10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: November 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                  to                 

Commission file number: 000-11868

CARDIODYNAMICS INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

California	95-3533362
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6175 Nancy Ridge Drive, Suite 300, San Diego, California	92121
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 535-0202

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, no par value

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨    No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (as defined in Rule 12b-2 of the Exchange Act). Check one:

Large accelerated filer ¨         Accelerated Filer ¨         Non-accelerated filer ¨         Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨    No x

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was approximately $34,332,000 based on the closing price of common stock as reported on the Nasdaq Capital Market on May 31, 2007. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by directors and officers of the registrant have been excluded because such persons may be deemed to be affiliates. At January 31, 2008, 50,353,299 shares of registrant’s Common Stock were outstanding.

Documents Incorporated by Reference: None

TABLE OF CONTENTS

			Page
Part I	Item 1	Business	3
	Item 1A	Risk Factors	17
	Item 1B	Unresolved Staff Comments	26
	Item 2	Properties	26
	Item 3	Legal Proceedings	26
	Item 4	Submission of Matters to a Vote of Security Holders	26
		Executive Officers of the Registrant	27
Part II	Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters	28
	Item 6	Selected Financial Data	29
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	39
	Item 8	Financial Statements and Supplementary Data	40
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	69
	Item 9A	Controls and Procedures	69
	Item 9B	Other information	70
Part III	Item 10	Directors, Executive Officers and Corporate Governance	71
	Item 11	Executive Compensation	74
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	80
	Item 13	Certain Relationships, Related Transactions and Director Independence	83
	Item 14	Principal Accountant Fees and Services	83
Part IV	Item 15	Exhibits and Financial Statement Schedules	85
		Signatures	89

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and based upon reasonable assumptions when made, but there can be no assurance that these expectations will be achieved or accomplished. Sentences in this document containing verbs such as “believe”, “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.) constitute forward-looking statements that involve risks and uncertainties. Items contemplating or making assumptions about actual or potential future sales, market size, collaborations, trends or operating results also constitute such forward-looking statements. These statements are only predictions and actual results could differ materially. Certain factors that might cause such a difference are discussed throughout this Annual Report on Form 10-K, including the section entitled “Risk Factors.” Any forward-looking statement speaks only as of the date we made the statement, and we do not undertake to update the disclosures contained in this document or reflect events or circumstances that occur subsequently or the occurrence of unanticipated events.

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PART I

ITEM 1. BUSINESS

CardioDynamics International Corporation (“CardioDynamics” or “the Company”) is the innovator and market leader of an important medical technology called impedance cardiography (“ICG”). We develop, manufacture and market noninvasive ICG diagnostic and monitoring devices and proprietary ICG sensors.

The Company was incorporated as a California corporation in June 1980 and changed its name to CardioDynamics International Corporation in October 1993. In March of 2004 we acquired substantially all of the assets and certain liabilities of the Vermed Division (“Vermed”) of Vermont Medical, Inc. based in Bellows Falls, Vermont. Vermed is a manufacturer of electrodes and related supplies used in electrocardiograms (“ECG”) and other diagnostic procedures for cardiology, electrotherapy, sleep testing, neurology and general purpose diagnostic testing. On August 31, 2007, in light of a multi-year decline in operating performance and in order to raise cash, we sold the Vermed subsidiary to Medical Device Partners, Inc. (“MDP”), an entity formed by certain management team members of Vermed, for a cash purchase price of approximately $8,000,000.

In June of 2004, we completed the acquisition of 80% of all outstanding shares of Medis Medizinische Messtechnik GmbH (“Medis”). Medis is a manufacturer of diagnostic and monitoring devices, which ICG technology for cardiovascular diagnostics sold internationally.

In December 2004, the Company received 510(k) clearance by the U.S. Food and Drug Administration (“FDA”) for our new lead product, the BioZ ICG Dx Diagnostics (“BioZ Dx”). The BioZ Dx^® is the result of a co-development partnership and OEM Agreement between the Company and Philips Medical Systems, a division of Royal Philips Electronics (“Philips”), a worldwide leader in clinical measurement and diagnostic solutions for the healthcare industry. This partnership leverages each company’s technology and expertise. The BioZ Dx also carries the CE mark, which is a required certification of essential environmental and safety compliance by the European Community for sale of electronic equipment. In June 2005, the Company received FDA 510(k) clearance for 12 lead diagnostic electrocardiography (“ECG”) capabilities integrated into the BioZ Dx product platform, which provided the world’s first product with the ability to assess mechanical function with ICG and electrical function with 12 lead ECG.

Using our BioZ ICG OEM module kit, Shenzhen Mindray Bio-medical Electronics Co, Ltd. (“Mindray”), the largest manufacturer of patient monitoring products in China, has integrated our ICG technology into its patient monitoring products and received Chinese SFDA and European CE mark regulatory clearance for this product in the fourth quarter of 2006.

We continue to sell our previous lead product, the BioZ^® ICG Monitor (previously known as the BioZ.com^®), which has FDA 510(k) clearance and carries the CE mark. We sell to physicians and hospitals in the United States through our own direct sales force and distribute our products to targeted international markets through a network of distributors. To date, we have sold nearly 7,800 ICG systems (stand-alone products and integrated modules) to physician offices and hospital sites throughout the world. In November 1998, Health Care Finance Administration (“HCFA”), now known as the Center for Medicare & Medicaid Services (“CMS”), mandated national Medicare reimbursement for our BioZ procedures and, in January 2001, implemented national uniform pricing throughout the United States. CMS reevaluated reimbursement of our ICG technology and issued a policy clarification in 2004 that restricted the availability of Medicare reimbursement for hypertension patients and left the decision of whether to cover ICG for high blood pressure (medically referred to as hypertension) to the CMS contractors that administer the CMS program in each state. In November 2006, in response to a request by the Company for national coverage of ICG for hypertension, CMS announced that their hypertension reimbursement policy for ICG would remain unchanged, and CMS contractors would continue to have the discretion to cover ICG for hypertension.

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Our proprietary and patented ICG technology noninvasively quantifies the mechanical functioning of the heart and monitors the heart’s ability to deliver blood to the body. Our systems provide hemodynamic (blood flow) parameters, the most familiar of which is cardiac output, or the amount of blood pumped by the heart each minute. Our products help physicians assess, diagnose, and treat patients with heart failure, hypertension (high blood pressure), and shortness of breath. It is estimated that there are over 5 million heart failure patients in the United States and over 65 million patients with high blood pressure. Our technology complements ECG (electrical characteristics) and supplements information obtained through the five vital signs – heart rate, respiration rate, body temperature, blood pressure and oxygen saturation – quickly, safely and cost effectively.

The traditional method used to measure blood flow (hemodynamic) parameters is pulmonary artery catheterization (PAC), which is an invasive procedure that requires insertion of a catheter (plastic tube) into the heart itself. Complications associated with this procedure occur in as many as one in four reported cases and typically include irregular heartbeats or infection, but in rare cases, pulmonary artery rupture or even death. The PAC procedure is a diagnostic procedure with a catheter inserted into the right side of the heart and should not be confused with the diagnostic and therapeutic procedures involving the left side of the heart, which are used to assess whether coronary artery blockages exist and then intervene to prevent the further occlusion of coronary arteries.

Because of the high risk of complications, physicians generally prescribe PAC only for critically ill patients. PAC is not available in a physician’s office or outpatient clinic. As a result, in the majority of situations, a physician seeking to assess hemodynamic function normally must do so through indirect means, such as by measuring blood pressure or checking the pulse, and/or through employing subjective, imprecise examination techniques, such as looking at distension of neck veins. Thus, a compelling need exists for objective, noninvasive measurement tools, such as our BioZ ICG Systems. The company estimates that in North America, the number of noninvasive hemodynamic procedures with ICG has now surpassed the number of invasive hemodynamic procedures with PAC.

During ICG monitoring using our BioZ ICG Systems, an undetectable electrical signal is sent through our proprietary sensors placed on the patient’s neck and chest. Our DISQ^® (Digital Impedance Signal Quantifier) and AERIS^TM (Adaptive Extraction and Recognition of Impedance Signals) processing analyzes ICG waveforms and the Z MARC^® (Impedance Modulating Aortic Compliance) Algorithm is used to calculate significant hemodynamic parameters. Based on this data, a physician can quickly and safely assess and diagnose the underlying cardiovascular disorder, customize and target treatment, monitor the effectiveness of prescribed medications and more accurately identify potential complications. Our objective is to enhance patient lives through pioneering a new approach to drug management and to make a genuine contribution to healthcare economics with our noninvasive technologies. Key elements of our strategy have included efforts to:

• market and sell ICG products through our direct sales force;

• broaden our product offerings and distribution channels through strategic relationships;

• grow recurring revenue through increased use of our proprietary disposable ICG sensors;

• expand evidence of our technology’s validity and clinical application in our target markets;

• maintain market leadership through product improvements and extensions; and

• target new market opportunities through acquisition and technology development.

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Investors wishing to obtain more information about CardioDynamics may access our annual, quarterly and other reports and information filed with the Securities and Exchange Commission (“SEC”). Investors can read and copy any information the Company has filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. The Company also maintains an Internet site (www.cdic.com) where we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and any amendments to those reports, as well as Section 16 filings, as soon as reasonably practical after such material is electronically filed with or furnished to the SEC. The information on our website is not incorporated by reference into this annual report on Form 10-K.

Industry Overview and Company History

Our proprietary technology provides medical professionals in the physician’s office and hospital with noninvasive access to objective patient data to effectively assess, diagnose and treat heart failure, high blood pressure, shortness of breath, emergency, pacemaker, and critically ill patients.

In the hospital setting, the BioZ is a noninvasive, cost-effective and safe alternative to the invasive PAC procedure and may also be used in many situations in which PAC is not feasible. However, the advantages of our proprietary technology are not limited to the hospital or the critically ill. We believe that the greatest current potential for the BioZ product line lies in the use of noninvasive hemodynamic measurements in the physician office. We estimate that the cumulative worldwide market potential is approximately $2.1 billion for our BioZ equipment product line. This estimate includes $1.4 billion from potential sales to the approximately 70,000 U.S. physician offices that would be likely to benefit from BioZ products and $700 million to U.S. and international hospitals with OEM-based and standalone BioZ products. The estimated U.S. and international annual recurring revenue from ICG disposables is approximately $855 million based on 120 million annual BioZ tests.

Strategy

Our mission is to enhance patient lives through pioneering a new approach to drug management and to make a genuine contribution to healthcare economics with our noninvasive technologies. Our vision will be achieved if and when noninvasive ICG technology becomes a cardiovascular standard of care. We believe the BioZ ICG technology as a key diagnostic and monitoring tool for assessing and treating heart failure, hypertension, shortness of breath, pacemaker, emergency, critically ill, and home healthcare patients. Our corporate strategy includes:

Market and sell ICG products through our direct sales force.

We intend to continue to leverage our direct sales force to capitalize on our first-to-market position in the United States to further penetrate the physician office market. We believe that a strong direct sales force supplemented by our clinical application specialists to clinically train is best suited to educate the medical community about how our technology can improve patient outcomes and decrease costs. We have approximately 31 domestic direct sales representatives who sell our products, as well as four regional sales managers, and a vice president of sales. In addition, we have 19 clinical application specialists, two regional clinical managers and a national clinical applications director to supplement our field sales team and enhance disposable product utilization through customer education and implementation of appropriate protocols for device use. By improving device utilization, we believe we can strengthen customer loyalty and increase capital revenue from device sales and disposable product revenue from our proprietary sensors.

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Broaden our distribution channels through strategic relationships.

We plan to establish strategic relationships with major patient monitoring and diagnostic cardiology companies, pacemaker manufacturers, and other medical products and technology companies to increase the availability of our proprietary technology. We believe that strategic relationships can accelerate market penetration of BioZ ICG technology in markets not served by our direct sales team and provide us with access to the large installed bases of patient monitoring, cardiology, and other complementary medical equipment.

Grow recurring revenue through increased use of our proprietary disposable sensors.

During fiscal 2000, we successfully developed and received FDA 510(k) clearance on our patented BioZtect^® sensor technology that provides notable improvements in performance and features. Its unique shape and chemical composition, adhesion characteristics and more user-friendly design optimize signal transmission and detection sensitivity. In fiscal 2006, we further strengthened our sensor technology through the development and FDA 510(k) clearance on our patent-pending BioZ AdvaSense™ sensor. BioZ AdvaSense incorporates the advancements of the BioZtect sensor and also incorporates additional design features to ensure proper patient connection thereby ensuring data integrity. Our proprietary sensor and cable systems provide enhanced features to our customers and promote the exclusive use of our proprietary sensors with our equipment to ensure optimal product performance and accuracy. As our installed base of BioZ products grows, we expect that the disposable sensor revenue stream will continue to contribute an increasing percentage of our total net sales.

Expand evidence of the technology’s validity and clinical application in our target markets.

While a significant amount of evidence substantiating ICG’s validity and clinical application is now available, we continue to invest in supporting clinical trials to further expand this evidence and provide prospective customers with data regarding the efficacy of ICG. Three major multi-center clinical trials were published in 2006, including studies in outpatient heart failure (“PREDICT”), emergency department shortness of breath (“ED-IMPACT”), and hypertension (“CONTROL”). In 2007, the Company initiated the PREVENT-HF trial, one of the largest randomized trials ever conducted in outpatient heart failure with device-based management.

Maintain market leadership through product improvements and extensions.

We intend to advance the development of our core algorithms to provide physicians with improved cardiac function measurement capabilities on a broad class of patients. We believe that continued advances in our ICG technology will increase physician usage and loyalty and strengthen our industry position. We will capitalize on our expertise in ICG signal processing and sensor technology to improve system performance in the presence of signal noise and patient movement thereby leading to additional applications for cardiovascular disease management.

In 2001, we released the BioZ ICG Module for the GE Medical Systems Information Technologies (“GE Healthcare”) bedside monitoring systems. This product is distributed worldwide by GE Healthcare for their Solar^® 7000, 8000, 8000M, and DASH 3000, 4000 patient monitors. In the first quarter of 2005 we received 510(k) clearance by the FDA for our new product the BioZ Dx device co-developed with Philips, a worldwide leader in clinical measurement and diagnostic solutions for the healthcare industry. In June 2005, we received FDA 510(k) clearance for 12 lead diagnostic ECG capabilities on the Dx ICG platform. Philips has the right to purchase ICG modules from us and sell the combined ECG/ICG product in their key markets. In July 2006, we announced an Original Equipment Manufacturer (“OEM”) agreement with Shenzhen Mindray Bio-medical Electronics Co, Ltd. (Mindray), the largest manufacturer of patient monitoring products in China. Under the terms of the agreement, Mindray has integrated our BioZ ICG technology into its patient monitoring products, and we receive a licensing fee for each BioZ ICG OEM kit purchased by Mindray.

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Target new market opportunities through acquisitions of complementary technologies and technology development.

In 2004, we acquired Medis (a German ICG device design and manufacturer). The Medis acquisition strengthens our core ICG technology development capabilities and provides us with a European partner for market development opportunities in that region.

We will continue to focus on new applications for our core technology. Advances in ICG technology could be applied in the areas of sensor technologies, pacemaker optimization, dialysis fluid management, high-risk obstetric patients, oncology, and pharmaceutical development and testing. Pharmaceutical companies such as GlaxoSmithKline, Eli Lilly and Co. and Pfizer Inc. are currently using our technology to document the cardiovascular effects of their pharmaceutical agents in both animals and humans.

Continued innovation and commercialization of new proprietary products are essential elements in our long-term growth strategy. We intend to continue to seek a competitive advantage by acquiring complementary technologies and additional patents and other proprietary rights, as we deem appropriate.

ICG Technology

While electrocardiography technology noninvasively measures the heart’s electrical characteristics, our ICG technology makes it possible to measure the heart’s mechanical, or blood flow, characteristics. By using our products, physicians have an easy, noninvasive, safe, painless and cost-effective way to monitor the heart’s ability to deliver blood to the body.

In order to measure this conductivity change, our BioZ products use four dual sensors (two on the neck and two on the chest) to deliver a high frequency (70 kHz), low magnitude (4 mA), alternating current through the chest that is not felt by the patient. Our BioZ ICG Monitor uses proprietary DISQ^® and AERIS^TM processing which measures the changes in impedance to the electrical signal. The changes in impedance are then applied to the Z MARC^® Algorithm to provide cardiac output, the amount of blood pumped by heart in one minute. Additional parameters that are provided include those indicating blood flow from the heart, the resistance the heart is pumping against, the force the heart is contracting, and the amount of fluid in the chest. These parameters are printed on a report that allows the doctor to customize and optimize treatment for a particular patient.

Some physical and medical conditions may diminish the accuracy of the measurements provided by our products; therefore, use of our BioZ ICG products in such cases is not appropriate. We believe that inaccuracies are most likely to occur in patients who are experiencing severe septic shock, severe aortic valve regurgitation, severe irregular ventricular heartbeats, or heart rates greater than 180 beats per minute. In addition, there is inadequate data demonstrating the accuracy of our products in patients who are shorter than 47 inches or who weigh less than 66 pounds or more than 342 pounds, as well as in patients who move excessively during the BioZ procedure.

Pricing

Our products have established list prices and we discount the list prices of our products in some circumstances based primarily upon volume commitments or marketing promotions. We also provide discounts on the purchase of refurbished equipment and to distributors who perform sales and customer service functions for us.

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Products

Our business has one operating segment: Impedance Cardiography (ICG). From 2004 through most of 2007, we had a second operating segment: Electrocardiography (ECG) which related to the operations of our Vermed Division that was sold on August 31, 2007. Our principal ICG products consist of the following:

BioZ^® Dx ICG Diagnostics - In March 1998, we received 510(k) marketing clearance for our BioZ ICG Monitor. The BioZ ICG Monitor features a portable design, transportable battery, integrated blood pressure and incorporates our Z MARC^® algorithm. In December 2004, we received FDA 510(k) clearance on the BioZ Dx. The BioZ Dx incorporates AERIS^TM processing and 12-lead ECG capability and is now Electronic Medical Records (EMR) ready with optional BioZport ICG data management software. It also features an integrated full-page thermal printer, color display screen, a standard five-year warranty and a new Thera-Trak^TM reporting function that allows physicians to automatically compare a patient’s last ICG report to the current ICG report. Commercial shipments of the BioZ Dx commenced in the first quarter of 2005.

BioZ^® ICG Monitor - Our noninvasive cardiac function monitoring device, the BioZ ICG Monitor, features a portable design, transportable battery and integrated blood pressure. BioZ ICG Monitors are sold with a pole cart, printer and keyboard for end user data entry and include a standard one-year warranty.

BioZ^® ICG Module - The BioZ ICG Module was jointly developed with GE Healthcare. The module integrates our proprietary BioZ ICG technology into GE’s Solar^® and DASH patient monitoring systems and includes a standard one-year warranty.

BioZtect^® and BioZ^® Advasense™ Sensors - We market disposable sensors designed specifically for use with our BioZ products. Four of our dual sensors are used in each monitoring session. Our proprietary sensor and cable systems provide enhanced features to our customers and promote the exclusive use of our proprietary sensors with our equipment to ensure optimal product performance and accuracy. We have a patent on our BioZtect sensors and a patent-pending on our Advasense™ Sensors.

Niccomo ICG Monitor - The Medis Niccomo ICG monitor is sold through our international sales force outside the United States. It incorporates a color touch screen and integrated strip printer and includes a standard one-year warranty. Medis also manufactures and sells the Cardioscreen and Rheoscreen product lines of venous blood flow products that are sold internationally. These Medis products do not have FDA clearance for sale in the U.S.

BioZ^® ICG OEM Module Kit - The BioZ ICG OEM Module Kit is available to other medical device companies to incorporate ICG measurements as an option in the sale of their existing devices. The OEM kit is current used by Mindray, the largest manufacturer of patient monitoring products in China, and includes a one-year warranty.

Backlog

We generally do not carry significant order backlog in our ICG business and expect backlogged orders to be shipped within the next twelve months. In late 2007, our Medis subsidiary received a prepaid order from a customer in Eastern Europe. As of November 30, 2007, approximately $1.2 million of this order remained to be shipped. We anticipate filling this order during our first fiscal quarter of 2008.

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Sales and Distribution

We view the United States ICG marketplace as two distinct segments: the outpatient (physician) market and the hospital market. In the outpatient market, we target physician offices and hospital-based and freestanding outpatient facilities for our stand-alone BioZ products through our direct sales force and distributors. In 2004, we initiated distributor sales efforts with Physician Sales and Service (“PSS”) and Caligor Medical (Henry Schein, Inc.) to provide leads to our direct sales representatives in an effort to accelerate market penetration. After not achieving the results we had planned, we decided at the end of 2005, to intensify our clinical sales efforts with our internal sales force to drive product acceptance. In contrast to the hospital market, there are few, if any, formal capital equipment budget processes in the outpatient market and purchasing decisions can therefore be made more quickly. Consequently, our direct and distributor sales force is focused primarily on the outpatient markets.

We continue to believe that the hospital market represents a large and viable market for our products, but our current strategy is to focus our direct sales force on outpatient markets and allow our OEM partners to develop the hospital market for ICG.

Internationally, we sell our products through local medical distributors. Currently, we have distribution partners and end-users in more than 30 countries around the world. Additionally, our international sales team supports GE Healthcare sales teams in selling our ICG Module that interfaces with the GE Healthcare Solar and DASH monitoring systems. We do not offer product return rights to our distributors.

Strategic Relationships

During the fourth quarter of fiscal 2000, we entered into an agreement with GE Healthcare for the development of a custom plug-in module for the GE Healthcare Solar^® and DASH series of bedside monitors. This product was introduced to the market in June 2001 and extends the capabilities of the GE Healthcare Solar product family to provide all of the hemodynamic parameters of the BioZ ICG Monitor to GE Healthcare’s installed customer base of well over 50,000 units. This product is distributed worldwide by CardioDynamics and GE Healthcare for their Solar^® 7000, 8000, 8000M, and DASH 3000, 4000 patient monitors. We believe that other patient monitoring companies could benefit from the addition of similar modules to their estimated installed base of over 200,000 modular bedside monitors.

At the beginning of 2005 we released an ICG-only device jointly developed with Philips Medical Systems and in mid-2005, we release a combined ICG/ECG device with Philips’ diagnostic 12-lead ECG. The Co-Development and OEM agreement allows both companies to market the combined ICG/ECG product, although only CardioDynamics is doing so at the current time.

Medis entered into a technology licensing relationship with Analogic Corporation in March 2001. Under the agreement, Medis licensed their ICG circuit board and software design to Analogic as a key component to their own ICG monitor. This product, called the LifeGard Monitor, was released in 2004, and is also sold by Philips as a stand-alone ICG monitor under the Philips brand. We receive a licensing fee each time an Analogic or Philips ICG device is sold.

In July 2006, we announced an OEM agreement with Mindray, the largest manufacturer of patient monitoring products in China. Under the terms of the agreement, Mindray has integrated our BioZ ICG technology into its patient monitoring products, and we receive a licensing fee for each BioZ ICG OEM kit purchased by Mindray.

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Medicare and Other Third-Party Reimbursement

In the outpatient market, most medical procedures are reimbursed by a variety of insurance sources, including Medicare, Medicaid and private insurers. CMS, which is the governmental body that approves medical services for financial reimbursement under Medicare and Medicaid, determines whether to reimburse for a given procedure and assigns an amount allowed. In September 1998, the CMS mandated Medicare coverage of Electrical Bioimpedance services, such as the CardioDynamics BioZ, on a national basis. The established Medicare coverage for BioZ ICG Systems has improved our ability to penetrate the outpatient market, as Medicare provides health insurance to approximately 50 million people in the United States.

In November 2000, CMS established a uniform national pricing level for the use of our equipment which was implemented in January 2001. In January 2002, the American Medical Association issued a formal Level I HCPCS procedure code, (also referred to as a CPT Code) for BioZ ICG technology. The code is 93701.

In December 2002, CMS initiated a reconsideration of ICG’s indications for use. In January 2004, CMS issued an updated national coverage determination. Of the six indications previously indicated, five are substantially unchanged. One indication, “suspected or known cardiovascular disease,” has been revised to specifically allow CMS contractor discretion in the coverage of resistant hypertension. Resistant hypertension is defined by CMS to include patients with uncontrolled blood pressure (greater than or equal to 140 mm Hg systolic blood pressure and/or 90 mm Hg diastolic blood pressure) on three or more anti-hypertensive medications, including a water pill known as a diuretic. This change served to restrict the number of hypertensive patients eligible for CMS reimbursement for ICG monitoring. The revised CMS indications were as follows:

• Optimization of fluid management in patients with heart failure.

• Differentiation of cardiogenic from pulmonary causes of acute dyspnea.

• Optimization of atrioventricular (A/V) interval for patients with A/V sequential cardiac pacemakers.

• Monitoring of continuous inotropic therapy for patients with terminal heart failure, when those patients have chosen to die with comfort at home, or for patients waiting at home for a heart transplant.

• Evaluation for rejection in patients with a heart transplant as a predetermined alternative to a myocardial biopsy.

• CMS local contractor discretion for the treatment of resistant hypertension. Resistant hypertension is defined as patients with uncontrolled blood pressure (greater than or equal to 140 mm Hg systolic blood pressure and/or 90 mm Hg diastolic blood pressure) on three or more anti-hypertensive medications, including a water pill known as a diuretic.

In November 2006, in response to a request by the Company for national coverage of ICG for hypertension, CMS announced that their hypertension reimbursement policy for ICG would remain unchanged and CMS local contractors would continue to have the discretion whether or not to cover ICG for hypertension.

Some private insurers cover the BioZ ICG test, including Aetna, Humana, Blue Cross Blue Shield and others (in select states). We continue active discussions with CMS and private insurers to maintain and expand reimbursement indications for ICG.

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Marketing

Our primary prospects in the outpatient market include cardiologists, internal medicine physicians, and family practitioners caring for heart failure, hypertension, shortness of breath, and pacemaker patients. Patients in the United States who may benefit from our technology include the 65 million hypertension patients, five million heart failure patients, over one million pacemaker patients, and 20 million patients with a sudden onset of shortness of breath. Our marketing strategy is designed to:

• increase physician and hospital personnel knowledge of ICG technology;

• demonstrate the ability of the BioZ ICG Systems to assist physicians in the objective identification and appropriate pharmacological treatment of heart failure, hypertension, and shortness of breath patients;

• show the ability of the BioZ ICG Systems to assist physicians in the optimization of pacemakers;

• demonstrate cost savings of providing ICG monitoring to patients through more efficient care and reimbursement through CMS-mandated Medicare and private insurers; and

• educate physicians and hospital staff of the importance of hemodynamics in the treatment of patients who would normally not be monitored with a PAC due to practice setting, costs and complications.

Our marketing promotion strategy is based on key medical conference participation, direct mail programs, internet-based product and clinical information, and live and direct mail clinical education literature.

Research and Development

Our research and development team, which consists of both scientific and engineering professionals, has extensive experience in the areas of ICG, physiologic signal processing, hardware and software development, and regulatory compliance. The team is responsible for on-going product engineering, new product development and basic research into ICG technology and additional noninvasive monitoring applications.

Our team investigates the physiologic mechanisms underlying our ICG signal as a means of developing new diagnostic parameters. In addition, we research the application of digital signal processing methodologies to improve the quality of signal acquisition and analysis algorithms. Some of this research has resulted in several U.S. patents issued and patents pending. We spent $1,706,000 (7.8% of net sales) on research and development in 2007 and $1,964,000 (9.9% of net sales) in 2006.

Intellectual Property

Our success, to some extent, depends on our ability to maintain patent protection for our products and processes, to preserve our trade secrets and proprietary technology and to operate without infringing upon the patents or proprietary rights of others. We have developed proprietary software for which we have not filed patents. We generally file patent applications in the United States and foreign countries where patent protection for our technology is appropriate and available. We also rely on nondisclosure and non-competition agreements with employees, consultants and other parties to protect trade secrets and other proprietary technology.

To date, CDIC has filed a total of eleven U.S. utility patent applications, three U.S. design patent applications, two European patent applications and one PCT patent application filing. Of these applications, six U.S patents issued in 2003 and one issued in 2006 and three issued in 2007. Of the five U.S. utility patents that have issued, a key patent is U.S. Patent Number 6,561,986, “Method and Apparatus for Hemodynamic Assessment Including Fiducial Point Detection,” which contains 46 claims and is a strategic patent

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underlying the Company’s novel AERIS^TM (Adaptive Extraction & Recognition of Impedance Signals) processing. AERIS utilizes breakthrough techniques in time-scale signal processing to filter and accurately determine key ICG and ECG waveform characteristics, known as “fiducial points.” ICG and ECG fiducial points form the core measurements from which BioZ parameters are determined. AERIS processing provides enhanced stability, accuracy, and reproducibility in a broader range of patient monitoring conditions.

Another utility patent, U.S. 6,636,754, relates to our electrode technology protection along with three design patents that were issued in 2003. These patents cover various design aspects of the Company’s BioZtect sensors and apply to sensors for use with the BioZ and BioZ Dx ICG Monitors as well as the BioZ ICG Module. The BioZtect sensors offer notable improvements in safety and signal transmission and detection, which are critical for device performance.

During 2005 CDIC became aware of a company that was selling competitive ICG sensors for use with our BioZ systems. We filed a patent infringement suit and, in turn, they countersued to have our patent declared invalid and for other restraint of trade claims. In 2006, we agreed to drop the lawsuit and they agreed to drop the countersuit and to pay us a royalty on future ICG sensor sales. In response to this competitive situation with our sensors, two additional US utility patent applications were filed for even stronger IP protection on a new model ICG sensor, Advasense^®.

Clinical Studies

We are committed to supporting well-designed clinical research studies utilizing ICG technology that demonstrate validity, reproducibility, clinical utility and cost-effectiveness. Our clinical research team participates in monitoring and analysis of company-sponsored clinical trials and support of multiple investigator-initiated trials.

Previous generation technology

Several hundred research papers on ICG technology have been published since 1993. In general, these studies reported mostly favorable results when comparing cardiac output measurements with those of other techniques, such as PAC.

The previous generation technology we acquired in 1993 worked reasonably well in a select group of patients. However, significant technological limitations became evident when monitoring ventilated patients and those with increasing heart rates, high heart rates, abnormal heartbeats, high respiration rates and pacemakers. These limitations related to both hardware and software inadequacies. As a result of intense research and development focus and concerted effort, combined with advances in computer processing power, CardioDynamics has addressed these limitations by improving the electronics, digital signal processing, and parameter computation algorithms.

New technology

As studies are conducted with our new technology, their results are summarized first as abstracts, and then as manuscripts that move through the peer review process towards publication. This process can take two years or more to complete. The results of several major studies addressing each of these areas have been released with positive results.

In May 2002, the results of a significant Mayo Clinic study were published in the peer-review journal, Hypertension. The results of the study demonstrated 70% superiority in effectively treating previously-uncontrolled hypertension patients when our BioZ ICG was used as compared to traditional management by high blood pressure specialist physicians.

