10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-20703

Adeza Biomedical Corporation

(Exact name of Registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization) 77-0054952
(I.R.S. Employer
Identification Number)

1240 Elko Drive, Sunnyvale, California 94089
(Address of principal executive offices and zip code)

(408) 745-0975
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value

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

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 o     No þ

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 þ     No o

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.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o     Accelerated Filer þ     Large Non-Accelerated Filer o

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2006 (based on the closing price of $14.02 per share as quoted by The NASDAQ Global Select Market as of such date) was $132,527,681.

As of March 5, 2007, 17,556,177 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement to be filed by the registrant with the Securities and Exchange Commission no later than 120 days after the registrant’s fiscal year ended December 31, 2006 and to be used in connection with the registrant’s Annual Meeting of Stockholders expected to be held on or about June 5, 2007 are incorporated by reference in Part III of this Form 10-K.

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business		3
	Item 1A.	Risk Factors		18
	Item 1B.	Unresolved Staff Comments		40
	Item 2.	Properties		40
	Item 3.	Legal Proceedings		40
	Item 4.	Submission of Matters to a Vote of Security Holders		40
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		40
	Item 6.	Selected Financial Data		43
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		44
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		57
	Item 8.	Financial Statements and Supplementary Data		57
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		57
	Item 9A.	Controls and Procedures		57
	Item 9B.	Other Information		60
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		60
	Item 11.	Executive Compensation		60
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		60
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		60
	Item 14.	Principal Accounting Fees and Services		60
PART IV
	Item 15.	Exhibits, Financial Statement Schedules		61
EXHIBIT 10.19
EXHIBIT 10.20
EXHIBIT 10.21
EXHIBIT 10.22
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

Adeza Biomedical Corporation Trademarks and Registered Trademarks are trademarks of Adeza. Our trademarks and trade names include the stylized A, Adeza^®, E-tegrity^® Test, SalEst^®, FullTerm^tm, Gestiva^tm and TLi_IQ^® System. Other service marks, trademarks and trade names referred to in this Form 10-K are the property of their respective owners.

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Forward-Looking Statements

This Form 10-K contains forward-looking statements. All statements contained in this Form 10-K other than statements of historical fact are forward-looking statements. The words “may,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “could,” “would,” “anticipate” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:

•  the unpredictability of our quarterly and annual revenues and results of operations, including on a quarter-to-quarter basis;

•  our estimates regarding market size, future revenues, royalty costs, expenses and capital requirements and needs for additional financing;

•  the rate and degree of market acceptance of our products;

•  our marketing and manufacturing capacity and strategy;

•  our ability to develop and market new and enhanced products;

•  the timing of and our ability to obtain and maintain regulatory approvals and clearances for our products;

•  the timing of, and our ability to obtain, reimbursement for our products; and

•  our intellectual property

•  our competitors.

Any or all of our forward-looking statements in this Form 10-K may turn out to be inaccurate. We have based these forward-looking statements on our current expectations and projections about future events and trends. They may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Form 10-K may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

These forward-looking statements speak only as of the date of this Form 10-K. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise.

PART I

ITEM 1.   BUSINESS

BUSINESS OVERVIEW

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

Our Fetal Fibronectin Test is designed to objectively determine a woman’s risk of preterm birth by detecting the presence of a specific protein, fetal fibronectin, in vaginal secretions during pregnancy. Testing for fetal fibronectin during pregnancy provides a more accurate assessment of the likelihood of a preterm birth than traditional methods. According to the New England Journal of Medicine, preterm births have historically accounted for up to 85% of all pregnancy-related complications and deaths in the United States. The March of Dimes estimated that over $15.5 billion in costs were associated with the care of preterm or low birth weight infants in 2002. By correctly identifying women at risk for preterm birth, we believe our Fetal Fibronectin Test leads to

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improved patient care and significant cost savings and has the potential to fundamentally change how healthcare providers select the appropriate course of treatment for pregnant women.

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

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

As of December 31 2006, our direct sales force consisted of approximately 89 representatives who sell to hospital and clinical laboratories, health plans and healthcare providers. Our Fetal Fibronectin Test has been assigned a reimbursement code used for insurance processing of claims for the Fetal Fibronectin Test, and we believe that reimbursement for our Fetal Fibronectin Test has been regularly available through health plan organizations and most state Medicaid programs.

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

PROPOSED MERGER WITH CYTYC CORPORATION

On February 11, 2007, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Cytyc Corporation, a Delaware corporation (“Cytyc”), and Augusta Medical Corporation, a Delaware corporation and a direct wholly-owned subsidiary of Cytyc, under which Augusta Medical Corporation has commenced a tender offer to purchase all of the outstanding shares of our common stock at a price of $24.00 per share. Following the completion of the tender offer, which is scheduled to expire at 12:00 midnight, New York City time, on March 16, 2007, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement and in accordance with the relevant portions of the Delaware General Corporation Law (the “DGCL”), it is anticipated that Augusta Medical Corporation will be merged with and into Adeza with Adeza as the surviving corporation, whereby each issued and outstanding share of our common stock not directly or indirectly owned by Cytyc, Augusta Medical Corporation or Adeza will be converted into the right to receive the offer price of $24.00 per share. The purchase price is expected to be approximately $450 million, which will be paid by Cytyc at closing in cash. The acquisition is expected to close before the end of March 2007.

OVERVIEW OF TARGETED MARKETS

Preterm birth

There are approximately four million births in the United States annually. Births occurring before 37 weeks of pregnancy are defined as preterm, and in recent years, according to a 2006 publication by the Center for Disease Control and Prevention, or CDC, preterm births represent approximately 12.7% of all births. On average, this equates to about 525,000 preterm births per year. According to the CDC, the percentage of preterm births in the United States grew to 12.7% of all births in 2005, an increase of 35% since 1981. This increase in the preterm birth

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rate is a growing public health concern. In January 2003, the March of Dimes launched a five-year, $75 million campaign to reduce the number of preterm births.

According to a 1994 publication from the National Conference of State Legislators, the costs of newborn intensive care in the United States ranged between $20,000 and $400,000 per infant. According to the March of Dimes, the average hospital charge for preterm/low birth weight infants was $77,000 in 2003, compared to $1,700 for an uncomplicated newborn stay. Infants born preterm often receive specialized care in a neonatal intensive care unit, or NICU, with charges ranging from approximately $800 to $2,700 per day in 1998. In addition, medical costs following discharge for preterm births can be substantial as a result of ongoing physical and mental developmental complications. We believe medical costs can be reduced if women at risk of preterm birth could be identified earlier and appropriately treated.

Preterm birth market segments

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

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

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

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

Current treatments and interventions for preterm birth

Identification of women at risk for preterm birth can be critical because the use of certain interventions to delay preterm birth may improve infant survival rates and reduce the severity of complications. Interventions may include

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hospitalization, consultation with a highly-skilled specialist, transport to a more advanced NICU facility, drug treatments such as tocolytics, which are used to delay the onset of birth by reducing contractions, corticosteroids for acceleration of fetal lung development, administration of progesterone to reduce the likelihood of preterm birth, antibiotics and lifestyle modifications, including bed rest and discontinuing work.

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

Infertility

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

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

Induction of labor

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

We believe the current use of subjective evaluation techniques to predict the successful induction of labor contributes to the annual cesarean section rate in the United States. Based upon a 2005 publication by the CDC, cesarean sections represented 29.6% of all births in the United States in 2004. This is the highest rate ever reported in the United States and has risen 30% since 1996. Delivery by cesarean section typically results in costs of approximately $2,000 more than vaginal delivery based on a 2002 article published by the American Journal of Obstetrics and Gynecology. In addition, unsuccessful induction of labor may be associated with medical complications for both the mother and infant, as well as increased hospital stays and neonatal costs. In addition, women who undergo a cesarean section are often encouraged to continue to have cesarean sections in subsequent pregnancies. An objective diagnostic test to assist healthcare providers in predicting the successful induction of labor would help improve labor success rates and reduce unnecessary cesarean sections.

Oncology — bladder cancer

According to a 2003 publication in the Journal of Clinical Ligand Assay, bladder cancer is the fifth most common cancer in the United States. The American Cancer Society estimates that there will be more than 60,000 new cases diagnosed in the United States in 2004. The National Cancer Institute found in a 1995 study that the

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

FETAL FIBRONECTIN OVERVIEW

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

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

THE ADEZA SOLUTION

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

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

•  Objective result — Instrument provides a positive or negative result;

•  Low-cost instrument — Minimal cost is incurred to acquire the instrument;

•  Rapid turnaround — Produces a result in less than 25 minutes;

•  Easy to use — Simple and convenient test procedure and instrument user interface;

•  Established reimbursement — Reimbursement provided by large US health plans; and

•  Significant cost savings opportunity — Reduces hospital admissions, eliminates unnecessary transports and avoids costly interventions.

We market the Fetal Fibronectin Test to healthcare providers for women who are seeking urgent medical care for signs and symptoms of preterm labor in the hospital. While a woman is being evaluated, the Fetal Fibronectin Test is run in the hospital laboratory with the result generated in less than 25 minutes. A negative Fetal Fibronectin

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

We also market the Fetal Fibronectin Test to healthcare providers for women who have been designated as “high-risk.” These women should be carefully monitored throughout their pregnancy, and a Fetal Fibronectin Test can be used multiple times in their pregnancy during their frequent visits to their healthcare provider’s office. In those cases, fetal fibronectin samples are collected from women in healthcare providers’ offices and picked up for testing by a clinical laboratory. Results are typically returned to the healthcare provider in 24 to 48 hours. The use of the Fetal Fibronectin Test for this patient population helps to identify women who are not at risk of delivering preterm.

In addition, we believe that our product has the potential to be used in routine patient visits for women who have been designated as “low-risk” by their healthcare providers. According to a 2001 article published in the American Journal of Obstetrics and Gynecology, over 50% of all preterm births occur when no major risk factors are present. Our Fetal Fibronectin Test may provide an objective test for identifying additional women who are at risk of preterm birth and, when used in conjunction with traditional diagnostics such as ultrasound, could potentially enable early intervention.

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

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

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PRODUCT OVERVIEW

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

	Product	Use	Status
MARKETED
PRODUCTS
Preterm birth	Fetal Fibronectin Test for	Prediction of preterm birth	Commercially available
	the TLiIQ System	• Women with signs and symptoms
		• Women at ‘‘high-risk”
		• Women at “low-risk”
Infertility	E-tegrity Test	Uterine receptivity	Commercially available
PRODUCTS UNDER DEVELOPMENT
Other pregnancy products
Preterm birth prevention therapeutic	Gestiva	Prevention of preterm birth in women with a previous preterm birth	FDA Approvable Letter received October 20, 2006
Induction of labor	Fetal Fibronectin Test for the TLiIQ System	Successful induction of labor	FDA review pending
Preterm birth	SalEst Test	Prediction of preterm birth	In commercial development
Delivery date	Fetal Fibronectin Test/ SalEst Test	Prediction of delivery date	In development
Oncology products
Bladder cancer	Oncofetal fibronectin test for the TLiIQ System	Monitoring and screening	In development

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

MARKETED PRODUCTS

Preterm birth products

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

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

•  A keypad which is used to enter patient and user identification information;

•  A display which provides simple on-screen commands to guide the user through the testing sequence;

•  A fiber-optic scanner that is contained inside the instrument, which creates a digitized image of the test result; and

•  Sophisticated technology that analyzes each Fetal Fibronectin Test cassette.

