. We 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. We have potential exposure to environmental liabilities, including liability for contamination or other harm caused by materials that we use, generate, dispose of, release or discharge. All of our operations are conducted at a single location. Any disruption at our facility could adversely affect our operations and increase our expenses. Our success will depend on our ability to attract and retain key personnel, particularly members of management and scientific staff. The cost of public company compliance with the securities laws and regulations is substantial and recently enacted and proposed changes to these laws and regulations will further increase our general and administrative expenses. Our principal stockholder owns a significant percentage of our stock, and as a result, can take actions that may be adverse to our other stockholders interests. Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of your stock.

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1127393--12/27/2006--HEMOSENSE_INC