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In March 2006, the results of the ED-IMPACT trial (Impedance Cardiography-Aided Assessment Changes Therapy in Emergent Dyspnea) were published in the peer-reviewed journal, Academic Emergency Medicine. The study demonstrated the impact of ICG data upon diagnosis and treatment in patients short of breath in the emergency department. The results demonstrated a 39% change in therapeutic plan and 13% change in diagnosis, which were considered very significant findings.

In April of 2006, the results of the 11 center multi-center CONTROL trial (Consideration of Noninvasive Hemodynamic Monitoring to Target Reduction of Blood Pressure Levels) were published in the peer-reviewed journal, Hypertension. This study was designed to evaluate the community-based treatment of mild to moderate hypertension patients (vs. the Mayo Clinic Study that was conducted in more severe hypertension treated by specialists). We evaluated the reduction of blood pressure and the achievement of blood pressure control in patients treated with and without BioZ ICG. The results of the study demonstrated that use of BioZ^® ICG achieved significantly greater reductions in blood pressure (8 mm Hg systolic and 7 mm Hg diastolic) more than two times better than standard care for achievement of blood pressure control to 130/85 mm Hg.

In June of 2006, the results of the PREDICT trial (Prospective Evaluation and Identification of Cardiac Decompensation in Patients with Heart Failure by Impedance Cardiography Test) were published in a peer-reviewed journal, the Journal of the American College of Cardiology. PREDICT was led by principal investigator, Dr. Milton Packer, and 21 top U.S. heart failure centers participated in the study. The study was designed to show whether ICG variables could predict whether a heart failure patient would die or be hospitalized. The results showed that of all the variables measured in the study, ICG was the most powerful predictor of death or hospitalization. A patient with a high risk ICG test was over 8 times more likely to die or be hospitalized in the short-term (2 weeks) than a patient with a low risk ICG test.

In March of 2007, we announced the commencement of a multinational, randomized controlled multi-center trial in heart failure patients which will evaluate whether the predictive power of ICG as demonstrated in PREDICT study can be used to change medical managements and subsequently reduce heart failure hospitalizations, as compared to standard care without the use of ICG. The study is called PREVENT-HF – Prevention of Heart Failure Events with Impedance Cardiography Testing. Milton Packer, M.D., Chairman of the Department of Clinical Sciences at the University of Texas Southwestern Medical Center in Dallas Texas, serves as the principal investigator of this trial. Dr Packer is one of the world’s leading experts in the treatment of heart failure.

In addition, multiple other ICG studies have been published in journals such as Chest, American Journal of Cardiology, and Congestive Heart Failure.

Strategic Future Trial

We are sponsoring a multinational, multi-center trial in heart failure patients which will evaluate whether the predictive power of ICG as demonstrated in PREDICT study can be used to change medical managements and subsequently reduce heart failure hospitalizations, as compared to standard care without the use of ICG. The study is called PREVENT-HF – Prevention of Heart Failure Events with Impedance Cardiography Testing and commenced in 2007.

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Manufacturing

Our products are assembled in San Diego, California, and Illmenau, Germany. The CardioDynamics headquarters in San Diego includes the assembly, test and service facility for the CardioDynamics BioZ ICG systems. The Medis subsidiary in Illmenau is a majority owned subsidiary that manufactures ICG and venous blood flow products, including the Rheoscreen product line, Cardioscreen and Niccomo ICG monitors.

Each location has established procedures and controls intended to ensure that both products and purchased parts are designed and manufactured to meet customers’ requirements. We purchase the components and raw materials used in manufacturing our products from various suppliers including Philips for the platform for our BioZ Dx System under a Co-Development and OEM agreement and Vermed for our ICG sensors under a five-year custom manufacturing and supply agreement. Our suppliers are evaluated, qualified and monitored to assure continuity of supply while maintaining high quality and reliability. We have systems and procedures in place to ensure timely and effective corrective and preventive actions are taken if we, or our customers, identify non-conformities.

Warranty and Repair

We warrant that our stand-alone BioZ Dx System will be free from defects for a period of 60 months from the date of shipment on each new system sold in the United States, and for 13 months on BioZ systems sold internationally. We warrant that the Niccomo ICG monitor, new stand-alone BioZ Monitors and factory certified refurbished BioZ Dx will be free from defects for a period of 12 months from the date of shipment. The warranty includes all options and accessories purchased with the system, except for the external patient cables, the external printer, power cords, and inflatable blood pressure cuffs that are covered for a period of 90 days. When warranty repairs are necessary, we generally perform them at our manufacturing facilities. In some cases, our distributors perform warranty repairs in authorized service centers which are located in Kuwait, Mexico and China.

We provide on-call technical support and, on occasion, offer field clinical support specialists. In addition to our standard warranty, we offer Z Care^® extended warranty agreements for maintenance beyond the standard warranty period. We repair equipment that is out of warranty on a time and materials basis.

Competition

Direct competition

To date, we have experienced very limited direct competition. Through our German subsidiary, Medis, we inherited a licensing agreement and relationship with Analogic Corporation, which manufactures a stand-alone ICG device for Philips as well as an Analogic-manufactured device, the LifeGard Monitor, which is distributed through a medical device manufacturer and distributor, Advanced Cardiac Systems. The Philips stand-alone device is primarily sold into the hospital market where we have not traditionally focused with our direct sales force. The LifeGard Monitor is primarily sold in the physician office market and has a suggested retail price that is lower than our BioZ ICG Monitors. The LifeGard Monitor represents the most significant form of competition we have experienced to-date. However, since its introduction in late 2004, we estimate that we have maintained greater than 95% market share for ICG device sales in the U.S. market and have lost very few unit sales in head-to-head competition. We are also aware of at least two domestic and one international manufacturers of ICG monitors. None of these companies has direct sales or clinical teams, and thus far, neither has had much visibility in the market. We believe that our BioZ products provide the most advanced ICG monitoring at prices that are competitive.

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Indirect competition

PAC

Also known as thermodilution, right heart catheterization or Swan-Ganz™ catheterization, the PAC procedure was introduced in the early 1970’s. Despite its limitations, costs and risks, PAC remains the most commonly used technology besides ICG for monitoring hemodynamic status. Medical Data International estimates that PAC procedures are used over a million times per year worldwide. Edwards Lifesciences, Abbott Laboratories and Datex-Ohmeda produce the majority of right heart catheters used in the United States. ICG technology may eliminate PAC-caused complications, lower costs, reduce procedure time, expand clinical applications and offer immediate availability of vital, real-time, continuous hemodynamic data.

Echocardiography

Echocardiography (“echo”) is a diagnostic tool utilizing ultrasound frequency waves to detect anatomical abnormalities of the heart and blood vessels. Echo technology was developed during the 1970’s and has advanced through the years with the addition of sophisticated electronics and digitalization for acquisition of better images. A continuous wave suprasternal Doppler echo measures cardiac output noninvasively by placing a Doppler transducer on the chest, aiming it toward the ascending aorta and measuring aortic blood flow velocity. Specifically, echo measures the aortic diameter and the movement of red blood cells to determine the velocity and direction of blood flow to calculate stroke volume and thus calculate cardiac output. While it is possible to do so, echo is not routinely used to measure cardiac output because of its technological limitations, cost, time, and lack of reimbursement for this purpose.

Trans-esophageal echo

Trans-esophageal echo is an ultrasound advancement that is used to obtain closer images of the heart. It is useful in patients for whom examination from the usual external position is technically impossible or for hospitalized patients undergoing cardiac surgery. Trans-esophageal echo is performed with the ultrasound transducer placed in the esophagus through the mouth. Although this procedure enables more direct, accurate images of the heart, disadvantages include its invasive nature, increased patient discomfort and the requirement for patient sedation to promote procedure tolerance. In addition, patient airway complications may result, therefore emergency equipment, such as oxygen, intubation equipment and ECG monitoring must be immediately available. The procedure is customarily performed with several attendants, including an echo technician, a nurse and a physician.

Direct and Indirect Fick

Direct Fick was the original method conceived in the late 1800’s to measure cardiac output. It is based on calculating the oxygen difference between the arterial and venous blood, along with oxygen inhalation and expiration. The direct Fick method is seldom used because it is time consuming, costly and complicated. A variation of the direct Fick method is called CO₂ Re-breathing, or Indirect Fick. It was introduced in the 1980’s to the hospital surgical market. Because CO₂ Re-breathing method is limited to patients who are mechanically ventilated, the number of patients who are candidates for the procedure is very limited.

Government Regulation

Our products are classified as medical devices subject to regulation in the United States by the Food and Drug Administration (“FDA”). New products generally required FDA clearance under a procedure known as 510(k) pre-market notification. A 510(k) pre-market notification clearance indicates FDA agreement with an applicant’s determination that the product is substantially equivalent to another marketed medical device. Our products generally are Class II products with the FDA. Delays in receipt of, or failure to obtain or maintain, regulatory clearances and approvals, or any failure to comply with regulatory requirements, could delay or prevent our ability to market our product line.

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The Federal Food, Drug and Cosmetic Act, its subsequent amendments and modernization acts, and similar foreign regulations, require that medical devices be manufactured in accordance with good manufacturing practices and quality system requirements. Our manufacturing processes and facilities are subject to periodic on-site inspections and continuing review by applicable regulatory bodies to ensure compliance with Quality System regulations. We believe that our products currently meet applicable standards for the countries in which they are marketed.

We are required to report to the FDA and international agencies information that a device has or may contribute to a death or a serious injury. We also may be subject to product recalls. No such report or recall has had a material effect on our financial condition or prospects, but there can be no assurance that regulatory issues may not have a material adverse effect in the future.

We are subject to various environmental laws and regulations. Like other medical device companies, our operations involve the use of substances regulated under environmental laws, primarily in manufacturing processes. While it is difficult to quantify the potential impact of compliance with environmental protection laws, we believe that we are in material compliance with current environmental standards and that continued compliance will not have a material impact on our financial position or prospects, results of operations or liquidity.

Failure to comply with applicable governmental regulations can result in various penalties, including fines, recalls or seizure of product, total or partial suspension of production, refusal or delay in product approvals or clearances, increased quality control costs or criminal prosecution. Any change in existing federal, state or foreign laws or regulations, or in the interpretation or enforcement thereof, of the promulgation of any additional laws or regulations could have an adverse effect on our business, financial condition, prospects, results of operations or cash flows.

In order to sell our products within the European community, we must comply with the European Commission’s medical device directive. In late 1998, we received authorization to place the CE mark on our BioZ ICG Monitor. The CE mark is recognized worldwide as an essential European regulatory approval and enabled us to expand our sales and distribution of the BioZ ICG Monitor throughout Europe. Future regulatory changes could limit our ability to use the CE mark, and any new products we develop may not qualify for the CE mark. If we fail to obtain authorization to use the CE mark or lose this authorization, we will not be able to sell our products in the European community. In October 2006, we had our annual compliance review and we passed without any significant issues.

In November 2004, we received renewal approval from the State Drug Administration of the People’s Republic of China, and in November 2000, we received a Canadian Medical Device License. Our distribution partners received MHLW approval in November 2004, KFDA approval in February 2002 and Israel Ministry of Health approval in October 2006, enabling our products to be sold in Japan, Korea and Israel. In June, 2007 we received clearance for the CardioDynamics BioZ Dx Hemodynamic Monitor with Philips 12-lead ECG from Health Canada, Therapeutic Products Directorate, Medical Device Bureau.

Employees

As of November 30, 2007, we had 112 employees, none of whom are covered by a collective bargaining agreement. We consider our employee relations with our employees to be good.

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ITEM 1A. RISK FACTORS

In addition to the other information contained in this Form 10-K, you should consider the following risk factors which could affect our business, financial condition and results of operations.

We depend upon our BioZ product line, which is in its early stages of market acceptance.

Our future is dependent upon the success of the BioZ product line and similar products that are based on the same core technology. The market for these products is in a relatively early stage of development, less than 2% penetrated, and may never fully develop as we expect. The long-term commercial success of the BioZ product line requires widespread acceptance of our products as safe, efficient and cost-effective. Widespread acceptance would represent a significant change in medical practice patterns. In the past, some medical professionals have hesitated to use ICG products because of limitations experienced with older, analog-based monitors. Invasive procedures, such as PAC, are generally accepted in the medical community and have a long history of use. We have sponsored and intend to continue to sponsor or support clinical trials. We cannot be certain that clinical trials will be completed, that they will have a positive outcome or that a positive outcome in these trials will be sufficient to promote widespread acceptance of our products within the medical community.

Our success depends in part upon the availability of adequate third-party reimbursement.

Our success will depend in part on the availability of adequate reimbursement for our customers from third-party healthcare payers, such as Medicare, private health insurers and managed care organizations. Third-party payers continue to challenge the pricing of medical products and services. Reimbursement may not be at, or remain at, price levels adequate to allow medical professionals to realize an appropriate return on the purchase of our products. In addition, third-party payers may not cover all or a portion of the cost of our products and related services, or they may place significant restrictions on the circumstances in which coverage will be available. For example, in January 2004, CMS issued an updated national coverage determination which served to restrict the number of hypertensive patients eligible for Medicare reimbursement for ICG monitoring. While CMS could rescind coverage if they deemed the test or therapy to be harmful, in no instance has CMS ever rescinded coverage for a test or therapy that they previously evaluated and chose to cover. On occasion, we offer Customers a limited Medicare reimbursement guarantee under which we would be responsible for the remaining unbilled payments in the unlikely event that Medicare rescinds coverage.

We must maintain and develop strategic relationships with third parties to increase market penetration of our product lines.

We distribute our ICG products to targeted international markets through a network of regional distributors, our strategic alliance with GE Healthcare and Mindray and to the US market through our direct sales force. We may enter into similar agreements with other companies and establish technology partnerships with other medical product, distribution and technology companies. Successfully managing the interaction of our direct sales force and strategic distribution partners is a complex process. Moreover, since each distribution method has distinct risks, gross margins and operation costs. Our failure to implement and maintain the most advantageous balance in the delivery model for our products could adversely affect our revenues, gross margins and profitability. Widespread acceptance of our BioZ products may be dependent on our establishing and maintaining these strategic relationships with third parties and on the successful distribution efforts of third parties. Many aspects of our relationships with third parties, and the success with which third parties promote distribution of our products, are beyond our control. We may be unsuccessful in maintaining our existing strategic relationships and in identifying and entering into future development and distribution agreements with third parties.

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Our future financial results could be adversely impacted by asset impairments or other charges.

Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” requires that we establish a method for testing goodwill and other intangible assets determined to have indefinite lives for impairment on an annual, or on an interim basis if certain events occur or circumstances change that would reduce the fair value of a reporting unit below its carrying value or if the fair value of intangible assets with indefinite lives falls below their carrying value. In addition, under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that its carrying value may not be recoverable. A significant decrease in the fair value of a long-lived asset, an adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition or an expectation that a long-lived asset will be sold or disposed of significantly before the end of its previously estimated life are among several of the factors that could result in an impairment charge.

We evaluate intangible assets determined to have indefinite lives for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sales or disposition of a significant portion of the business, or other factors such as a decline in our market value below our book value for an extended period of time.

We evaluate the estimated lives of all intangible assets on an annual basis, to determine if events and circumstances continue to support an indefinite useful life or the remaining useful life, as applicable, or if a revision in the remaining period of amortization is required. The amount of any such annual or interim impairment charge could be significant, and could have a material adverse effect on reported financial results for the period in which the charge is taken.

Utilization of our deferred tax assets may be limited and is dependant on future taxable income.

We have federal net operating loss carryforwards (“NOLs”) of approximately $50 million for federal income tax purposes. The Tax Reform Act of 1986 contains provisions under section 382 of the Internal Revenue Code that limit the federal NOLs that may be used in any given year in the event of specified occurrences, including significant ownership changes. If these specified events occur we may lose some or all of the tax benefits of these carryforwards. In calculating our 2007 tax provision and assessing the likelihood that we will be able to use the deferred tax assets we evaluated our ability to realize these deferred tax assets and determined that it is appropriate to retain a valuation allowance for the full amount of the deferred tax assets. As we generate taxable income for book purposes, we will realize the benefit of the deferred tax assets to offset the tax expense associated with pre-tax income, resulting in a reduced net tax expense for the period and greater net income than would normally be expected.

Technological change is difficult to predict and new product transitions are difficult to manage.

Our product line has required, and any future products will require, substantial development efforts and compliance with governmental clearance or approval requirements. We may encounter unforeseen technological or scientific problems that force abandonment or substantial change in the development of a specific product or process. In addition, as we introduce new products and product enhancements, we may not be able to effectively segregate or transition from existing products which could negatively impact revenue, gross margin and overall profitability. Among the risks associated with the introduction of new products are delays in development or manufacturing, variations in cost, delays in customer purchases in anticipation of new introductions, difficulty in predicting customer demand for the new and existing offerings and effectively managing inventory levels and the risks that new products may have quality or other defects. Furthermore, sales of our new products may replace sales, or result in discounting of our current offerings.

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We depend on management and other key personnel.

We are dependent on a limited number of key management and technical personnel. The loss of one or more of our key employees may hurt our business if we are unable to identify other individuals to provide us with similar services. We do not maintain “key person” insurance on any of our employees. We face intense competition in our recruiting activities and may not be able to attract or retain qualified personnel. We have historically used stock options as key components of our total employee compensation program. In recent periods, many of our employee stock options have had exercise prices in excess of our stock price, which reduces their value to employees and could affect our ability to retain and attract present and prospective employees. In addition, the implementation of SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), has required us to record a charge to earnings for employee stock option grants and other equity incentives which has changed our compensation strategy. Our ability to retain our existing personnel and attract additional highly qualified personnel will impact our future success.

We may need additional capital, which may be unavailable.

The commercialization of our current product line, acquisition of complimentary technologies and the development and commercialization of any additional products may require greater expenditures than expected in our current business plan. Our capital requirements will depend on numerous factors, including:

• our rate of sales growth—fast growth may actually increase our need for additional capital to hire additional staff, purchase additional inventory, and finance the increase in accounts receivable;

• whether or not the holders of our $5.25 million convertible notes elect to exercise their April 2009 early repayment option provided under the terms of the notes;

• our progress in marketing-related clinical evaluations and product development programs, all of which will require additional capital;

• our receipt of, and the time required to obtain, regulatory clearances and approvals—the longer regulatory approval takes, the more working capital we will need to support our regulatory and development efforts in advance of sales;

• the level of resources that we devote to the development, manufacture and marketing of our products—any decision we make to improve, expand, acquire complimentary technologies or simply change our process, products or technology will require increased funds;

• facilities requirements—as we grow we need additional manufacturing, warehousing and administration facilities and the costs of the facilities will be borne before substantially increased revenue from growth would occur;

• market acceptance and demand for our products—although growth may increase our capital needs, the lack of growth and continued losses would also increase our need for capital; and

• customer financing strategies—our attempt to accelerate the purchasing processes by offering internal financing programs and by providing purchasers with extended payment terms would consume additional capital.

We may be unable to predict accurately the timing and amount of our capital requirements. We may be required to raise additional funds through public or private financing, bank loans, collaborative relationships or other arrangements earlier than expected. It is possible that banks, venture capitalists and other investors may perceive our capital structure, our history of losses or the need to achieve widespread acceptance of our technology as too great a risk to bear, particularly if the capital markets for this profile of financing continues to contract as it has recently. As a result, additional funding may not be available at attractive terms, or at all. If we cannot obtain additional capital when needed, we may be forced to agree to unattractive financing terms, to change our method of operation or to curtail our operations.

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We are subject to stock exchange and government regulation.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) and SEC and stock exchange regulations have increased financial reporting and disclosure requirements, corporate governance and internal control requirements, including compliance of our acquired businesses that have significantly increased the administrative costs of documenting and auditing internal processes, gathering data, and reporting information. The need to commit substantial resources and management attention in these areas could impact our ability to deploy those same resources to other areas of our business. If we are unable to comply with the requirements, it could significantly impact our market valuation.

A low stock price could result in our being de-listed from the Nasdaq Market and subject us to regulations that could reduce our ability to raise funds.

If our stock price remains below $1.00 per share, or if we fail to maintain other Nasdaq criteria, Nasdaq may de-list our common stock. In such an event, our shares could only be traded on over-the-counter bulletin board system. This method of trading could significantly impair our ability to raise new capital. In April of 2007 we received a Nasdaq Staff Deficiency Letter from the Listing Qualifications Department indicating that the Company’s common stock failed to comply with the minimum bid price requirement set forth in Nasdaq Marketplace Rule 4450(a)(5). The letter was issued in accordance with standard Nasdaq procedures because the Company’s common stock closed below $1.00 per share for 30 consecutive trading days. The Company was afforded 180 calendar days, to regain compliance with the minimum bid requirement. Because our stock did not exceed the $1.00 minimum bid price for at least 10 consecutive business days, we elected to transfer our common stock from the Nasdaq Global Market to the Nasdaq Capital Market in October of 2007. At that time we were granted a second 180 calendar days, or through mid April 2008, to regain compliance while listed on the Nasdaq Capital Market.

In the event that our common stock was de-listed from the Nasdaq Market due to low stock price, we may become subject to special rules, called “penny stock” rules that impose additional sales practice requirements on broker-dealers who sell our common stock. The rules require, among other things, the delivery, prior to the transaction, of a disclosure schedule required by the SEC relating to the market for penny stocks. The broker-dealer also must disclose the commissions payable both to the broker-dealer and the registered representative and current quotations for the securities, and monthly statements must be sent disclosing recent price information.

In the event that our common stock becomes characterized as a penny stock, our market liquidity could be severely affected. The regulations relating to penny stocks could limit the ability of broker-dealers to sell our common stock and thus the ability of purchasers in this offering to sell their common stock in the secondary market.

We may not have adequate intellectual property protection.

Our patents and proprietary technology may not be sufficient to protect our intellectual property rights. In addition, if our actions to enforce our patents are found to be a violation of laws related to unlawful tying or restraint of trade, we may be required to pay damages to third parties, which could be costly and could harm our business. The validity and breadth of claims in medical technology patents involve complex legal and factual questions. There can be no assurance that pending patent applications will result in issued patents, that future patent applications will be issued, that patents issued to or licensed by us will not be challenged or circumvented by competitors or that such patents will be found to be valid or sufficiently broad to protect our technology or to provide us with a competitive advantage. Our patents may be found to be invalid and other companies may claim rights in or ownership of the patents and other proprietary rights held or licensed by us. Also, our existing patents may not cover products that we develop in the future. Moreover, when our patents expire, the inventions will enter the public domain.

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We also rely on nondisclosure and noncompetition agreements with employees, consultants and other parties to protect trade secrets and other proprietary technology. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets and proprietary knowledge.

We face competition from other companies and technologies.

We compete with other companies that are developing and marketing noninvasive hemodynamic monitors. We are also subject to competition from companies that support invasive technologies. Many of these companies have more established and larger marketing and sales organizations, significantly greater financial and technical resources and a larger installed base of customers than we do.

The introduction by others of products embodying new technologies and the emergence of new industry standards may render our products obsolete and unmarketable. In addition, other technologies or products may be developed that have an entirely different approach or means of accomplishing the intended purposes of our products. Accordingly, the life cycles of our products are difficult to estimate. To compete successfully, we must develop and introduce new products that keep pace with technological advancements, respond to evolving consumer requirements and achieve market acceptance. We may be unable to develop new products that address our competition.

Our business plan contemplates an income stream from sales of disposable sensors that are compatible with an installed base of our monitors. We may be subject to price competition from other sensor manufacturers whose products are also compatible with our monitors. In addition, our current and potential competitors may establish cooperative relationships with large medical equipment companies to gain access to greater research and development or marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share.

If market conditions cause us to reduce the selling price of our products or sensors, our margins and operating results will decrease.

The selling price of our products and sensors are subject to market conditions. Market conditions that could impact these aspects of our operations include:

• Changes in the reimbursement policies of government and third-party payers;

• Hospital or physician practice budgetary constraints;

• The introduction of competing products;

• Price reductions by our competitors;

• Development of more effective products by our competitors; and

• Lengthening of buying or selling cycles.

If such conditions force us to sell our products and systems at lower prices, or if we are unable to effectively develop and market competitive products, our market share, margins and operating results will likely decrease.

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We may not receive approvals by foreign regulators that are necessary for international sales.

Sales of medical devices outside the United States are subject to foreign regulatory requirements that vary from country to country. If we or our international distributors fail to obtain or maintain required pre-market approvals or fail to comply with foreign regulations, foreign regulatory authorities may require us to file revised governmental notifications, cease commercial sales of our products in the applicable countries or otherwise cure the problem. Such enforcement action by regulatory authorities may be costly. In order to sell our products within the European community, we must comply with the European community’s medical device directive. The CE marking on our products attests to this compliance. Future regulatory changes may limit our ability to use the CE mark, and any new products we develop may not qualify for the CE mark. If we lose this authorization or fail to obtain authorization on future products, we will not be able to sell our products in the European community.

Our quarterly operating results frequently vary due to factors outside our control.

We have experienced and expect to continue to experience fluctuations in quarterly operating results due to a number of factors. We cannot control many of these factors, which include the following:

• the timing and number of new product introductions;

• the number of selling days in a given quarter;

• turnover in our sales force;

• the mix of sales of higher and lower margin products in a quarter;

• the market acceptance of, and changes in demand for our products;

• the impact of any changes in generally accepted accounting principles;

• the loss of any of our strategic partners;

• variations in inventory overhead rates or inventory reserves;

• the impact of acquisitions, divestitures, strategic alliances, and other significant corporate events;

• development and promotional expenses relating to the introduction of new products or enhancements of existing products;

• product returns or bad debt write-offs;

• changes in pricing policies by our competitors;

• the timing of regulatory compliance audits;

• the impact of weather related disasters such as ice storms and hurricanes;

• delays in shipment of products or components to us by our vendors; and

• The timing of customer orders and shipments. Our quarterly sales have reflected a pattern in which a disproportionate percentage of our total quarterly sales occur toward the end of each of our fiscal quarters. This uneven sales pattern makes prediction of revenue, earnings and working capital for each financial period difficult, increases the risk of unanticipated variations in quarterly results and financial condition and places pressure on our inventory management, staffing, and logistics systems.

Accordingly, you should not rely on period-to-period comparisons of our financial results as indications of future results.

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Our international sales expose us to unique risks.

In fiscal 2007, international sales accounted for approximately 12% of our net sales. We believe that international sales could represent a meaningful portion of our revenue in the future. We rely on a network of regional distributors, our strategic alliance with GE Healthcare and Mindray to assist us with our international sales efforts. In June of 2004, we purchased 80% of the outstanding common stock of Medis, which is located in Ilmenau, Germany. As such, we are exposed to risks from international sales, which include unexpected changes in regulatory requirements, tariffs and other barriers and restrictions and reduced protection for intellectual property rights. Moreover, fluctuations in the rates of exchange may subject us to foreign currency losses related to the Medis deferred acquisition payments or increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitive products.

We may not be able to manage growth successfully.

If successful, we will experience a period of growth that could place a significant strain upon our managerial, financial and operational resources. Our infrastructure, procedures, controls and information systems may not be adequate to support our operations and to achieve the rapid execution necessary to successfully market our products. Our future operating results will also depend on our ability to continually upgrade our information systems, expand our direct sales force and our internal sales, marketing and support staff. If we are unable to manage future expansion effectively, our business, results of operations and financial condition will suffer, our senior management will be less effective, and our revenues and product development efforts may decrease.

Our limited order backlog makes it difficult to predict sales and plan manufacturing requirements, which can lead to lower revenues, higher expenses and reduced margins.

Our customers typically order products on a purchase order basis, and we do not generally have long-term purchase contracts. In limited circumstances, customer orders may be cancelled, changed or delayed on short notice. Lack of significant order backlog makes it difficult for us to forecast future sales with certainty. Varying sales cycles with our customers make it difficult to accurately forecast component and product requirements. These factors expose us to a number of risks:

• If we overestimate our requirements we may be obligated to purchase more components or third-party products than is required;

• If we underestimate our requirements, our third-party manufacturers and suppliers may have an inadequate product or product component inventory, which could interrupt manufacturing of our products and result in delays in shipments and revenues;

• We may also experience shortages of product components from time to time, which also could delay the manufacturing of our products; and

• Over or under production can lead to higher expense, lower than anticipated revenues, and reduced margins.

We depend on third parties for development and manufacturing services.

Our strategy for development and commercialization of some of our products depends upon entering into various arrangements with third parties and upon the subsequent success of these parties in performing their obligations. We may not be able to negotiate acceptable arrangements in the future, and our existing arrangements may not be successful. We rely on third parties to manufacture our ICG sensors and we currently assemble our products from components manufactured by a limited number of manufacturers. Therefore, we are highly dependent on these manufacturers. If we experience a termination, modification or disruption of any of our manufacturing arrangements, we may be unable to deliver products to our customers on a timely basis, which may lead to customer dissatisfaction and damage to our reputation.

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Our common stock is subject to price volatility.

The market price of our common stock has been, and is likely to continue to be, highly volatile. Our stock price could be subject to wide fluctuations in response to various factors beyond our control, including:

• actual or anticipated quarterly variations in operating results;

• announcements of technological innovations, new products or pricing by our competitors;

• changes in, or failure to meet, financial estimates of securities analysts;

• the rate of adoption by physicians of ICG technology in targeted markets;

• the timing and extent of technological advancements, patent and regulatory approvals;

• the impact of acquisitions, divestitures, strategic alliances, and other significant corporate events;

• anything other than unqualified reports by our outside auditors;

• results of clinical studies;

• changes in reimbursement policies of third-party payers;

• the sales of our common stock by affiliates or other shareholders with large holdings; and

• general economic and market conditions.

Our future operating results may fall below the expectations of securities industry analysts or investors. Any such shortfall could result in a significant decline in the market price of our common stock. In addition, the stock market has at times experienced significant price and volume fluctuations that have affected the market prices of the stock of many medical device companies that often have been unrelated to the operating performance of such companies. These broad market fluctuations may directly influence the market price of our common stock.

We have a history of losses and may experience continued losses.

With the exception of 2002 through 2004, we have experienced losses every year because we have expended more money in the course of researching, developing and enhancing our technology and products and establishing and maintaining our sales, marketing and administrative organizations than we have generated in revenues. We expect that our operating expenses will continue at current levels and eventually increase in the foreseeable future as we increase our sales and marketing activities, expand our operations and continue to develop our technology. It is possible that we will not be able to achieve the revenue levels required to achieve and sustain profitability.

We may not continue to receive necessary FDA or other regulatory clearances or approvals.

Our products and activities are subject to extensive, ongoing regulation by the Food and Drug Administration and other governmental authorities. Delays in receipt of, or failure to obtain or maintain, regulatory clearances and approvals, or any failure to comply with regulatory requirements, could delay or prevent our ability to market or distribute our product line.

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We may not be able to make future acquisitions or successfully integrate any such acquisitions.

As part of our long-term growth strategy, we intend to continue to consider opportunities to acquire or make investments in other technologies, products and businesses that could enhance our technical capabilities, complement our current products or expand the breadth of our markets or customer base.

Potential and completed acquisitions and strategic investments involve numerous risks, including:

• problems assimilating the purchased technologies, products or business operations;

• unanticipated transaction cost associated with the acquisition, including accounting charges;

• problems implementing and maintaining adequate procedures, controls and policies;

• diversion of management’s attention from our core business;

• adverse effects on existing business relationships with suppliers and customers;

• risks associated with entering markets in which we have no or limited prior experience; and

• potential loss of key employees of acquired organizations.