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

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

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

Infertility products

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

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

PRODUCTS UNDER DEVELOPMENT

Pregnancy products

Preterm birth prevention therapeutic

On August 29, 2006, we announced that the Reproductive Health Drugs Advisory Committee to the FDA recommended by a majority vote that the data presented by us in our Gestiva NDA support efficacy in preventing preterm birth prior to 35 weeks and that overall safety data are adequate and sufficiently reassuring to support marketing approval in women with a history of preterm delivery. The Reproductive Health Drugs Advisory Committee to the FDA also recommended the collection of post-marketing clinical data.

On October 20, 2006, we received an “approvable letter” from the U.S. Food and Drug Administration (FDA) with respect to our New Drug Application for Gestiva for the prevention of preterm birth in women with a history of preterm delivery. An approvable letter is an official notification from the FDA that the FDA may approve the company’s NDA if specific conditions are satisfied. The approvable letter for Gestiva requires the completion of an additional rodent study and certain other conditions that must be satisfied prior to obtaining final U.S. marketing approval. The approvable letter also outlines several post-approval clinical requirements, which are consistent with recommendations made by the FDA advisory committee in August 2006. Satisfying the conditions will require both time and expense. We cannot be certain when we will obtain FDA approval for Gestiva, if at all.

On January 31, 2007, we announced that the FDA granted Orphan Drug designation covering Gestiva. If Gestiva is approved, Orphan Drug designation provides the opportunity for seven years of U.S. market exclusivity.

If Gestiva is approved for marketing in the United States, we plan to use our existing sales force to market the product to the same physicians to whom we market FullTerm, The Fetal Fibronectin Test, thereby leveraging our direct sales efforts.

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Induction of labor

Fetal Fibronectin Test.  In addition to the current preterm birth indications for our Fetal Fibronectin Test, we have completed a major multi-center study evaluating the use of the Fetal Fibronectin Test to predict the successful induction of labor for women who are having their first baby. The results from this study have been incorporated into a premarket approval, or PMA, supplement which has been submitted to the FDA. We are in the process of resubmitting our data related to this study to the FDA.

Preterm birth

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

Delivery date

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

Oncology products

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

Bladder cancer products

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

SALES AND MARKETING

We focus our sales and marketing efforts on increasing awareness of our products and services among healthcare providers, hospitals, laboratories, health plans and patients, where we have initiated branding of our test as Full Term, The Fetal Fibronectin Test. Our strategy is to sell and market our products through our direct sales force in the United States and Canada, and distributors worldwide. We choose our partners and distributors on a country-by-country basis. As of December 31, 2006, we had approximately 89 direct sales representatives in North America, who have primary focuses on hospital and laboratory sales and healthcare providers in the office setting, health plan sales representatives and sales representative covering Canada. Our direct sales force includes some

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full-time sales representatives provided to us by a third party, who are directly managed by us, sell our products exclusively and are an integral part of our sales team.

U.S. Sales and Marketing

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

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

International Sales and Marketing

Our international sales and marketing efforts address the particular healthcare systems of individual countries through a network of approximately 20 international distributors with expertise in their markets. Our internal marketing professionals support these distributors. We intend to expand our international marketing efforts by increasing our international direct sales force, as well as broadening our international distribution network through strategic partners and distributors that have significant presence and experience in their local markets. In Japan and South Korea, we have a strategic partnership with Daiichi Pure Chemicals Co. Ltd.

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

MANUFACTURING

We conduct a majority of the manufacturing for our Fetal Fibronectin Test cassettes and TLi_IQ System at our three facilities totaling 27,400 square feet, located in Sunnyvale, California. These facilities are subject to the current good manufacturing practices, or GMP, enforced by the FDA. The manufacturing process for our products includes assembly, testing, packaging, labeling, component inspection and final inspection of products that have been manufactured by us or to our specifications by outside contractors. Our quality assurance group independently inspects our products to verify that all components and finished products comply with our specifications and applicable regulatory requirements.

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

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

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

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RESEARCH AND DEVELOPMENT

Our research and development efforts are conducted internally and through collaborations with academic investigators and clinicians. Our research and development is focused on enhancements to existing products and developing additional products within women’s health, including pregnancy and infertility, and in oncology. As of December 31, 2006, we had 17 employees conducting research and development. Research and development expenses were $6,903,000, $5,092,000 and $2,451,000 in the years ended December 31, 2006, 2005 and 2004, respectively.

GOVERNMENT REGULATION

The research, development, manufacture, labeling, distribution and marketing of our products are subject to extensive regulation by, among others, the FDA and comparable regulatory bodies in foreign countries.

FDA’s Pre-Market Clearance And Approval Requirements for Medical Devices

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

510(K) Clearance Pathway

To obtain 510(k) clearance, a premarket notification must be submitted, demonstrating that the proposed device is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of PMA applications. The FDA’s 510(k) clearance pathway usually takes from three to twelve months from the date the application is submitted, but it can take significantly longer.

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

Pre-Market Approval Pathway

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

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biocompatibility, among other features. Preclinical studies must be conducted in accordance with Good Laboratory Practices. PMA clinical trials are conducted under an Investigational Device Exemption and are designed to demonstrate the performance characteristics of the device relating to safety and effectiveness for the commercially intended use.

After a PMA approval application is complete, the FDA begins an in-depth review of the submitted information, which generally takes between one and three years, but may take significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. For example, the FDA had placed its review of our PMA supplement seeking approval for use of our Fetal Fibronectin Test in predicting successful induction of labor on hold while a third party conducted an audit of all of the clinical study sites because of the number of protocol deviations, in order to confirm the accuracy of the data. Since the third-party audit is now complete, we will need to submit new analyses of the data to the FDA before it will resume its review of the application.

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

In Vitro Diagnostic Medical Devices

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

FDA Regulation of Prescription Drug Products

The FDA and comparable regulatory agencies in foreign countries regulate extensively the development, manufacture and sale of pharmaceutical products and product candidates such as Gestiva. The FDA has established guidelines and safety standards that are applicable to the nonclinical evaluation and clinical investigation of drug product candidates and stringent regulations that govern the manufacture and sale of these products. The process of obtaining regulatory approval for a new prescription drug usually requires a significant amount of time and substantial resources. The steps typically required before a product can be produced and marketed for human use include:

•  Animal pharmacology studies to obtain preliminary information on the safety and efficacy of a drug; and

•  Nonclinical evaluation in vitro and in vivo including extensive toxicology studies.

The clinical testing program for a new drug typically involves three phases:

•  Phase I investigations are generally conducted in healthy subjects. In certain instances, subjects with a life-threatening disease, such as cancer, may participate in Phase I studies that determine the maximum tolerated dose and initial safety of the product;

•  Phase II studies are conducted in limited numbers of subjects with the disease or condition to be treated and are aimed at determining the most effective dose and schedule of administration, evaluating both safety and whether the product demonstrates therapeutic effectiveness against the disease; and

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•  Phase III studies involve large, well-controlled investigations in diseased subjects and are aimed at verifying the safety and effectiveness of the drug.

Data from all clinical studies, as well as all nonclinical studies and evidence of product quality, typically are submitted to the FDA in an NDA. The FDA’s Center for Drug Evaluation and Research (“CDER”) must approve a new drug application, or NDA, for a drug before it may be marketed in the U.S.

Continuing FDA Regulation

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

•  good manufacturing practices, which require manufacturers to follow quality assurance and quality control procedures during the manufacturing, processing, packing and holding of regulated products;

•  satisfaction of post-marketing commitments, which may include clinical studies and provider or patient education, among other things;

•  labeling regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and

•  adverse experience reporting regulations, which require that manufacturers report to the FDA if their products have been or may have been associated with an adverse clinical outcome.

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

•  fines, injunctions, and civil penalties;

•  recall or seizure of our products;

•  operating restrictions, partial suspension or total shutdown of production;

•  refusing our request for clearance or approval of new products;

•  withdrawing clearance or approvals that are already granted; and

•  criminal prosecution.

We are also subject to unannounced inspections by the FDA and the Food and Drug Branch of the California Department of Health Services. In addition to federal regulation, a number of states also impose significant regulatory reporting burdens and restrictions on the promotion of prescription drugs and devices.

International

International sales of medical devices and prescription drug products are subject to foreign government regulations, which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may different.

INTELLECTUAL PROPERTY

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

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

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

We believe that our portfolio of issued patents and patent applications, together with our exclusively licensed patents described under “License and Other Agreements”, provides patent coverage for our proprietary technologies and products. As of February 28, 2007, our intellectual property estate consisted of 163 issued patents or patent applications, as follows:

•  29 issued US patents;

•  11 US non-provisional patent applications;

•  106 issued foreign patents;

•  17 foreign patent applications that are in various national stages of prosecution, which means that the applications have been filed in specific foreign jurisdictions.

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

Our patent portfolio as of February 28, 2007 is summarized in the following table:

			US
			Provisional and
	US		Non-Provisional		Foreign		Foreign
	Patents		Applications		Patents		Applications
Category	Granted		Filed		Granted		Filed
Methods of Use		16		6		49		13
Detection Systems		6		3		46		2
Platforms/Other Devices		7		2		11		2
Total		29		11		106		17

We believe that our portfolio of issued patents and patent applications provides patent coverage for our proprietary technologies and products. We have patents and patent applications relating to our Fetal Fibronectin Test and TLi_IQ System in the categories of methods of use, detection systems, platforms and other devices. Our family of issued patents and patent applications, if and when issued, relating to our Fetal Fibronectin Test and TLi_IQ System have a range of expiration dates from 2008 to 2025. Although patents to a reagent used in the Fetal Fibronectin Test expired in 2007, we have additional issued patents that relate to the Fetal Fibronectin Test and the TLi_IQ System. Thus, we believe that our currently issued patents provide protection for our Fetal Fibronectin Test to 2009 by protecting the method upon which the test is based and to 2011 by protecting various reagents and kit embodiments employed in the test. In addition, we have issued patents relating to our TLi_IQ System and the associated Fetal Fibronectin Test that expire in 2018. We have filed patent applications that, if and when issued, could provide protection for measurement and detection of fetal fibronectin for current and additional indications. These patents, if and when issued, could expire as late as 2025. With respect to our E-tegrity Test, we have exclusively licensed patents and pending patent applications involving detection of beta-3 integrin subunit as an infertility/fertility indicator. The issued patents that involve detection of beta-3 integrin subunit have an expiration of 2012, and any patents that issue based upon the pending applications should have an expiration date of 2012.

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LICENSE AND OTHER AGREEMENTS

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

In August 1992, we entered into an amended and restated license agreement with the Fred Hutchinson Cancer Research Center under which we were granted a worldwide, exclusive license to a US patent and corresponding foreign patents related to fetal fibronectin and antibodies made against fetal fibronectin. These licensed patents are used in our Fetal Fibronectin Test, and may be used in other fetal fibronectin or oncofetal fibronectin products that we develop. We are obligated to pay royalties to the Hutchinson Center on net product sales in the US by us during the remainder of the term of a licensed patent, subject to an annual minimum royalty of $10,000. Through December 31, 2006 we have paid approximately $2.5 million. We are also obligated to indemnify the Hutchinson Center for certain claims related to the license agreement. The agreement and associated royalty obligations to the Hutchinson Center expire in 2007 upon the expiration of the licensed patents in 2007.

