864683--1/5/2007--CYBERONICS

related topics

{product, liability, claim}

{debt, indebtedness, cash}

{financial, litigation, operation}

{regulation, government, change}

{property, intellectual, protect}

{personnel, key, retain}

{stock, price, operating}

{customer, product, revenue}

{product, market, service}

{control, financial, internal}

{capital, credit, financial}

{stock, price, share}

{product, candidate, development}

{loss, insurance, financial}

{cost, contract, operation}

{cost, operation, labor}

We are not profitable now, and we have been profitable for only seven fiscal quarters since our inception. Our quarterly operating results may fluctuate in the future, which may cause our stock price to decline. We may experience difficulties and delays in the development, manufacturing, marketing and sale of our VNS Therapy System for the treatment of depression. Our indebtedness and debt service obligations may adversely affect our cash flow, cash position and stock price. Upon the occurrence of a fundamental change, holders of our senior subordinated convertible Notes may force us to purchase their Notes at the full amount owed, including accrued but unpaid interest. Upon the occurrence of certain events, the initial conversion rate of our Notes will be adjusted, which could result in an increased number of shares being issued upon conversion. We may be forced to repay the full amount of our outstanding $125 million convertible note indebtedness and senior credit facility indebtedness on an accelerated basis. We may need significant additional capital and, as such, we may not be able to access sufficient sources or to access capital on terms which are acceptable to us. We may not be successful in our efforts to develop VNS Therapy for the treatment of other indications and, as such, we may not experience revenue growth from these other indications. We may not be able to expand or maintain market acceptance of the use of the VNS Therapy System to treat epilepsy or depression, which could cause our sales to be lower than expectations. We may not be successful in our marketing and sales efforts, which could severely harm our business. Patient confidentiality and federal and state privacy laws and regulations may adversely impact We may be unable to obtain and maintain adequate third-party reimbursement on our product, which could have a significant negative impact on our future operating results. Our current and future expense estimates are based, in large part, on estimates of our future sales, which are difficult to predict. If our suppliers and manufacturers are unable to meet our demand for materials, components and contract services, we may be forced to qualify new vendors or change our product design which would impair our ability to deliver products to our customers on a timely basis. Our products may have defects that result in product recalls, which may result in substantial costs and reduced sales. We may not be able to protect our technology from unauthorized use, which could diminish the value of our products and impair our ability to compete. We may engage in litigation to protect our proprietary rights, or defend against infringement claims by third parties, causing us to suffer significant liabilities or expenses or preventing us from selling our products. Intense competition and rapid technological changes could reduce our ability to market our products and achieve sales. We are subject to claims of product liability and we may not have the resources or insurance to cover the cost for losses under these claims. If we do not continue to comply with changing government laws and regulations, we could lose our ability to market and sell our product or be subject to substantial fines or other penalties. We are subject to federal and state laws governing our sales and marketing practices, and failure to adhere to these laws could result in substantial fines and other penalties. Our international operations are subject to risks not generally associated with commercialization efforts in the U.S. Our failure to attract and retain qualified personnel, including key officers, could adversely affect our operations. We have in the past and may in the future be involved in an investigation conducted by the Staff of the Senate Committee on Finance resulting in adverse publicity about the safety and effectiveness of VNS Therapy, expenditure of substantial resources and diversion of management attention, all with an adverse affect on our business. We have been named in a putative securities class action lawsuit. We are the subject of governmental investigations related to our stock option granting practices and procedures and other matters, the outcome of which could adversely affect our business.

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864683--1/5/2007--CYBERONICS_INC