If we fail to properly evaluate and execute acquisitions and strategic investments, our management team may be distracted from our day-to-day operations, our business may be disrupted, and our operating results may suffer. In addition, if we finance acquisitions by incurring debt or issuing equity, our existing shareholders would be diluted or we would have to generate additional profits to cover the interest expense.

We are subject to product liability claims and product recalls that may not be covered by insurance.

The nature of our business exposes us to risks of product liability claims and product recalls. Medical devices as complex as ours frequently experience errors or failures, especially when first introduced or when new versions are released. Our products are sometimes used in procedures where there is a high risk of serious injury or death. These risks will exist even with respect to those products that have received, or may in the future receive, regulatory clearance for commercial sale.

We did not carry product liability insurance during some periods before May 15, 1995. We currently maintain product liability insurance; however, our product liability insurance may not be adequate. In the future, insurance coverage may not be available on commercially reasonable terms, or at all. In addition, product liability claims or product recalls could damage our reputation even if we have adequate insurance coverage.

We may face the unavailability of or significantly higher premiums for director and officer liability insurance.

At times, director and officer liability insurance has been difficult for some companies to obtain. If we are unable to obtain sufficient director and officer liability insurance at rates that are reasonable or at all, or if the possibility of director and officer liability is expanded by regulatory or judicial developments, we may not be able to retain our current officers and directors or attract qualified directors and officers in the future.

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We do not know the effects of healthcare reform proposals.

The healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences. In the United States, comprehensive programs have been suggested that would increase access to healthcare for the uninsured, control the escalation of healthcare expenditures within the economy and use healthcare reimbursement policies to balance the federal budget.

We expect that the U.S. Congress and state legislatures will continue to review and assess various healthcare reform proposals, and public debate of these issues will likely continue. We cannot predict which, if any, of such reform proposals will be adopted and when they might be effective. Other countries also are considering healthcare reform. Significant changes in healthcare systems could have a substantial impact on the manner in which we conduct our business and could require us to revise our strategies.

We do not intend to pay dividends in the foreseeable future.

We do not intend to pay any cash dividends on our common stock in the foreseeable future.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We are headquartered in San Diego, California, and operate manufacturing locations in San Diego, California; and Ilmenau, Germany, as described below. We believe that our properties are adequate and suitable for our current and foreseeable business needs.

Location	Use	Owned/Leased	Lease Termination Date	Size (Sq. Feet)
San Diego, California	Corporate Headquarters Sales & Marketing Research & Development Manufacturing & Distribution	Leased	December 2009	32,779
Ilmenau, Germany	General & Administrative Sales & Marketing Research & Development Manufacturing & Distribution	Owned (80% owned subsidiary)	N/A	7,173

ITEM 3. LEGAL PROCEEDINGS

The Company is from time to time subject to legal proceedings and claims, which arise in the ordinary course of our business, none of which is required to be disclosed under this Item 3. Management believes that resolution of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to our executive officers:

Name	Age	Position(s)
Michael K. Perry	47	Chief Executive Officer and Director
Rhonda F. Rhyne	47	President
Steve P. Loomis	47	Vice President of Finance, Chief Financial
		Officer and Corporate Secretary
Donald J. Brooks	48	Chief Technology Officer
Russell H. Bergen	60	Vice President of Operations
Richard E. Trayler	56	Vice President of International Operations

Michael K. Perry has been the Chief Executive Officer and Director of CardioDynamics since April 1998. From 1994 to 1997, Mr. Perry was Vice President of Operations at Pyxis Corporation, and in 1995 assumed additional responsibility for Research and Development. Pyxis Corporation was a pioneer of healthcare automation and information management services, in addition to pharmacy management services to hospitals and outpatient facilities. Mr. Perry was part of the executive team that successfully acquired and integrated three businesses into Pyxis, and in 1996, sold the company to Cardinal Health, Inc. for $980 million. Prior to joining Pyxis, Mr. Perry served in several increasingly responsible management assignments with Hewlett-Packard Company’s Medical Products Group in manufacturing and finance. Additionally, he was Director of Quality for a division of Hewlett-Packard’s DeskJet Printer Group. In 2003, Mr. Perry was named San Diego Entrepreneur of the Year for Medical Products and Technology. Mr. Perry holds a Master’s degree in Business Administration from Harvard University and a Bachelor’s degree in Mechanical Engineering from General Motors Institute. Mr. Perry serves as an Executive Committee member on the Advisory Board of the University of California San Diego Cardiovascular Center and on the Board of Directors for Junior Achievement of San Diego.

Rhonda F. Rhyne has been our President since June 1997, previously serving as Chief Operating Officer from 1996 to 1997 and as Vice President of Operations from 1995 to 1996. From 1992 until 1995, Ms. Rhyne held positions of Director, President, Chief Executive Officer and Vice President of Sales and Marketing for Culture Technology, Inc. Ms. Rhyne has also held sales positions at GE Medical Systems and Quinton Instrument Company, both medical device subsidiaries of publicly held companies. Ms. Rhyne holds a Bachelor’s degree in Pharmacy from Washington State University and a Master’s degree in Business Administration, executive program, from University of California Los Angeles, Anderson School of Business.

Steve P. Loomis joined the Company in September 1996 as Vice President of Finance and has held the positions of Chief Financial Officer and Corporate Secretary since April 1997. From 1993 until 1996, he served as Director of Financial Reporting at Kinko’s Inc. From 1988 to 1993, Mr. Loomis was Chief Financial Officer for Terminal Data Corporation, a publicly traded company. He earned his Bachelor’s degree in business administration from California State University at Northridge. Mr. Loomis is a certified public accountant.

Donald J. Brooks joined the Company in September 2004 as Vice President of Product Development and was appointed as Chief Technology Officer in January 2006. From 2003 to 2004, Mr. Brooks served as Director of Product Development and VP of Operations at Zargis Medical (a Siemens start-up venture). From 2001 to 2003, Mr. Brooks served as a Senior Systems Design Engineer at Walnut Technologies, Inc. Prior to 2001, Mr. Books held other various managerial positions, including Vice President of Operations for Boston Medical Technologies and Engineering Manager for Siemens Medical Systems. Mr. Brooks earned his BSEE and MSEE degrees in Electrical Engineering at North Carolina State University with an emphasis on analog VLSI design and Digital Signal Processing.

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Russell H. Bergen has served as our Vice President of Operations since joining us in September 1998. From 1971 to 1998, Mr. Bergen held management positions in the Instrument Group, Peripheral Products Group and Inkjet Business Unit of Hewlett Packard Company. Previously, Mr. Bergen was employed at Honeywell, Inc. as a procurement engineer. Mr. Bergen earned his Bachelor’s degrees in Aerospace Engineering and Manpower Management from the University of Colorado at Boulder.

Richard E. Trayler is our Vice President of International Operations and served as our Chief Operating Officer from July 1997 to January 2003. From 1982 to 1997, Mr. Trayler held sales management positions at Quinton Instrument Company. He has also held positions at the Heart Institute for CARE, the University of Washington and the Boeing Company. Mr. Trayler earned a Bachelor’s degree from Texas A&M University and a Master’s degree from the University of Washington and a Master’s degree from Western Conservative Baptist Seminary.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades on the Nasdaq Market under the symbol “CDIC.” The following table provides the high and low sales prices per share of our common stock as reported by the Nasdaq Stock Market for the periods indicated.

	Market Price
Year Ended November 30, 2007:	High		Low
Fourth Quarter	$	0.65	$	0.37
Third Quarter		0.80		0.37
Second Quarter		1.08		0.62
First Quarter		1.30		0.69

	Market Price
Year Ended November 30, 2006:	High		Low
Fourth Quarter	$	1.08	$	0.60
Third Quarter		1.45		0.69
Second Quarter		1.82		1.16
First Quarter		1.70		1.03

On January 14, 2008 there were approximately 426 holders of record of our common stock. The Company has not declared or paid any cash dividends on shares of our common stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain any future earnings for use in the operation of the business.

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ITEM 6. SELECTED FINANCIAL DATA

Not Applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and related Notes, as well as the other financial information included in this Form 10-K. Some of our discussion is forward-looking and involves risks and uncertainties. For information regarding risk factors that could have a material adverse effect on our business, refer to Part I, Item 1A of this Form 10-K, “Business - Risk Factors.”

Results of Operations

CardioDynamics is the innovator and market leader of an important medical technology called impedance cardiography (“ICG”). We develop, manufacture and market noninvasive ICG devices, and proprietary ICG sensors. Unlike some other traditional cardiac function monitoring technologies, our monitors are noninvasive (without cutting into the body). Our BioZ ICG Systems obtain data in a safe, efficient, and cost-effective manner not previously available in the physician office and hospital setting.

Just as electrocardiography (“ECG”) noninvasively measures the heart’s electrical function, ICG makes it possible to noninvasively measure the heart’s mechanical function. Our ICG devices measure 12 hemodynamic (blood flow) parameters which describe the blood flow the heart pumps, the resistance from the blood vessels that the heart is pumping against, the strength of heart contraction, and the amount of fluid in the chest.

Our lead products, the BioZ Dx, BioZ ICG Monitor and the BioZ ICG Module for GE Healthcare patient monitoring systems, have received FDA 510(k) clearance and carry the CE Mark, which is a required certification of environmental and safety compliance by the European Community for sale of electronic equipment.

The aging of the worldwide population along with continued cost containment pressures on healthcare systems and the desire of clinicians and administrators to use less invasive (or noninvasive) procedures are important trends that are helping drive adoption of our BioZ ICG Systems. These trends are likely to continue into the foreseeable future and should provide continued growth prospects for our Company.

There is often a slow adoption of new technologies in the healthcare industry, even technologies that ultimately become widely accepted. Conducting clinical trials, making physicians aware of the availability and clinical benefits of a new technology, changing physician habits, and securing adequate reimbursement levels are all factors that tend to slow the rate of adoption for new medical technologies. We have invested and will continue to invest a significant amount of our resources in clinical trials, which, if results prove successful, should contribute to further physician acceptance and market adoption of our technology. As with all clinical trials, there is no assurance of achieving the desired positive outcome.

We have developed strategic partnerships to increase the presence and adoption of ICG technology. Our principal strategic partners include GE Healthcare, Philips and Mindray, all of which are among the premier medical technology companies in the world and have a substantial installed base of medical devices. We are currently selling the BioZ ICG Module through GE Healthcare and Mindray and co-developed the BioZ Dx with Philips, the latest generation ICG monitor. These strategic relationships further validate the importance of our technology to the clinical community and provide additional distribution channels for our systems. We intend to seek additional strategic partnerships over time accelerate the validation, distribution, and adoption of our technology.

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We believe that the greatest risks in executing our business plan in the near term include: an adverse change in U.S. reimbursement policies for our technology, negative clinical trial results, competition from emerging ICG companies or other new technologies that could yield similar or superior clinical outcomes at reduced cost, and the inability to hire, train, and retain the necessary sales and clinical personnel to meet our growth objectives. Our management team devotes a considerable amount of time mitigating these and other risks, some of which are described in the risk factor section in Part I, Item 1A of this Form 10-K, to the greatest extent possible.

Following is a list of several key financial achievements in 2007 compared with 2006:

• Net ICG sales increased 10% to $21.9 million, up from $19.8 million

• ICG sensor revenue increased 8% to $6.7 million, or 31% of total sales, up from $6.2 million

• ICG monitor sales totaled 542 units, 355 of which were BioZ Dx systems, 79 BioZ monitors, and 108 Medis ICG monitors, up from 499 ICG monitors

• International ICG sales grew 10% to $2.7 million

• ICG gross profit margin was 68%, up from 62%

• Operating loss improved 38% to $4.8 million, as compared to an operating loss of $7.8 million

• Cash and cash equivalents increased $6.0 million to $8.4 million, up from $2.4 million at November 30, 2006, principally as a result of the sale of Vermed

Additional key operating milestones in 2007:

• Completed the sale of our Vermed business, generating approximately $8.0 million in gross sales proceeds

• Nearly 7,800 ICG monitors and modules sold to date, up 11% from one year ago

• Retired $1.7 million of bank debt

• Received FDA clearance for new ICG clinical parameters and electronic medical record (EMR) interface capability for our BioZ Dx System

• Commenced landmark PREVENT-HF trial, a multinational randomized controlled trial evaluating whether serial BioZ monitoring in chronic heart failure management will delay or prevent heart failure-related hospitalizations compared with standard clinical care;

• Obtained expanded hypertension coverage from local Medicare contractors for ICG technology in Georgia, Alabama, Mississippi, and South Carolina

• Presented new ICG hypertension evidence providing framework for new hypertension research strategy targeted to address questions raised in the 2006 Medicare reconsideration of ICG coverage for high blood pressure

• Entered into strategic alliance agreement with Amarex Clinical Research which enables advanced data analysis services through Amarex’s Secure WebView Portal for pharmaceutical clinical trial research

• Entered into a joint marketing agreement with Spacelabs Healthcare, Inc. which enables Spacelabs to utilize our ICG products in centralized data collection and processing in pharmaceutical and device clinical trials.

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Operating Segments

For the past three years, our business has had two operating segments, the ICG segment and the ECG segment. On August 31, 2007, we sold our ECG segment (Vermed) based in Bellows Falls, Vermont, to Medical Device Partners, Inc. The sale of Vermed will allow us to focus our resources on our proprietary ICG business, which we believe continues to hold the highest growth potential, while maintaining a long-term relationship with Vermed for ICG sensors. Upon the completion of the sale of Vermed, we now report as one operating segment, as defined in Financial Accounting Standards Board No. 131, and have classified the prior year assets and related liabilities of Vermed as “for sale” within the Consolidated Balance Sheets and the results of the ECG segment are reported as discontinued operations within the Consolidated Statements of Operations and Consolidated Statements of Cash Flows.

The ICG business consists primarily of the development, manufacture and sales of the BioZ Dx, BioZ ICG Monitor, BioZ ICG Module and associated BioZtect sensors. These devices use ICG technology to noninvasively measure the heart’s mechanical function. These products are used principally by physicians to assess, diagnose, and treat cardiovascular disease and are sold to physicians and hospitals throughout the world. With the acquisition of Medis in June 2004, the ICG segment also includes the Medis diagnostic and monitoring devices such as the Niccomo, Cardioscreen monitor and the Rheoscreen family of measurement devices. We sell Medis products internationally to physicians, hospitals, distributors and researchers.

We derive our revenue primarily from the sale of our ICG devices and associated disposable sensors, which are consumed each time a patient test is performed. For the year ended November 30, 2007, 31% of our revenue came from our disposable ICG sensors, and that percentage has increased in each of the prior six years from approximately 6% in 2000, to 9% in 2001, 12% in 2002, 17% in 2003, 19% in 2004, 24% in 2005 and 31% in 2006. We have now shipped over six million ICG sensor sets to customers since introducing the BioZ ICG Monitor in 1998. We employ a workforce of clinical application specialists (“CAS”) who are responsible for interacting with and training our customers on the use of the BioZ ICG Systems. We believe our CAS investment is important to drive customer satisfaction and the growth of our ICG sensor business, which should improve the predictability of our revenue, earnings, and cash flow.

In January 2004, the Center for Medicare & Medicaid Services (“CMS”) issued an updated national coverage determination. Of the six indications previously covered, five were substantially unchanged. One indication, “suspected or known cardiovascular disease,” was revised to specifically allow CMS contractor discretion in the coverage of resistant hypertension. Resistant hypertension is defined by CMS to include patients with uncontrolled blood pressure on three or more anti-hypertensive medications, including a diuretic. This change served to restrict the number of hypertensive patients eligible for CMS reimbursement of ICG monitoring.

In March 2006, we published the results of our multi-center CONTROL study in a leading hypertension journal, Hypertension, which showed that clinician use of BioZ technology helped patients reach targeted blood pressure levels twice as effectively as standard clinical practice. Based on the results of this study, CMS opened the reconsideration review process in response to a request by the Company to evaluate whether to broaden ICG hypertension coverage.

In November 2006, CMS announced that their hypertension reimbursement policy for ICG would remain unchanged and CMS local contractors would continue to have the discretion whether or not to cover ICG for hypertension. Some private insurers cover the BioZ ICG test, including Aetna, Humana, and Blue Cross Blue Shield as well as others (in select states). We continue to have active discussions with local Medicare contractors and private insurers in an effort to maintain and expand local reimbursement coverage for ICG.

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Net Sales – Net sales for 2007 were $21,850,000, an increase of 10% from $19,783,000 in 2006. The sales increase was partially due to a 34% increase in our net sales by our Medis subsidiary, as well as a 4% increase in BioZ placements by our domestic direct sales force, a 2% higher average domestic net selling price for our BioZ Systems and an 8% increase in our disposable sensor revenue.

In March 1998, we received 510(k) marketing clearance for our BioZ ICG Monitor. The BioZ ICG Monitor features a portable design, transportable battery, integrated blood pressure and incorporates our Z MARC^® algorithm. In December 2004, we received FDA 510(k) clearance on the BioZ Dx. The BioZ Dx incorporates AERIS^TM processing and 12-lead ECG capability and is now Electronic Medical Records (EMR) ready with optional BioZport ICG data management software. It also features an integrated full-page thermal printer, color display screen, a standard five-year warranty and a new Thera-Trak^TM reporting function that allows physicians to automatically compare a patient’s last ICG report to the current ICG report. Commercial shipments of the BioZ Dx commenced in the first quarter of 2005. Together, these BioZ ICG Monitors accounted for 56% of our overall ICG sales in 2007, compared with 54% of our sales in 2006.

The BioZ ICG Module is a custom plug-in non-invasive cardiac function monitoring device for the GE Healthcare Solar^® and Dash^® patient monitors. During 2007 and 2006 we sold 210 and 308 BioZ ICG Modules, respectively. The decrease during 2007 is primarily due to fewer international BioZ ICG Module placements by our strategic partner GE Healthcare.

Altogether, we sold 542 ICG Monitors and Modules in 2007, compared with 499 in 2006, increasing the total number of BioZ Monitors and ICG Modules sold to nearly 7,800. Net sales by our domestic direct sales force, which targets physician offices and hospitals, increased 11% in 2007 with sales of $18,373,000, from $16,575,000 in 2006.

Net sales of our ICG products internationally increased by $250,000 in 2007, to $2,718,000, up 10% from $2,468,000 in 2006. The increase in 2007 is due to a 34% increase in sales from our Medis subsidiary, partially offset by a reduction in the number of BioZ systems sold internationally.

Each time our BioZ ICG products are used, disposable sets of four BioZtect sensors are required. This recurring ICG sensor revenue continued to grow in 2007. In 2007 and 2006, ICG sensor revenue was $6,672,000 and $6,198,000, respectively. In both years, ICG sensor revenue represented 31% of total revenue. We offer a Discount Sensor Program to our domestic outpatient customers that provides considerable discounts and a fixed price on sensor purchases in exchange for minimum monthly sensor purchase commitments. In addition, our clinical applications team works closely with physicians to appropriately integrate ICG into their practices through the use of our BioZ Activation Process (BAP™) that assists in identifying patients who are symptomatic and on whom the physician would benefit by having BioZ data for clinical assessment. The Company believes that successful integration of BAP into physician practices will result in appropriate product use and sensor revenue growth.

Included in ICG net sales is revenue derived from extended warranty contracts, spare parts, accessories and non-warranty repairs of our BioZ systems of $645,000 in 2007 and $651,000 in 2006.

Stock-Based Compensation Expense – Stock-based compensation expense for the year ended November 30, 2007 was $380,000, as compared to $260,000 for the year ended November 30, 2006. See Note 1 to the Consolidated Financial Statements for individual operating expense line item amounts. The increase in stock-based compensation expense principally relates to restricted stock awards granted to Officers and granted to Directors in lieu of cash compensation during Fiscal 2007.

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Gross Margin – Gross margin was $14,953,000 and $12,189,000 for the years ended 2007 and 2006, respectively. As a percentage of net sales, gross margins in 2007 was 68.4% up from 61.6% in 2006. The increase in gross margin percentage in 2007 over 2006 was primarily due to $533,000 lower manufacturing and related costs, $251,000 lower excess and obsolete expenses and higher average selling prices of the BioZ units. The lower costs were partially offset by higher scrap and rework costs of $221,000.

Research and Development – Our investment in research and development for the year ended November 30, 2007 was $1,706,000, as compared to $1,964,000 during the year ended November 30, 2006, a decrease of 13%. The $258,000 decrease was principally due to reductions in personnel and related expenses of $240,000 as part of our cost containment measures in support of our efforts to regain profitability.

Selling and Marketing – Selling and marketing expenses increased $684,000 or 5% to $14,780,000 in 2007, from $14,096,000 in 2006. The increase in expenses was primarily due to a $220,000 increase in clinical study expenses in support of market development and possible future expansion of reimbursement coverage, a $210,000 increase in promotional materials and $120,000 of depreciation on sales demonstration units.

General and Administrative – General and administrative expenses for the year ended November 30, 2007 was $3,160,000, a decrease of 17% or $660,000, from $3,820,000 in 2006. The decrease during 2007 was principally due to an $869,000 reduction in accounting related fees as a result of us no longer being an accelerated filer. This was partially offset by increases of $147,000 for stock-based compensation relating to equity awards and $141,000 related to additional provision for doubtful accounts receivable in 2007.

Amortization of Intangible Assets– Amortization of intangible assets in 2007 was $147,000, an increase of $28,000 or 24%, from $119,000 in 2006. The increase in 2007 was principally due to the strengthening of the Euro, as compared to the US Dollar, and resulting increased intangible asset values and associated amortization charges from our Medis subsidiary in Germany.

Other Income (Expense) – Other Expense was $846,000 for the year ended November 30, 2007, as compared to Other Income of $434,000. The $1,280,000 change in Other Income (Expense) was principally due to a $1,190,000 net Gain on Derivative Instruments recorded during 2006 at the time we amended the conversion feature relating to our outstanding Convertible Notes due April 2011. There was no similar charge during 2007.

Interest income was $255,000 during 2007, down from $296,000 in 2006. The decrease of $41,000 was principally due to lower average cash balances and interest rates during 2007 and fewer internally financed long-term receivables.

Interest expense for 2007 was $1,037,000, up from $991,000 in 2006. The $46,000 increase was principally due to higher average debt balances during 2007.

Foreign currency loss during 2007 was $85,000, up from $59,000 in 2006. The $26,000 increase was due to the continued strengthening of the Euro against the US Dollar, and the related increases in Euro denominated deferred acquisition costs.

Income Tax Provision – Income tax provision increased $147,000, from $174,000 in 2006 to $321,000 in 2007. The increase was due to German income taxes on increased taxable income at our Medis subsidiary.

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Minority Interest in Income of Subsidiary - Minority interest in income of Medis in 2007 and 2006 was $78,000 and $38,000, respectively, and represents the 20% minority share interests retained by the founders.

Income (Loss) from Discontinued Operations, Net of Income Tax – For the year ended November 30, 2007, we recorded a loss from discontinued operations, net of tax of $10,614,000, as compared to a profit from discontinued operations, net of income tax of $894,000 during the year ended November 30, 2006. The increase in the net loss during the current year was principally due to an $11,068,000 charge for impairment of intangible assets of the Vermed Subsidiary that was sold in 2007.

Liquidity and Capital Resources

Net cash used in operating activities was $1,071,000 and $2,002,000 in 2007 and 2006, respectively. In 2007, net cash used in operations was primarily due to losses from continued operations. These cash uses were partially offset by non-cash provisions for doubtful accounts receivable, inventory reserves, and a $1.2 million customer deposit related to a large international order at our Medis subsidiary. In addition, non-cash charges relating to depreciation, amortization of intangibles, stock-based compensation and accretion of the discount on convertible notes are included in the net loss reported for the period, but do not affect cash flow. Going forward, operating cash use is not expected to materially increase in the near term, and in future periods is expected to return to positive operating cash flow.

In 2007, net cash provided by investing activities was $8,701,000, as compared to net cash invested of $2,050,000 in 2006. The investing cash provision was principally due to proceeds from the sale of our Vermed subsidiary on August 31, 2007 of $7,575,000, and the maturity of $1,510,000 of certificates of deposit classified as short-term investments at November 30, 2006. This provision was partially offset by $336,000 of capital equipment purchased by our former Vermed subsidiary and $48,000 of capital equipment purchased for continuing operations.

Net cash used in financing activities during 2007 was $2,357,000, as compared with a financing cash provision of $3,573,000 in 2006. The principal difference between the periods was the issuance of $5,250,000 of Convertible Notes during the second quarter of 2006 and the restriction of $466,000 of cash related to letters of credit associated with the Medis deferred acquisition payments in 2007.

On April 11, 2006, we issued $5.25 million of Convertible Notes to our largest institutional shareholder. The Convertible Notes, originally due in 2009, are convertible into common stock at $1.15 per share. The Convertible Notes were determined to contain an embedded derivative liability because the conversion price of the debt could be adjusted if we issued common stock at a lower price. We evaluated the capital resource options available to the Company under various performance scenarios and determined that it could be possible, although unlikely, that it would not be within management’s control to prevent the issuance of additional shares at a price that was sufficiently low so that the conversion adjustment would require us to deliver more shares than are authorized. Under the rules, this required us to bifurcate the embedded conversion option and account for it as a derivative instrument liability. The proceeds received on issuance of the Convertible Notes were allocated to the fair value of the bifurcated embedded derivative instrument included in the Convertible Notes, with the remaining proceeds allocated to the notes payable, resulting in the Convertible Notes being recorded at a significant discount from their face amount.

On November 29, 2006, we entered into an amendment with the holders of the Convertible Notes. The amendment extended the term of the Convertible Notes to April 2011, added a put option under which the holders may elect to be repaid in April 2009, and eliminated the embedded derivative instrument by revising the anti-dilution language. As a result of this amendment, the requirement to classify the embedded conversion option as a derivative liability was eliminated and the derivative liability was reclassified to shareholders’ equity.

In 2004, we issued letters of credit relating to the acquisition of Medis to secure the deferred acquisition payments due to the minority shareholders of Medis to be paid annually over five years through 2009. As of November 30, 2007, our outstanding letters of credit totaled $450,000 (€304,000), which is secured by certificates of deposit.

34

In August 2006, the Company entered into a Third Amended and Restated Loan and Security Agreement with Comerica Bank and in November 2006, the Company amended the revolving credit line to extend the maturity date to February 11, 2007. At November 30, 2006, the Company had $1,000,000 of borrowings under the revolving credit line. In March 2007, the Company again amended its revolving credit line to extend the maturity date to March 11, 2008 and reduced the maximum available credit from $5,000,000 to $3,000,000. The line of credit was repaid from the proceeds of the sale of Vermed and subsequently terminated on August 31, 2007.

At November 30, 2007, we have net operating loss carryforwards of approximately $50 million for federal income tax purposes that begin to expire in 2011. The Tax Reform Act of 1986 contains provisions that limit the amount of federal net operating loss carryforwards that can be used in any given year in the event of specified occurrences, including significant ownership changes. In 2004, we retained independent tax specialists to perform an analysis to determine the applicable annual limitation applied to the utilization of the net operating loss carryforwards due to ownership changes as defined in Internal Revenue Code (IRC) Section 382 that may have occurred. As a result of this study, and managements’ consideration of subsequent share ownership activity, we do not believe that the ownership change limitations would impair our ability to use our net operating losses against our current forecasted taxable income.

In April of 2007 we received a Nasdaq Staff Deficiency Letter from the Listing Qualifications Department indicating that the Company’s common stock failed to comply with the minimum bid price requirement set forth in Nasdaq Marketplace Rule 4450(a)(5). The letter was issued in accordance with standard Nasdaq procedures because the Company’s common stock closed below $1.00 per share for 30 consecutive trading days. The Company was afforded 180 calendar days, to regain compliance with the minimum bid requirement. Because our stock did not exceed the $1.00 minimum bid price for at least 10 consecutive business days, we elected to transfer our common stock from the Nasdaq Global Market to the Nasdaq Capital Market in October of 2007. At that time we were granted a second 180 calendar days, or through mid April 2008, to regain compliance while listed on the Nasdaq Capital Market.

We believe that over the next 12 months, our current cash, cash equivalent and short-term investment balances will be sufficient to support our ongoing operating plans, fund our anticipated capital expenditures and to meet our working capital requirements. However, we may seek ways to maximize shareholder value including appropriate acquisition, restructuring or divestiture opportunities. As we consider opportunities to acquire or make investments in other technologies, products and businesses, we may choose to finance such acquisitions or investments by incurring debt or issuing equity securities. While we believe that we are adequately capitalized, our long-term liquidity will depend to some extent on our ability to commercialize the BioZ and other diagnostic products and whether or not the holders of our $5.25 million convertible notes elect to exercise their April 2009 early repayment option provided under the terms of the notes. These and other factors may require us to raise additional funds through public or private financing, bank loans, collaborative relationships, dispositions or other arrangements.

Off-Balance Sheet Arrangements

We are not a party to off-balance sheet arrangements other than operating leases, and have not engaged in trading activities involving non-exchange traded contracts, and are not a party to any transaction with persons or activities that derive benefits, except as disclosed herein, from their non-independent relationships with the Company.

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Critical Accounting Policies

The methods, estimates, and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements. The SEC considers an entity’s most critical accounting policies to be those policies that are both most important to the portrayal of a company’s financial condition and results of operations, and those that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain at the time of the estimation. We believe the following critical accounting policies require significant judgments and estimates used in the preparation of our consolidated financial statements and this discussion and analysis of our financial condition and results of operations:

Revenue Recognition - We recognize revenue from the sale of products to end-users, distributors and strategic partners when persuasive evidence of a sale exists, the product is complete, tested and has been shipped which coincides with transfer of title and risk of loss, the sales price is fixed and determinable, collection of the resulting receivable is reasonably assured, there are no material contingencies and the Company does not have significant obligations for future performance. Provisions for estimated future product returns and allowances are recorded in the period of the sale based on the historical and anticipated future rate of returns. On occasion, we offer Customers a limited Medicare reimbursement guarantee under which we would be responsible for the remaining unbilled payments, however, we believe the probability of payment is remote and thus recognize full revenue on the sale. Revenue is recorded net of any discounts or trade-in allowances given to the buyer.

Occasionally we sell products under long-term financing arrangements and when collectability is reasonably assured, we recognize the present value of the minimum payments using the rate implicit in the financing agreement as revenue at the time of sale and recognize interest income over the term of the contract. In 2007, these long-term financing arrangements accounted for approximately 1.5% of net sales. Revenue for extended warranty contracts beyond our standard warranty is recognized evenly over the life of the contract. Amounts received for warranty contracts that have not yet been earned, are recorded as deferred revenue. In 2007, revenue form these extended warranty contracts accounted for approximately 1.0% of net sales.

Allowance for Doubtful Accounts and Sales Returns - We maintain an allowance for doubtful accounts and notes receivable to cover estimated losses resulting from the inability of our customers to make required payments. We determine the adequacy of this allowance by regularly reviewing specific account payment history and circumstances, the accounts receivable aging, notes receivable payments and historical write-off rates. If customer payment timeframes were to deteriorate, additional allowances for doubtful accounts would be required.