In December 1998, we entered into a license agreement with Unilever plc, which was subsequently assigned to Inverness Medical Inc., under which we were granted a non-exclusive license to five US patents and corresponding foreign patents, relating to the chemistry of our Fetal Fibronectin Test, which expire in 2014. We are obligated to pay royalties on net sales of our Fetal Fibronectin Test until the expiration of the last to expire of the licensed patents, provided that our Fetal Fibronectin Test incorporates the technology covered by one or more of the licensed patents. Through December 31, 2006 we have paid approximately $5.8 million. The agreement terminates upon the expiration of the last to expire of the licensed patents, subject to earlier termination by either party in the event that the other party materially breaches the agreement and fails to correct the breach in a timely manner or by Inverness in the event that we file for bankruptcy, challenge any of the licensed patent rights or fail to pay minimum royalties equal to 5,000 pounds sterling for any calendar year.

We were previously party to a marketing agreement with Matria Healthcare, which was terminated as of March 1998 pursuant to the terms of an Agreement and Release. Under the terms of the Agreement and Release, we agreed to pay Matria royalties on sales of certain of our products. Through December 31, 2006 we have paid approximately $0.7 million. This agreement has no expiration.

In July 1997, we entered into a license agreement with the University of Pennsylvania under which we were granted a worldwide, sublicensable, exclusive license to three US patents and corresponding foreign patents relating to the use of a specific protein found in the lining of the uterus as a predictor of endometriosis and for the determination of uterine receptivity toward embryo implantation. Our E-tegrity Test incorporates the technology covered by these patents, which expire in 2012 and 2013. We are obligated to pay royalties to the university on net sales of our E-tegrity Test during the remainder of the term to the last to expire of the licensed patents, subject to an annual minimum royalty equal to the greater of $10,000 or 20% of the royalties paid to the university in the prior year. Through December 31, 2006 we have paid approximately $0.2 million. The agreement terminates upon the expiration of the last to expire of the licensed patents, subject to earlier termination by the university in the event that we materially breach the agreement and fail to correct the breach in a timely manner, fail to pay royalties when due or file for bankruptcy.

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

COMPETITION

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

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

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

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

EMPLOYEES

As of December 31, 2006, we had 125 employees, including 65 in sales, marketing and business development, 18 in manufacturing and laboratory services, 17 in research and development, 18 in administration and 7 in quality assurance. In addition, our direct sales force includes some full-time sales representatives provided to us by a third party, who are directly managed by us, sell our products exclusively, and are an integral part of our sales team. The agreement with such third party is currently scheduled to expire on May 14, 2008. None of our employees are represented by a labor union or are covered by a collective bargaining agreement. We have never experienced any employment related work stoppages and consider our employee relations to be good. We also employ independent contractors to support our development, regulatory, sales, marketing and administrative activities.

ITEM 1A.   RISK FACTORS

In addition to other information in this Form 10-K, the following factors should be considered carefully in evaluating the company. If any of the risks or uncertainties described in this Form 10-K actually occurs, our business, results of operations or financial condition could be materially adversely affected. The risks and uncertainties described in this Form 10-K are not the only ones facing the company. Additional risks and uncertainties of which we are unaware or currently deem immaterial may also become important factors that may harm our business.

RISKS RELATING TO OUR BUSINESS

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

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

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

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

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

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

•  evidence of clinical utility;

•  convenience and ease of use;

•  availability of alternative and competing diagnostic products;

•  cost-effectiveness;

•  effectiveness of marketing, distribution and pricing strategy;

•  publicity concerning these products or competitive products;

•  concerns regarding product safety; and

•  reimbursement.

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

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

As of December 31, 2006, we had an accumulated deficit of $29.9 million. For the quarters ended December 31, 2006, September 30, 2006, June 30, 2006, March 31, 2006, and December 31, 2005, we had revenue of $14.7 million, $13.5 million, $13.0 million, $10.8 million, and $11.9 million, respectively. For the quarters ended December 31, 2006, September 30, 2006, June 30, 2006 and March 31, 2006, we had net income of $1,233,000, $751,000, $537,000 and $6,000, respectively. However, we may not sustain profitability and cannot guarantee losses will not occur in the future. Our quarterly revenues and operating results are difficult to predict and have in the past and may in the future fluctuate significantly from quarter to quarter due to a number of factors, many of which are outside our control. These factors include, but are not limited to:

•  our ability to increase market acceptance of women’s health diagnostics generally and of our products in particular, as discussed under “Risk Factors — If our products do not achieve and sustain market acceptance, we may fail to generate sufficient revenue to maintain our business”;

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•  our need and ability to generate and manage growth as discussed under “Risk Factors — If we fail to properly manage our anticipated growth in the United States or abroad, we may incur significant additional costs and expenses and our operating results may suffer”;

•  delays in, or failure of, delivery of components by our suppliers as more fully described in “Risk Factors — We rely on a limited number of suppliers, and if these suppliers fail or are unable to perform in a timely and satisfactory manner, we may be unable to manufacture our products or satisfy product demand in a timely manner, which could delay the production or sale of these products”;

•  risks related to Gestiva described below, including those discussed under “Risk Factors — If we are unable to obtain or maintain regulatory approval for Gestiva, we will be limited in our ability to commercialize Gestiva, and our business will be harmed,” “— The market for Gestiva may be very competitive because we have no patent protection for Gestiva, and we may not obtain regulatory exclusivity for Gestiva,” and “— We rely on a limited number of suppliers, and if these suppliers fail or are unable to perform in a timely and satisfactory manner, we may be unable to manufacture our products or satisfy product demand in a timely manner, which could delay the production or sale of our products.”

•  the quarterly variations and seasonal nature of our business, and the resulting demand for our products based on procurement cycles of our customers;

•  changes in the manner in which our operations are regulated;

•  the adoption of new accounting policies;

•  increases in the length of our sales cycle;

•  fluctuations in gross margins;

•  compensation charges related to the issuance of stock options; and

•  difficult political and economic conditions.

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

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

In addition, we make estimates and judgments in determining income tax expense. These estimates and judgments occur in the calculation of tax credits and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. The income tax provision will also be impacted by the effect of non-deductible stock option compensation expense due to the adoption of SFAS No. 123R. The effective tax rate will be negatively impacted by incentive stock option compensation expense. Also, SFAS No. 123R requires the tax benefit of stock option deductions relating to incentive stock options be recorded in the period of disqualifying dispositions. Changes in these estimates and the impact of SFAS No. 123R may result in significant increases or decreases to our tax provision in subsequent periods, which in turn would affect net income.

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

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

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

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

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

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

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

Our plans to expand our presence in international markets will cause us to incur various costs and expenses and may strain our operating and financial systems and resources in a manner that could materially and adversely affect our operating results. We will be subject to the regulatory oversight of additional authorities as we expand internationally. These authorities may impose regulations and restrictions on the sales and marketing of our

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products that are different and potentially more restrictive than those placed on us by regulators in the US. We may be required to expend considerable resources to comply with these requirements. Ultimately, we may not be able to comply with such regulations in a timely manner, if at all. If we are unable to satisfy these requirements on commercially reasonable terms, our ability to commercialize our products would be hampered and our revenues may be adversely affected.

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

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

•  the Federal Food, Drug and Cosmetic Act, which regulates the design, testing, development, manufacture, labeling, marketing, distribution and sale of medical devices and pharmaceuticals;

•  the Federal Anti-Kickback Law, which prohibits the illegal inducement of referrals for which payment may be made under federal healthcare programs such as the Medicare and Medicaid Programs;

•  Medicare laws and regulations that prescribe the requirements for coverage and payment, including the amount of such payment, and laws prohibiting false claims for reimbursement under Medicare and Medicaid;

•  CE mark which could limit our ability to sell in Europe; and

•  ISO 13485 which could limit our ability to sell in Canada.

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

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

The FDA, and comparable agencies of other countries generally regulate our diagnostic products as medical devices. In the United States, FDA regulations govern, among other things, the activities that we perform, including product development, product testing, product labeling, product storage, manufacturing, advertising, promotion, product sales, reporting of certain product failures and distribution. Most of the new products that we plan to develop and commercialize in the United States will require either pre-market notification, also known as 510(k) clearance, or pre-market approval, from the FDA prior to marketing. The 510(k) clearance process requires us to notify the FDA of our intent to market a medical device. The overall 510(k) clearance process usually takes from three to twelve months from the time of submission to the time that you can begin to sell a product in the market, but can take significantly longer. The pre-market approval process, often referred to as the PMA process, is much more

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costly, lengthy and uncertain and generally takes between one and three years from submission to PMA approval, but may take significantly longer and such clearance or approval may never be obtained.

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

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

•  fines, injunctions and civil penalties;

•  recall or seizure of our products;

•  restrictions on our products or manufacturing processes, including operating restrictions, partial suspension or total shutdown of production;

•  denial of requests for 510(k) clearances or PMAs of product candidates;

•  withdrawal of 510(k) clearances or PMAs already granted;

•  disgorgement of profits; and

•  criminal prosecution.

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

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

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

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If we are unable to obtain or maintain regulatory approval for Gestiva, we will be limited in our ability to commercialize Gestiva, and our business will be harmed. In addition, if pre-marketing or post-marketing approval requirements are too expensive or too time-consuming and could adversely affect our financial condition, we may elect to not commercialize, or not continue commercializing, Gestiva.

The research, testing, manufacturing, selling and marketing of pharmaceutical product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Obtaining and maintaining regulatory approval typically is an uncertain process, is costly and takes many years. For example, the FDA’s approvable letter for Gestiva requires us to conduct certain animal studies, which will be expensive and delay approval, and there can be no assurance that such studies, once completed, will result in Gestiva’s approval. Moreover, the FDA has requested expensive, time-consuming post-marketing studies of Gestiva, which could cause us to elect not to commercialize, or not continue commercializing, the product. In addition, failure to comply with the FDA and other applicable foreign and U.S. regulatory requirements may subject us to administrative or judicially imposed sanctions. These include warning letters, civil and criminal penalties, injunctions, product seizure or detention, product recalls, total or partial suspension of production, and refusal to approve pending NDAs, or supplements to approved NDAs.

Regulatory approval of an NDA or NDA supplement is never guaranteed. Despite the time, resources and effort expended, failure can occur at any stage. The FDA has substantial discretion in the approval process for human medicines. The FDA can deny, delay or limit approval of a product candidate for many reasons including:

•  the FDA may not find that there is adequate evidence that our product candidate is safe or effective;

•  the FDA may not find data from the clinical or preclinical testing to be sufficient; or

•  the FDA may not approve our or our third party manufacturers’ processes or facilities.

Future governmental action or changes in FDA policy or personnel may also result in delays or rejection of an NDA in the United States. If we receive regulatory approval for Gestiva, we will also be subject to ongoing FDA obligations and continued regulatory oversight and review, such as continued safety reporting requirements; and we may also be subject to additional FDA post-marketing obligations, such as Phase IV studies. If we are not able to maintain regulatory compliance, we may not be permitted to market Gestiva or any other therapeutic product candidates.

Any regulatory approvals that we receive for Gestiva or any other product candidates may also be subject to limitations on the indicated uses for which the medicine may be marketed or contain requirements for potentially costly post-marketing follow-up studies. In addition, if the FDA approves any of our product candidates, the labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping for the medicine will be subject to extensive regulatory requirements. The subsequent discovery of previously unknown problems with the medicine, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the medicine, and could include withdrawal of the medicine from the market.

