886235--3/15/2007--ASPECT_MEDICAL_SYSTEMS

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{property, intellectual, protect}

{loss, insurance, financial}

{operation, international, foreign}

{financial, litigation, operation}

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We depend on our BIS system for substantially all of our revenue, and if the BIS system does not gain widespread market acceptance, then our revenue will not grow. Various factors may adversely affect our quarterly operating results through the first fiscal quarter of 2007. Fluctuations in our quarterly operating results could cause our stock price to decrease. If the estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may vary from those reflected in our financial statements. We may need additional financing for our future capital needs and may not be able to raise additional funds on terms acceptable to us, or at all. Cases of awareness with recall during monitoring with the BIS system could limit market acceptance of the BIS system and could expose us to product liability claims. We may not be able to compete with new products or alternative techniques developed by others, which could impair our ability to remain competitive and achieve future growth. If we do not maintain our relationships with the anesthesia community, our growth will be limited and our business could be harmed. If anesthesiologists and other healthcare providers do not recommend and endorse our products, our sales may decline or we may be unable to increase our sales and profits. Negative publicity or unfavorable media coverage could damage our reputation and harm our operations. If we do not successfully develop or acquire and introduce enhanced or new products we could lose revenue opportunities and customers. If our clinical trials are delayed or unsuccessful, our business could be adversely affected. If we do not develop and implement a successful sales and marketing strategy, we will not expand our business. We encourage our direct sales force, distributors and original equipment manufacturers to maximize the amount of our products they sell and they may engage in aggressive sales practices that may harm our reputation. Our third-party distribution and original equipment manufacturer relationships could negatively affect our profitability, cause sales of our products to decline and be difficult to terminate if we are dissatisfied. We may not be able to generate enough additional revenue from our international expansion to offset the costs associated with establishing and maintaining foreign operations. We may not be able to meet the unique operational, legal and financial challenges that we will encounter in our international operations, which may limit the growth of our business. We may experience customer dissatisfaction and our reputation could suffer if we fail to manufacture enough products to meet our customers demands. Our reliance on sole-source suppliers could adversely affect our ability to meet our customers demands for our products in a timely manner or within budget. We may be required to bring litigation to enforce our intellectual property rights, which may result in substantial expense and may divert our attention from the implementation of our business strategy. We may be sued by third parties which claim that our products infringe on their intellectual property rights, particularly because there is substantial uncertainty about the validity and breadth of medical device patents. We could be exposed to significant product liability claims which could divert management attention and adversely affect our cash balances, our ability to obtain and maintain insurance coverage at satisfactory rates or in adequate amounts and our reputation. Several class action lawsuits have been filed against the underwriters of our initial public offering which may result in negative publicity and potential litigation against us that would be costly to defend and the outcome of which is uncertain and may harm our business. Boston Scientific Corporation may be able to affect corporate actions requiring stockholder approval because it owns a significant amount of our common stock. Additionally, if our strategic alliance with Boston Scientific Corporation is not successful, our operating results could be adversely affected. We may not reserve amounts adequate to cover product obsolescence, claims and returns, which could result in unanticipated expenses and fluctuations in operating results. We may not be able to compete effectively, which could result in price reductions and decreased demand for our products. Our ability to market and sell our products and generate revenue depends upon receipt of domestic and foreign regulatory approval of our products and manufacturing operations. Even if we obtain the necessary FDA clearances or approvals, if we or our suppliers fail to comply with ongoing regulatory requirements our products could be subject to restrictions or withdrawal from the market. We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and regulations and, if we are unable to fully comply with such laws, could face substantial penalties. If we do not retain our senior management and other key employees, we may not be able to successfully implement our business strategy. If we do not attract and retain skilled personnel, or if we do not maintain good relationships with our employees, we will not be able to expand our business. Our employees may engage in misconduct or other improper activities, including insider trading. Failure of users of the BIS system, or users of future products we may develop, to obtain adequate reimbursement from third-party payors could limit market acceptance of the BIS system and other products, which could prevent us from sustaining profitability.

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886235--3/15/2007--ASPECT_MEDICAL_SYSTEMS_INC