Also included in the allowance for doubtful accounts is an estimate of potential future product returns related to current period sales recorded as a reduction of revenue. We analyze the rate of historical returns when evaluating the adequacy of the allowance for product returns.

Inventory Valuation and Reserves - We value our inventory at the lower of cost, using the first-in, first-out method, or market. We include expenses incurred to procure, receive, inspect, store, assemble, test and ship our products in an overhead pool that gets capitalized into inventory based on our standard material overhead rate which is applied as material is received. The overhead absorbed is adjusted to the actual rate incurred based on a four quarter rolling average. We maintain inventory reserves for demonstration inventory used by our sales personnel, potential excess, slow moving, and obsolete inventory as well as inventory with a carrying value in excess of its net realizable value. Inventory on loan for clinical trials and research are classified as fixed assets. We review inventory on hand quarterly and record provisions for sales demonstration inventory, potential excess, slow moving or obsolete inventory based on several factors, including our current assessment of future product demand, historical experience, and product expiration.

36

Valuation of Goodwill - We are required to perform an annual review for impairment of goodwill in accordance with Statement of Financial Accounting Standards No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets.” In order to determine if the carrying value of a reporting unit exceeds its fair value, management prepares discounted cash flow models for each of the reporting units that incorporate various assumptions regarding revenue and expense levels, income tax rates, working capital and capital spending requirements as well as the appropriate discount rate to apply. Each of these factors, while reasonable, requires a high degree of judgment and the results could vary if the actual results are materially different than the forecasts. In addition to the discounted cash flow models, management reviews the enterprise value (market capitalization plus interest bearing debt) of each reporting unit, based on the enterprise value of the consolidated company, as a multiple of sales in comparison to prior periods and other comparable public companies in the same or similar industries. Goodwill is recorded on the books of our Medis subsidiary, therefore exchange rate fluctuations will affect enterprise value from period to period.

In addition to the annual review, an interim review is required if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Examples of such events or circumstances include:

• a significant adverse change in legal factors or in the business climate;

• a significant decline in our projected revenue or cash flows;

• an adverse action or assessment by a regulator;

• unanticipated competition;

• a loss of key personnel;

• a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of; and

• the testing for recoverability under Statement 144 of a significant asset group within a reporting unit.

If any of our key assumptions relating to the annual or interim review were to be significantly different from actual future period results, then we would be required to reduce the carrying value of the intangible assets. Each of these assumptions, while reasonable, requires a certain degree of judgment and the fair value estimates could vary if the actual results are materially different than those initially applied. If the assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. As a result of a Vermed definitive sales agreement signed on June 25, 2007, we recorded an impairment charge on goodwill and other intangible assets of our ECG segment of $11.1 million in our second quarter ended May 31, 2007. At August 31, 2007, the estimated impairment charge was updated and the Company recorded a $232,000 impairment reversal as part of discontinued operations for the quarter.

Valuation of Long-Lived Assets - We assess the impairment of long-lived assets, consisting of property, plant and equipment and finite lived intangible assets, whenever events or circumstances indicate that the carrying value may not be recoverable. Examples of such events or circumstances include:

• the asset’s ability to continue to generate income from operations and positive cash flow in future periods;

• loss of legal ownership or title to the asset;

• significant changes in our strategic business objectives and utilization of the asset(s); and

• the impact of significant negative industry or economic trends.

Recoverability of assets to be held and used in operations is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the assets. The factors used to evaluate the future net cash flows, while reasonable, requires a high degree of judgment and the results could vary if the actual results are materially different than the forecasts. In

37

addition, we base useful lives and amortization or depreciation expense on our subjective estimate of the period that the assets will generate revenue or otherwise be used by us. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs.

We also periodically review the lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the technologies. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase.

Warranty Cost - We maintain a provision for product warranties. Estimates for warranty costs are calculated based primarily upon historical warranty experience and are evaluated on a quarterly basis to determine the appropriateness of such assumptions. Warranty provisions are adjusted from time to time when actual warranty claim experience differs from our estimates.

Stock-Based Compensation - Stock-based compensation expense for all stock-based compensation awards granted after December 1, 2005 is based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Specifically, we estimate the weighted-average fair value of options granted using the Black-Scholes option pricing model based on evaluation assumptions regarding expected volatility, dividend yield, risk-free interest rates, the expected term of the option and the expected forfeiture rate. Each of these assumptions, while reasonable, requires a certain degree of judgment and the fair value estimates could vary if the actual results are materially different than those initially applied. Prior to the adoption of SFAS 123R on December 1, 2005, we did not record compensation cost in the consolidated financial statements for the stock options issued to employees.

Income Taxes – We use the asset and liability approach to account for income taxes. This methodology recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax base of assets and liabilities and operating loss and tax credit carryforwards. We then record a valuation allowance to reduce deferred tax assets to an amount that more likely than not will be realized. We consider future taxable income in assessing the need for the valuation allowance, which requires the use of estimates. If we determine during any period that we could realize a larger net deferred tax asset than the recorded amount, we would adjust the deferred tax asset to record a charge to income for the period.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which clarifies when tax benefits should be recorded in financial statements, requires certain disclosures of uncertain tax matters and indicates how tax reserves should be classified on the balance sheet. FIN 48, is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company in its first quarter of fiscal 2008. The Company is continuing to review the impact, if any, the adoption of FIN 48 will have on its financial position and results of operations, but believes the Company has no significant tax contingencies or possible material exposure upon adoption.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors’ requests for expanded information about the extent to which companies’ measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in its first quarter of fiscal 2008. The Company has not determined the impact, if any, the adoption of SFAS 157, will have on its financial position and results of operations, but does not believe that the impact will be material.

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other items eligible for fair value accounting include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item (e.g., debt issue costs) must be recognized in current period earnings and cannot be deferred.

The fair value election is irrevocable and generally made on an instrument-by-instrument basis, regardless of whether a company has similar instruments that it elects not to measure based on fair value. At the adoption date of SFAS 159, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in its first quarter of fiscal 2008. The Company has not determined whether it will elect to apply the fair value option or the impact, if any, such an election would have on its financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”, which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141 (revised 2007) is effective for acquisitions occurring in fiscal years beginning after December 15, 2008 and is required to be adopted by the Company in its first quarter of fiscal 2009. The Company believes that the adoption of SFAS 141 (revised 2007) would have an impact on the accounting for any future acquisition, if one were to occur.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, an amendment of ARB 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS 160 is effective for fiscal years beginning after December 15, 2008 and requires retrospective application of its presentation requirements. It is required to be adopted by the Company in its first quarter of fiscal 2009. The Company has not determined the impact, if any, the adoption of SFAS 160 will have on its financial position and results of operations, but does not expect that the impact would be material.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

CardioDynamics International Corporation

San Diego, California

We have audited the accompanying consolidated balance sheet of CardioDynamics International Corporation as of November 30, 2007 and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CardioDynamics International Corporation at November 30, 2007 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO Seidman, LLP

San Diego, California

February 25, 2008

40

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

CardioDynamics International Corporation

We have audited the accompanying consolidated balance sheet of CardioDynamics International Corporation and subsidiaries (the “Company”) as of November 30, 2006 and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for the year then ended. Our audit also included the financial statement schedule for the year ended November 30, 2006, included at Item 15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2006, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule for the year ended November 30, 2006, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) the effectiveness of the Company’s internal control over financial reporting as of November 30, 2006, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2007, not included herein, which expressed an unqualified opinion thereon.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

February 13, 2007

41

CARDIODYNAMICS INTERNATIONAL CORPORATION

Consolidated Balance Sheets

(In thousands)

	November 30,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	7,896		$	2,368
Cash and cash equivalents - restricted		466			—
Short-term investments		—			1,510
Accounts receivable, net of allowances and sales returns of $1,105 in 2007 and $977 in 2006		4,475			4,587
Inventory, net		1,670			2,727
Current portion of long-term and installment receivables		340			659
Other current assets		317			353
Current assets held for sale		—			3,313
Total current assets		15,164			15,517
Long-term receivables, net		309			570
Property, plant and equipment, net		1,882			1,530
Intangible assets, net		179			280
Goodwill		2,303			2,052
Other assets		30			34
Long-term assets held for sale		—			16,405
Total assets	$	19,867		$	36,388
Liabilities and Shareholders’ Equity
Current liabilities:
Revolving line of credit - bank	$	—		$	1,000
Accounts payable		1,330			1,313
Accrued expenses and other current liabilities		573			384
Accrued compensation		1,532			1,464
Income taxes payable		164			128
Current portion of deferred revenue		201			99
Current portion of deferred rent		135			111
Current portion of deferred acquisition payments		210			169
Provision for warranty repairs - current		164			136
Current portion of long-term debt		32			357
Customer deposits		1,279			78
Current portion of liabilities related to assets held for sale		—			645
Total current liabilities		5,620			5,884
Long-term portion of deferred revenue		51			119
Long-term portion of deferred rent		161			296
Long-term portion of deferred acquisition payments		210			314
Provision for warranty repairs - long-term		277			266
Long-term debt, less current portion		3,619			3,500
Long-term portion of liabilities related to assets held for sale		—			301
Total long-term liabilities		4,318			4,796
Total liabilities		9,938			10,680
Minority interest		407			302
Commitments and contingencies (Note 13)		—			—
Shareholders’ equity:
Preferred stock, 18,000 shares authorized, no shares issued or outstanding in 2007 and 2006		—			—
Common stock, no par value, 100,000 shares authorized, 49,318 and 48,831 shares issued and outstanding at November 30, 2007 and November 30, 2006, respectively		64,634			64,254
Accumulated other comprehensive income		704			269
Accumulated deficit		(55,816	)		(39,117	)
Total shareholders’ equity		9,522			25,406
Total liabilities and shareholders’ equity	$	19,867		$	36,388

See accompanying notes to consolidated financial statements.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Consolidated Statements of Operations

(In thousands, except per share data)

	For the years ended November 30,
	2007			2006
Net sales	$	21,850		$	19,783
Cost of sales		6,897			7,594
Gross margin		14,953			12,189
Operating expenses:
Research and development		1,706			1,964
Selling and marketing		14,780			14,096
General and administrative		3,160			3,820
Amortization of intangible assets		147			119
Total operating expenses		19,793			19,999
Loss from operations		(4,840	)		(7,810	)
Other income (expense):
Interest income		255			296
Interest expense		(1,037	)		(991	)
Gain on derivative instruments		—			1,190
Foreign currency loss		(85	)		(59	)
Other, net		21			(2	)
Other income (expense), net		(846	)		434
Loss before taxes and minority interest		(5,686	)		(7,376	)
Minority interest in income of subsidiary		(78	)		(38	)
Income tax provision		(321	)		(174	)
Loss from continuing operations		(6,085	)		(7,588	)
Income (loss) from discontinued operations, net of income tax		(10,614	)		894
Net loss	$	(16,699	)	$	(6,694	)
Basic and diluted per share amounts:
Loss from continuing operations	$	(0.12	)	$	(0.16	)
Income (loss) from discontinued operations	$	(0.22	)	$	0.02
Net loss	$	(0.34	)	$	(0.14	)
Weighted-average number of shares used in per share calculation:
Basic and diluted		49,100			48,819

See accompanying notes to consolidated financial statements.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)

(In thousands)

	Common Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Shareholders’ Equty			Comprehensive Income (Loss)
	Shares	Amount
Balance at November 30, 2005	48,803	$	62,284	$	(98	)	$	(32,423	)	$	29,763
Stock based compensation expense	—		260		—			—			260			—
Issuance of common stock – upon exercise of stock options and warrants	28		34		—			—			34			—
Additional discount on modification of convertible note	—		449		—			—			449			—
Reclassification of derivative liability to shareholders’ equity	—		1,227		—			—			1,227			—
Foreign currency translation adjustment, net of deferred taxes of $0	—		—		367			—			367			367
Net loss	—		—		—			(6,694	)		(6,694	)		(6,694	)
Balance at November 30, 2006	48,831		64,254		269			(39,117	)		25,406			(6,327	)
Stock based compensation expense	—		380		—			—			380			—
Issuance of common stock – restricted stock grants	487		—		—			—			—			—
Foreign currency translation adjustment, net of deferred taxes of $0	—		—		435			—			435			435
Net loss	—		—		—			(16,699	)		(16,699	)		(16,699	)
Balance at November 30, 2007	49,318	$	64,634	$	704		$	(55,816	)	$	9,522		$	(16,264	)

See accompanying notes to consolidated financial statements

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Consolidated Statements of Cash Flows

(In thousands)

	For the years ended November 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(16,699	)	$	(6,694	)
(Income) loss from discontinued operations, net of income tax		10,614			(894	)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interest in income of subsidiary		78			38
Depreciation		407			452
Amortization of intangible assets		144			114
Accretion of discount on convertible notes		436			397
Provision for warranty repairs		149			123
Provision for doubtful accounts and sales returns		1,097			1,524
Reduction in provision for doubtful long-term receivables		(85	)		(187	)
Stock-based compensation expense		381			245
Gain on derivative instruments		—			(1,190	)
Other non-cash items, net		(55	)		54
Changes in operating assets and liabilities:
Accounts receivable		(964	)		446
Inventory		496			1,496
Long-term and installment receivables		665			1,581
Other current assets		46			35
Other assets		(24	)		15
Accounts payable		(33	)		(509	)
Accrued expenses and other current liabilities		(108	)		(123	)
Accrued compensation		48			(27	)
Income taxes payable		24			11
Deferred revenue		34			(43	)
Deferred rent		(111	)		(100	)
Customer deposits		1,201			(46	)
Net cash used in continuing operations		(2,259	)		(3,282	)
Net cash provided by discontinued operations		1,188			1,280
Net cash used in operating activities		(1,071	)		(2,002	)
Cash flows from investing activities:
Maturities (purchases) of short-term investments		1,510			(1,510	)
Purchases of property, plant and equipment		(48	)		(60	)
Net cash provided by (used in) investing activities - continuing operations		1,462			(1,570	)
Investing cash used in discontinued operations		(336	)		(480	)
Proceeds from the sale of assets held for sale, net of cash sold		7,575			—
Net cash provided by (used in) investing activities		8,701			(2,050	)
Cash flows from financing activities:
Restriction of cash		(466	)		—
Proceeds from issuance of debt		—			5,250
Repayment of debt		(1,685	)		(1,565	)
Payment of deferred acquisition costs		(160	)		(166	)
Exercise of stock options and warrants		—			34
Net cash provided by (used in) financing activities - continuing operations		(2,311	)		3,553
Financing cash provided by (used in) discontinued operations		(46	)		20
Net cash provided by (used in) financing activities		(2,357	)		3,573
Effect of exchange rate changes on cash and cash equivalents		255			83
Net increase (decrease) in cash and cash equivalents		5,528			(396	)
Cash and cash equivalents at beginning of period		2,368			2,764
Cash and cash equivalents at end of period	$	7,896		$	2,368
Supplemental disclosures of cash flow information:
Interest paid	$	655		$	496
Income taxes paid	$	211		$	114

See accompanying notes to consolidated financial statements.

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CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Consolidated Financial Statements

(1) Organization and Summary of Significant Accounting Policies

Description of Business

CardioDynamics International Corporation (“CardioDynamics” or “the Company”) is an innovator of an important medical technology called Impedance Cardiography (“ICG”). The Company develops, manufactures and markets noninvasive ICG diagnostic and monitoring devices and proprietary ICG sensors. The Company was incorporated as a California corporation in June 1980 and changed its name to CardioDynamics International Corporation in October 1993.

Principles of Consolidation

The consolidated financial statements include the accounts of CardioDynamics International Corporation and its majority owned subsidiary as well as the results of its Vermed subsidiary, which is recorded in discontinued operations. All significant intercompany accounts and transactions have been eliminated in consolidation.

On August 31, 2007, CardioDynamics sold its Vermed subsidiary based in Bellows Falls, Vermont, to Medical Device Partners, Inc. (“MDP”), an entity formed by certain management team members of Vermed, for a cash purchase price of approximately $8,000,000. The prior year assets and related liabilities of Vermed were classified as “for sale” on the 2006 Consolidated Balance Sheet and the results of Vermed are reported as discontinued operations within the Consolidated Statements of Operations, Shareholders’ Equity and Comprehensive Income (Loss) and Cash Flows.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions include, but are not limited to, assessing the following: the valuation of accounts receivable, inventory and long-term receivables, impairment of goodwill and other intangible assets, recognizing the fair value of stock-based compensation, valuation allowance of deferred tax assets, the ability to estimate warranty obligations, provisions for returns and allowances and the determination of whether collection of revenue arrangements is probable or reasonably assured.

Revenue Recognition

The Company recognizes revenue from the sale of products to end-users, distributors and strategic partners when persuasive evidence of a sale exists, the product is complete, tested and has been shipped which coincides with transfer of title and risk of loss, the sales price is fixed and determinable, collection of the resulting receivable is reasonably assured, there are no material contingencies and the Company does not have significant obligations for future performance. Provisions for estimated future product returns and allowances are recorded in the period of the sale based on the historical and anticipated future rate of returns. On occasion, we offer Customers a limited Medicare reimbursement guarantee under which we would be responsible for the remaining unbilled payments. However, we believe the probability of payment is remote and thus recognize full revenue on the sale. Revenue is recorded net of any discounts or trade-in allowances given to the buyer.

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The Company also occasionally sells products under long-term financing arrangements and when collectability is reasonably assured, we recognize the present value of the minimum payments, based on the interest rate implicit in the financing agreement, as revenue at the time of sale. Deferred interest income is recognized on a monthly basis over the term of the financing arrangement. In 2007, these long-term financing arrangements accounted for approximately 1.5% of net sales. Revenue for separately priced extended warranty contracts is recognized ratably over the life of the contract. Amounts received for warranty contracts that have not yet been earned, are recorded as deferred revenue. In 2007, revenue from extended warranty contracts accounted for approximately 1.0% of net sales.

Provisions for estimated future product returns and allowances are recorded in the period of the sale based on the historical and anticipated future rate of returns. The Company records shipping and handling costs charged to customers as revenue and shipping and handling costs to cost of sales as incurred. Revenue is reduced for any discounts or trade in allowances given to the buyer.

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash and cash equivalents, restricted cash, short-term investments, accounts receivable, other current assets, revolving line of credit, accounts payable, accrued expenses and other current liabilities and accrued compensation, are reasonable estimates of their fair value because of the short-term nature of these financial instruments. The fair value of each long-term receivable was estimated by discounting the future cash flows based on the interest rate implicit in the financing agreement. Long-term receivable financing arrangements include a market rate of interest and the carrying value approximates fair value. Long-term debt, which is based on borrowing rates currently available to the Company for loans with similar terms and maturities, is reported at its carrying value, which the Company believes approximates the fair value.

Cash Equivalents

Cash equivalents are short-term, highly liquid investments with maturities of three months or less at the time of purchase. These investments generally consist of money market funds and commercial paper and are stated at cost, which approximates fair market value.

Short Term Investments

Short term investments as of November 30, 2006 consisted of certificates of deposit with maturity dates of May 13, 2007.

Accounts Receivable

The Company provides allowances against trade receivables and notes receivable for estimated losses resulting from customers’ inability to pay. The adequacy of this allowance is determined by regularly reviewing specific account payment history and circumstances, the accounts receivable aging, note receivable payments, and historical write-off rates. If customer payment timeframes were to deteriorate, additional allowances for doubtful accounts would be required. Also included in the allowance for doubtful accounts is an estimate of potential future product returns related to product sales. We analyze the rate of historical returns when evaluating the adequacy for product returns which is recorded as a reduction of current period revenue.

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Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market. The Company evaluates inventory on hand against historical and planned usage to determine appropriate provisions for obsolete, slow-moving and sales demonstration inventory. Inventory includes material, labor and overhead costs.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Property, plant and equipment acquired under capital leases are recorded at the present value of future minimum lease payments. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvement. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is recorded.

Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is tested for impairment annually or more frequently if an event or circumstances indicates that impairment has occurred. We perform impairment reviews at the reporting unit level and use both a discounted cash flow model, based on management’s judgment and assumptions, and a market capitalization model, comparing to other similar public companies’ revenues and enterprise values, to determine the initial estimated fair value of our single reporting unit. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit. Goodwill is recorded on the books of our Medis subsidiary, therefore exchange rate fluctuations will effect enterprise value from period to period. Impairment testing indicated that the estimated fair value of our Medis subsidiary exceeded its corresponding carrying amount, as such, no impairment exists as of November 30, 2007 or 2006.

Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. A significant decrease in the fair value of a long-lived asset, an adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition or an expectation that a long-lived asset will be sold or disposed of significantly before the end of its previously estimated life are among several of the factors that could result in an impairment charge.

Recoverability of assets to be held and used in operations is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs. As of November 30, 2007 and 2006, there was no impairment recorded.

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Warranty Cost

The Company records a provision for warranty repairs on all stand-alone BioZ systems sold, which is included in cost of sales in the consolidated statements of operations and is recorded in the same period the related revenue is recognized. The warranty provision is calculated using historical data to determine the percentage of systems that may require repairs during the warranty period and the average parts cost to repair a system. This financial model is then used to calculate the future probable expenses related to warranty and the required warranty provision. The historical data used in this model are reviewed and updated as circumstances change over the product’s life cycle. If actual warranty expenditures differ substantially from our estimates, revisions to the warranty provision would be required. Actual warranty expenditures are recorded against the warranty provision as they are incurred.

Deferred Acquisition Payments

On April 29, 2004, we purchased 80% of Medis Medizinische Messtechnik GmbH (“Medis”). Part of the purchase price included 760,000 Euros ($804,000 on the acquisition date) due in equal annual installments over a period of five years. The deferred acquisition principle payment amounts due are segregated and classified as current and long-term liabilities in the consolidated balance sheet. The accrued interest relating to the deferred acquisition payment is classified as a current liability in the consolidated balance sheet. Interest on the debt was imputed at the time of the acquisition and is recorded as interest expense each period in the consolidated statement of operations. Foreign exchange gains and losses due to changes in the value of the Euro, as compared to the US Dollar, are recorded each period as foreign currency gains or losses in the consolidated statement of operations.

Research and Development

Research and development costs are expensed in the period incurred.

Advertising

Advertising costs are expensed in the period incurred. Advertising costs applicable to continuing operations, including trade show expenses, amounted to $991,000 in 2007 and $879,000 in 2006.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and certain changes in equity that are excluded from net income (loss). It includes net income (loss), unrealized gains and losses on short-term investments and foreign currency translation adjustments. Short-term investments securities generally consist of certificates of deposit, investments in debt instruments of financial institutions and corporations with strong credit ratings, and in U.S. government obligations. Comprehensive income (loss) for the years ended November 30, 2007 and 2006 has been reflected in the consolidated statements of shareholders’ equity.

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 bases 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 income in the period that includes the enactment date. To the extent that available evidence about future taxable earnings indicates that it is more likely than not that the tax benefit associated with the deferred tax assets will not be realized, a valuation allowance is established.

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Foreign Currency Translation

Foreign currency translation adjustments are a result of translating assets and liabilities of our foreign subsidiary from its functional currency into the reporting currency, U.S. dollars, using the period-end exchange rate. The average exchange rate of each reporting period is used to translate revenue and expenses. The cumulative translation adjustments are included in accumulated other comprehensive income (loss) reported as a separate component of shareholders’ equity.

We have a payable relating to the Medis acquisition that is denominated in a foreign currency. This payable is reported as deferred acquisition payments in the consolidated balance sheet. The carrying amount of this payable is recorded at net present value and is subject to changes in currency exchange rates and the unrealized gains or losses are included in the determination of net income (loss) in the consolidated statements of operations as foreign currency (income) loss.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.

The Company reviews the terms of convertible debt and equity instruments it issues to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as charges or credits to income. When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face amount.

The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

Stock-Based Compensation

The Company applies the fair value provisions of Accounting for Stock-Based Compensation (“SFAS 123”) (revised 2004), Share-Based Payment (“SFAS 123R”), using the modified prospective transition method. Under this transition method, stock-based compensation expense includes compensation expense for all stock-based compensation awards granted but not yet vested as of December 1, 2005, based on the grant date fair value estimated in accordance with the original provision of SFAS 123. Stock-based compensation expense for all stock-based compensation awards granted after December 1, 2005 is based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.

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Prior to the adoption of SFAS 123R on December 1, 2005, the Company recognized stock-based compensation expense in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and provided pro forma disclosure amounts in accordance with SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, as if the fair value method defined by SFAS 123 had been applied to its stock-based compensation.

In 2004, the shareholders approved the 2004 Stock Incentive Plan (the 2004 Plan) which replaced the 1995 Stock Option/Issuance Plan (the 1995 Plan). Although the 1995 plan remains in effect for outstanding options, no new options may be granted under this plan. Awards under these plans typically vest over periods of up to four years. In addition, in 1998, Michael K. Perry was granted stock options outside of the Option Plans at a grant date fair market value of $1.625 per share. The options vested over four years and at November 30, 2007, 603,000 of the options are outstanding and exercisable. These options expire on October 15, 2008.

For the twelve months ended November 30, 2007 and 2006, total stock-based compensation expense included in the consolidated statements of operations was $380,000 and $260,000, respectively, charged as follows (in thousands):

	2007			2006
Cost of sales	$	12		$	6
Research and development		22			39
Selling and marketing		99			100
General and administrative		248			100
		381			245
Income (loss) from discontinued operations, net of income tax		(1	)		15
Total stock based compensation expense	$	380		$	260

The Company has a 100% valuation allowance recorded against its deferred tax assets; therefore, the stock-based compensation has no tax effect on the consolidated statements of operations.

The weighted-average fair value of options granted using the Black-Scholes option pricing model with the following valuation assumptions and weighted-average fair values is as follows:

	2007			2006
Weighted-average fair value of options granted	$	0.49		$	0.76
Expected volatility		64.7	%		67.0	%
Dividend yield		0	%		0	%
Risk-free interest rate		4.6	%		4.8	%
Expected term in years		5.9			5.7

Expected Volatility - The volatility factor is based on the Company’s historical stock price fluctuations for a period matching the expected life of the options.

Dividend Yield - The Company has not, and does not, intend to pay dividends.

Risk-free Interest Rate - The Company applies the risk-free interest rate based on the U.S. Treasury yield in effect at the time of the grant.

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Expected Term in Years - The expected term is based upon management’s consideration of the historical life of options, the vesting period of the option granted and the contractual period of the option granted.

Forfeitures - Stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, reduced for estimated forfeitures. SFAS 123R requires forfeitures, including expirations, to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience.

Stock based compensation charges are recognized on a straight-line basis over each of the vesting periods of the award, which is typically a one year initial cliff vesting period and thirty-six monthly vesting periods thereafter.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by including the additional shares of common stock issuable upon exercise of outstanding options, warrants and other potentially convertible instruments that are not antidilutive in the weighted-average share calculation. Basic and diluted net loss per share are the same for the twelve months ended November 30, 2007 and 2006, as all potentially dilutive securities are anti-dilutive.

The following potentially dilutive instruments were not included in the diluted per share calculation for the twelve months ended November 30, 2007 and 2006, respectively, as their effect was antidilutive (in thousands):

	For the years ended November 30,
	2007	2006
Weighted average common shares outstanding - basic	49,100	48,819
Effect of dilutive securities:
Stock options	4,350	4,693
Convertible notes	4,565	4,565
Potentially dilutive shares	8,915	9,258
Weighted average common shares outstanding - dilutive	58,015	58,077

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which clarifies when tax benefits should be recorded in financial statements, requires certain disclosures of uncertain tax matters and indicates how tax reserves should be classified on the balance sheet. FIN 48, is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company in its first quarter of fiscal 2008. The Company is continuing to review the impact, if any, the adoption of FIN 48 will have on its financial position and results of operations, but believes the Company has no significant tax contingencies or possible material exposure upon adoption.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors’ requests for expanded information about the extent to which companies’ measure assets and liabilities at fair value,

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the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in its first quarter of fiscal 2008. The Company has not determined the impact, if any, the adoption of SFAS 157, will have on its financial position and results of operations, but does not believe that the impact will be material.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other items eligible for fair value accounting include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item (e.g., debt issue costs) must be recognized in current period earnings and cannot be deferred.

The fair value election is irrevocable and generally made on an instrument-by-instrument basis, regardless of whether a company has similar instruments that it elects not to measure based on fair value. At the adoption date of SFAS 159, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in its first quarter of fiscal 2008. The Company has not determined whether it will elect to apply the fair value option, or the impact, if any, such an election would have on its financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”, which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141 (revised 2007) is effective for acquisitions occurring in fiscal years beginning after December 15, 2008 and is required to be adopted by the Company in its first quarter of fiscal 2009. The Company believes that the adoption of SFAS 141 (revised 2007) would have an impact on the accounting for any future acquisition, if one were to occur.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, an amendment of ARB 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS 160 is effective for fiscal years beginning after December 15, 2008 and requires retrospective application of its presentation requirements. It is required to be adopted by the Company in its first quarter of fiscal 2009. The Company has not determined the impact, if any, the adoption of SFAS 160 will have on its financial position and results of operations, but does not expect that the impact will be material.

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(2) Geographic and Customer Information

Significant Customers

During the fiscal year ended November 30, 2007, the Company did not have any individual customer or distributor that accounted for 10% or more of total net sales. For the year ended November 30, 2006, the Company had a single major customer, Physician Sales and Services (“PSS”), that exceeded 10% of total net sales. The net revenues from PSS for the year ended November 30, 2006 totaled $3,306,000.

Geographic Information

Net sales for domestic and international customers, based upon customer location, for the years ended November 30 were as follows (in thousands):

	November 30,
	2007		2006
United Sates	$	19,132	$	17,315
International (1)		2,718		2,468
Total consolidated net sales	$	21,850	$	19,783

Net long-lived assets by geographic area at November 30 were as follows (in thousands):

	November 30,
	2007		2006
United States	$	867	$	17,031
Europe		3,497		3,236
Net long-lived assets (2)	$	4,364	$	20,267

(1) Sales to customers attributed to geographical areas other than the United States are not material for purposes of separate disclosure.

(2) Net long-lived assets include property, plant and equipment, goodwill and intangible assets.

(3) Inventory

Inventory consists of the following at November 30 (in thousands):

	2007			2006
Electronic components and subassemblies	$	1,524		$	1,491
Finished goods		1,479			1,488
Demonstration units		735			1,295
Less provision for obsolete and slow-moving inventory		(1,798	)		(1,298	)
Less provision for demonstration inventory		(270	)		(249	)
Inventory, net	$	1,670		$	2,727

(4) Long-Term Receivables

The Company primarily relies on third party financing and normal trade accounts receivable terms for its domestic equipment sales, however, the Company has, on occasion provided its customers in-house financing with maturities ranging from 24 to 60 months. When collectability is reasonably assured, revenue is recorded on these contracts at the time of sale based on the present value of the minimum payments using market interest rates or the rate implicit in the financing arrangement and interest income is deferred and recognized on a monthly basis over the term of the contract. In 2007, revenue from long term financing sales accounted for 1.5% of net sales. The long-term receivables resulting from internal financing are collateralized by the individual systems.