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

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

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Even if we receive approval for the marketing and sale of Gestiva for the prevention of preterm birth in women who have a history of preterm delivery, it may never be accepted as a treatment for preterm birth in women who have a history of preterm delivery.

Many factors may affect the market acceptance and commercial success of Gestiva for the prevention of preterm birth in women who have a history of preterm delivery. Although there is currently no FDA-approved treatment for the prevention of preterm birth in women who have a history of preterm delivery, the comparable formulation to Gestiva, 17 alpha-hydroxyprogesterone caproate (or 17P), is available from compounding pharmacies. Even if the FDA approves Gestiva, physicians may adopt Gestiva only if they determine, based on experience, clinical data, side effect profiles and other factors, that it is preferable to other products or treatments then in use. Acceptance of Gestiva among influential practitioners will be essential for market acceptance of Gestiva.

Other factors that may affect the market acceptance and commercial success of Gestiva include:

•  the effectiveness of Gestiva, including any side effects, as compared to alternative treatment methods;

•  the product labeling or product insert required by the FDA for Gestiva;

•  the cost-effectiveness of Gestiva and the availability of insurance or other third-party reimbursement for patients using Gestiva;

•  the timing of market entry of Gestiva relative to competitive products;

•  the extent and success of our sales and marketing efforts; and

•  the rate of adoption of Gestiva by physicians and by target patient population.

The failure of Gestiva to achieve market acceptance would prevent us from generating meaningful product revenue from Gestiva.

We have no experience marketing pharmaceutical products, and will need to develop pharmaceutical sales and marketing capabilities to successfully commercialize Gestiva.

We plan to use our existing sales force to market Gestiva. However, our management and sales force have limited experience in marketing or selling pharmaceutical products. To achieve commercial success for Gestiva, we must invest considerable time and resources in educating and training our management and sales force in pharmaceutical marketing generally, and in the marketing of Gestiva specifically. However, our Gestiva sales and marketing efforts may not be successful or cost-effective. For example, in the event that the commercial launch of Gestiva is delayed due to FDA requirements or other reasons, we may make investments in Gestiva marketing and sales too early relative to the launch of Gestiva. If our Gestiva sales and marketing efforts are not successful, cost-effective and timely, our profitability may be adversely affected.

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

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

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

The extent to which any of our technologies and products achieve and sustain market acceptance will depend on numerous competitive factors, many of which are beyond our control. Competition in the medical device, diagnostic product and pharmaceutical industries is intense and has been accentuated by a rapid pace of technological development.

While no company directly competes with us in our core diagnostic markets, there are other diagnostic techniques currently in use to diagnose the likelihood of preterm birth, such as ultrasound. In addition, other companies may develop new diagnostic products or technologies that could compete with or entirely displace our products and technologies. For example, other biomarkers, including cytokines and other proteins indicative of infection, and proteomics are the subject of research that may yield new products or technologies. The effectiveness of these alternative techniques may improve with time and additional research by clinicians or manufacturers. The medical devices and diagnostic products industries include large diagnostics and life sciences companies. Most of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing, sales and service resources than we do.

Gestiva, if approved for the prevention of preterm birth in women who have a history of preterm delivery, may compete with compounding pharmacies selling 17P for the prevention of preterm birth, such as Wedgewood Pharmacy.

Some of our actual and potential competitors have more experience than we do in research and development, clinical trials, regulatory matters, manufacturing, marketing and sales.

These organizations also compete with us to:

•  pursue acquisitions, joint ventures or other collaborations;

•  license proprietary technologies that are competitive with our technologies;

•  attract funding; and

•  attract and hire scientific and other talent.

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

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

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

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

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

We rely on a limited number of suppliers for both raw materials and components necessary for the manufacture of our diagnostic products, including our FullTerm, The Fetal Fibronectin Test and TLiIQ System. We acquire all of these components, assemblies and raw materials on a purchase-order basis, which means that the supplier is not required to supply us with specified quantities over a certain period of time or to set aside part of its inventory for our forecasted requirements. If we need alternative sources for key components, assemblies or raw materials for any reason, such components, assemblies or raw materials may not be immediately available. If alternative suppliers are not immediately available, we will have to identify and qualify alternative suppliers, and delivery of such components, assemblies or raw materials may be delayed. Consequently, if we do not forecast properly, or if our suppliers are unable or unwilling to supply us in sufficient quantities or on commercially acceptable terms, we may not have access to sufficient quantities of these components, assemblies and raw materials on a timely basis and may not be able to satisfy product demand. We may not be able to find an adequate alternative supplier if required, in a reasonable time period, or on commercially acceptable terms, if at all. Our inability to obtain a supplier for the manufacture of our products may force us to curtail or cease operations, which would have a material adverse effect on our product sales and profitability. We also relied upon a fulfillment provider to process orders for our products, coordinate invoicing and collections, as well as ship our products to customers in the United States through September 30, 2005. In the fourth quarter of 2005, we transferred the fulfillment operation back to Adeza. We fully transitioned the fulfillment operation back to Adeza.

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

We have no manufacturing capabilities for Gestiva and we may depend on third parties who are single source suppliers to manufacture Gestiva. If these suppliers are unable to continue manufacturing Gestiva and we are unable to obtain supply from alternative sources, our business will be harmed.

We currently have no experience in, and we do not own facilities for, nor do we plan to develop our own facilities for, manufacturing Gestiva. To date, our need for Gestiva has been limited to the amounts required in connection with our Gestiva NDA submission and process validations, which includes stability studies related to Gestiva. We have obtained our supply of Gestiva pursuant to a clinical supply agreement with a contract manufacturer, and we have obtained our supply of the active pharmaceutical ingredient in Gestiva on a purchase order basis. We do not intend to establish our own manufacturing facilities for Gestiva, and we are in the process of negotiating commercial supply agreements with the contract manufacturer and the supplier of the active ingredient. If we are successful in negotiating commercial supply agreements with those parties, each of them may be a single source supplier to us. In the event we are unable, for whatever reason, to obtain Gestiva or the active pharmaceutical ingredient in Gestiva in quantities sufficient for commercialization, we may not be able to identify alternate manufacturers able to meet our needs on commercially reasonable terms and in a timely manner, or at all. If we are unable, for whatever reason, to obtain sufficient quantities of Gestiva from our contract manufacturers, we may not be able to manufacture in a timely manner, if at all.

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If our third party manufacturers of Gestiva fail to comply with FDA regulations or otherwise fail to meet our requirements, our product development and commercialization efforts may be delayed.

We depend on third party manufacturers to supply Gestiva. Our suppliers and manufacturers must comply with the FDA’s current Good Manufacturing Practices, or cGMP, regulations and guidelines. Our suppliers and manufacturers may encounter difficulties in achieving quality control and quality assurance and may experience shortages of qualified personnel.

Their failure to follow cGMP or other regulatory requirements and to document their compliance with cGMP may lead to significant delays in the availability of products for commercial use or clinical study or the termination or hold on a clinical study, or may delay or prevent filing or approval of marketing applications for Gestiva.

Failure of our third party suppliers and manufacturers or us to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could harm our business. If the operations of any current or future supplier or manufacturer were to become unavailable for any reason, commercialization of Gestiva could be delayed and our revenue from product sales could be reduced.

If we use a different third-party manufacturer to produce commercial quantities of Gestiva than we used for the studies we conducted in connection with the Gestiva NDA submission, the FDA may require us to conduct a study to demonstrate that the product used in our studies is equivalent to the final commercial product. If we are unable to establish that the product is equivalent, or if the FDA disagrees with the results of our study, commercial launch of Gestiva would be delayed.

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

Our international sales totaled $1.6 million and $1.0 million in the years ended December 31, 2006 and 2005, respectively. Our international sales currently depend upon the marketing efforts of and sales by certain distributors in Europe, Australia, the Pacific Rim region and South America. In most instances, our distribution arrangements are governed by short-term purchase orders. We also rely upon certain of these distributors to assist in obtaining product registration and reimbursement approvals in certain international markets, and we may not be able to engage qualified distributors in our targeted markets. The distributors that we are able to obtain may not perform their obligations. If a distributor fails to invest adequate resources and support in promoting our products and training physicians, hospitals and other healthcare providers in the proper techniques for using our products or in awareness of our products, or if a distributor ceases operations, we would likely be unable to achieve significant sales in the territory represented by the distributor. If we decide to market new products abroad, we will likely need to educate our existing or new distributors about these new products and convince them to distribute the new products. If these distributors are unwilling or unable to market and sell our products, we may experience delayed or reduced market acceptance and sales of our products outside the United States. Our failure to engage adequate distributors, or the failure of the distributors to perform their obligations as expected, may harm our ability to effectively market our products and our business.

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

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

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

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

•  failure of our products to perform as expected;

•  a perception that our products are difficult to use; and

•  litigation concerning the performance of our products.

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

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

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

If we or others identify side effects after our therapeutic products are on the market, we may be required to perform lengthy additional clinical trials, change the labeling of our products or withdraw our products from the market, any of which would hinder or preclude our ability to generate revenues.

If we or others identify side effects after any of our therapeutic products are on the market:

•  regulatory authorities may withdraw their approvals;

•  we may be required to reformulate our products, conduct additional clinical trials, make changes in labeling of our products or implement changes to or obtain re-approvals of our manufacturing facilities;

•  we may experience a significant drop in the sales of the affected products;

•  our reputation in the marketplace may suffer; and

•  we may become the target of lawsuits, including class action lawsuits.

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Any of these events could harm or prevent sales of the affected products or could increase the costs and expenses of commercializing and marketing these products.

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

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

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

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

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

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

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

If we become aware of potential business combination candidates to our business, which could include license, co-promote, joint venture, and other types of arrangements, we may decide to combine with such businesses or acquire their assets in the future. We have acquired businesses or product lines in the past. For example, we acquired exclusive rights to the SalEst Test in 2003. While we have not encountered such difficulties following our prior acquisitions, business combinations generally involve a number of additional difficulties and risks to our business, including:

•  failure to integrate management information systems, personnel, research and development and marketing, operations, sales and support;

•  potential loss of key current employees or employees of the other company;

•  disruption of our ongoing business and diversion of management’s attention from other business concerns;

•  potential loss of the other company’s customers;

•  failure to develop further the other company’s technology successfully;

•  unanticipated costs and liabilities; and

•  other accounting consequences.

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

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

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

•  the level of research and development investment required to maintain and improve our technology position;

•  costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;

•  the success of our product sales and related collections;

•  our need or decision to acquire or license businesses, products or technologies;

•  maintaining or expanding our manufacturing or commercialization capacity;

•  greater than expected costs associated with Gestiva;

•  competing technological and market developments; and

•  costs relating to changes in regulatory policies or laws that affect our operations.

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

Changes to existing accounting pronouncements, including SFAS 123R, or taxation rules or practices, including FIN 48, may adversely affect our reported results of operations or how we conduct our business.

A change in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. The adoption of SFAS 123R requires us to measure compensation costs for all share-based compensation at fair value and take compensation charges equal to that value. The method that we use to determine the fair value of stock options is based upon, among other things, the volatility of our stock. The price of our stock has historically been volatile. Therefore, the requirement to measure compensation costs for all share-based compensation under SFAS 123R could negatively affect our profitability and the trading price of our stock. SFAS 123R and the impact of expensing on our reported results could also limit our ability to continue to use stock options as an incentive and retention tool, which could, in turn, hurt our ability to recruit employees and retain existing employees.