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Long-term receivables consist of the following at November 30 (in thousands):

	2007			2006
Long-term receivables, net of deferred interest	$	731		$	1,379
Less allowance for doubtful long-term receivables		(110	)		(195	)
		621			1,184
Less current portion of long-term receivables		(312	)		(614	)
Long-term receivables and note receivable, net	$	309		$	570

(5) Property, Plant and Equipment

Property, plant and equipment at November 30 consist of the following (in thousands):

	Estimated Useful Life (in years)	2007			2006
Land	-	$	104		$	91
Buildings and improvements	5 - 35		1,646			1,542
Computer software and equipment	3 - 5		1,042			1,116
Manufacturing, lab equipment and fixtures	3 - 20		435			369
Office furniture and equipment	3 - 8		342			427
Sales equipment and exhibit booth	2 - 5		639			14
Auto	5		23			20
			4,231			3,579
Accumulated depreciation			(2,349	)		(2,049	)
Property, plant and equipment, net		$	1,882		$	1,530

At November 30, 2007, the Company had $597,000 of demonstration units which had previously been classified as inventory and are now classified within sales equipment. The demonstration units are depreciated on a straight-line basis over the estimated remaining useful life of the assets of between 2 to 5 years.

(6) Goodwill

The Company accounts for goodwill under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. Goodwill is not subject to amortization, but is tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. Goodwill is considered to be impaired if the Company determines that the carrying value of the reporting unit exceeds its fair value. Identifiable intangible assets with finite lives are subject to amortization and any impairment is determined in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

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In the fourth quarter of 2007, the Company performed its annual impairment review of goodwill and intangible assets. Based on this analysis, there was no impairment of goodwill or intangible assets at November 30, 2007. In addition to the annual review, an interim review is required if an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. As a result of entering into an agreement on June 25, 2007 for the sale of Vermed, the Company determined that it was more likely than not that an asset impairment had occurred and that the assets were impaired as of the end of the second quarter ended May 31, 2007. Therefore, an estimated impairment charge of $11.3 million was recorded in the second quarter of 2007 which reduced the goodwill relating to Vermed to zero and reduced the intangible assets of Vermed by $1.8 million to $987,000 at May 31, 2007. At August 31, 2007, the estimated impairment charge was updated and the Company recorded a $232,000 impairment reversal as part of discontinued operations for the quarter. The remaining goodwill at November 30, 2007 relates to our Medis subsidiary. Goodwill is recorded on the books of our subsidiary, therefore exchange rate fluctuations will effect enterprise value from period to period.

The Company recorded $147,000 and $119,000 of amortization expense relating to continuing operations during the years ended November 30, 2007 and 2006, respectively. Estimated amortization expense for the years ending November 30 is as follows:

2008	$	120,000
2009	$	41,000
2010	$	8,000
2011	$	6,000
2012	$	4,000

Identifiable intangible assets consist of the following (in thousands):

	Estimated Life (in years)	November 30, 2007							November 30, 2006
		Estimated Cost		Accumulated Amortization			Net		Estimated Cost		Accumulated Amortization			Net
Developed technology	4 to 5	$	483	$	(355	)	$	128	$	430	$	(225	)	$	205
Patents	5		155		(104	)		51		125		(50	)		75
		$	638	$	(459	)	$	179	$	555	$	(275	)	$	280

(7) Guarantees

Product Warranties

The Company warrants that its stand-alone BioZ Systems shall be free from defects for a period of 60 months (BioZ Dx) and 12 months (BioZ Monitors) from the date of shipment on each new system sold in the United States, 12 months on factory certified/refurbished or demonstration systems and for 13 months on systems sold by CardioDynamics or Medis internationally. Additional years of warranty may be purchased on the BioZ Systems. Options and accessories purchased with the system are covered for a period of 90 days. The Company records a provision for warranty repairs on all systems sold, which is included in cost of sales in the consolidated statements of operations and is recorded in the same period the related revenue is recognized.

The warranty provision is calculated using historical data to estimate the percentage of systems that will require repairs during the warranty period and the average cost to repair a system. This financial model is then used to estimate future probable expenses related to warranty and the required warranty provision. The estimates used in this model are reviewed and updated as actual warranty expenditures change over the product’s life cycle. If actual warranty expenditures differ substantially from the Company’s estimates, revisions to the warranty provision would be required.

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The following table summarizes information related to the Company’s warranty provision for the years ended November 30, 2007 and 2006 (in thousands):

	Year Ended November 30,
	2007			2006
Beginning balance	$	402		$	578
Provision for warranties issued		149			123
Warranty expenditures incurred		(100	)		(105	)
Adjustments and expirations		(10	)		(194	)
Ending balance	$	441		$	402

Reimbursement

In 2007, the Company expanded a previous sales program which provides customers under the program a limited guarantee that Medicare reimbursement would not be rescinded within the guarantee period of up to five years. No liability has been established as the need for ultimate payment under this program is considered to be remote.

(8) Financing Agreements

In November 2005, the Company amended certain provisions of the bank term loan to extend the maturity date to November 1, 2008 and take an advance of $2.2 million from the revolving credit line to reduce the outstanding principal balance of the term loan which lowered future monthly installment payments. In August 2006, the Company entered into a Third Amended and Restated Loan and Security Agreement with Comerica Bank and in November 2006, the Company amended the revolving credit line to extend the maturity date to February 11, 2007. At November 30, 2006, the Company had $1,000,000 of borrowings under the revolving credit line. In March 2007, the Company amended its revolving credit line to extend the maturity date to March 11, 2008 and reduced the maximum available credit from $5,000,000 to $3,000,000. The line of credit was repaid out of the proceeds of the Vermed sale and terminated on August 31, 2007.

In 2004, the Company issued letters of credit relating to the acquisition of Medis to secure the deferred acquisition payments due to the minority shareholders of Medis to be paid annually over five years through 2009. The Company had outstanding letters of credit at November 30, 2007 of $450,000 (€304,000), which includes imputed interest through April 2009. The deferred acquisition payments and related accrued interest is segregated and classified as current and long-term liabilities in the consolidated balance sheet. The letters of credit due to expire in June 2008 and June 2009 are secured by a certificates of deposit of $466,000 which is included on the balance sheet under “Cash and cash equivalents – restricted.”

Also in connection with the acquisition of Medis in 2004, the Company assumed two bank loans with the Sparkasse Arnstadt-Ilmenau bank. Under the terms of the loan agreement, the loans are secured by a pledge of the building valued at 760,000 Euros ($1,124,000) as of November 30, 2007. One of the loans bears interest at a fixed rate of 5.3% through July 30, 2011 and then the bank has the option to adjust the rate. The other loan bears a fixed rate of 6.1% through July 30, 2011 and then the bank has the right to adjust the rate. Both loans mature on August 31, 2021 (see Note 9).

In March 2005, the Company’s former Vermed subsidiary entered into a loan and promissory note agreement with the Vermont Economic Development Authority to assist with the purchase and installation of custom designed manufacturing equipment. The interest rate was adjustable at 0.75% less than the tax exempt rate (5.25% as of November 30, 2006). This loan obligation was transferred to MDP when the Vermed subsidiary was sold. The Company no longer has any obligations under this agreement. The loan balance at November 30, 2006 was $372,000.

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(9) Long-term Debt

On April 11, 2006, the Company issued $5.25 million of subordinated convertible debt securities (“Convertible Notes”). The three-year Convertible Notes, originally due in 2009, bear interest at an annual rate of 8%, and are convertible into common stock at an initial price of $1.15 per share. In connection with the sale of the Convertible Notes, the Company entered into a securities purchase agreement with the purchasers of the Convertible Notes.

Pursuant to the terms of the securities purchase agreement, the Company filed a registration statement on Form S-3, which became effective on May 31, 2006, and has agreed to use its best efforts to keep such registration statement effective for a period of up to two years from April 11, 2006 or such lesser period of time as all of the shares of common stock issuable upon conversion of the Convertible Notes have been sold or can be sold without restriction under Rule 144. The Company will be required to pay additional interest, subject to limitations, to the holders of the Convertible Notes if it fails to comply with its obligations to keep the registration statement effective for the required period of time.

The Convertible Notes were assessed under SFAS 133 and management determined that the conversion option represented an embedded derivative liability. Under the terms of the Convertible Notes, the conversion price of the debt can be adjusted if the Company subsequently issues common stock at a lower price. The Company evaluated the capital resource options available to the Company under various performance scenarios and determined that it could be possible, although unlikely, that it would not be within management’s control to prevent the issuance of additional shares at a price that was sufficiently low so that the conversion adjustment would require the Company to deliver more shares than are authorized. Accordingly, the Company bifurcated the embedded conversion option and accounted for it as a derivative liability. In accordance with SFAS 133, embedded derivative instruments, unless certain conditions are met, require revaluation at the end of each reporting period. In accordance with this standard the embedded conversion option of the Convertible Notes was revalued each period end. The change in fair value was reflected as a gain (loss) for the period. The primary factor that impacted the fair value was the market value for the Company’s common shares. This embedded conversion option was valued using a binomial option pricing model.

The proceeds received on issuance of the convertible debt were first allocated to the fair value of the bifurcated embedded derivative instruments included in the Convertible Notes, with the remaining proceeds allocated to the notes payable, resulting in the notes payable being recorded at a significant discount from their face amount as shown in the table below. This discount, together with the stated interest on the notes payable, is accreted using the effective interest method over the term of the notes payable. (In thousands)

Proceeds received on the issuance of convertible debt	$	5,250
Fair value of conversion option		(2,417	)
Notes payable – convertible notes at carrying value at inception	$	2,833

On November 29, 2006, the Company entered into an amendment with the holders of the Convertible Notes. The amendment extended the term of the Convertible Notes from April 11, 2009 to April 11, 2011, added a put option under which the holders may elect to be repaid in April 2009, and eliminated certain language that previously resulted in the inability to fix the number of shares issuable upon conversion causing the embedded conversion feature to be subject to SFAS 133. As a result of this amendment, the requirement to classify the embedded conversion option as a derivative liability was eliminated and the derivative liability was reclassified to shareholders’ equity.

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The following table discloses the change in fair value of the embedded conversion option from inception through the date of modification (in thousands):

Fair value of conversion option at inception	$	2,417
Changes in fair value through August 31, 2006		(1,464	)
Change in fair value as a result of modification		274
Fair value of conversion option at November 29, 2006 reclassified to shareholders’ equity	$	1,227

The Company evaluated the amendments under Emerging Issues Task Force (“EITF”) 96-19 Debtor’s Accounting for a Modification or Exchange of Debt Instruments, which requires that a substantial modification of terms be accounted for and reported in the same manner as an extinguishment. A substantial modification of a debt instrument is deemed to have been accomplished if the present value of the cash flows (including fair value of an embedded conversion option upon modification of a convertible debt instrument) under the terms of the new debt instrument is at least 10 percent different than the present value of the remaining cash flows under the terms of the original instrument. In addition, EITF 96-19 specifically requires that if the debt instrument is puttable, then the cash flow analysis is to be performed assuming exercise and non-exercise of the put option and that the assumption that generates the smaller change would be used as the basis for the 10% threshold.

The Company performed the debt modification/extinguishment present value of the remaining cash flow calculations in accordance with EITF 96-19 and, because of the three-year put option, the amendments did not result in a greater than 10% change in the carrying value of the original debt instrument immediately prior to the modification and therefore debt extinguishment accounting does not apply. Accordingly, a new effective interest rate was determined as of the amendment date, based on the carrying amount of the original debt instrument and the revised cash flows. As a result of the modification, the change in fair value of the embedded conversion option of $449,000 was recorded as an additional discount on the Convertible Notes. The remaining discount will be accreted using the effective interest method over the new extended term of the notes payable.

The net change in fair value of the derivative liability subsequent to issuance of $1,190,000 was recognized as a gain on derivative instruments in the consolidated statements of operations for the year ended November 30, 2006.

The carrying value of the Convertible Notes will accrete up to the face value over the life of the Convertible Notes. The Company recorded accretion of $436,000 and $397,000 for the years ended November 30, 2007 and 2006, respectively, related to the Convertible Notes. For the years ended November 30, 2007 and 2006, interest expense on the Convertible Notes was $420,000 and $267,000, respectively.

The amount recorded on the balance sheet at November 30, 2007 has been calculated as follows (in thousands):

Convertible notes at carrying value at November 30, 2006	$	2,781
Accretion expense		436
Convertible notes carrying value at November 30, 2007	$	3,217

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Long-term debt consists of the following (in thousands):

	November 30,
	2007			2006
Subordinated convertible notes at 8.0%	$	5,250		$	5,250
Discount on convertible notes		(2,033	)		(2,469	)
Secured bank loan payable to Comerica Bank at 9.25% (See Note 8)		—			656
Secured bank loans payable to Sparkasse Arnstadt-Ilmenau at 5.3% and 6.1% (matures in 2021) (See Note 8)		405			378
Capital leases		29			42
Long-term debt		3,651			3,857
Less current portion		(32	)		(357	)
Long-term debt, less current portion	$	3,619		$	3,500

Maturities of the long-term debt at November 30, 2007 are as follows (in thousands):

Years Ending November 30,	Gross Maturities		Imputed Interest on Minimum Lease Payment Under Capital Leases			Net Long-Term Debt
2008	$	33	$	(1	)	$	32
2009(a)		32		(1	)		31
2010		17		—			17
2011		5,267		—			5,267
2012		17		—			17
Threreafter		320		—			320
Total	$	5,686	$	(2	)	$	5,684

(a) The holders of the $5.25 million of Convertible Notes have the option to elect to be repaid on April 11, 2009.

Capital Leases

The Company leases certain equipment under capital leases where the lessors retain a security interest in the equipment until the capital lease obligation is concluded. Capital leases included in property, plant and equipment are as follows at November 30 (in thousands):

	2007			2006
Office furniture and equipment	$	74		$	74
Less accumulated amortization		(57	)		(46	)
	$	17		$	28

(10) Stock Options and Restricted Stock

In 2004, the shareholders approved the 2004 Stock Incentive Plan (the 2004 Plan), which replaced the 1995 Stock Option/Issuance Plan (the 1995 Plan). Although the 1995 plan remains in effect for outstanding options, no new options may be granted under this plan.

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The 2004 Plan authorizes awards of the following types of equity-based compensation: incentive stock options (ISO), nonqualified stock options (NSO), stock appreciation rights, stock units and restricted stock. The total number of shares reserved and available under the 2004 Plan is 2,000,000 plus any shares remaining available for grant under the 1995 Plan on the effective date, including shares subject to outstanding options that are subsequently forfeited or terminate for any other reason before being exercised.

The exercise price of an ISO is not less than 100% of the fair market value of a share on the date of grant, and the exercise price of an NSO is not less 85% of the fair market value of a share on the date of grant. The Compensation Committee, at its sole discretion, determines the option exercise price, and an option’s maximum term is ten years.

The 2004 Plan provides for annual grants to each outside director who was not an employee of the Company within the preceding two years. Each director who will continue to serve on the Company’s Board of Directors receives a nonstatutory option to purchase 12,000 shares following the conclusion of the annual shareholder meeting. In addition, in 2006, at their election, they received either a cash fee of $2,000 per month or an additional stock option grant for 24,000 stock options at fair market value for their services on the Board. In 2007, each outside director received an annual stock option grant for 12,000 stock options and 30,000 shares of restricted stock at fair market value for their services on the Board. The Board service options vest monthly over 12 months and expire upon the earlier of ten years from the date of grant or two years after the director terminates their position on the Board.

In 2006 and 2007, the Company’s Board of Directors granted an additional 6,000 options to the Company’s Audit Committee Chairman. In October 2006, the Company’s Board of Directors granted 10,000 options to a new Board member. During fiscal 2007 and 2006, 66,000 and 73,000 options, respectively, were granted to the Board of Directors at fair market value on the date of grant.

The Option Plans also provided for grants of options and issuances of stock in exchange for professional services or incentives. During fiscal 2007 and 2006, there were no options granted in exchange for services. Compensation expense is calculated using the Black-Scholes option pricing model and is recorded during the period the services were provided or, in the case of options granted for services already provided, the period when the option was granted. At November 30, 2007, there were 1,693,102 shares available for grant under the 2004 Plan.

At November 30, 2007 and 2006, the number of options exercisable were 3,440,455 and 4,337,191, respectively, and the weighted-average exercise prices of those options were $3.57 and $3.81, respectively.

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The following is a summary of stock option activity under the stock option plans as of November 30, 2007 and changes during the twelve month periods ended 2006 and 2007:

	Number of shares		Weighted- average exercise price
Options outstanding at November 30, 2005	5,408,976		$	3.73
Granted	500,500			1.20
Exercised	(27,889	)		1.21
Forfeited (unvested shares)	(191,164	)		1.30
Expired (vested shares)	(813,154	)		4.11
Options outstanding at November 30, 2006	4,877,269			3.52
Granted	527,305			0.83
Exercised	—			—
Forfeited (unvested shares)	(246,646	)		1.11
Expired (vested shares)	(1,194,227	)		3.81
Options outstanding at November 30, 2007	3,963,701		$	3.22

The following table summarizes information about stock options outstanding and exercisable under the Option Plans at November 30, 2007:

	Options Outstanding				Options Outstanding
Range of exercise prices	Number outstanding	Weighted- average remaining contractual life	Weighted- average exercise price		Number exercisable	Weighted- average exercise price
$0.00 - 1.00	317,029	9.4	$	0.64	60,192	$	0.70
1.01 - 1.50	956,013	7.3		1.20	693,062		1.20
1.51 - 2.00	208,558	2.7		1.70	205,100		1.70
2.01 - 2.50	293,175	0.9		2.24	293,175		2.24
2.51 - 3.00	412,587	4.5		2.92	412,587		2.92
3.01 - 3.50	132,210	3.1		3.27	132,210		3.27
3.51 - 4.00	65,449	3.7		3.75	65,449		3.75
4.01 - 5.00	658,634	4.8		4.55	658,634		4.55
5.01 - 6.00	299,873	4.5		5.65	299,873		5.65
6.01 - 11.88	620,173	4.1		6.20	620,173		6.20
	3,963,701	5.1	$	3.22	3,440,455	$	3.57

On March 23, 1998, the Company entered into an employment agreement with Michael K. Perry, its chief executive officer. Under the terms of the agreement, Mr. Perry was granted 1,295,000 non-transferable stock options (outside the Option Plans) at the grant date fair market value exercise price of $1.625 per share. The options vest over a four-year period, which commenced on October 16, 1998. During fiscal 2007 and 2006, no options were exercised by Mr. Perry. At November 30, 2007, 603,000 of the options are outstanding and exercisable. The options expire on October 15, 2008.

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The aggregate intrinsic value of options outstanding and exercisable at November 30, 2007 was less than $1,000. The aggregate intrinsic value represents the total intrinsic value based on the Company’s ending stock price of $0.37 on November 30, 2007. The weighted-average remaining contractual term for exercisable options is 4.7 years. There were no stock option exercises during the twelve months ended November 30, 2007. The aggregate value of stock options exercised during the twelve months ended November 30, 2006 was $8,000.

A summary of the Company’s unvested stock options as of November 30, 2007 and changes during the twelve months ended November 30, 2007, were as follows:

	Number of options		Weighted- average grant date fair value
Unvested stock options at November 30, 2006	540,078		$	0.70
Granted	527,305			0.49
Vested	(297,491	)		0.63
Expired/forfeited	(246,646	)		0.68
Unvested stock options at November 30, 2007	523,246		$	0.54

On January 24, 2007, the Company granted 42,000 shares of restricted stock to its non-employee Directors under the 2004 Plan in lieu of stock options and cash compensation. These shares vest in six equal monthly installments, beginning on January 24, 2007. On August 28, 2007, the Company granted 150,000 shares of restricted stock to its non-employee Directors under the 2004 Plan in lieu of cash compensation. These shares vest in six equal monthly installments, beginning on September 28, 2007.

On January 24, 2007, the Company granted 335,000 restricted shares to its Executive Officers and directors under the 2004 Plan. These restricted shares vest in two equal installments on January 24, 2009 and on January 24, 2012.

A summary of the Company’s unvested restricted stock grants as of November 30, 2007 and changes during the twelve months ended November 30, 2007, were as follows:

	Number of shares		Weighted- average grant date fair value
Unvested restricted stock grants at November 30, 2006	—		$	—
Granted	527,000			0.95
Vested	(79,495	)		0.81
Expired/forfeited	(40,000	)		1.16
Unvested restricted stock grants at November 30, 2007	407,505		$	0.96

The fair value of restricted stock grants is based upon the closing stock price of the Company’s common shares on the date of the grant. As of November 30, 2007, there was $415,000 of total unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Company’s stock compensation plans. The cost is expected to be recognized over a weighted-average period of 1.3 years.

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(11) Income Taxes

Income tax provision in the accompanying consolidated statements of operations is comprised of the following for the years ended November 30 (in thousands):

	2007			2006
Current:
Federal	$	—		$	—
State		(59	)		(46	)
Foreign		(262	)		(128	)
Total current		(321	)		(174	)
Deferred:
Federal		—			—
State		—			—
Foreign		—			—
Total deferred		—			—
Total provision	$	(321	)	$	(174	)

The difference between the income tax provision and income taxes computed using the U.S. federal income tax rate was as follows for the years ended November 30 (in thousands):

	2007			2006
Computed “expected” tax benefit	$	1,907		$	2,495
State and local taxes, net of federal benefit		29			(64	)
Change in federal valuation allowance		(1,837	)		(2,834	)
Adjustment for prior year and expiring net operating losses		(74	)		40
Gain on derivative instrument		—			475
Accretion expense		(174	)		(158	)
Deferred compensation		(44	)		(22	)
Other		(128	)		(106	)
Provision for income taxes	$	(321	)	$	(174	)

At November 30, 2007, the Company had federal net operating loss carryforwards of approximately $50 million, which begin to expire in 2011.

The Tax Reform Act of 1986 contains provisions that limit the federal net operating loss carryforwards that may be used in any given year in the event of specified occurrences, including significant ownership changes. If these specified events occur, the Company may lose some or all of the tax benefits of these carry forwards. During fiscal 2004, the Company performed a §382 study and determined that the extent of such limitations for prior years had no effect on the availability of the current net operating losses. The Company believes that the above conclusion remains consistent for fiscal 2007.

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of November 30 are as follows (in thousands):

	2007			2006
Current deferred tax assets:
Allowance for doubtful accounts and returns	$	486		$	538
Inventory reserves		837			701
Deferred compensation		242			133
Accrued expenses		583			659
Deferred revenue		101			87
Other		60			26
Net current deferred tax assets		2,309			2,144
Long-term deferred tax assets:
Net operating loss carryforwards		19,413			14,089
Fixed assets		97			—
Other		213			160
Net long-term deferred tax assets		19,723			14,249
Long-term deferred tax liability:
Undistributed earnings of foreign subsidiary		(282	)		(78	)
Intangible assets		—			(797	)
Net long-term deferred tax liability		(282	)		(875	)
Subtotal deferred tax assets, long-term		19,441			13,374
Total deferred tax assets		21,750			15,518
Valuation allowance		(21,750	)		(15,518	)
Net deferred tax assets	$	—		$	—

In assessing the realizability of deferred income tax assets, management follows the guidance contained within SFAS No. 109 “Accounting for Income Taxes,” which requires that deferred income tax assets or liabilities be reduced by a valuation allowance, if based on weight of available evidence, considering all relevant positive and negative, objective and subjective evidence, it is “more likely than not” that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the loss carry forwards. In order to realize the benefit associated with net operating losses (NOL), the Company must earn cumulative Federal taxable income of at least $50 million prior to the expiration of those NOL’s. The Federal NOL’s will begin to expire in 2011 and will fully expire by 2027. Additionally, at November 30, 2007, the Company had California net operating loss carryforwards of approximately $14.4 million that begin to expire in fiscal 2008 and will fully expire by 2019.

Under provisions of SFAS No, 109, forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as historical losses, uncertainty of future profitability and determination of exact net operating losses subject to section 382 limitations.

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The Company has experienced taxable losses during the majority of its reporting periods including its most recent period. Despite the Company’s forecasts for future taxable income, it is difficult to predict with certainty future taxable income due to business uncertainties and because of the tax expense from the exercise of stock options and warrants which are not in the control of management. The Company’s historical operating losses, particularly the loss incurred in the most recent period make it very difficult to rely on projections beyond a relatively short forecast window to meet the “more likely than not” standard required to conclude that its deferred tax assets will be fully utilized. Therefore, management has concluded that it continues to be appropriate to record a valuation allowance equal to the total deferred income tax assets at November 30, 2007. In 2007, the valuation allowance increased by $6,232,000.

(12) Income (Loss) from Discontinued Operations, Net of Income Tax

As a result of a multi-year decline in operating performance and to allow the Company to raise cash to invest in its ICG business, which represents the greatest potential for growth, on June 25, 2007, CardioDynamics entered into an Agreement pursuant to which CardioDynamics would sell its Vermed subsidiary based in Bellows Falls, Vermont, to MDP, an entity formed by certain management team members of Vermed, for a cash purchase price of approximately $8,000,000. The transaction was approved by CardioDynamics’ shareholders and the sale was completed on August 31, 2007. As part of the sale, the Company simultaneously entered into a five-year ICG sensor purchase agreement with Vermed that has long-term product pricing. Pricing is not considered beneficial or detrimental to the Company. The prior year assets and related liabilities of Vermed were classified as “for sale” within the interim Consolidated Balance Sheets and the results of the ECG segment are reported as discontinued operations within the Consolidated Statements of Operations, Shareholders’ Equity and Comprehensive Income (Loss) and Cash Flows.

The following table summarizes the major classifications of assets and liabilities for our discontinued operations as of August 31, 2007, the date of the disposal, and November 30, 2006 (In thousands):

	August 31, 2007		November 30, 2006
	(unaudited)
Cash and cash equivalents	$	448	$	851
Accounts receivable, net		552		933
Inventory, net		1,690		1,512
Other current assets		19		17
Current assets held for sale		2,709		3,313
Property, plant and equipment, net		4,055		3,925
Intangible assets, net		952		2,959
Goodwill		—		9,521
Long-term assets held for sale		5,007		16,405
Accounts payable		302		361
Accrued expenses and other current liabilities		97		44
Accrued compensation		234		169
Current portion of long-term debt		82		71
Current portion of liabilities related to assets held for sale		715		645
Long-term debt, less current portion		245		301
Long-term portion of liabilities related to assets held for sale		245		301

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The following table summarizes the financial activities for our discontinued operations during the nine months ended August 31, 2007 and the twelve months ended November 30, 2006 (In thousands):

	November 30,
	2007			2006
	(unaudited)
Net sales	$	7,883		$	10,558
Cost of sales		5,366			6,828
Gross margin		2,517			3,730
Operating expenses:
Research and development		251			258
Selling and marketing		950			1,159
General and administrative		643			1,048
Amortization of intangible assets		228			386
Impairment of intangible assets		11,068			—
Total operating expenses		13,140			2,851
Income (loss) from operations		(10,623	)		879
Other income		9			15
Income (loss) from discontinued operations, net of tax	$	(10,614	)	$	894

The following table summarizes the gain on the disposal of Vermed at August 31, 2007, which is included in discontinued operations within the Consolidated Statements of Operations, Shareholders’ Equity and Comprehensive Income (Loss) and Cash Flows (Unaudited - in thousands):

Sales price	$	8,023
Investment in Vermed, net(1)		7,791
Gain on sale of Vermed	$	232

(1) Investment in Vermed is net of closing expenses and an impairment charge of $11.3 million, which was recorded in the second quarter of 2007.

(13) Commitments and Contingencies

Letters of Credit

In 2004, the Company issued letters of credit relating to the acquisition of Medis to secure the deferred acquisition payments due to the minority shareholders of Medis to be paid annually over five years through 2009. The Company had outstanding letters of credit at November 30, 2007 of $450,000 (€304,000), which includes imputed interest through April 2009. The deferred acquisition payments and related accrued interest is segregated and classified as current and long-term liabilities in the consolidated balance sheet. The letters of credit due to expire in June 2008 and June 2009 are secured by a certificates of deposit of $466,000 which is included on the balance sheet under “Cash and cash equivalents – restricted.”

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Operating Leases

In June 2004, the Company amended the operating lease for the existing 18,000 square-foot facility in San Diego, California, to extend the term of the lease from July 31, 2007 to December 31, 2007. The amended lease terms provide for additional expansion space of approximately 15,000 square-feet effective November 1, 2004, and included a tenant improvement allowance of $225,000 for the construction of building improvements.

In March 2005, the Company amended the operating lease for both the existing and original space in the San Diego, California, facility to extend the term of the lease from December 31, 2007, to December 31, 2009, and to provide for an additional $197,000 of tenant improvement allowance for the construction of building improvements. The lease payments on the original space were $20,000 per month through July 31, 2007, increasing to $22,000 per month through July 31, 2008 with annual increases of 3% each anniversary thereafter. The lease payments on the expansion space commenced on November 1, 2004 at $7,000 per month and then increased to $14,000 per month on November 1, 2005 with a 3% annual increase on each anniversary thereafter. The total future lease commitments on the amended lease through December 31, 2009 approximate $928,000. The lease terms provide for rent incentives and escalations for which the Company has recorded a deferred rent liability which is recognized evenly over the entire period. The difference between the base rent paid, which also includes triple net costs, and the straight-line rent expense, as well as rent incentives is $296,000 as of November 30, 2007 and is recorded as deferred rent on the accompanying consolidated balance sheets.

In November 2006, the Company entered into a sublease agreement which commenced on January 1, 2007 for a portion of its San Diego facility. The terms of the sublease provide for the use of 6,000 square feet of general office space for a period of 24 months at a rate of $10,000 per month commencing in the third month and increasing to $10,500 in month 13. The sublease provides for one 13 month extension option at $11,000 per month.

Rent expense, including triple net building lease expenses, under operating leases was $471,000 and $401,000 for the years ended November 30, 2007 and 2006, respectively. Future minimum lease payments for operating leases as of November 30, 2007 are as follows (in thousands):

Years ending November 30,	Lease Commitments
2008	$	438
2009		452
2010		38
	$	928

Change of Control Agreements

The Company has entered into a Change of Control Agreement (the “Agreement”) with certain members of management. Under the Agreement, each individual is entitled to certain benefits if the Company terminates his or her employment without cause, or if an involuntary termination occurs, within 24 months after a change of control. The maximum contingent payments under the Agreements, as of November 30, 2007, were $2,250,000.

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Contingent Obligation

As part of the acquisition of Medis, the Company assumed a contingent obligation to repay the German government for public grant subsidies of $460,000 (310,800 Euros, which represents the Company’s 80% share) if it does not meet certain conditions through December 31, 2007. The minority shareholders are personally liable for the other 20% share of the contingent obligation. The grant subsidies were used to assist with the construction of the building now occupied and used for Medis’ business operations. The following conditions were required to be maintained:

• Number of employees must be retained at a minimum level.

• Medis must manufacture at least 50% of it sales volume in medical or comparable devices.

• The Medis business is not allowed to be discontinued or transferred to another owner without transferring the aforementioned conditions and contingent liability associated with the government grant provisions.

The Company met these conditions through the required periods and the contingent obligation expired on December 31, 2007.

Legal Proceedings

The Company is from time to time subject to legal proceedings and claims, which arise in the ordinary course of our business. Management believes that resolution of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows.

(14) Employee Benefit Plan

In 1996, the Company established a qualified savings plan under section 401(k) of the Internal Revenue Code of 1986. Employees who are at least 21 years of age are eligible to participate in the plan at the first calendar quarterly entry date after 90 days of service. The Company may make discretionary contributions to the plan. Employer matching contributions were $147,000 and $162,000 for the fiscal years ended November 30, 2007 and 2006, respectively.

The Company has an established pension plan for the Managing Director, Mr. Solbrig, of our Medis subsidiary. Under the terms of this arrangement, the Company has agreed to make monthly payments of 2,564 Euros to Mr. Solbrig, beginning at age 65. Payments would terminate upon the death of Mr. Solbrig. As of November 30, 2007, the liability related to these payments was $110,000.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management has evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)), as of the end of the period covered by this annual report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this annual report.

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(b) Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.

A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. An internal control material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Management of the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of November 30, 2007.

(c) Changes in Internal Control Over Financial Reporting

The Company has made no changes in its internal control over financial reporting in connection with its fourth quarter evaluation that would materially affect, or are reasonably likely to materially affect, its internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

Our directors and executive officers as of January 31, 2008 are as follows:

Name	Age	Position(s)
James C. Gilstrap	71	Chairman of the Board of Directors
Michael K. Perry	47	Chief Executive Officer and Director
Rhonda F. Rhyne	47	President
Steve P. Loomis	47	Vice President of Finance, Chief Financial Officer and Corporate Secretary
Donald J. Brooks	48	Chief Technology Officer
Russell H. Bergen	60	Vice President of Operations
Richard E. Trayler	57	Vice President of International Operations
Robert W. Keith	49	Director
Richard O. Martin, Ph.D	67	Director
B. Lynne Parshall	53	Director
Jay A. Warren.	54	Director

The term of office for each director continues until the next annual meeting of shareholders or until his or her successor has been elected and qualified. Executive officers are appointed annually by the Board of Directors and serve at the discretion of the Board.

James C. Gilstrap has served as the chairman or co-chairman of our board of directors since May 1995. Mr. Gilstrap is retired from Jefferies & Company, where he served as senior executive vice president, partner, board member, and a member of the executive committee. Mr. Gilstrap serves on the board of Corautus Genetics, Inc. Mr. Gilstrap is past president of the Dallas Securities Dealers, as well as a past member of the board of governors of the National Association of Securities Dealers, Inc.

Michael K. Perry, See description under “Executive Officers” in Part I of this Form 10-K.

Rhonda F. Rhyne, See description under “Executive Officers” in Part I of this Form 10-K.

Steve P. Loomis, See description under “Executive Officers” in Part I of this Form 10-K.

Donald J. Brooks, See description under “Executive Officers” in Part I of this Form 10-K.

Russell H. Bergen, See description under “Executive Officers” in Part I of this Form 10-K.

Richard E. Trayler, See description under “Executive Officers” in Part I of this Form 10-K

Robert W. Keith has served as a director since July 2005. Mr. Keith is President and Chief Executive Officer of Verus Pharmaceuticals, Inc. and has held various executive management positions since co-founding the company in November 2002. Prior to that, he was a Partner at Advantage Management Solutions, L.L.C., a commercial strategy and operations consulting firm for life science companies. Prior to that, Mr. Keith was a member of the senior management team at Dura Pharmaceuticals, Inc. and Elan

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Corporation, plc from 1996 to 2001; during his tenure he served in several positions, including Vice President of sales, Vice President of commercial strategies and marketing and Vice President of managed care and national accounts. Prior to that, he held an executive management position at Abbott Laboratories. Mr. Keith has more than 20 years of experience in the life sciences industry and management consulting. Mr. Keith earned an M.B.A. from the Wharton School of the University of Pennsylvania, an M.C.P. from the University of Pennsylvania and a Bachelor’s degree from The George Washington University.

Richard O. Martin, Ph.D. has served as a director since July 1997. From 1998 until 2001, Dr. Martin served as president of Medtronic Physio-Control Corporation, a medical device company that designs, manufactures and sells external defibrillators and heart monitors. Prior to its acquisition by Medtronic in 1998, Dr. Martin was chairman and chief executive officer of Physio-Control Corporation. Prior to that, he was vice president of cardiovascular business development with Sulzer Medica and has held management positions at Intermedics, Inc. and Medtronic, Inc. Dr. Martin serves on the boards of directors of Cardiac Dimensions, Inc., Inovise Medical Inc., MDdatacor Inc., Prescient Medical, Inc. and Echo Healthcare Acquisition Crop. Dr. Martin earned a Bachelor’s degree in electrical engineering from Christian Brothers College, a Master’s degree in electrical engineering from Notre Dame University and a doctorate in electrical/biomedical engineering from Duke University.

B. Lynne Parshall has served as a director since July 2005. Ms. Parshall was appointed to the additional role as Chief Operating Officer of Isis Pharmaceuticals, Inc. in January 2008, having served as Executive Vice President since December 1995 and Chief Financial Officer since June 1994. She has held various positions with Isis Pharmaceuticals, Inc. since 1991. Prior to that, she was a Partner at Cooley Godward, LLP from 1986 to 1991. Ms. Parshall serves on the board for Corautus Genetics, Inc. and is on the Board of Trustees of the Bishop’s School. She is also a member of the American, California and San Diego bar associations. Ms. Parshall earned a Bachelor’s degree in government and economics from Harvard University and a J.D. degree from Stanford Law School.

Jay A. Warren has served as a Director since October 2006. Mr. Warren is President and Chief Executive Officer of Cameron Health, Inc., a medical device company that designs, manufactures, and distributes a subcutaneous implantable defibrillator system. Prior to his tenure at Cameron Health, Mr. Warren held various executive management positions at Guidant Corporation, including Vice President of Research and Development, Chief Technology Officer, and Chief Operating Officer of Guidant Cardiac Rhythm Management business. He has also held various positions with Intermedics, Inc., and Medtronic, Inc. Mr. Warren earned a Master’s degree from an interdisciplinary program between Southwest Methodist University and Southwestern Medical School and received his undergraduate degree from California State Polytechnic University, San Luis Obispo. Mr. Warren currently serves on the Boards of Cameron Health, Inc., and BioNeuronics, Inc.

Section 16(a) Beneficial Ownership Reporting Compliance

The Company believes that each person who, at any time during the fiscal year ended November 30, 2007, was a director, officer, or beneficial owner of more than 10% of a class of registered equity securities of CardioDynamics, filed on a timely basis all reports required by Section 16(a) of the Securities Exchange Act.

Code of Ethics

The Company has adopted a code of business conduct and ethics that applies to our principal executive officer, principal financial and accounting officer. The Code of Ethics is available at the investor relations page of our corporate website at www.cdic.com, and the Company will provide to any person without charge, upon written request to the Company, a copy of our Code of Ethics. Please note that the information contained on our website is not incorporated by reference in, or considered to be a part of, this document.

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Audit Committee

The Board of Directors has established a standing Audit Committee currently composed of three non-employee directors, Ms. Parshall, Dr. Martin and Mr. Warren. The Audit Committee is responsible for the appointment, retention and termination of our independent registered public accounting firm, monitoring the effectiveness of the audit effort, the Company’s financial and accounting organization and its system of internal accounting and disclosure controls. The committee also reviews other matters with respect to our accounting, auditing and financial reporting practices and procedures as it may find appropriate or may be brought to their attention. Each member of the Audit Committee is “independent” within the meaning of SEC rules and regulations and Nasdaq listing standards. The Board has determined that Ms. Parshall qualifies as an “audit committee financial expert” within the meaning of SEC rules and regulations and possesses the financial sophistication and requisite experience as required under Nasdaq listing standards.

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ITEM 11. EXECUTIVE COMPENSATION

The following table provides information regarding the annual and long-term compensation earned for services rendered in all capacities to CardioDynamics for the fiscal years ended November 30, 2007 and 2006 of those persons who (i) served at any time during the last fiscal year as our Principal Executive Officer and (ii) were serving at fiscal year-end as our two most highly compensated executive officers, other than the Principal Executive Officer, whose total compensation exceeded $100,000 (collectively, the “Named Officers”).

2007 Summary Compensation Table

Name and Principal Position	Year	Salary		Bonus		Stock awards(1)(2)		Option awards(1)(3)		All other compensation			Total
Michael K. Perry	2007	$	292,198	$	77,168	$	25,887	$	1,715	$	26,349	(4)	$	423,317
Chief Executive Officer	2006	$	294,420	$	100	$	—	$	9,069	$	35,047	(4)	$	338,636
Rhonda F. Rhyne	2007	$	236,842	$	53,468	$	20,709	$	1,543	$	18,528	(5)	$	331,090
President	2006	$	238,678	$	100	$	—	$	8,162	$	36,818	(5)	$	283,758
Steve P. Loomis	2007	$	191,041	$	39,293	$	17,257	$	1,372	$	20,668	(6)	$	269,631
Vice President of Finance, Chief Financial Officer and Corporate Secretary	2006	$	189,853	$	100	$	—	$	7,951	$	30,301	(6)	$	228,205

(1) Non-cash amounts calculated utilizing the provisions of Statement of Financial Accounting Standards (“SFAS”) No.123R, “Stock-Based Compensation.” For more information, please see Note 1 of the Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K regarding assumptions underlying valuation of equity awards.

(2) Restricted stock awards, granted on January 24, 2007, vest in two equal increments, with the first vesting occurring on January 24, 2009 and the second vesting occurring on January 24, 2012.

(3) No options awards were granted to executive officers in 2007, the amounts shown in the above table represent the dollar amount recorded for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R as described in note (1).

(4) Represents cash payment of $22,026 in 2007 and $30,856 in 2006 for earned accumulated vacation used to purchase Company stock, and amounts for group term life insurance and matching contributions to Company sponsored 401(k) plan.

(5) Represents cash payment of $13,352 in 2007 and $32,724 in 2006 for earned accumulated vacation used to purchase Company stock, and amounts for group term life insurance and matching contributions to Company sponsored 401(k) plan.

(6) Represents cash payment of $18,277 in 2006 for earned accumulated vacation, and $28,551 in 2006 for earned accumulated vacation used to purchase Company stock, and amounts for group term life insurance and matching contributions to Company sponsored 401(k) plan.

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Outstanding Equity Awards at Fiscal Year

The following table shows for the fiscal year ended November 30, 2007, certain information regarding outstanding option awards at fiscal year-end for the Named Executive Officers.

2007 Outstanding Equity Awards at Fiscal Year-End

	Option awards				Stock awards
Name	Number of securities underlying unexercised options (#) exercisable	Option exercise price		Option expiration date	Number of shares of stock that have not vested (#)	Market value of shares of stock that have not vested(1)
Michael K. Perry	603,000	$	1.63	10/16/08	—		—
	45,000	$	2.25	01/20/09	—		—
	50,000	$	6.13	01/27/10	—		—
	30,000	$	4.06	01/17/11	—		—
	300	$	3.13	04/06/11	—		—
	30,000	$	5.83	01/16/12	—		—
	55,000	$	3.00	01/16/13	—		—
	600	$	2.99	04/04/13	—		—
	60,000	$	6.07	01/15/14	—		—
	45,000	$	4.89	01/18/15	—		—
	50,000	$	1.19	10/20/15	—		—
					75,000	$	27,750
Rhonda F. Rhyne	130,000	$	2.25	03/20/08	—		—
	40,000	$	2.25	01/20/09	—		—
	40,000	$	6.13	01/27/10	—		—
	900	$	6.00	06/28/10	—		—
	25,000	$	4.06	01/17/11	—		—
	25,000	$	5.83	01/16/12	—		—
	50,000	$	3.00	01/16/13	—		—
	50,000	$	6.07	01/15/14	—		—
	35,000	$	4.89	01/18/15	—		—
	1,200	$	1.81	08/01/15	—		—
	45,000	$	1.19	10/20/15	—		—
					60,000	$	22,200
Steve P. Loomis	603	$	1.63	10/16/08	—		—
	10,000	$	2.25	01/20/09	—		—
	30,000	$	6.13	01/27/10	—		—
	300	$	6.00	06/28/10	—		—
	20,000	$	4.06	01/17/11	—		—
	600	$	4.40	09/27/11	—		—
	20,000	$	5.83	01/16/12	—		—
	37,000	$	3.00	01/16/13	—		—
	40,000	$	6.07	01/15/14	—		—
	30,000	$	4.89	01/18/15	—		—
	40,000	$	1.19	10/20/15	—		—
	1,200	$	0.90	10/17/16	—		—
					50,000	$	18,500

(1) Restricted stock, granted on January 24, 2007, vests in two equal increments, with the first vesting occurring on January 24, 2009 and the second vesting occurring on January 24, 2012.

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Change of Control Agreements

On October 5, 2006, the Company entered into a Change of Control Agreement (the “Agreements”) with each of its executive officers. The Agreements terminate upon the earlier of (i) the date that all obligations of the parties under the Agreements have been satisfied, or (ii) 24 months after a Change of Control (as such term is defined in the Agreements).

Each executive is entitled to the following benefits if the Company terminates his or her employment without Cause, or if an Involuntary Termination occurs (as such terms are defined in the Agreements), within 24 months after a Change of Control: (i) salary continuation at the Executive’s Base Compensation (as such term is defined in the Agreements), for a 15 month period in regular payroll increments or as a lump sum if the executive can demonstrate a financial hardship; (ii) continuation for 15 months after such termination of participation in the Company’s 401(k) plan and all health insurance benefits provided by the Company to the executive and his or her family under the Company’s benefits plan prior to the termination (with the executive continuing to pay any portion of the premiums paid by the executive prior to the Change of Control).

In addition, each executive is entitled to the following if the Company terminates his or her employment without Cause, or if an Involuntary Termination occurs within 12 months after a Change of Control: (i) vesting of the remaining portion of such executive’s unvested stock options or other equity awards; and (ii) to the extent that such options are assumed by an acquiring or surviving entity as part of any relevant Change of Control, such executive shall be entitled to exercise any stock options for a period from the date of his or her termination up to the date which is the earliest to occur of (a) the one year anniversary of such termination, (b) the latest date that such options could be exercised without triggering any 409A Tax (as such term is defined in the Agreements) or (c) the original stated expiration date of such options.

Directors’ Compensation

The 2004 Stock Incentive Plan provides for annual awards to each outside director who was not an employee of the Company within the preceding two years. Each director who will continue to serve on the Company’s Board of Directors receives a nonstatutory option to purchase 12,000 shares following the conclusion of the annual shareholders’ meeting. In 2007, each outside director received an annual stock option grant for 12,000 stock options and 30,000 shares of restricted stock at fair market value for their services on the Board. The Board service options vest monthly over 12 months and expire upon the earlier of ten years from the date of grant or two years after the director terminates their position on the Board.

In 2007, the Company’s Board of Directors granted an additional 6,000 options to the Company’s Audit Committee Chairman. During fiscal 2007 an aggregate of 68,000 options were granted to the Board of Directors at fair market value on the date of grant. All directors are reimbursed for out-of-pocket expenses incurred in connection with their service on the Board.

2007 Director Compensation

Name	Fees earned or paid in cash		Stock awards(1)(2)		Option awards(1)(3)		All other compensation		Total
James C. Gilstrap	$	—	$	21,198	$	4,681	$	—	$	25,879
Robert W. Keith	$	18,000	$	7,278	$	4,681	$	—	$	29,959
Richard O. Martin Ph.D.	$	—	$	21,198	$	4,681	$	—	$	25,879
B. Lynne Parshall	$	—	$	21,198	$	7,021	$	—	$	28,219
Jay A. Warren	$	12,000	$	14,238	$	8,868	$	—	$	35,106

(1) Non-cash amounts calculated utilizing the provisions of Statement of Financial Accounting Standards (“SFAS”) No.123R, “Stock-Based Compensation.” For more information, please see Note 1 of the Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K regarding assumptions underlying valuation of equity awards.

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(2) At November 30, 2007, each Director had the following aggregate number of restricted stock awards outstanding: James C. Gilstrap 42,000 shares, Robert W. Keith 30,000 shares, Richard O. Martin 42,000 shares, B. Lynne Parshall 42,000 shares, Jay A. Warren 36,000 shares.

(3) At November 30, 2007, each Director had the following aggregate number of stock option awards outstanding: James C. Gilstrap 127,000 shares, Robert W. Keith 36,000 shares, Richard O. Martin 175,000 shares, B. Lynne Parshall 72,000 shares, Jay A. Warren 31,000 shares.

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Our compensation programs and policies applicable to our executive officers are established and administered by the Compensation Committee of our Board of Directors. The Compensation Committee consists of three non-employee directors, none of whom have interlocking relationships as defined by the rules and regulations of the Securities and Exchange Commission.

It is the philosophy of the Compensation Committee that our executive compensation should be aligned with our overall business strategies, values and performance. Our policies are designed to set executive compensation, including salary, cash bonus awards and long-term stock-based incentive awards, at levels consistent with amounts paid to executive officers of companies of similar size, industry and geographic location.

Compensation Philosophy and Objectives

The Compensation Committee believes that compensation of our executive officers should:

• Encourage creation of shareholder value and achievement of strategic corporate objectives;

• Integrate compensation with our annual and long-term corporate objectives, values and business strategies, and focus executive actions on the fulfillment of those objectives, values and strategies;

• Provide a competitive total compensation package that enables us to attract and retain, on a long-term basis, high caliber personnel;

• Provide a compensation opportunity that is competitive with companies in the medical device, drug development and biotechnology industries, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance;

• Take into consideration the Company’s financial and cash resources; and

• Align the interests of management with the long-term interests of stockholders and enhance shareholder value by providing management with longer-term incentives through equity ownership.

The Compensation Committee periodically reviews our approach to executive compensation, will make changes as competitive conditions and other circumstances warrant and will seek to ensure our compensation philosophy is consistent with our best interests.

Key Elements of Executive Compensation

The compensation of executive officers is based upon our financial performance as well as the achievement of certain business objectives, including: increased market penetration, broadening of distribution channels through strategic relationships, securing and growing recurring revenue, targeting new market opportunities, furthering ICG technology, securing and managing capital to sustain and grow the business, responding to reimbursement and regulatory changes as well as the achievement of individual business objectives by each executive officer.

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Executive compensation consists of three elements: (i) base salary, (ii) bonus awards and (iii) long-term stock-based incentive awards. The summary below describes in more detail the factors that the Compensation Committee considers in establishing each of the three primary components of the variable compensation package provided to the executive officers.

Base salary - Salary ranges are largely determined through comparisons with companies of similar revenues, market capitalization, headcount or complexity in the medical device, drug development and biotechnology industries. Actual salaries are based on individual performance contributions and other more qualitative and developmental criteria within a competitive salary range for each position that is established through evaluation of individual job responsibilities as well as competitive, inflationary, internal equity and market considerations. The Compensation Committee, on the basis of its assessment of comparable executive compensation, believes that salary levels for the executive officers are at a level that the Compensation Committee, at the time such salary determinations were made, considered to be reasonable and necessary given our financial resources and stage of development. The Compensation Committee reviews executive salaries each October and sets the salaries for the following year at that time, however in September 2007; the Company announced a plan to accelerate its return to profitability which included expense reductions including a temporary 10% reduction in executive salaries.

Bonus awards - The Compensation Committee has established an incentive bonus program providing for the payment to each executive officer of quarterly bonuses that are directly related to the group and individual achievements of executive management and our revenues and earnings. The bonus pool is established based on quarterly revenues and earnings achieved and the pool is allocated to individual executives through a weighting, half of which is based on achievement of our revenue and earnings goals and half of which is based on CEO and Compensation Committee assessment of the executive’s individual quarterly goal achievement and overall contribution to CardioDynamics.

In fiscal 2007, the target bonuses for executive officers ranged from 23% to 31% of annual base salary and were actually paid at 17% to 23% of annual base salary. Incentive award amounts for each participant are based on his or her potential impact on our operating and financial results and on market competitive pay practices. Under the incentive bonus program, incentive awards are based on achievement of quarterly performance goals. These performance goals include individual performance goals, which are established by the CEO at the beginning of each quarter, and annual corporate performance goals. The corporate performance goals are based on our achievement of strategic objectives as well as specific revenue and earnings growth targets for each quarter and the fiscal year.

Long-term stock-based incentive awards - Our Stock Incentive Plan, which was approved by our shareholders in 2004, as well as the executive bonus plan, are structured to permit awards under such plans to qualify as performance-based compensation and to maximize the tax deductibility of such awards. The Committee intends that compensation paid to management, including stock-based incentive awards, be exempt from the limitations on deductibility under Section 162(m) of the Internal Revenue Code. Accordingly, the Compensation Committee administers grants under our Stock Incentive Plan to members of management.

The Compensation Committee believes that providing incentives that focus attention on managing us from the perspective of an owner with an equity stake in the business will most closely align the interest of shareholders and executive officers. Therefore, all employees, and particularly those persons who have substantial responsibility for our management and growth, are eligible to receive annual stock incentive grants, although the Compensation Committee, in its discretion, may grant stock incentives at other times in recognition of exceptional achievements.

The type and number of stock-based incentive awards granted to executive officers is based on competitive practices in the industry as determined by independent surveys and the Compensation Committee’s knowledge of industry practice. The Compensation Committee grants stock-based incentive awards under the Stock Incentive Plan based on the fair market value on the date of grant. The grants are intended to be competitive in order to retain and encourage positive future performance and to provide a direct link with the interests of our shareholders.

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The Compensation Committee, in making its determination as to grant levels, takes into consideration: (i) the executive’s historical and expected contribution toward our objectives, (ii) prior award levels, (iii) award levels necessary to replace particular executives, (iv) the executive’s direct ownership of our shares, (v) the number of stock-based incentives vested and unvested, (vi) anticipated accounting rule changes, and (vii) the number of stock options outstanding as a percentage of total shares outstanding. During fiscal 2007, 527,305 new options were granted, representing 1.0% of our outstanding shares and when forfeitures and expirations are considered, the number of options actually decreased by 913,568. The Stock Option Plan limits the total number of shares subject to options that may be granted to a participant during the lifetime of the plan to 800,000 shares. The Stock Option Plan contains provisions providing for forfeiture of the options in the event the option holder engages in certain intentional misconduct contrary to our interests.

Chief Executive Officer Compensation

Michael K. Perry is our Chief Executive Officer. In October 2006, the Compensation Committee set Mr. Perry’s annual base salary for 2007 at $303,000 which it believes to be competitive with the base salary levels in effect for chief executive officers at comparable companies within the medical device, drug development and biotechnology industry norms within southern California. However, in September 2007, the Company announced a plan to accelerate its return to profitability which included a temporary 10% reduction in executive salaries resulting in a reduction in Mr. Perry’s salary to $272,000.

Mr. Perry is a member of the Board of Directors, but did not participate in matters involving the evaluation of his own performance or the setting of his own compensation. The foregoing report has been furnished by our Compensation Committee.

Compensation Committee:

Richard O. Martin, Ph.D. – Chairman

James C. Gilstrap

Robert W. Keith

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Holders

The following table sets forth certain information concerning the only persons known by us to beneficially own 5% or more of the outstanding shares of our common stock as of January 31, 2008. Calculations of beneficial ownership are based on 50,353,299 shares of our common stock outstanding on such date.

Name and Address of Beneficial Owner	Shares Beneficially Owned
	Number (1)	Percentage (2)
James C. Gilstrap (3) c/o CardioDynamics 6175 Nancy Ridge Drive, Suite 300 San Diego, CA 92121	2,547,426	5.0	%
Kairos Partners III Limited Partnership (4) 600 Longwater Drive, Suite 204 Norwell, MA 02061	2,703,000	5.4	%
J. Michael Paulson (5) P.O. Box 9660 Rancho Santa Fe, CA 92067	2,896,394	5.8	%
Visium Asset Management, LLC (6) 950 Third Avenue New York, NY 10022	3,088,081	5.8	%
Dr. Herbert A. Wertheim (7) 191 Leucadendra Drive Coral Gables, FL 33156	4,400,000	8.7	%
Balyasny Asset Management, L.P. (8) 181 West Madison, Suite 3600 Chicago, IL 60602	4,891,708	9.4	%

(1) Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws, where applicable.

(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).

(3) Includes 400,000 shares held by the Scripps Medical Charitable Limited Partnership of which Mr. Gilstrap is a general partner with a minority ownership interest. Mr. Gilstrap disclaims any pecuniary interest in 399,752 of the shares. Also includes 121,999 shares of common stock Mr. Gilstrap beneficially owns, by virtue of his right to acquire such shares from us under stock options now exercisable or exercisable within 60 days. Also includes 32,654 shares held by the James C. Gilstrap Trust dated January 16, 1995 and 71,000 shares held in his daughters’ trusts. Mr. Gilstrap disclaims beneficial ownership of any such shares held in trust for his daughters.

(4) Information with respect to Kairos Partners III Limited Partnership is based in part on information provided by the shareholder and in part on Schedule 13G filed with the SEC on April 1, 2005 by Kairos Partners III Limited Partnership, John F. White, James F. Rice, Kenneth L. Wolfe, and Foster L. Aborn. Each of John F. White, James F. Rice, Kenneth L. Wolfe and Foster L. Aborn beneficially own all of these shares as members of the investment committee of the Kairos Partners III Limited Partnership. They share voting and investment power over the shares.

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(5) Includes 2,513,139 shares held in the Allen E. Paulson Living Trust dated December 23, 1986 of which J. Michael Paulson is the Trustee and executor. Also includes 7,000 shares beneficially owned by the Trust, by virtue of its right to acquire such shares from us under stock options now exercisable or exercisable within 60 days. Also includes 376,255 shares held by J. Michael Paulson. Excludes shares of common stock owned by Mr. Paulson’s brothers; Mr. Paulson disclaims beneficial ownership of such shares. Information with respect to Mr. Paulson was provided to us by Mr. Paulson.

(6) Information with respect to Visium Asset Management, LLC is based in part on Amendment No. 1 to Schedule 13G filed with the SEC on February 13, 2007 by Visium Balanced Fund, LP (“VBF”), Visium Long Bias Fund, LP (“VLBF”), Visium Balanced Offshore Fund, Ltd. (“VBOF”), Visium Long Bias Offshore Fund, Ltd (“VLBOF”), Visium Asset Management, LLC (“VAM”), Visium Capital Management, LLC (“VCM”) and Jacob Gottlieb, and in part on our knowledge of the conversion rights associated with the CardioDynamics $5.25 million subordinated convertible notes (“Convertible Notes”). As of January 31, 2007, VBF shares voting and investment power with respect to 933,747 shares, VLBF shares voting and investment power with respect to 280,786 shares, VBOF shares voting and investment power with respect to 1,395,510 shares, VLBOF shares voting and investment power with respect to 941,250 shares, and VCM shares voting and investment power with respect to 1,214,533 shares. VAM, and Mr. Gottlieb as principal of VAM and sole managing member of VCM, have sole voting and investment power over all 3,088,081 shares. VAM is the investment advisor for VBF, VLBF, VBOF and VLBOF, and therefore may be deemed to beneficially own the 3,088,081 shares beneficially owned by those funds. VCM is the general partner of both VBF and VLBF, and therefore may be deemed to beneficially own the 1,214,533 shares owned by those funds. As principal of VAM and the sole managing member of VCM, Mr. Gottlieb may be deemed to beneficially own the 3,088,081 shares which may be beneficially owned by VAM and VCM. Represents shares which may be acquired by virtue of Convertible Notes held by Visium affiliates.

(7) Information with respect to Dr. Herbert A. Wertheim is based solely on a Schedule 13D filed with the SEC on September 25, 2006.

(8) Information with respect to Balyasny Asset Management, L.P. and its affiliates is based in part on information provided by the shareholder, in part on Amendment No. 4 to Schedule 13G filed with the SEC on February 4, 2008 by Atlas Master Fund, Ltd. (“AMF”), Atlas Global, LLC (“AG”), Atlas Global Investments, Ltd. (“AGI”), Atlas Institutional Fund, Ltd. (“AIF”), Balyasny Asset Management L.P. (“BAM”) and Dmitry Balyasny, and in part on our knowledge of the conversion rights associated with the Convertible Notes. As of December 31, 2007, AMF, AG, AGI, AIF, BAM and Mr. Balyasny shared voting and investment power with respect to an aggregate of 4,891,708 shares. AG owns 9.0% of the equity interest in AMF, and therefore may be deemed to beneficially own the shares held by AMF. AGI owns 90.0% of the equity interest in AMF, and therefore may be deemed to beneficially own the shares held by AMF. AIF owns 1.0% of the equity interest in AMF, and therefore may be deemed to beneficially own the shares held by AMF. BAM is the sole managing member of AG and is the investment manager of AG, AGI, and AIF, and therefore may be deemed to beneficially own the shares which may be owned by AG and AGI. Mr. Balyasny is the sole managing member of the general partner of BAM and may be deemed to beneficially own the shares which may be owned by BAM. Includes 1,477,137 shares which may be acquired by virtue of Convertible Notes held by AMF.

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Security Ownership of Management

The following table sets forth certain information concerning the beneficial ownership of our common stock as of January 31, 2008 by: (i) each director, (ii) each Named Executive Officer, (iii) all directors and executive officers of CardioDynamics as a group. Calculations of beneficial ownership are based on 50,353,299 shares of our common stock outstanding on such date.

	Shares Beneficially Owned
Name	Number (1)	Percent (2)
James C. Gilstrap (4)	2,547,426	5.0	%
Robert W. Keith (3)	60,999	*
Steve P. Loomis (3)	450,703	*
Richard O. Martin, Ph.D. (3)	230,999	*
B. Lynne Parshall (3)	106,499	*
Michael K. Perry (3)	1,468,100	2.8	%
Rhonda F. Rhyne (3)	757,875	1.5	%
Jay A. Warren (3)	59,088	*
All Directors and executive officers as a group (3) -(11 persons)	6,753,134	12.4	%

* Less than 1%

(1) Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws, where applicable. Share ownership in each case includes shares issuable on exercise of certain outstanding options as described in the footnotes below.

(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).

(3) Includes the following number of shares of common stock that may be acquired upon the exercise of options exercisable currently or exercisable within 60 days of January 31, 2008 for the following persons or group: Mr. Gilstrap, 121,999 shares; Mr. Keith, 30,999 shares; Mr. Loomis, 229,703 shares; Dr. Martin, 168,999 shares; Ms. Parshall, 64,499 shares; Mr. Perry, 968,900 shares; Ms. Rhyne, 442,100 shares; Mr. Warren, 23,088 shares; and for all directors and executive officers as a group, 2,570,932 shares.

(4) Includes 400,000 shares held by the Scripps Medical Charitable Limited Partnership of which Mr. Gilstrap is a general partner with a minority ownership interest. Mr. Gilstrap disclaims any pecuniary interest in 399,752 of the shares. Also includes 121,999 shares of common stock Mr. Gilstrap beneficially owns, by virtue of his right to acquire such shares from us under stock options now exercisable or exercisable within 60 days. Also includes 32,654 shares held by the James C. Gilstrap Trust dated January 16, 1995 and 71,000 shares held in his daughters’ trusts. Mr. Gilstrap disclaims beneficial ownership of any such shares held in trust for his daughters.