Other new accounting pronouncements or taxation rules, such as FIN 48, and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. This change to existing rules, future changes, if any, or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.

RISKS RELATING TO OUR INTELLECTUAL PROPERTY

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

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

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

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

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

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

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

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

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

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

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

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

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

•  we may become involved in time-consuming and expensive litigation, even if the claim is without merit;

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•  we may become liable for substantial damages for past infringement if a court decides that our technologies infringe upon a competitor’s patent;

•  a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; and

•  we may have to redesign our product so that it does not infringe upon others’ patent rights, which may not be possible or could require substantial funds or time.

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

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

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

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

•  divert existing management, scientific and financial resources;

•  subject us to significant liabilities;

•  allow our competitors to market competitive products without obtaining a license from us;

•  cause product shipment delays and lost sales;

•  require us to enter into royalty or licensing agreements, which may not be available on terms acceptable to us, if at all; or

•  force us to discontinue selling or modify our products, or to develop new products.

The market for Gestiva may be very competitive because we have no patent protection for Gestiva, and we may not obtain regulatory exclusivity for Gestiva.

There is no United States patent covering either the formulation of 17P, or the use of 17P for the prevention of preterm birth in women who have a history of preterm delivery. Accordingly, we currently have no patent protection with respect to Gestiva and do not expect to obtain patent protection for Gestiva.

We will have marketing exclusivity for Gestiva from competition from other pharmaceutical companies, but not from compounding pharmacies, only if we obtain either Orphan Drug and/or three year regulatory exclusivity for Gestiva. The FDA Orphan Drug designation is reserved for promising new therapies being developed to treat life-threatening or very serious diseases that affect fewer than 200,000 people in the U.S. The Orphan Drug Act guarantees market exclusivity from any other companies, other than potentially compounding pharmacies which are not regulated by the FDA, for the FDA approved indication for seven years to the first sponsor that obtains market approval for an orphan-designated product. We have received orphan designation for Gestiva, and although we have also received an approvable letter for the Gestiva NDA, orphan exclusivity may still not be awarded if another entity obtains orphan designation and approval of 17P for prevention of preterm birth before the Gestiva NDA is approved.

We also may be granted regulatory exclusivity for three years from approval of the Gestiva NDA because the use of 17P for the prevention of preterm birth in women who have a history of preterm delivery would be a new indication of a previously approved active ingredient. An award of three years of exclusivity to a drug product

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means that the FDA cannot approve an application submitted under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act or an abbreviated new drug application, or ANDA, for the same product for the same indication for three years. To obtain three-year exclusivity, the NDA covering a subject drug must include reports of new clinical investigations conducted by the sponsor that are essential to FDA approval of the new indication or dosage form. As we may not meet the guidelines for obtaining exclusivity there can be no assurance that we will receive three years of exclusivity.

Gestiva, if approved for the prevention of preterm birth in women who have a history of preterm delivery, may compete with compounding pharmacies selling 17P for the prevention of preterm birth. Our present and potential competitors include large compounding pharmacies. Delalutin, the previously approved version of 17P, has also been the subject of a suitability petition, which, if granted by the FDA, may permit the approval of a generic form of 17P, albeit it one not labeled for the prevention of recurrent preterm birth. However, availability of such a generic product would erode any market exclusivity that we may receive for Gestiva.

Moreover, because we have no patent covering the composition of 17P or the use of 17P for the prevention of preterm birth in women who have a history of preterm delivery, if an NDA covering the use of 17P for another indication is approved by the FDA, physicians could prescribe 17P labeled for other indications for patients at risk for preterm birth in women who have a history of preterm delivery. Monitoring and ensuring that patients who have a history of preterm delivery receive Gestiva rather than another form of 17P may be difficult and costly.

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

Many of our employees were previously employed at universities or other diagnostic or biotechnology companies, including our potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to market existing or new products, which could severely harm our business.

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

We are developing diagnostic products designed to expand the utility of fetal fibronectin in multiple applications. The technology that we ultimately may use in the development and commercialization of these future products may be protected by patent and other intellectual property rights owned by third parties. If we are unable to obtain rights to use necessary third-party intellectual property under commercially reasonable terms, or at all, we may be unable to develop these products, and this could harm our ability to expand our commercial product offerings and to generate additional revenue from these products.

RISKS RELATING TO OUR COMMON STOCK

If we are unable to timely satisfy regulatory requirements relating to internal controls, our stock price could suffer.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that certain companies perform a comprehensive evaluation of their internal control over financial reporting. At the end of each year, we must perform an evaluation of our internal control over financial reporting, include in our annual report the results of the evaluation, and have our independent auditors attest to such evaluation. If we fail to complete future evaluations on time, or if our independent auditors cannot attest to our future evaluations, we could fail to meet our regulatory reporting requirements and be subject to regulatory scrutiny and a loss of public confidence in our internal controls, which could have an adverse effect on our stock price.

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

Our executive officers, directors and principal stockholders, and entities affiliated with them, beneficially owned in the aggregate approximately 20.3% of our common stock as of February 9, 2007. This significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. These stockholders, acting together, have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, they could dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control of us or impeding a merger or consolidation, takeover or other business combination that could be favorable to our stockholders.

The future sale of our securities could dilute our common stockholders’ investments and negatively affect our stock price.

If our common stockholders sell substantial amounts of common stock in the public market, or the market perceives that such sales may occur, the market price of our common stock could fall. The holders of a substantial number of shares of our common stock, subject to some conditions, could require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Furthermore, if we were to include in a company-initiated registration statement shares held by those holders pursuant to the exercise of their registration rights, the sale of those shares could impair our ability to raise needed capital by depressing the price at which we could sell our common stock. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. Furthermore, we may enter into financing transactions at prices that represent a substantial discount to market price. Raising funds through the issuance of equity securities will dilute the ownership of our existing stockholders. A negative reaction by investors and securities analysts to any sale of debt or our equity securities could result in a decline in the trading price of our common stock.

The price and volume of our common stock experience fluctuations, which could lead to costly litigation for us.

Our stock price has been volatile. From December 10, 2004, the date of our initial public offering, through December 31, 2006, our stock has traded as high as $23.35 and as low as $10.97. The market price of our common stock may fluctuate substantially due to a variety of factors, including:

•  media reports and publications and announcements about women’s health and cancer diagnostic products or new cancer treatments or innovations that could compete with our products;

•  new regulatory pronouncements, changes in regulatory guidelines, such as adverse changes in reimbursement for women’s health and cancer diagnostic products, and the timing of regulatory approvals concerning the products in our pipeline;

•  market conditions or trends related to the medical devices and diagnostic products industries or the market in general;

•  changes in financial estimates or recommendations by securities analysts;

•  the seasonal nature of our revenues and expenses;

•  analysts’ perceptions of our ability to compete successfully in both the diagnostic and therapeutic businesses;

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•  variations in our quarterly operating results; and

•  changes in accounting principles.

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

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

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

•  authorizing the issuance without further approval of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;

•  prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

•  limiting the ability to remove directors;

•  limiting the ability of stockholders to call special meetings of stockholders;

•  prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of stockholders; and

•  establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

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

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

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

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RISKS RELATING TO THE PROPOSED MERGER WITH CYTYC

Our proposed merger with Cytyc will be subject to business uncertainties; integration of the two businesses may be difficult to achieve, which may adversely affect operations.

The proposed merger with Cytyc involves the integration of two companies that previously have operated independently, which is a complex, costly and time-consuming process. The difficulties of combining the companies’ operations include, among other things:

•  Coordinating geographically disparate organizations, systems and facilities;

•  Potential conflicts between business cultures;

•  Integrating personnel with diverse business backgrounds;

•  Consolidating corporate and administrative functions;

•  Consolidating research and development, and manufacturing operations;

•  Coordinating sales and marketing functions;

•  Retaining key employees;

•  Preserving the research and development, collaboration, distribution, marketing, promotion and other important relationships of the two companies; and

•  Pursuant to certain of our third-party agreements, we will have to obtain the consent of the other party to assign such agreement pursuant to the proposed merger with Cytyc.

The merger involves risks related to the integration and management of technology, operations and personnel of two companies. The process of integrating operations and businesses will be a complex, time-consuming and expensive process and may disrupt their businesses if not completed in a timely and efficient manner. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies’ operations could harm the business, results of operations, financial condition or prospects of the combined company after the merger. Additionally, uncertainty about the effect of the merger on our employees and customers may have an adverse effect on our company, and, consequently, the combined company.

Although we intend to take steps to reduce any adverse effects, we may not be successful in overcoming these risks or any other problems encountered in connection with the integration of the companies. This could cause customers and others that deal with our company to seek to change their existing business relationships with our company.

Failure to complete the merger could negatively impact our stock prices, future business and operations.

If the proposed merger is not completed for any reason, our financial results could be negatively affected because of the following:

•  the payment of a termination of $13.35 million to Cytyc under certain circumstances;

•  payment of certain costs related to the proposed merger, including the fees and/or expenses of our legal, accounting and financial advisors, even though the proposed merger was not completed;

•  the diversion of our management’s focus toward the merger instead of on our core business and other potential business opportunities;

•  a change in the price of our common stock to the extent that the current market price of our common stock reflects an assumption that the proposed merger will be completed;

•  uncertainty about the effect of the termination of the proposed merger upon our employees and customers; and

•  negative publicity and/or negative impression of our company in the investment community.

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ADDITIONAL INFORMATION

We maintain Internet websites at http://www.adeza.com, http://www.fullterm.net and http://www.ffntest.com.  We make available free of charge on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”), and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities Exchange Commission.

This Form 10-K includes statistical data obtained from industry publications. These industry publications generally indicate that the authors of these publications have obtained information from sources believed to be reliable but do not guarantee the accuracy and completeness of their information. While we believe these industry publications to be reliable, we have not independently verified their data.

EXECUTIVE OFFICERS

Set forth below is the name, age, position and a brief account of the business experience of each of our executive officers and directors as of March 6, 2007.

Name	Age		Position(s)
Emory V. Anderson		53	President, Chief Executive Officer and Director
Mark D. Fischer-Colbrie		50	Senior Vice President, Finance and Administration and Chief Financial Officer
Durlin E. Hickok, MD, MPH		59	Senior Vice President, Medical Affairs
Marian E. Sacco		53	Senior Vice President, Sales and Marketing
Robert O. Hussa, PhD		65	Vice President, Research and Development

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

Mark D. Fischer-Colbrie has been our Senior Vice President of Finance and Administration since December 2006 and Chief Financial Officer since February 2001. From March 1992 to January 2001, Mr. Fischer-Colbrie served as Vice President, Finance and Administration and Chief Financial Officer for KeraVision, Inc., a vision correction company that filed for bankruptcy under federal bankruptcy laws in March 2001. He also held several financial positions at Maxtor Corporation from April 1986 through February 1992, including Vice President of Finance and Corporate Controller.

Durlin E. Hickok, MD, MPH, has been our Senior Vice President of Medical Affairs since December 2006 and Vice President of Medical Affairs since November 1998. From 1996 to 1998, Dr. Hickok was Vice President and Medical Director of Omnia, Inc., a women’s healthcare management company. He was also Chief of Obstetrics and Gynecology at the Virginia Mason Medical Center from 1993 to 1996, and Associate Director of Perinatal Medicine at Swedish Hospital Medical Center in Seattle, Washington from 1982 to 1993. Previously, he was an Assistant Professor at the University of Washington.

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

Marian E. Sacco has been our Senior Vice President of Sales and Marketing since December 2006 and Vice President of Sales and Marketing since September 1997. From 1996 to 1997, Ms. Sacco was the Vice President of Marketing at Behring Diagnostics. Previously, Ms. Sacco was the Director of Worldwide Oncology Business and Worldwide Marketing Manager for CBA Corning/Chiron Diagnostics from 1991 to 1996, and was the US Sales and Marketing Manager for Centocor Diagnostics from 1987 to 1991.

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ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

ITEM 2.   PROPERTIES

We maintain our headquarters in Sunnyvale, California in one leased facility of approximately 17,600 square feet, which contains our laboratory, research and development, manufacturing, sales and marketing and general administrative functions. In 2005, we entered into an additional facility lease for 5,000 square feet located in Sunnyvale, California. In 2006, we entered into an additional facility lease for 4,800 square feet located in Sunnyvale, California. All of our facility leases will expire on September 30, 2007, with two one year options to renew.

We believe that our existing facilities are adequate to meet our immediate needs and that suitable additional space will be available in the future on commercially reasonable terms as needed.

ITEM 3.   LEGAL PROCEEDINGS

We are not currently party to any material legal proceedings.

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

None.

PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades publicly on The Nasdaq Global Select Market under the symbol “ADZA”. The following table sets forth, for the periods indicated, the quarterly high and low closing sales prices of our common stock for the periods indicated.

	Fiscal 2005
	Quarter 1		Quarter 2		Quarter 3		Quarter 4
High	$	18.26	$	16.98	$	18.15	$	21.62
Low	$	12.18	$	11.26	$	15.71	$	15.54

	Fiscal 2006
	Quarter 1		Quarter 2		Quarter 3		Quarter 4
High	$	23.34	$	22.05	$	17.44	$	18.31
Low	$	18.65	$	12.65	$	13.50	$	13.58

As of March 5, 2007, there were no outstanding shares of our preferred stock and 70 holders of record of 17,556,177 shares of our outstanding common stock. We have not paid any cash dividends since our inception and do not anticipate paying cash dividends on our common stock in the foreseeable future.

Information required by this item regarding our equity compensation plans is incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our annual meeting of stockholders.

Use of Proceeds from Sale of Registered Securities

On December 10, 2004, we completed an initial public offering of 3,750,000 shares of our common stock. The common stock sold in the offering was registered under the Securities Act of 1933, as amended, on the Registration Statement on Form S-1 (Reg. No. 333-118012) that was declared effective by the SEC on December 9, 2004. The offering commenced on December 10, 2004. On December 21, 2004, the underwriters in the offering exercised their

40

over-allotment option to purchase an additional 562,500 shares of our common stock to cover over-allotments. All 4,312,500 of the shares sold in the offering were sold at the initial public offering price of $16.00 per share. After deducting underwriting discounts and commissions and offering expenses, we received net proceeds from the offering of approximately $61.9 million.

During the year ended December 31, 2005, we spent from the proceeds received from the offering, (i) approximately $19.8 million on sales and marketing efforts, (ii) approximately $5.1 million on research and development activities related to product development, clinical trials and regulatory approvals for additional indications for our Fetal Fibronectin Test, and (iii) approximately $7.5 million on other general corporate purposes. The remaining proceeds from the offering have been placed in temporary investments of marketable securities for future use as needed.

During the year ended December 31, 2006, we spent from the proceeds received from the offering, (i) approximately $27.7 million on sales and marketing efforts, (ii) approximately $6.9 million on research and development activities related to our continued product development efforts, including costs related to Gestiva, our drug candidate for the prevention of preterm birth in women who have a history of preterm delivery, and (iii) approximately $8.1 million on other general corporate purposes. The remaining proceeds from the offering have been placed in cash, cash equivalents and short-term investments for future use as needed.

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Performance Graph

The following graphic representation shows a comparison of total stockholder return for holders of our common stock from December 2004, the date of our initial public offering, through December 31, 2006, compared with The NASDAQ Composite Index and the NASDAQ Medical Equipment Index . This graphic comparison is presented pursuant to the rules of the Securities and Exchange Commission.

COMPARISON OF 2 YEAR CUMULATIVE TOTAL RETURN*
Among Adeza Biomedical Corp, The NASDAQ Composite Index
And The NASDAQ Medical Equipment Index

* $100 invested on 12/10/04 in stock or on 11/30/04 in index-including reinvestment of dividends.
Fiscal year ending December 31.

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ITEM 6.   SELECTED FINANCIAL DATA

We have derived the following statement of operations data for each of the three years ended December 31, 2006, 2005 and 2004 and the balance sheet data at December 31, 2006 and 2005 from our audited financial statements which we include elsewhere in this Form 10-K. We have derived our statement of operations data for the years ended December 31, 2003 and 2002 and the balance sheet data at December 31, 2004, 2003 and 2002 from our audited financial statements that we do not include in this Form 10-K. The following selected financial data should be read in conjunction with our financial statements and the related notes and “Management’s discussion and analysis of financial condition and results of operations” appearing elsewhere in this Form 10-K. The historical results are not necessarily indicative of the results of operations to be expected in the future.

	Year Ended December 31,
	2006		2005			2004		2003			2002
	(In thousands, except per share amounts)
Statement of Operations Data:
Product sales	$	51,983	$	43,603		$	33,596	$	26,499		$	14,277
Cost of product sales(1)		7,924		6,134			2,195		6,087			3,715
Gross profit		44,059		37,469			31,401		20,412			10,562
Contract revenues		—		—			—		—			1,059
Operating costs and expenses:
Selling and marketing		27,689		19,761			15,907		12,259			7,819
General and administrative		8,131		7,489			3,997		2,730			2,069
Research and development		6,903		5,092			2,451		2,001			2,047
Total operating costs and expenses		42,723		32,342			22,355		16,990			11,935
Income (loss) from operations(3)		1,336		5,127			9,046		3,422			(314	)
Interest income (expense), net		4,693		2,689			233		(52	)		(15	)
Income (loss) before income taxes		6,029		7,816			9,279		3,370			(329	)
Provision for (benefit from) income taxes(2)		3,502		(4,512	)		410		135			—
Net income (loss)	$	2,527	$	12,328		$	8,869	$	3,235		$	(329	)
Net income (loss) per share:
Basic	$	0.14	$	0.73		$	8.05	$	17.78		$	(1.82	)
Diluted	$	0.14	$	0.69		$	0.65	$	0.26		$	(1.82	)
Shares used in computing net income (loss) per share:
Basic		17,476		16,883			1,102		182			181
Diluted		18,170		17,863			13,649		12,515			181

	As of December 31,
	2006			2005			2004			2003			2002
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	98,778		$	89,722		$	80,118		$	12,092		$	10,751
Working capital		106,378			96,736			81,267			9,653			6,195
Total assets		115,950			105,643			88,128			18,716			15,731
Convertible preferred stock		—			—			—			61,484			60,984
Accumulated deficit		(29,913	)		(32,440	)		(44,768	)		(53,637	)		(56,872	)
Total stockholders’ equity (deficit)		107,101			97,405			81,711			(51,279	)		(54,537	)

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(1)	Cost of product sales for the year ended December 31, 2004 includes a non-recurring reduction of accrued royalties and related royalty costs of $2.7 million.
(2)	Provision for (benefit from) income taxes for the year ended December 31, 2005 includes a non-recurring benefit from income taxes of $5.1 million primarily related to the positive impact from recording certain deferred tax assets.
(3)	Income from operations for the year ended December 31, 2006 included approximately $3.3 million in expenses related to FAS 123R.

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

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

BUSINESS OVERVIEW

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

Our Fetal Fibronectin Test is designed to objectively determine a woman’s risk of preterm birth by detecting the presence of a specific protein, fetal fibronectin, in vaginal secretions during pregnancy. Testing for fetal fibronectin during pregnancy provides a more accurate assessment of the likelihood of a preterm birth than traditional methods. According to the New England Journal of Medicine, preterm births have historically accounted for up to 85% of all pregnancy-related complications and deaths in the United States. The March of Dimes estimated that over $15.5 billion in costs were associated with the care of preterm or low birth weight infants in 2002. By correctly identifying women at risk for preterm birth, we believe our Fetal Fibronectin Test leads to improved patient care and significant cost savings and has the potential to fundamentally change how healthcare providers select the appropriate course of treatment for pregnant women.

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

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

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

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the indications for use of our Fetal Fibronectin Test for predicting successful induction of labor, for predicting delivery at term and for diagnostic applications in oncology, including bladder cancer.

On October 20, 2006, we received an “approvable letter” from the U.S. Food and Drug Administration (FDA) with respect to our New Drug Application for Gestiva for the prevention of preterm birth in women with a history of preterm delivery. An approvable letter is an official notification from the FDA that the FDA may approve the company’s NDA if specific conditions are satisfied. The approvable letter for Gestiva requires the completion of an additional animal study and certain other conditions that must be satisfied prior to obtaining any final U.S. marketing approval. The approvable letter also outlines several post-approval clinical requirements, which are consistent with recommendations made by the FDA advisory committee in August 2006. Satisfying the conditions will require both time and expense. We cannot be certain when we will obtain FDA approval for Gestiva, if at all.

We entered into a Merger Agreement with Cytyc and Augusta Medical Corporation on February 11, 2007 whereby Augusta Medical Corporation commenced a tender offer to purchase all of the outstanding shares of our common stock at a price of $24.00 per share. Following the completion of the tender offer, which is scheduled to expire at 12:00 midnight, New York City time, on March 16, 2007, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement and in accordance with the relevant portions of the Delaware General Corporation Law (the “DGCL”), it is anticipated that Augusta Medical Corporation will be merged with and into Adeza with Adeza as the surviving corporation, whereby each issued and outstanding share of our common stock not directly or indirectly owned by Cytyc, Augusta Medical Corporation or Adeza will be converted into the right to receive the offer price of $24.00 per share. The purchase price is expected to be approximately $450 million, which will be paid by Cytyc at closing in cash. The acquisition is expected to close in the first half of 2007 and possibly as early as the end of March 2007.

A number of factors could prevent us from completing the merger with Cytyc, including but not limited to the failure to satisfy the conditions set forth in the Merger Agreement. If we do not complete the proposed merger with Cytyc for any reason, our business may be negatively impacted due to (i) the payment of a $13.35 million termination fee to Cytyc upon certain circumstances; (ii) the diversion of our management’s focus toward the proposed merger rather than our core business and other potential business opportunities; (iii) a change in the price of our common stock to the extent that the current market price reflects an assumption that the proposed merger will be completed; (iv) uncertainty about the effect of the termination of the proposed merger upon our employees and customers; and (v) negative publicity and/or negative impression of our company in the investment community.