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Equity Compensation Plan Information

The following table sets forth certain information concerning common stock to be issued in connection with our equity compensation plans.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	3,963,701	$	3.22	1,693,102
Equity compensation plans not approved by security holders	603,000	$	1.63	None
Total	4,566,701	$	3.01	1,693,102

For a discussion of our equity compensation plans, See “Note 10 Stock Options” in the Notes to the Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Indemnification Agreements

We have entered into indemnification agreements with each of our directors and officers. Such indemnification agreements require us to indemnify our directors and officers to the fullest extent permitted by California law.

Director Independence

The Board of Directors has determined that all of the members of our Board qualify as “independent” within the meaning of Nasdaq listing standards, except for Mr. Perry, by virtue of his position as Chief Executive Officer.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

On June 11, 2007, the Company changed its principal accountants from Mayer Hoffman McCann P.C. to BDO Seidman, LLP. In 2006, the Company was an accelerated filer as defined in Rule 12b-2 of the Exchange Act, however, because the aggregate market value of the Company’s voting and non-voting common equity held by non-affiliates at the end of its second fiscal quarter was less than $50 million, the Company is no longer an accelerated filer and is therefore not required to obtain an external audit report of the effectiveness of the Company’s internal control over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The following tables present fees billed as of the Form 10-K filing date for professional audit services rendered by both Mayer Hoffman McCann P.C. and BDO Seidman, LLP for the audit of the Company’s annual financial statements for the fiscal years ended November 30, 2007 and 2006 and fees for other services rendered by Mayer Hoffman McCann P.C. and BDO Seidman, LLP during those periods.

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Mayer Hoffman McCann P.C.	2007		2006
Audit Fees	$	32,500	$	1,039,000
Audit-Related Fees		—		—
Tax Fees		—		—
All Other Fees		—		—
Total	$	32,500	$	1,039,000
BDO Seidman, LLP:	2007		2006
Audit Fees	$	350,000	$	—
Audit-Related Fees		—		—
Tax Fees		—		—
All Other Fees		—		—
Total	$	350,000	$	—

Audit fees. Audit fees relate to services rendered in connection with the annual audit of the Company’s financial statements and internal controls, SAS 100 quarterly review of our financial statements, and fees for SEC registration statement services.

Audit-Related Fees. Audit-related fees relate to assurance services that traditionally are performed by the independent accountant, such as employee benefit plan audits, due diligence related to mergers and acquisitions, internal control reviews, attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards.

Tax Fees. Tax services consist of fees for tax consultation and tax compliance services. In order to preserve independence, the Company does not use its principal accountants to provide tax services.

All Other Fees. Other fees relate primarily to accountant consents.

The Audit Committee considers whether the provision of these services is compatible with maintaining our outside auditor’s independence, and has determined such services for fiscal 2007 and 2006 were compatible. All of the services described above were approved by the Audit Committee pursuant to paragraph (c)(7)(ii)(C) of Rule 2-01 of Regulation S-X under the Exchange Act.

The Audit Committee follows a policy of pre-approving all audit, review and attest engagements and engagements for permitted non-audit services provided by the independent registered public accounting firm to us and our affiliates. The Audit Committee may pre-approve predictable and recurring services by category on an annual basis.

In accordance with applicable SEC regulations, permitted non-audit services may be performed without pre-approval if: (1) the aggregate amount of all such services constitutes no more than five percent of the total amount of revenues paid by us to our accountant during the fiscal year in which the services are provided, (2) we did not recognize that the services were non-audit services at the time we engaged the accountant, and (3) the services are promptly brought to the attention of the Audit Committee and approved prior to completion of the audit by a member of the Audit Committee to whom authority to grant such approvals has been delegated by the Audit Committee.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Financial Statements

	Page
Reports of Independent Registered Public Accounting Firms	40 – 41
Consolidated Balance Sheets as of November 30, 2007 and 2006	42
Consolidated Statements of Operations for the years ended November 30, 2007 and 2006	43
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the years ended November 30, 2007 and 2006	44
Consolidated Statements of Cash Flows for the years ended November 30, 2007 and 2006	45
Notes to Consolidated Financial Statements	46 – 69

2. Financial Statement Schedules

All other schedules are omitted because they are not applicable or because the required information is shown in the consolidated financial statements or the notes thereto.

3. Exhibits

The following exhibits are included with this report or incorporated herein by reference:

Exhibit	Title
2.1	Fourth Amended Plan of Reorganization. (Incorporated by reference from November 30, 1994 Form 10-KSB.)
3.1	Bylaws, as amended through May 15, 1995. (Incorporated by reference from May 31, 1995 Form 10-QSB.)
3.1.1	Amendment to Bylaws, dated June 2, 1999. (Incorporated by reference from August 31, 1999 Form 10-QSB.)
3.1.2	Amendment to Bylaws, dated December 15, 2007. (Incorporated by reference from December 15, 2007 Form 8-K.)
3.2	Restated Articles of Incorporation as filed July 24, 1998. (Incorporated by reference from August 31, 1998 Form 10-QSB.)
4.1	Securities Purchase Agreement, dated April 11, 2006, among the Company and the Purchasers named therein, relating to the $5,250,000, 8% Convertible Subordinated Notes due 2009. (Incorporated by reference from April 11, 2006 Form 8-K.)
4.1.1	First Amendment to Securities Purchase Agreement, dated April 17, 2006, among the Company and the Purchasers named therein, relating to the $5,250,000, 8% Convertible Subordinated Notes.

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4.1.2	Second Amendment to Securities Purchase Agreement, dated November 29, 2006, among the Company and the Purchasers named therein, relating to the $5,250,000, 8% Convertible Subordinated Notes. (Incorporated by reference from November 29, 2006 Form 8-K.)
10.1	Service Agreement among Rivertek Medical Systems, Inc., Dennis G. Hepp and the Company, dated January 1, 2002. (Incorporated by reference from May 31, 2002 Form 10-Q.)
10.2	Lease between AGBRI Nancy Ridge, LLC and the Company dated June 20, 1997. (Incorporated by reference from August 31, 1997 Form 10-QSB.)
10.2.1	Amendment to lease agreement between CRV Partners, L.P., and the Company, dated March 21, 2002. (Incorporated by reference from May 31, 2002 Form 10-Q.)
10.2.2	Second Amendment to Lease agreement between CarrAmerica Development Corp., LP and the Company, dated June 28, 2004 (Incorporated by reference from August 31, 2004 Form 10-Q)
10.2.3	Third Amendment to Lease agreement between CarrAmerica Development Corp., LP and the Company, dated March 15, 2005 (Incorporated by reference from May 31, 2005, Form 10-Q)
10.3+	Employment Agreement, dated March 23, 1998, between the Company and Michael K. Perry. (Incorporated by reference from May 31, 1998 Form 10-QSB.)
10.4+	1995 Stock Option/Stock Issuance Plan, as amended June 10, 1997. (Incorporated by reference from August 31, 1997 Form 10-QSB.)
10.4.1+	Amendment to 1995 Stock Option/Stock Issuance Plan dated May 20, 1998. (Incorporated by reference from August 31, 1998 Form 10-QSB.)
10.4.2+	Amendment to 1995 Stock Option/Stock Issuance Plan dated April 12, 2001. (Incorporated by reference from October 3, 2001 Form S-8.)
10.4.3+	Amendment to 1995 Stock Option/Stock Issuance Plan dated October 17, 2002. (Incorporated by reference from May 31, 2003 Form 10-Q.)
10.5+	2004 Stock Incentive Plan. (Incorporated by reference from June 4, 2004 Schedule 14A.)
10.6	Sixth Amendment to Second Amended and Restated Loan and Security Agreement dated August 21, 2006. (Incorporated by reference from February 28, 2006 Form 10-Q.)
10.6.1	Third Amended and Restated Loan and Security Agreement dated August 4, 2006. (Incorporated by reference from August 8, 2006 Form 8-K.)
10.6.2	First Amendment to Third Amended and Restated Loan and Security Agreement dated November 13, 2006. (Incorporated by reference from November 30, 2006 Form 10-K.)
10.6.3	Third Amendment to Third Amended and Restated Loan and Security Agreement dated March 9, 2007. (Incorporated by reference from March 23, 2007 Form 8-K.)

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10.7*	OEM Development and Purchase Agreement between the Company and GE Marquette Medical Systems, Inc., dated July 7, 2000. (Incorporated by reference from August 31, 2000 Form 10-QSB.)
10.7.1*	Addendum to OEM Development and Purchase Agreement between the Company and GE Marquette Medical Systems, Inc., dated April 24, 2002. (Incorporated by reference from May 31, 2002 Form 10-Q.)
10.8*	Omnibus Amendment between the Company and GE Medical Systems Information Technologies, Inc. (Incorporated by reference from November 30, 2000 Form 10-KSB.)
10.9	Co-Development and OEM Agreement between the Company and Philips Medical Systems, a division of PENAC dated July 17, 2002. (Incorporated by reference from August 31, 2002 Form 10-Q.)
10.10	Form of $5,250,000, 8% Convertible Subordinated Notes, dated April 11, 2006, due 2009, among the Company and the Purchasers named therein. (Incorporated by reference from April 11, 2006 Form 8-K.)
10.10.1	First Amendment to $5,250,000, 8% Convertible Subordinated Notes, dated November 30, 2006, among the Company and the Purchasers named therein. (Incorporated by reference from November 29, 2006 Form 8-K.)
10.11+	Form of Change of Control Agreement by and between the Company and certain executive officers. (Incorporated by reference from October 5, 2006 Form 8-K.)
10.12	Stock Purchase Agreement dated June 25, 2007 between Medical Device Partners, Inc. and the Company. (Incorporated by reference from June 26, 2007 Form 8-K.)
10.13*	Custom Manufacturing and Supply Agreement, dated August 31, 2007, by and between the Company and Vermed, Inc. (Incorporated by reference from September 5, 2007 Form 8-K.)
10.14+	Form of Stock Option Agreements for awards made under the 2004 Stock Incentive Plan (Director, Incentive Stock Option and Non-Qualified Stock Option).
10.15+	Form of Restricted Stock Award Agreement for awards made under the 2004 Stock Incentive Plan.
10.16+	Form of Indemnification Agreements entered into between the Company and its directors and executive officers.
16.1	Letter from Mayer Hoffman McCann P.C. to the Securities and Exchange Commission dated June 1, 2007, regarding agreement with the statements made in the Form 8-K. (Incorporated by reference from June 1, 2007 Form 8-K.)
21.1	List of Company’s Subsidiaries.
23.1	Consent of Independent Registered Public Accounting Firm.
23.2	Consent of Independent Registered Public Accounting Firm.
31.1	Certification pursuant to Item 601 of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Michael K. Perry, the Registrant’s Chief Executive Officer.

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31.2	Certification pursuant to Item 601 of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Steve P. Loomis, the Registrant’s Chief Financial Officer.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Michael K. Perry, the Registrant’s Chief Executive Officer.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Steve P. Loomis, the Registrant’s Chief Financial Officer.

* Confidential treatment has been requested as to certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act. Such portions have been omitted and filed separately with the SEC.

+ Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 26, 2008	CARDIODYNAMICS INTERNATIONAL CORPORATION
	By:	/s/ Michael K. Perry
	Michael K. Perry
	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Michael K. Perry Michael K. Perry	Chief Executive Officer (Principal Executive Officer)	February 26, 2008
/s/ Steve P. Loomis Steve P. Loomis	Vice President Finance, Chief Financial Officer (Principal Financial and Accounting Officer)	February 26, 2008
/s/ James C. Gilstrap James C. Gilstrap	Director	February 26, 2008
/s/ Robert W. Keith Robert W. Keith	Director	February 26, 2008
/s/ Richard O. Martin, Ph.D. Richard O. Martin, Ph.D.	Director	February 26, 2008
/s/ B. Lynne Parshall B. Lynne Parshall	Director	February 26, 2008
/s/ Jay A. Warren Jay A. Warren	Director	February 26, 2008

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EX-4.1.1

Exhibit 4.1.1

CARDIODYNAMICS INTERNATIONAL CORPORATION

FIRST AMENDMENT TO

SECURITIES PURCHASE AGREEMENT

This First Amendment to SECURITIES PURCHASE AGREEMENT (this “Amendment”), is made and entered into as of April 17, 2006, by and among CardioDynamics International Corporation, a California corporation (the “Company”), and the purchasers listed on Schedule A attached hereto (collectively, the “Purchasers” and individually, a “Purchaser”). (Capitalized terms not otherwise defined herein shall have the meanings ascribed in the Agreement (as defined below.))

Section 2.1 of that certain Securities Purchase Agreement (the “Agreement”) by, between and among the parties set forth above and on Schedule A hereto is hereby amended by adding the following proviso to such Section 2.1:

“Notwithstanding anything herein to the contrary, in no event shall a Purchaser have the right or be required to exercise the Notes to the extent that as a result of such exercise, the aggregate number of shares of Common Stock beneficially owned by such Purchaser, its Affiliates and any “group” (as defined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) of which the Purchaser may be deemed to be a party (collectively the “Purchaser’s Affiliates”) would exceed 9.99% of the outstanding shares of the Common Stock following such exercise. For purposes of this Section 2.1, beneficial ownership shall be calculated in accordance with Sections 13(d) and Section 16(a) of the Exchange Act. The provisions of this Section 2.1 may be waived by a Purchaser as to itself (and solely as to itself) upon not less than 65 days prior written notice to the Company, and the provisions of this Section shall continue to apply until such tenth day (or later, if stated in the notice of waiver).”

IN WITNESS WHEREOF, the parties to this Amendment have caused this Amendment to be executed by their duly authorized representatives as of the day and year first above written.

CARDIODYNAMICS INTERNATIONAL CORPORATION
By:	/s/ Michael K. Perry
Name: Michael K. Perry
Its: Chief Executive Officer
Fax No (858) 623-8415
ATLAS MASTER FUND, LTD.
By:	/s/ Scott H. Schroeder
Name: Scott H. Schroeder
Its: Authorized Signatory

Schedule A

PURCHASERS

Name and Address of Purchaser

Atlas Master Fund, Ltd.*

c/o Balyasny Asset

Management L.P.

650 Madison Avenue – 19^th Floor

New York, NY 10022

Attention: Allen Silberstein

Visium Balanced Fund, LP

c/o Balyasny Asset

Management L.P.

650 Madison Avenue – 19^th Floor

New York, NY 10022

Attention: Allen Silberstein

Visium Balanced Fund Offshore, Ltd.

c/o Balyasny Asset

Management L.P.

650 Madison Avenue – 19^th Floor

New York, NY 10022

Attention: Allen Silberstein

Visium Long Bias Fund, LP

c/o Balyasny Asset

Management L.P.

650 Madison Avenue – 19^th Floor

New York, NY 10022

Attention: Allen Silberstein

Visium Long Bias Fund Offshore, Ltd.

c/o Balyasny Asset

Management L.P.

650 Madison Avenue – 19^th Floor

New York, NY 10022

Attention: Allen Silberstein

EX-10.14

EXHIBIT 10.14A

CARDIODYNAMICS INTERNATIONAL CORPORATION

2004 STOCK INCENTIVE PLAN

NOTICE OF STOCK OPTION GRANT

You have been granted the following Option to purchase Common Stock of CARDIODYNAMICS INTERNATIONAL CORPORATION (the “Company”) under the Company’s 2004 Stock Incentive Plan (the “Plan”):

Name of Optionee:	[Name of Optionee]
Total Number of Option Shares Granted: Type of Option:	[Total Number of Shares] [ISO or NQSO]
Exercise Price Per Share:	$_________
Grant Date:	[Date of Grant]
Vesting Commencement Date:	[Vesting Commencement Date]
Vesting Schedule:	This Option becomes exercisable with respect to the first __ of the shares subject to this Option when you complete __ months of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date. Thereafter, this Option becomes exercisable with respect to an additional ___ of the shares subject to this Option when you complete each additional month of Service.
Expiration Date:	[Expiration Date] This Option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.

CARDIODYNAMICS INTERNATIONAL CORPORATION

NOTICE OF STOCK OPTION GRANT

By accepting this Option, you agree that this Option is granted under and governed by the term and conditions of the Plan and the Stock Option Agreement, both of which are attached to and made a part of this document.

CARDIODYNAMICS INTERNATIONAL CORPORATION

By:

Title:

CARDIODYNAMICS INTERNATIONAL CORPORATION

NOTICE OF STOCK OPTION GRANT

CARDIODYNAMICS INTERNATIONAL CORPORATION

2004 STOCK INCENTIVE PLAN

STOCK OPTION AGREEMENT

Tax Treatment	This Option is intended to be an incentive stock option under Section 422 of the Internal Revenue Code or a nonstatutory option, as provided in the Notice of Stock Option Grant. Even if this Option is designated as an incentive stock option, it shall be deemed to be an nonstatutory option to the extent required by the $100,000 annual limitation under Section 422(d) of the Internal Revenue Code.
Vesting	This Option becomes exercisable in installments, as shown in the Notice of Stock Option Grant. This Option will in no event become exercisable for additional shares after your Service has terminated for any reason.
Term	This Option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the Notice of Stock Option Grant (fifth anniversary for a more than 10% stockholder as provided under the Plan if this is an incentive stock option). This Option may expire earlier if your Service terminates, as described below.
Regular Termination	If your Service terminates for any reason except Misconduct (as defined below), death or “Total and Permanent Disability” (as defined in the Plan), then this Option will expire at the close of business at Company headquarters on the date three (3) months after the date your Service terminates (or, if earlier, the Expiration Date). The Company has discretion to determine when your Service terminates for all purposes of the Plan and its determinations are conclusive and binding on all persons.
Misconduct	If your Service terminates by reason of Misconduct, then this Option will expire on the date of such termination. Misconduct means the commission of any act of fraud, embezzlement or dishonesty by you, any unauthorized use or disclosure by you of confidential information or trade secrets of the Company (or any Parent or Subsidiary), or any other intentional misconduct by you affecting the business or affairs of the Company (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any Parent or Subsidiary) may consider as grounds for your dismissal or discharge.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Death	If your Service terminates because of your death, or you die within three months after your Service terminates for any other reason except Misconduct or Total and Permanent Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of your death (or, if earlier, the Expiration Date). During that period of up to 12 months, your estate or heirs may exercise the Option.
Disability	If your Service terminates because of your Total and Permanent Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after the date your Service terminates (or, if earlier, the Expiration Date).
Corporate Transaction	If this Option is assumed, replaced or otherwise continued following a Change in Control (as defined in the Plan), and not otherwise accelerated at that time, then in the event that your Service is subsequently terminated by reason of an Involuntary Termination (as defined below) within 18 months following the effective date of the Change in Control, this Option shall become fully vested and exercisable and remain exercisable until the date 12 months after the effective date of the Change in Control (or , if earlier, the Expiration Date). Involuntary Termination means the termination of your Service by reason of: (i) your involuntary dismissal or discharge by the Company (or its successor) for reasons other than Misconduct, or (ii) your voluntary resignation following (A) a change in your position with the Company (or its successor) which materially reduces your level of responsibility, (B) a reduction in your level of compensation (including base salary, fringe benefits and any non-discretionary and objective-standard incentive payment or bonus award) by more than 15% or (C) a relocation of your place of employment by more than 50 miles, provided and only if such change, reduction or relocation is effected by the Company (or its successor) without your consent.
Leaves of Absence	For purposes of this Option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

	If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave. If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit you to exercise this Option if the issuance of shares at that time would violate any law or regulation. The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of the Company stock pursuant to this Option shall relieve the Company of any liability with respect to the non-issuance or sale of the Company stock as to which such approval shall not have been obtained. However, the Company shall use its best efforts to obtain such approval.
Notice of Exercise	When you wish to exercise this Option you must notify the Company by completing the attached “Notice of Exercise of Stock Option” form and filing it with the Human Resources Department of the Company. You notice must specify how many shares you wish to purchase. Your notice must also specify how your shares should be registered. The notice will be effective when it is received by the Company. If someone else wants to exercise this Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you submit your notice of exercise, you must include payment of the Option exercise price for the shares you are purchasing. Payment may be made in the following form(s):
	•        Your personal check, a cashier’s check or a money order.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Stock Option agreement

	•        Certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to you. However, you may not surrender, or attest to the ownership of shares of Company stock in payment of the exercise price if your action would cause the Company to recognize a compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes.
	•        By delivering on a form approved by the Committee of an irrevocable direction to a securities broker approved by the Company to sell all or part of your Option shares and to deliver to the Company from the sale proceeds in an amount sufficient to pay the Option exercise price and any withholding taxes. The balance of the sale proceeds, if any, will be delivered to you. The directions must be given by signing a special “Notice of Exercise” form provided by the Company.
	•        Irrevocable directions to a securities broker or lender approved by the Company to pledge Option shares as security for a loan and to deliver to the Company from the loan proceeds an amount sufficient to pay the Option exercise price and any withholding taxes. The directions must be given by signing a special “Notice of Exercise” form provided by the Company.
	Notwithstanding the foregoing, payment may not be made in any form that is unlawful, as determined by the Company in its sole discretion.
Withholding Taxes and Stock Withholding	You will not be allowed to exercise this Option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the Option exercise. These arrangements may include withholding shares of Company stock that otherwise would be issued to you when you exercise this Option. The value of these shares, determined as of the effective date of the Option exercise, will be applied to the withholding taxes.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Restrictions on Resale	By signing this Agreement, you agree not to sell any Option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as you are an employee, consultant or director of the Company or a subsidiary of the Company.
Transfer of Option	In general, only you can exercise this Option prior to your death. You cannot transfer or assign this Option, other than as designated by you by will or by the laws of descent and distribution, except as provided below. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may in any event dispose of this Option in your will. Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your Option in any other way.
	However, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the “Committee” (as defined in the Plan) may, in its sole discretion, allow you to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest.
	In addition, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the Committee may, in its sole discretion, allow you to transfer this option to your spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights.
	The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Retention Rights	Neither your Option nor this Agreement gives you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this Option by giving the required notice to the Company and paying the exercise price. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this Option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this Option and the exercise price per share may be adjusted pursuant to the Plan. If the Company is a party to a merger or other reorganization, this Option will be subject to the agreement of merger or reorganization, as provided under the Plan.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of California (without regard to its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference. All capitalized terms in the Stock Option Agreement shall have the meanings assigned to them in the Plan. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this Option. Any prior agreements, commitments or negotiations concerning this Option are superseded.

BY ACCEPTING THIS OPTION,

YOU AGREE TO ALL OF THE TERMS AND CONDITIONS

DESCRIBED ABOVE AND IN THE PLAN.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Exhibit 10.14B

CARDIODYNAMICS INTERNATIONAL CORPORATION

2004 STOCK INCENTIVE PLAN

INCENTIVE STOCK OPTION AGREEMENT

Tax Treatment	This Option is intended to be an incentive stock option under Section 422 of the Internal Revenue Code or a nonstatutory option, as provided in the Notice of Stock Option Grant. Even if this Option is designated as an incentive stock option, it shall be deemed to be an nonstatutory option to the extent required by the $100,000 annual limitation under Section 422(d) of the Internal Revenue Code.
Vesting	This Option becomes exercisable in installments, as shown in the Notice of Stock Option Grant. This Option will in no event become exercisable for additional shares after your Service has terminated for any reason.
Term	This Option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the Notice of Stock Option Grant (fifth anniversary for a more than 10% stockholder as provided under the Plan if this is an incentive stock option). This Option may expire earlier if your Service terminates, as described below.
Regular Termination	If your Service terminates for any reason except Misconduct (as defined below), death or “Total and Permanent Disability” (as defined in the Plan), then this Option will expire at the close of business at Company headquarters on the date three (3) months after the date your Service terminates (or, if earlier, the Expiration Date). The Company has discretion to determine when your Service terminates for all purposes of the Plan and its determinations are conclusive and binding on all persons.
Misconduct	If your Service terminates by reason of Misconduct, then this Option will expire on the date of such termination. Misconduct means the commission of any act of fraud, embezzlement or dishonesty by you, any unauthorized use or disclosure by you of confidential information or trade secrets of the Company (or any Parent or Subsidiary), or any other intentional misconduct by you affecting the business or affairs of the Company (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any Parent or Subsidiary) may consider as grounds for your dismissal or discharge.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Death	If your Service terminates because of your death, or you die within three months after your Service terminates for any other reason except Misconduct or Total and Permanent Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of your death (or, if earlier, the Expiration Date). During that period of up to 12 months, your estate or heirs may exercise the Option.
Disability	If your Service terminates because of your Total and Permanent Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after the date your Service terminates (or, if earlier, the Expiration Date).
Corporate Transaction	If this Option is assumed, replaced or otherwise continued following a Change in Control (as defined in the Plan), and not otherwise accelerated at that time, then in the event that your Service is subsequently terminated by reason of an Involuntary Termination (as defined below) within 18 months following the effective date of the Change in Control, this Option shall become fully vested and exercisable and remain exercisable until the date 12 months after the effective date of the Change in Control (or , if earlier, the Expiration Date). Involuntary Termination means the termination of your Service by reason of: (i) your involuntary dismissal or discharge by the Company (or its successor) for reasons other than Misconduct, or (ii) your voluntary resignation following (A) a change in your position with the Company (or its successor) which materially reduces your level of responsibility, (B) a reduction in your level of compensation (including base salary, fringe benefits and any non-discretionary and objective-standard incentive payment or bonus award) by more than 15% or (C) a relocation of your place of employment by more than 50 miles, provided and only if such change, reduction or relocation is effected by the Company (or its successor) without your consent.
Leaves of Absence	For purposes of this Option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

	If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave. If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit you to exercise this Option if the issuance of shares at that time would violate any law or regulation. The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of the Company stock pursuant to this Option shall relieve the Company of any liability with respect to the non-issuance or sale of the Company stock as to which such approval shall not have been obtained. However, the Company shall use its best efforts to obtain such approval.
Notice of Exercise	When you wish to exercise this Option you must notify the Company by completing the attached “Notice of Exercise of Stock Option” form and filing it with the Human Resources Department of the Company. You notice must specify how many shares you wish to purchase. Your notice must also specify how your shares should be registered. The notice will be effective when it is received by the Company. If someone else wants to exercise this Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you submit your notice of exercise, you must include payment of the Option exercise price for the shares you are purchasing. Payment may be made in the following form(s):
	•        Your personal check, a cashier’s check or a money order.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

	•         Certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to you. However, you may not surrender, or attest to the ownership of shares of Company stock in payment of the exercise price if your action would cause the Company to recognize a compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes.
	•         By delivering on a form approved by the Committee of an irrevocable direction to a securities broker approved by the Company to sell all or part of your Option shares and to deliver to the Company from the sale proceeds in an amount sufficient to pay the Option exercise price and any withholding taxes. The balance of the sale proceeds, if any, will be delivered to you. The directions must be given by signing a special “Notice of Exercise” form provided by the Company.
	•         Irrevocable directions to a securities broker or lender approved by the Company to pledge Option shares as security for a loan and to deliver to the Company from the loan proceeds an amount sufficient to pay the Option exercise price and any withholding taxes. The directions must be given by signing a special “Notice of Exercise” form provided by the Company.
	Notwithstanding the foregoing, payment may not be made in any form that is unlawful, as determined by the Company in its sole discretion.
Withholding Taxes and Stock Withholding	You will not be allowed to exercise this Option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the Option exercise. These arrangements may include withholding shares of Company stock that otherwise would be issued to you when you exercise this Option. The value of these shares, determined as of the effective date of the Option exercise, will be applied to the withholding taxes.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Restrictions on Resale	By signing this Agreement, you agree not to sell any Option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as you are an employee, consultant or director of the Company or a subsidiary of the Company.
Transfer of Option	In general, only you can exercise this Option prior to your death. You cannot transfer or assign this Option, other than as designated by you by will or by the laws of descent and distribution, except as provided below. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may in any event dispose of this Option in your will. Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your Option in any other way.
	However, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the “Committee” (as defined in the Plan) may, in its sole discretion, allow you to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest.
	In addition, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the Committee may, in its sole discretion, allow you to transfer this option to your spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights.
	The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Retention Rights	Neither your Option nor this Agreement gives you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this Option by giving the required notice to the Company and paying the exercise price. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this Option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this Option and the exercise price per share may be adjusted pursuant to the Plan. If the Company is a party to a merger or other reorganization, this Option will be subject to the agreement of merger or reorganization, as provided under the Plan.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of California (without regard to its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference. All capitalized terms in the Stock Option Agreement shall have the meanings assigned to them in the Plan. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this Option. Any prior agreements, commitments or negotiations concerning this Option are superseded.