In connection with the proposed merger, we have incurred and will continue to incur certain expenses, including fees and/or expenses of our legal, accounting and financial advisors. Even if we do not complete the proposed merger, we must pay for services rendered by these advisors, which total approximately $1.5 million as of February 28, 2007. Our discussion below assumes that we will continue forward as a separate corporate entity. If the proposed merger is consummated, we will be operated as a wholly owned subsidiary of Cytyc, and some of our expenses may be reduced through integration of the operations of both companies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are as follows:

Revenue Recognition

Our revenue from product sales is recognized when there is persuasive evidence an arrangement exists, the price is fixed or determinable, delivery to the customer has occurred and collectibility is reasonably assured. We use contracts and customer purchase orders to determine the existence of an arrangement. We assess whether the fee is fixed or determinable based on the terms of the agreement associated with the transaction. We use shipping

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documents and, if necessary, third-party proof of delivery to verify delivery. In order to determine whether collection is probable, we assess a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. Revenue from our laboratory services is recognized as tests are performed.

With respect to sales to distributors, revenue is generally recognized upon shipment, as the title, risks and rewards of ownership of the products pass to the distributors and the selling price of our product is fixed and determinable at that point. The selling prices on sales to a certain distributor through June 30, 2002 were not fixed and determinable until the distributor shipped the products to the end user. Consequently, for this distributor, we recognized revenue only after the shipment of product to the end user. Additionally, on July 1, 2002, we entered into a services agreement with a laboratory and fulfillment company. Under the terms of this agreement, this company provided certain domestic product distribution and testing services for us. Through September 30, 2005, we recognized revenue upon the shipment of products from this company to the end user as the title, risks and rewards of ownership of the products pass from us to the end user at that time. On October 1, 2005, we discontinued using this laboratory for fulfillment purposes and instead performed the testing ourselves and shipped the product from our facility. Revenue related to these products is generally recognized upon shipment.

Valuation of Inventory

Inventories are stated at the lower of standard cost determined on a FIFO basis or market value. Cost of product sales represents the cost of materials, direct labor and overhead associated with the manufacture of our products, delivery charges, lab services and royalties.

Allowance for Doubtful Accounts

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

Stock-Based Compensation Expense

On January 1, 2006, we adopted the provisions of, and account for stock-based compensation in accordance with, Statement of Financial Accounting Standard (“SFAS”) 123R. We elected the modified-prospective method, under which prior periods are not revised for comparative purposes. Under the fair value recognition provisions of this statement, stock- based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

We currently use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.

Upon adoption of SFAS 123(R), we used a blended historical volatility in deriving the expected volatility assumption as allowed under SFAS 123(R) and Staff Accounting Bulletin No. 107, or SAB 107. The blended historical volatility was based on a blend of our own historical experience and our peer group historical experience. The risk-free interest rate assumption was based upon observed interest rates appropriate for the term of our stock options. The expected term of stock options was based on a blend of our own historical experience and our peer group historical experience. As stock-based compensation expense recognized in the Statements of Income for the year ended December 31, 2006 was based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on our historical experience. Forfeitures were estimated based on our historical experience. We recorded stock-based

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compensation expense related to all of our options of $3,340,000, $1,089,000, and $749,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

In 2005, in connection with the grant of stock options to employees and directors, any deferred stock compensation was recorded as a component of stockholders’ equity. Deferred stock compensation was amortized as a charge to operations over the vesting periods of the options using the straight-line method. As of December 31, 2005, we had $2.6 million of deferred stock compensation that was scheduled to be expensed over the next four years subject to vesting requirements. However, this balance was subsequently reversed in conjunction with the adoption of SFAS 123R. As of December 31, 2006, we had no deferred stock compensation.

The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

See Note 6 of our Financial Statements for further information regarding stock-based compensation.

Royalty Costs

Royalty costs are included as a cost of product sales. The royalty costs are determined by applying the royalty rate in each license agreement to the specific product offerings included in that particular agreement, including any deductions to sales or royalty cost allowed under the royalty terms. The determination of royalty costs can be affected by various factors including changes in the terms of the underlying agreements, changes in our interpretation of the application of the terms of the underlying agreement, changes in the level of revenue, changes in the amount of revenue derived from international sales and E-tegrity Test sales, changes in the level of allowed deductions and additional product licenses.

Income Taxes

We make estimates and judgments in determining income tax expense. These estimates and judgments occur in the calculation of tax credits and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. The income tax provision will also be impacted by the effect of non-deductible stock option compensation expense due to the adoption of SFAS No. 123R. The effective tax rate will be negatively impacted by incentive stock option compensation expense. Also, SFAS No. 123R requires the tax benefit of stock option deductions relating to incentive stock options be recorded in the period of disqualifying dispositions. Changes in these estimates and the impact of SFAS No. 123R may result in significant increases or decreases to our tax provision in subsequent periods, which in turn would affect net income.

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. We evaluate quarterly the realizability of our deferred tax assets by assessing our valuation allowance and, if necessary, we adjust the amount of such allowance. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. We assessed our deferred tax assets at the end of 2006 and determined that it was more likely than not that we would be able to realize approximately $5,128,000 of net deferred tax assets based upon our forecast of future taxable income and other relevant factors.

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RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and is effective for us as of January 1, 2008. We do not believe that the adoption of SFAS 157 will materially impact our results of operations, financial position or cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 applies to all tax positions related to income taxes subject to FASB Statement 109, Accounting for Income Taxes. Under FIN 48, a company would recognize the benefit from a tax position only if it is more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position. FIN 48 clarifies how a company would measure the income tax benefits from the tax positions that are recognized, provides guidance as to the timing of the derecognition of previously recognized tax benefits and describes the methods for classifying and disclosing the liabilities within the financial statements for any unrecognized tax benefits. FIN 48 also addresses when a company should record interest and penalties related to tax positions and how the interest and penalties may be classified within the income statement and presented in the balance sheet. FIN 48 is effective for fiscal years beginning after December 15, 2006. We expect to adopt FIN 48 at the beginning of its fiscal year 2007. Differences between the amounts recognized in the statements of operations prior to and after the adoption of FIN 48 would be accounted for as a cumulative effect adjustment to the beginning balance of retained earnings. We do not expect the adoption of FIN 48 to have a material impact on our financial position, results of operations or cash flows.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of product sales of certain items in our Statements of Income.

	Years Ended December 31,
	2006			2005			2004
Product sales		100.0	%		100.0	%		100.0	%
Cost of product sales		15.2	%		14.1	%		6.5	%
Gross profit		84.8	%		85.9	%		93.5	%
Operating costs and expenses:
Selling and marketing		53.3	%		45.3	%		47.3	%
General and administration		15.6	%		17.2	%		11.9	%
Research and development		13.3	%		11.7	%		7.3	%
Total operating costs and expenses		82.2	%		74.2	%		66.5	%
Income from operations		2.6	%		11.7	%		27.0	%
Interest income (expense) and other, net		9.0	%		6.2	%		0.7	%
Income before income taxes		11.6	%		17.9	%		27.7	%
Provision for (benefit from) income taxes		6.7	%		(10.4	)%		1.2	%
Net income		4.9	%		28.3	%		26.5	%

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005

Product Sales

Our product sales are derived primarily from the sale of our disposable FullTerm, The Fetal Fibronectin Test. In addition, we derive a small portion of our revenues from the sale of TLi_IQ Systems and other products. We currently use distributors for sales outside of the United States and Canada. Our business has been in the past and

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may continue to be seasonal and is affected by customer ordering patterns, which may involve quarterly or semi-annual orders, as well as other factors which may cause quarterly variances in our sales. As a result, our sales may not increase in sequential quarters and our net income may fluctuate significantly.

	Year Ended December 31,				%
	2006		2005		Change
	(Dollars in thousands)
Product sales	$	51,983	$	43,603		19.2	%

The $8.4 million increase in product sales for the year ended December 31, 2006, compared to the year ended December 31, 2005, was primarily attributable to increased sales volume of our Fetal Fibronectin Test cassettes.

Geographic sales information is based on the location of the end customer. The following is a summary of product sales by geographic region for the years ended December 31, 2006 and December 31, 2005:

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
United States	$	50,377		$	42,600			18.3	%
Percentage of total product sales		96.9	%		97.7	%
International	$	1,606		$	1,003			60.1	%
Percentage of total product sales		3.1	%		2.3	%

International sales, as well as sales in the United States, remained relatively consistent as a percentage of total product sales for the year ended December 31, 2006, compared to the year ended December 31, 2005. We expect international sales, as a percentage of total product sales, to remain relatively consistent for the year ending December 31, 2007.

Cost of Product Sales

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

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
Cost of product sales	$	7,924		$	6,134			29.2	%
Percentage of product sales		15.2	%		14.1	%

The increase in cost of product sales, as a percentage of product sales, for the year ended December 31, 2006, compared to the year ended December 31, 2005 was primarily due to a slight increase in overhead spending.

Royalties

We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty costs are generally based on a dollar amount per unit shipped or a percentage of the underlying revenue.

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
Royalty costs	$	3,116		$	2,699			15.5	%
Percentage of product sales		6.0	%		6.2	%

The increase in royalty costs for the year ended December 31, 2006, compared to the year ended December 31, 2005, was primarily due to the increase in sales volume over the respective periods. As a percentage of product sales, royalty costs remained relatively consistent for the years ended December 31, 2006 and December 31, 2005.

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We expect royalty costs as a percentage of product sales to fluctuate since royalty costs are dependent on several factors, including the level and type of sales and the level of allowed deductions. However, we believe royalty costs as a percentage of product sales will remain below 6.5% for the year ended December 31, 2007, assuming no new licenses involving royalties are required.

Gross Profit

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
Gross profit	$	44,059		$	37,469			17.6	%
Percentage of product sales		84.8	%		85.9	%

Gross margins, or gross profit as a percentage of sales, for the year ended December 31, 2006, compared to the year ended December 31, 2005, remained relatively consistent.

Sales and Marketing

Sales and marketing expenses consist primarily of sales and marketing personnel and sales force incentive compensation and costs related to travel, tradeshows, promotional materials and programs, advertising and healthcare provider education materials and events.

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
Sales and marketing expenses	$	27,689		$	19,761			40.1	%
Percentage of product sales		53.3	%		45.3	%

The $7.9 million increase in sales and marketing expenses for the year ended December 31, 2006, compared to the year ended December 31, 2005, was primarily attributable to (i) an increase of $4.9 million related to the expansion of our direct sales force and associated costs, (ii) an increase of $1.9 million due to marketing programs, and (iii) an increase of $1.1 million in stock-based compensation expense, primarily associated with the adoption of SFAS No. 123R on January 1, 2006.

We expect our selling and marketing expenditures to increase as we continue our efforts to increase our market penetration and prepare for marketing and selling efforts related to Gestiva. We also expect our employee related costs to increase, including stock-based compensation expense.

General and Administrative

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

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
General and administrative expenses	$	8,131		$	7,489			8.6	%
Percentage of product sales		15.6	%		17.2	%

The $0.6 million increase in general and administrative expenses for the year ended December 31, 2006, compared to the year ended December 31, 2005, was primarily attributable to (i) an increase of $0.9 million in stock-based compensation expense, primarily associated with the adoption of SFAS No. 123R on January 1, 2006 and (ii) an increase of $0.5 million in costs associated with the increased on-going costs of operations as a public company, including personnel costs, and the timing of billings for professional services related to audit and tax services. These increases were partially offset by a decrease of $0.8 million in legal fees and other general costs.

50

We expect our general and administrative expenses to increase primarily related to continuously increasing costs associated with being a public company, anticipated increased headcount and legal expenses. We also expect our employee related costs to increase, including stock-based compensation expense.