BY ACCEPTING THIS OPTION,

YOU AGREE TO ALL OF THE TERMS AND CONDITIONS

DESCRIBED ABOVE AND IN THE PLAN.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Exhibit 10.14C

CARDIODYNAMICS INTERNATIONAL CORPORATION

2004 STOCK INCENTIVE PLAN

DIRECTOR STOCK OPTION AGREEMENT

Tax Treatment	This Option is not an incentive stock option under Section 422 of the Internal Revenue Code.
Vesting	This Option becomes exercisable in installments, as shown in the Notice of Stock Option Grant. This Option will in no event become exercisable for additional shares after your Service has terminated for any reason.
Term	This Option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Grant Date, as shown on the Notice of Stock Option Grant (fifth anniversary for a more than 10% stockholder as provided under the Plan if this is an incentive stock option). This Option may expire earlier if your Service terminates, as described below.
Regular Termination	If your Service terminates for any reason except Misconduct (as defined below), death or “Total and Permanent Disability” (as defined in the Plan), then this Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date your Service terminates (or, if earlier, the Expiration Date). The Company has discretion to determine when your Service terminates for all purposes of the Plan and its determinations are conclusive and binding on all persons.
Misconduct	If your Service terminates by reason of Misconduct, then this Option will expire on the date of such termination. Misconduct means the commission of any act of fraud, embezzlement or dishonesty by you, any unauthorized use or disclosure by you of confidential information or trade secrets of the Company (or any Parent or Subsidiary), or any other intentional misconduct by you affecting the business or affairs of the Company (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any Parent or Subsidiary) may consider as grounds for your dismissal or discharge.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Death	If your Service terminates because of your death, or you die within three months after your Service terminates for any other reason except Misconduct or Total and Permanent Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of your death (or, if earlier, the Expiration Date). During that period of up to 12 months, your estate or heirs may exercise the Option.
Disability	If your Service terminates because of your Total and Permanent Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after the date your Service terminates (or, if earlier, the Expiration Date).
Corporate Transaction	If this Option is assumed, replaced or otherwise continued following a Change in Control (as defined in the Plan), and not otherwise accelerated at that time, then in the event that your Service is subsequently terminated by reason of an Involuntary Termination (as defined below) within 18 months following the effective date of the Change in Control, this Option shall become fully vested and exercisable and remain exercisable until the date 12 months after the effective date of the Change in Control (or , if earlier, the Expiration Date). Involuntary Termination means the termination of your Service by reason of: (i) your involuntary dismissal or discharge by the Company (or its successor) for reasons other than Misconduct, or (ii) your voluntary resignation following (A) a change in your position with the Company (or its successor) which materially reduces your level of responsibility, (B) a reduction in your level of compensation (including base salary, fringe benefits and any non-discretionary and objective-standard incentive payment or bonus award) by more than 15% or (C) a relocation of your place of employment by more than 50 miles, provided and only if such change, reduction or relocation is effected by the Company (or its successor) without your consent.
Leaves of Absence	For purposes of this Option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

	If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave. If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit you to exercise this Option if the issuance of shares at that time would violate any law or regulation. The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of the Company stock pursuant to this Option shall relieve the Company of any liability with respect to the non-issuance or sale of the Company stock as to which such approval shall not have been obtained. However, the Company shall use its best efforts to obtain such approval.
Notice of Exercise	When you wish to exercise this Option you must notify the Company by completing the attached “Notice of Exercise of Stock Option” form and filing it with the Human Resources Department of the Company. You notice must specify how many shares you wish to purchase. Your notice must also specify how your shares should be registered. The notice will be effective when it is received by the Company. If someone else wants to exercise this Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you submit your notice of exercise, you must include payment of the Option exercise price for the shares you are purchasing. Payment may be made in the following form(s):
	•         Your personal check, a cashier’s check or a money order.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

	•         Certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to you. However, you may not surrender, or attest to the ownership of shares of Company stock in payment of the exercise price if your action would cause the Company to recognize a compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes.
	•         By delivering on a form approved by the Committee of an irrevocable direction to a securities broker approved by the Company to sell all or part of your Option shares and to deliver to the Company from the sale proceeds in an amount sufficient to pay the Option exercise price and any withholding taxes. The balance of the sale proceeds, if any, will be delivered to you. The directions must be given by signing a special “Notice of Exercise” form provided by the Company.
	•         Irrevocable directions to a securities broker or lender approved by the Company to pledge Option shares as security for a loan and to deliver to the Company from the loan proceeds an amount sufficient to pay the Option exercise price and any withholding taxes. The directions must be given by signing a special “Notice of Exercise” form provided by the Company.
	Notwithstanding the foregoing, payment may not be made in any form that is unlawful, as determined by the Company in its sole discretion.
Withholding Taxes and Stock Withholding	You will not be allowed to exercise this Option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the Option exercise. These arrangements may include withholding shares of Company stock that otherwise would be issued to you when you exercise this Option. The value of these shares, determined as of the effective date of the Option exercise, will be applied to the withholding taxes.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Restrictions on Resale	By signing this Agreement, you agree not to sell any Option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as you are an employee, consultant or director of the Company or a subsidiary of the Company.
Transfer of Option	In general, only you can exercise this Option prior to your death. You cannot transfer or assign this Option, other than as designated by you by will or by the laws of descent and distribution, except as provided below. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may in any event dispose of this Option in your will. Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your Option in any other way.
	However, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the “Committee” (as defined in the Plan) may, in its sole discretion, allow you to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest.
	In addition, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the Committee may, in its sole discretion, allow you to transfer this option to your spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights.
	The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

Retention Rights	Neither your Option nor this Agreement gives you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this Option by giving the required notice to the Company and paying the exercise price. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this Option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this Option and the exercise price per share may be adjusted pursuant to the Plan. If the Company is a party to a merger or other reorganization, this Option will be subject to the agreement of merger or reorganization, as provided under the Plan.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of California (without regard to its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference. All capitalized terms in the Stock Option Agreement shall have the meanings assigned to them in the Plan. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this Option. Any prior agreements, commitments or negotiations concerning this Option are superseded.

BY ACCEPTING THIS OPTION,

YOU AGREE TO ALL OF THE TERMS AND CONDITIONS

DESCRIBED ABOVE AND IN THE PLAN.

CARDIODYNAMICS INTERNATIONAL CORPORATION

STOCK OPTION AGREEMENT

EX-10.15

Exhibit 10.15

CARDIODYNAMICS INTERNATIONAL CORPORATION

2004 STOCK INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK AWARD

You have been granted restricted shares of Common Stock of CardioDynamics International Corporation (the “Company”) on the following terms:

Date of Grant:	[Date of Grant]
Name of Recipient:	[Name of Recipient]
Total Number of Shares Granted:	[Total Shares]
Fair Market Value per Share:	[Stock Price on grant date]
Total Fair Market Value Of Award:	$[Total Value]
Vesting Commencement Date:	Date of Grant
Vesting Schedule:	[ % of the shares subject to this award vest on the ___ anniversary of the Vesting Commencement Date and __% of the shares subject to this award vest on the _____ anniversary of the Vesting Commencement Date, subject to your continuous common-law employment with the Company or a Subsidiary.]

CARDIODYNAMICS INTERNATIONAL CORPORATION

NOTICE OF RESTRICTED STOCK AWARD

By signing this document, you and the Company agree that these shares are granted under and governed by the terms and conditions of the CardioDynamics International Corporation 2004 Stock Incentive Plan (the “Plan”) and the Restricted Stock Agreement, which is attached to and made a part of this document.

By signing this document you further agree that the Company may deliver by e-mail all documents relating to the Plan or this award (including without limitation, prospectuses required by the Securities Act of 1933 and the regulations promulgated thereunder by the Securities Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including without limitation, annual reports and proxy statements). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it will notify you by e-mail.

[NAME OF RECIPIENT]		CARDIODYNAMICS INTERNATIONAL CORPORATION
	By:
	Title:

Spousal Consent

                         [RECIPIENT’S SPOUSE] indicates by the execution of this Agreement such spouse’s consent to be bound by the terms herein as to such spouse’s interest, if any, in the Shares, whether as community property or otherwise.

(Signature)

(Printed Name)

CARDIODYNAMICS INTERNATIONAL CORPORATION

NOTICE OF RESTRICTED STOCK AGREEMENT

CARDIODYNAMICS INTERNATIONAL CORPORATION

2004 STOCK INCENTIVE PLAN

RESTRICTED STOCK AGREEMENT

SECTION 1. PAYMENT FOR SHARES.

No payment is required for the shares that you are receiving.

SECTION 2. GOVERNING PLAN.

The shares that you are receiving are granted pursuant and subject in all respects to the applicable provisions of the CardioDynamics International Corporation 2004 Stock Incentive Plan (the “Plan”), which is incorporated herein by reference. Terms not otherwise defined in this Agreement have meanings ascribed to them in the Plan.

SECTION 3. VESTING.

The shares that you are receiving will vest in installments, as shown in the Notice of Restricted Stock Award.

No additional shares vest after your common-law employment with the Company or a Subsidiary has terminated for any reason.

SECTION 4. SHARES RESTRICTED.

Unvested shares will be considered “Restricted Shares.” You may not sell, transfer, pledge or otherwise dispose of Restricted Shares without the written consent of the Company. If permitted by the Company, you may transfer Restricted Shares to your spouse, children or grandchildren or to a trust established by you for the benefit of yourself or your spouse, children or grandchildren. However, a transferee of Restricted Shares must agree in writing on a form prescribed by the Company to be bound by all provisions of this Agreement.

SECTION 5. FORFEITURE.

If your Service terminates for any reason, then your shares will be forfeited to the extent that they have not vested before the termination date and do not vest as a result of termination. This means that the Restricted Shares will immediately revert to the Company. You receive no payment for Restricted Shares that are forfeited. The Company determines when your Service terminates for this purpose.

SECTION 6. LEAVES OF ABSENCE AND PART-TIME WORK.

For purposes of this award, your Service does not terminate when you go on a military leave of absence, a sick leave of absence or another bona fide leave of absence, if the leave of absence was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. Your Service will terminate when the approved leave of absence ends unless you immediately return to active work.

CARDIODYNAMICS INTERNATIONAL CORPORATION

RESTRICTED STOCK AGREEMENT

SECTION 7. STOCK CERTIFICATES.

The certificates for Restricted Shares have stamped on them a special legend referring to the forfeiture restrictions. In addition to or in lieu of imposing the legend, the Company may hold the certificates in escrow. As your vested percentage increases, you may request (at reasonable intervals) that the Company release to you a non-legended certificate for your vested shares.

SECTION 8. SHAREHOLDER RIGHTS.

During the period of time between the date of grant and the date the shares become vested, you shall have all the rights of a shareholder with respect to the shares except for the right to transfer the shares, as set forth in Section 4. Accordingly, you shall have the right to vote the shares and to receive any cash dividends paid with respect to the shares.

SECTION 9. WITHHOLDING TAXES.

No stock certificates will be distributed to you unless any withholding taxes that may be due as a result of this award or the vesting of the shares have been paid. By signing this Agreement, you authorize the Company or your actual employer to withhold all applicable withholding taxes legally payable by you. The Company, in its sole discretion, will withhold shares of Common Stock that otherwise would be distributed to you when they vest to satisfy the withholding obligation, but not in excess of the amount of shares necessary to satisfy the minimum withholding amount. The Fair Market Value of these shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes. You also authorize the Company, or your actual employer, to satisfy all withholding obligations of the Company or your actual employer from your wages or other cash compensation payable to you by the Company or your actual employer.

SECTION 10. RESTRICTIONS ON RESALE.

You agree not to sell any shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.

SECTION 11. NO RETENTION RIGHTS.

Your award or this Agreement does not give you the right to be employed or retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.

CARDIODYNAMICS INTERNATIONAL CORPORATION

RESTRICTED STOCK AGREEMENT

SECTION 12. ADJUSTMENTS.

In the event of a stock split, a stock dividend or a similar change in Company stock, or a merger or a reorganization of the Company, the forfeiture provision of Section 5 will apply to all new, substitute or additional securities or other properties to which you are entitled by reason of your ownership of the shares.

SECTION 13. APPLICABLE LAW.

This Agreement will be interpreted and enforced under the laws of the State of California (without regard to choice-of-law provisions).

SECTION 14. THE PLAN AND OTHER AGREEMENTS.

The text of this Plan is incorporated in this Agreement by reference. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this award. Any prior agreements, commitments or negotiations concerning this award are superseded. This Agreement may be amended only by another written agreement between the parties.

SECTION 15. SUCCESSORS AND ASSIGNS.

The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by, the Company’s successors and assigns. Your rights and obligations under this Agreement may only be assigned with the prior written consent of the Company.

SECTION 16. NOTICE.

Any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon the earliest of personal delivery, receipt or the third full day following deposit in the United States Post Office with postage and fees prepaid, addressed to the other party hereto at the address last known or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

SECTION 17. NO ORAL MODIFICATION.

No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.

CARDIODYNAMICS INTERNATIONAL CORPORATION

RESTRICTED STOCK AGREEMENT

EX-10.16

EXHIBIT 10.16A

INDEMNIFICATION AGREEMENT

THIS AGREEMENT is made and entered into this      day of January, 1997 between CardioDynamics International Corporation, a California corporation (“Corporation”), and                              (“Officer”).

RECITALS:

A. Officer, an officer (but not currently a member of the Board of Directors) of Corporation, performs a valuable service in such capacity for Corporation; and

B. The shareholders of Corporation have adopted Bylaws (the “Bylaws”) and Articles of Incorporation provisions (the “Articles”) providing, for the indemnification of the officers, directors, agents and employees of Corporation to the maximum extent authorized by Section 317 of the California General Corporation Law, as amended (the “Law”); and

C. The Bylaws, the Articles and the Law, by their non-exclusive nature, authorize and permit contracts between Corporation and its officers with respect to indemnification of officers, providing such officers with protections in excess of those otherwise permitted by the Law; and

D. In accordance with the authorization as provided by the Law, Corporation may from time to time purchase and maintain a policy or policies of Directors and Officers Liability Insurance (“D & O Insurance”), covering certain liabilities which may be incurred by its directors and officers in the performance of services as directors and officers of Corporation; and

E. As a result of developments affecting the terms, scope and availability of D & O Insurance there exists general uncertainty as to the extent and overall desirability of protection afforded officers by such D & O Insurance, if any, and by statutory and bylaw indemnification provisions; and

F. In order to induce Officer to continue to serve as an officer of Corporation, Corporation has determined and agreed to enter into this contract with Officer;

NOW, THEREFORE, in consideration of Officer’s continued service as an officer after the date hereof, the parties hereto agree as follows:

1. Indemnity of Officer. Corporation hereby agrees to hold harmless and indemnify Officer to the fullest extent authorized or permitted by the provisions of the Law, as it may be amended from time to time.

2. Additional Indemnity. Subject only to the exclusions set forth in Section 3 hereof, Corporation hereby further agrees to hold harmless and indemnify Officer:

(a) against any and all legal expenses (including attorneys’ fees), witness fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by Officer in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of Corporation) to which Officer is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Officer is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and

(b) otherwise to the fullest extent as may be provided to Officer by Corporation under the non-exclusivity provisions of the Bylaws, the Articles and the Law.

3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2 hereof shall be paid by Corporation:

(a) except to the extent the aggregate of losses to be indemnified thereunder exceeds the sum of such losses for which Officer is indemnified pursuant to Section 1 hereof or pursuant to any D & O Insurance purchased and maintained by Corporation;

(b) in respect of remuneration paid to Officer if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;

(c) on account of any action, suit or proceeding in which judgment is rendered against Officer for an accounting of profits made from the purchase or sale by Officer of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law;

(d) on account of Officer’s conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest;

(e) on account of Officer’s conduct which is the subject of an action, suit or proceeding described in Section 7(c)(ii) hereof;

(f) on account of or arising in response to any action, suit or proceeding (other than an action, suit or proceeding referred to in Section 8(b) hereof) initiated by Officer or any of Officer’s affiliates against Corporation or any officer, director or shareholder of Corporation unless such action, suit or proceeding was authorized in the specific case by action of the Board of Directors of Corporation;

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(g) on account of any action, suit or proceeding to the extent that Officer is a plaintiff, a counter-complainant or a cross-complainant therein (other than an action, suit or proceeding permitted by Section 3(f) hereof); or

(h) if a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful (and, in this respect, both Corporation and Officer have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication).

In addition to those limitations set forth above in this Section 3, no indemnity pursuant to Section 2 hereof shall be paid by Corporation for any of the following breaches of duty to Corporation and its shareholders:

(i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law;

(ii) acts or omissions that Officer believes to be contrary to the best interests of Corporation or its shareholders or that involve the absence of good faith on the part of Officer;

(iii) any transaction from which Officer derived an improper personal benefit;

(iv) acts or omissions that show a reckless disregard for Officer’s duty to Corporation or its shareholders in circumstances in which Officer was aware, or should have been aware, in the ordinary course of performing his duties, of a risk of serious injury to Corporation or its shareholders;

(v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of Officer’s duty to Corporation or its shareholders;

(vi) acts or omissions prohibited by Section 310 of the California Corporations Code, “Transactions Between Corporations and Directors or Corporations Having Interrelated Directors”;

(vii) acts or omissions prohibited by Section 316 of the California Corporations Code, “Directors’ Liability for Distributions, Loans and Guarantees”.

4. Contribution. If the indemnification provided in Sections 1 and 2 is unavailable and may not be paid to Officer for any reason other than those set forth in paragraphs (b) through (g) of Section 3, then in respect of any threatened, pending or completed action, suit or proceeding in which Corporation is or is alleged to be jointly liable with Officer (or would be if joined in such action, suit or proceeding), Corporation shall contribute to the amount of expenses (including attorneys’ fees), judgments, fines and amounts paid in

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settlement actually and reasonably incurred and paid or payable by Officer in such proportion as is appropriate to reflect (i) the relative benefits received by Corporation on the one hand and Officer on the other hand from the transaction from which such action, suit or proceeding arose, and (ii) the relative fault of Corporation on the one hand and of Officer on the other hand in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of Corporation on the one hand and of Officer on the other hand shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. Corporation agrees that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations.

5. Continuation of Obligations. All agreements and obligations of Corporation contained herein shall continue during the period Officer is a director, officer, employee or agent of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and-shall continue thereafter so long as Officer shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Officer was serving Corporation or such other entity in any capacity referred to herein.

6. Notification and Defense of Claim. Not later than thirty (30) days after receipt by Officer of notice of the commencement of any action, suit or proceeding, Officer will, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it from any liability which it may have to Officer otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Officer notifies Corporation of the commencement thereof:

(a) Corporation will be entitled to participate therein at its own expense;

(b) except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Officer. After notice from Corporation to Officer of its election to assume the defense thereof, Corporation will not be liable to Officer under this Agreement for any legal or other expenses subsequently incurred by Officer in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Officer shall have the right to employ his own counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Officer unless (i) the employment of counsel by Officer has been authorized by Corporation, (ii) Officer shall have reasonably concluded that there may be a conflict of interest between Corporation and Officer in

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the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Officer’s separate counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Officer shall have made the conclusion provided for in (ii) above; and

(c) Corporation shall not be liable to indemnify Officer under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty, out-of-pocket liability, or limitation on Officer without Officer’s written consent. Neither Corporation nor Officer will unreasonably withhold its or his consent to any proposed settlement.

7. Advancement and Repayment of Expenses.

(a) In the event that Officer employs his own counsel pursuant to Section 6(b)(i) through (iii) above, Corporation shall advance to Officer, prior to any final disposition of any threatened or pending action, suit or proceeding, whether civil, criminal, administrative or investigative, any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding within ten (10) days after receiving copies of invoices presented to Officer for such expenses.

(b) Officer agrees that Officer will reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Officer in the event and only to the extent it shall be ultimately determined by a final judicial decision (from which there is no right of appeal) that Officer is not entitled, under the provisions of the Law, the Bylaws, the Articles, this Agreement or otherwise, to be indemnified by Corporation for such expenses.

(c) Notwithstanding the foregoing, Corporation shall not be required to advance such expenses to Officer if Officer (i) commences any action, suit or proceeding as a plaintiff unless such advance is specifically approved by a majority of the Board of Directors or (ii) is a party to an action, suit or proceeding brought by Corporation and approved by a majority of the Board which alleges willful misappropriation of corporate assets by Officer, disclosure of confidential information in violation of Officer’s fiduciary or contractual obligations to Corporation, or any other willful and deliberate breach in bad faith of Officer’s duty to Corporation or its shareholders.

8. Enforcement.

(a) Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce Officer to continue as an officer of Corporation, and acknowledges that Officer is relying upon this Agreement in continuing in such capacity.

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(b) In the event Officer is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, Corporation shall reimburse Officer for all of Officer’s reasonable fees and expenses in bringing and pursuing such action.

9. Subrogation. In the event of payment under this agreement, Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Officer, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable Corporation effectively to bring suit to enforce such rights.

10. Non-Exclusivity of Rights. The rights conferred on Officer by this Agreement shall not be exclusive of any other right which Officer may have or hereafter acquire under any statute, provision of the Articles or the Bylaws, agreement, vote of shareholders or directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office.

11. Survival of Rights. The rights conferred on Officer by this Agreement shall continue after Officer has ceased to be a director, officer, employee or other agent of Corporation or such other entity.

12. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any or all of the provisions hereof shall be held to be invalid or unenforceable to any extent for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof or the obligation of Corporation to indemnify Officer to the full extent provided by the Articles, the Bylaws and/or the Law, and the affected provision shall be construed and enforced so as to effectuate the parties’ intent to the maximum extent possible.

13. Governing Law. This Agreement shall be interpreted and enforced in accordance with the internal laws of the State of California.

14. Binding Effect. This Agreement shall be binding upon Officer and upon Corporation, its successors and assigns, and shall inure to the benefit of Officer, his heirs, executors, administrators, personal representatives and assigns and to the benefit of Corporation, its successors and assigns.

15. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless set forth in a writing signed by both parties hereto.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

OFFICER:	CARDIODYNAMICS INTERNATIONAL CORPORATION
	By:
	(Signature)
Print Name	Print Name and Title

[SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]

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EXHIBIT 10.16B

INDEMNIFICATION AGREEMENT

THIS AGREEMENT is made and entered into this      day of between CardioDynamics International Corporation, a California corporation (“Corporation”), and                              (“Director”).

RECITALS:

A. Director, a member of the Board of Directors of Corporation, performs a valuable service in such capacity for Corporation; and

B. The shareholders of Corporation have adopted Bylaws (the “Bylaws”) and Articles of Incorporation provisions (the “Articles”) providing for the indemnification of the officers, directors, agents and employees of Corporation to the maximum extent authorized by Section 317 of the California General Corporation Law, as amended (the “Law”); and

C. The Bylaws, the Articles and the Law, by their non-exclusive nature, authorize and permit contracts between Corporation and the members of its Board of Directors with respect to indemnification of such directors, providing such directors with protections in excess of those otherwise permitted by the Law; and

D. In accordance with the authorization as provided by the Law, Corporation may from time to time purchase and maintain a policy or policies of Directors and Officers Liability Insurance (“D & O Insurance”), covering certain liabilities which may be incurred by its directors and officers in the performance of services as directors and officers of Corporation; and

E. As a result of developments affecting the terms, scope and availability of D & O Insurance there exists general uncertainty as to the extent and overall desirability of protection afforded members of the Board of Directors by such D & O Insurance, if any, and by statutory and bylaw indemnification provisions; and

F. In order to induce Director to continue to serve as a member of the Board of Directors of Corporation, Corporation has determined and agreed to enter into this contract with Director;

NOW, THEREFORE, in consideration of Director’s continued service as a director after the date hereof, the parties hereto agree as follows:

1. Indemnity of Director. Corporation hereby agrees to hold harmless and indemnify Director to the fullest extent authorized or permitted by the provisions of the Law, as may be amended from time to time.

2. Additional Indemnity. Subject only to the exclusions set forth in Section 3 hereof, Corporation hereby further agrees to hold harmless and indemnify Director:

(a) against any and all expenses (including attorneys’ fees), witness fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of Corporation) to which Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Director is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and

(b) otherwise to the fullest extent as may be provided to Director by Corporation under the non-exclusivity provisions of the Bylaws, the Articles and the Law.

3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2 hereof shall be paid by Corporation:

(a) except to the extent the aggregate of losses to be indemnified thereunder exceeds the sum of such losses for which the Director is indemnified pursuant to Section 1 hereof or pursuant to any D & O Insurance purchased and maintained by Corporation;

(b) in respect of remuneration paid to Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;

(c) on account of any action, suit or proceeding in which judgment is rendered against Director for an accounting of profits made from the purchase or sale by Director of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law;

(d) on account of Director’s conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest;

(e) on account of Director’s conduct which is the subject of an action, suit or proceeding described in Section 7(c)(ii) hereof;

(f) on account of or arising in response to any action, suit or proceeding (other than an action, suit or proceeding referred to in Section 8(b) hereof) initiated by Director or any of Director’s affiliates against Corporation or any officer, director or shareholder of Corporation unless such action, suit or proceeding was authorized in the specific case by action of the Board of Directors of Corporation;

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(g) on account of any action, suit or proceeding to the extent that Director is a plaintiff, a counter-complainant or a cross-complainant therein (other than an action, suit or proceeding permitted by Section 3(f) hereof); or

(h) if a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful (and, in this respect, both Corporation and Director have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication).

In addition to those Limitations set forth above in this Section 3, no indemnity pursuant to Section 2 hereof shall be paid by Corporation for any of the following breaches of duty to Corporation and its shareholders:

(i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law;

(ii) acts or omissions that Director believes to be contrary to the best interests of Corporation or its shareholders or that involve the absence of good faith on the part of Director;

(iii) any transaction from which Director derived an improper personal benefit;

(iv) acts or omissions that show a reckless disregard for Director’s duty to Corporation or its shareholders in circumstances in which Director was aware, or should have been aware, in the ordinary course of performing his duties, of a risk of serious injury to Corporation or its shareholders;

(v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of Director’s duty to Corporation or its shareholders;

(vi) acts or omissions prohibited by Section 310 of the California Corporations Code, “Transactions Between Corporations and Directors or Corporations Having Interrelated Directors”;

(vii) acts or omissions prohibited by Section 316 of the California Corporations Code, “Directors’ Liability for Distributions, Loans and Guarantees”.

4. Contribution. If the indemnification provided in Sections 1 and 2 is unavailable and may not be paid to Director for any reason other than those set forth in paragraphs (b) through (g) of Section 3, then in respect of any threatened, pending or completed action, suit or proceeding in which Corporation is or is alleged to be jointly liable with Director (or would be if joined in such action, suit or proceeding), Corporation shall contribute to the amount of expenses (including attorneys’ fees), judgments, fines and amounts

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paid in settlement actually and reasonably incurred and paid or payable by Director in such proportion as is appropriate to reflect (i) the relative benefits received by Corporation on the one hand and Director on the other hand from the transaction from which such action, suit or proceeding arose, and (ii) the relative fault of Corporation on the one hand and of Director on the other hand in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of Corporation on the one hand and of Director on the other shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. Corporation agrees that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations.

5. Continuation of Obligations. All agreements and obligations of Corporation contained herein shall continue during the period Director is a director, officer, employee or agent of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Director was serving Corporation or such other entity in any capacity referred to herein.

6. Notification and Defense of Claim. Not later than thirty (30) days after receipt by Director of notice of the commencement of any action, suit or proceeding, Director will, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it from any liability which it may have to Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Director notifies Corporation of the commencement thereof:

(a) Corporation will be entitled to participate therein at its own expense;

(b) except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Director. After notice from Corporation to Director of its election to assume the defense thereof, Corporation will not be liable to Director under this Agreement for any legal or other expenses subsequently incurred by Director in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Director shall have the right to employ his own counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Director unless (i) the employment of counsel by Director has been authorized by

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Corporation, (ii) Director shall have reasonably concluded that there may be a conflict of interest between Corporation and Director in the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Director’s separate counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Director shall have made the conclusion provided for in (ii) above; and

(c) Corporation shall not be liable to indemnify Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty, out-of-pocket liability, or limitation on Director without Director’s written consent. Neither Corporation nor Director will unreasonably withhold its or his consent to any proposed settlement.

7. Advancement and Repayment of Expenses.

(a) In the event that Director employs his own counsel pursuant to Section 6(b)(i) through (iii) above, Corporation shall advance to Director, prior to any final disposition of any threatened or pending action, suit or proceeding, whether civil, criminal, administrative or investigative, any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding within ten (10) days after receiving copies of invoices presented to Director for such expenses.

(b) Director agrees that Director will reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Director in the event and only to the extent it shall be ultimately determined by a final judicial decision (from which there is no right of appeal) that Director is not entitled, under the provisions of the Law, the Bylaws, the Articles, this Agreement or otherwise, to be indemnified by Corporation for such expenses.

(c) Notwithstanding the foregoing, Corporation shall not be required to advance such expenses to Director if Director (i) commences any action, suit or proceeding as a plaintiff unless such advance is specifically approved by a majority of the Board of Directors or (ii) is a party to an action, suit or proceeding brought by Corporation and approved by a majority of the Board which alleges willful misappropriation of corporate assets by Director, disclosure of confidential information in violation of Director’s fiduciary or contractual obligations to Corporation, or any other willful and deliberate breach in bad faith of Director’s duty to Corporation or its shareholders.

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8. Enforcement.

(a) Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce Director to continue as a director of Corporation, and acknowledges that Director is relying upon this Agreement in continuing in such capacity.

(b) In the event Director is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the Corporation shall reimburse Director for all Director’s reasonable fees and expenses in bringing and pursuing such action.

9. Subrogation. In the event of payment under this agreement, Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Director, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable Corporation effectively to bring suit to enforce such rights.

10. Non-Exclusivity of Rights. The rights conferred on Director by this Agreement shall not be exclusive of any other right which Director may have or hereafter acquire under any statute, provision of the Articles or the Bylaws, agreement, vote of shareholders or directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office.

11. Survival of Rights. The rights conferred on Director by this Agreement shall continue after Director has ceased to be a director, officer, employee or other agent of Corporation or such other entity.

12. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any or all of the provisions hereof shall be held to be invalid or unenforceable to any extent for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof or the obligation of the Corporation to indemnify the Director to the full extent provided by the Articles, the Bylaws and/or the Law, and the affected provision shall be construed and enforced so as to effectuate the parties’ intent to the maximum extent possible.

13. Governing Law. This Agreement shall be interpreted and enforced in accordance with the internal laws of the State of California.

14. Binding Effect. This Agreement shall be binding upon Director and upon Corporation, its successors and assigns, and shall inure to the benefit of Director, his heirs, executors, administrators, personal representatives and assigns and to the benefit of Corporation, its successors and assigns.

-6-

15. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless set forth in a writing signed by both parties hereto.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

DIRECTOR:	CARDIODYNAMICS INTERNATIONAL CORPORATION
	By:
		(Signature)
Print Name		Print Name and Title

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EX-21.1

EXHIBIT 21.1

LIST OF SUBSIDIARIES OF CARDIODYNAMICS INTERNATIONAL CORPORATION

Name of company and name under which it does business	Jurisdiction of incorporation or organization
CardioDynamics Management, GmbH	Germany
medis Medizinische Messtechnik, GmbH (80% majority owned)	Germany

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

CardioDynamics International Corporation

San Diego, California:

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-31275, 333-65331, 333-69669, 333-69663, 333-69659, 333-86475, 333-88311, 333-88307, 333-88309, 333-31702, 333-44226, 333-66396, 333-69456, 333-69458, 333-70916, 333-104236, 333-117486 and 333-134248) and Form S-8 (No. 333-40969, 333-38920, 333-38922, 333-70902, and 333-119044) of CardioDynamics International Corporation of our report dated February 25, 2008, relating to the consolidated financial statements of CardioDynamics International Corporation as of and for the year ended November 30, 2007, which appears in this Annual Report on Form 10-K.

/s/ BDO Seidman, LLP

San Diego, California

February 25, 2008

EX-23.2

EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement Nos. 333-31275, 333-65331, 333-69669, 333-69663, 333-69659, 333-86475, 333-88311, 333-88307, 333-88309, 333-31702, 333-44226, 333-66396, 333-69456, 333-69458, 333-70916, 333-104236, 333-117486 and 333-134248 on Form S-3 and Registration Statement Nos. 333-40969, 333-38920, 333-38922, 333-70902 and 333-119044 on Form S-8 of our report dated February 13, 2007, relating to the consolidated financial statements and the financial statement schedule of CardioDynamics International Corporation appearing in this Annual Report on Form 10-K of CardioDynamics International Corporation for the year ended November 30, 2007.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

February 25, 2008

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Michael K. Perry, certify that:

1. I have reviewed this Annual Report on Form 10-K of CardioDynamics International Corporation (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15((f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

By:	/s/ Michael K. Perry
Chief Executive Officer

Date: February 26, 2008

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Steve P. Loomis, certify that:

1. I have reviewed this Annual Report on Form 10-K of CardioDynamics International Corporation (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15((f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

By:	/s/ Steve P. Loomis
Vice President of Finance and Chief Financial Officer

Date: February 26, 2008

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the CardioDynamics International Corporation (the “Company”) Annual Report on Form 10-K for the period ended November 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael K. Perry, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 26, 2008	/s/ Michael K. Perry
	Michael K. Perry Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the CardioDynamics International Corporation (the “Company”) Annual Report on Form 10-K for the period ended November 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve P. Loomis, Vice President of Finance and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 26, 2008	/s/ Steve P. Loomis
	Steve P. Loomis Vice President of Finance and Chief Financial Officer