Research and Development

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

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
Research and development expenses	$	6,903		$	5,092			35.6	%
Percentage of product sales		13.3	%		11.7	%

The $1.8 million increase in research and development expenses for the year ended December 31, 2006, compared to the year ended December 31, 2005, was primarily attributable to an increase in costs associated with our continued product development efforts, including costs related to Gestiva, our drug candidate for the prevention of preterm birth in women who have a history of preterm delivery.

We expect that our research and development costs will increase as a result of our continued product development efforts. We also expect our employee-related costs to increase, including stock-based compensation expense. In addition, significant costs may be incurred related to pre-clinical and clinical requirements to be incurred before and after any potential FDA approval for Gestiva.

On October 20, 2006, we received an “approvable letter” from the U.S. Food and Drug Administration (FDA) with respect to our New Drug Application for Gestiva for the prevention of preterm birth in women with a history of preterm delivery. An approvable letter is an official notification from the FDA that the FDA may approve the company’s NDA if specific conditions are satisfied. The approvable letter for Gestiva requires the completion of an additional animal study and certain other conditions that must be satisfied prior to obtaining final U.S. marketing approval. The approvable letter also outlines several post-approval clinical requirements, which are consistent with recommendations made by the FDA advisory committee in August 2006. Satisfying the conditions will require both time and expense. We cannot be certain when we will obtain FDA approval for Gestiva, if at all.

Interest Income

Interest income consists primarily of interest income generated from our investments in commercial paper, money market funds and corporate debt.

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
Interest income	$	4,693		$	2,689			74.5	%
Percentage of product sales		9.0	%		6.2	%

The $2.0 million increase in interest income for the year ended December 31, 2006, compared to the year ended December 31, 2005, was primarily attributable to an increase in the levels of cash and cash equivalents, as well as higher average interest rates.

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Provision for Income Taxes

	Year Ended December 31,						%
	2006			2005			Change
	(Dollars in thousands)
Provision for income taxes	$	3,502		$	(4,512	)		(177.6	)%
Percentage of product sales		6.7	%		(10.3	)%

We recorded a provision for income taxes of $3.5 million for the year ended December 31, 2006, related to federal and state taxes, compared to a benefit from income taxes of $4.5 million for the year ended December 31, 2005. Our effective tax rate for the year ended December 31, 2006 and 2005 was 58.1% and (57.7)%, respectively.

For the year ended December 31, 2006 and 2005, the provision for income taxes is based on our annual effective tax rate in compliance with SFAS 109. The annual effective tax rate was calculated on the basis of our expected level of profitability that results in federal and state income taxes. The income tax provision will also be impacted by the effect of non-deductible stock option compensation expense due to the adoption of SFAS No. 123R. The effective tax rate will be negatively impacted by incentive stock option compensation expense. Also, SFAS No. 123R requires the tax benefit of stock option deductions relating to incentive stock options be recorded in the period of disqualifying dispositions. Changes in these estimates and the impact of SFAS No. 123R may result in significant increases or decreases to our tax provision in a subsequent periods, which in turn would affect net income.

For the year ended December 31, 2006, the difference between the provision for income tax that would be derived by applying the statutory rate to our income before tax and the provision actually recorded is primarily due to the impact of non- deductible 123R stock option compensation expenses and state income taxes. For the year ended December 31, 2005, the difference between the provision for income tax that would be derived by applying the statutory rate to our income before tax and the provision benefit actually recorded is primarily due to the benefit of operating loss carryforwards that reduced the provision offset by federal alternative minimum tax and state income tax.

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. We evaluate quarterly the realizability of its deferred tax assets by assessing its valuation allowance and, if necessary, we adjust the amount of such allowance. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. We assessed our deferred tax assets at the end of 2006 and determined that it was more likely than not that we would be able to realize our net deferred tax assets based upon our forecast of future taxable income and other relevant factors. Changes to the realization of the net deferred tax assets or to our income taxes payable would have an impact to our tax provision and in turn would affect net income.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2005 AND DECEMBER 31, 2004

Product Sales

	Year Ended December 31,
	2005		2004		Change ($)		Change (%)
	(In millions)
Product sales	$	43.6	$	33.6	$	10.0		29.8	%

The growth in sales was primarily due to an approximate $10.1 million increase in sales volume of Fetal Fibronectin Test cassettes and a slight increase in average selling prices, partially offset by slight decreases in revenue from the sale of other products of approximately $0.1 million.

52

Cost of Product Sales

	Year Ended December 31,
	2005		2004		Change ($)		Change (%)
	(In millions)
Cost of product sales	$	6.1	$	2.2	$	3.9		177.3	%

The increase in cost of product sales in 2005 as compared to 2004 was primarily the result of a non-recurring reduction in 2004 of accrued royalties of $2.7 million attributable to royalties accrued under a license agreement that we determined, based upon legal interpretation of the arrangement, were in excess of amounts recorded. As a percentage of revenue, cost of product sales was 14.1% for the year ended December 31, 2005 as compared to 14.6% in 2004, which excludes the effect of the non-recurring reduction in accrued royalties.

Gross Profit

	Year Ended December 31,
	2005		2004		Change ($)		Change (%)
	(In millions)
Gross profit	$	37.5	$	31.4	$	6.1		19.3	%

The gross profit increase was primarily due to increased sales partially offset by the non-recurring reduction in accrued royalties in 2004 of $2.7 million and increased standard product costs from increased unit sales. Gross margin was 85.9% for the year ended December 31, 2005 as compared to 85.4%, excluding the non-recurring reduction in accrued royalties of $2.7 million, in 2004.

Selling and Marketing

	Year Ended December 31,
	2005		2004		Change ($)		Change (%)
	(In millions)
Selling and marketing expenses	$	19.8	$	15.9	$	3.9		24.2	%

The increase in expense year-over-year was largely attributable to $2.8 million related to the expansion of our direct sales force, $1.0 million in increased marketing expenses to support the growth in product sales and $0.1 million in stock-based compensation expense. Selling and marketing expenses as a percentage of product sales decreased slightly to 45.3% in the year ended December 31, 2005 from 47.3% in the prior year. We expect our selling and marketing expenditures to increase in 2006 as we continue our efforts to increase our market penetration.

General and Administrative

	Year Ended December 31,
	2005		2004		Change ($)		Change (%)
	(In millions)
General and administrative expenses	$	7.5	$	4.0	$	3.5		87.4	%

General and administrative expenses as a percentage of product sales were 17.2% and 11.9% for the years ended December 31, 2005 and 2004, respectively. The increases were primarily attributable to costs such as personnel costs and the timing of billings for professional services related to audit and tax services associated with being a public company of $2.9 million, other general facility costs of $0.3 million, costs associated with accruals for sales tax of $0.3 million and amortized deferred compensation costs of $0.2 million all partially offset by a decrease in patent expense of $0.2 million. We expect our general and administrative expenses to increase in 2006 primarily related to costs associated with being a public company and anticipated increased headcount.

Research and Development

	Year Ended December 31,
	2005		2004		Change ($)		Change (%)
	(In millions)
Research and development expenses	$	5.1	$	2.5	$	2.6		107.8	%

53

The increase is primarily due to costs associated with our continued product development efforts of $2.0 million in addition to increases associated with headcount and associated personnel costs of $0.5 million and amortized deferred compensation costs of $0.1 million. Research and development expenses as a percentage of revenue increased to 11.7% for the year ended December 31, 2005 from 7.3% for 2004. We expect that our research and development costs will increase in 2006 as we continue our product development efforts.

Interest Income

	Year Ended December 31,
	2005		2004		Change ($)		Change (%)
	(In millions)
Interest income	$	2.7	$	0.2	$	2.5		1250	%

The increase is primarily due to higher cash balances earning interest largely as a result of our initial public offering that was completed in December 2004. We expect interest income to fluctuate based on prevailing interest rates and changes in our cash balances.

Provision For (Benefit From) Income Taxes

We recorded a benefit from income taxes of $4,512,000 for the year ended December 31, 2005. The benefit from income taxes represents the reversal of a valuation allowance related to deferred tax assets of $5,122,000, net of federal alternative minimum taxes and state income tax expense of $610,000. For the year ended December 31, 2004, we recorded a provision for income taxes of $410,000 related to federal alternative minimum taxes and state income taxes.

Our effective tax rate for the year ended December 31, 2005 is (57.7%) as compared to 4.4% for the year ended December 31, 2004. The effective tax rate for the 2005 period differs from the federal statutory rate of 34% principally due to the benefit derived by reversing a portion of the valuation allowance on our deferred tax assets in the current year net of non-deductible stock compensation charges and miscellaneous other items. The effective tax rate of 4.4% for 2004 differs from the statutory rate of 34% principally due to the use of previously unbenefitted net operating loss carryforwards net of miscellaneous non-deductible items and state income tax expense. As of December 31, 2005, we had federal net operating loss carry forwards of approximately $14,800,000.

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. We evaluate quarterly the realizability of our deferred tax assets by assessing our valuation allowance and, if necessary, we adjust the amount of such allowance. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. We assessed our deferred tax assets at the end of 2005 and determined that it was more likely than not that we would be able to realize approximately $5,122,000 of net deferred tax assets based upon our forecast of future taxable income and other relevant factors.

As of December 31, 2005, we had federal net operating loss carryforwards of approximately $14.8 million. We also had federal and state research and development tax credit carry forwards of approximately $0.5 million and $0.9 million, respectively. The federal net operating loss and tax credit carry forwards will expire at various dates beginning in 2006 through 2022, if not utilized. The state research and development tax credits carry forward indefinitely. We have reviewed whether the utilization of its net operating losses and research credits were subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions.

54

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents, and short-term investments balances as of December 31, 2006 and December 31, 2005 are summarized as follows:

	As of		As of
	December 31,		December 31,
	2006		2005
	(Dollars in thousands)
Cash and cash equivalents	$	45,921	$	89,722
Short-term investments		52,857		—
Total cash and cash equivalents, and short-term investments	$	98,778	$	89,722

Since our inception, our operations have been primarily financed through public and private equity investments, working capital provided by our product sales, and research and development contracts. Our cash and cash equivalents were $45.9 million as of December 31, 2006, which have original maturities of three months or less. Our short-term investments were $52.9 million as of December 31, 2006, which have original maturities of greater than three months and less than one year.

Our operating, investing and financing activities for the years ended December 31, 2006 and December 31, 2005 are summarized as follows:

	Year Ended
	December 31,
	2006			2005
	(Dollars in thousands)
Net cash provided by operating activities	$	5,851		$	7,811
Net cash used in investing activities		(53,135	)		(224	)
Net cash provided by financing activities		3,483			2,017
Net increase (decrease) in cash and cash equivalents	$	(43,801	)	$	9,604

Operating Activities

Our operating activities generated cash of $5.9 million during the year ended December 31, 2006, compared to generating cash of $7.8 million during the year ended December 31, 2005. This $1.9 million decrease in net cash generated from operating activities was primarily driven by a decrease in net income, excluding non-cash charges, of $10.6 million, which was partially offset by an increase in working capital sources of cash of $8.7 million. The major contributing factors to the $8.7 million increase in working capital sources of cash included a decrease in the deferred tax asset, a higher cash flow from the collection of accounts receivables and an increase in accounts payable, which were partially offset by an decrease in other accrued liabilities and an increase in prepaid expenses and other assets.

We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, the timing of product shipments, the rate of collections of accounts receivable, inventory management, the timing of tax and other payments, and our ability to manage other areas of working capital.

Investing Activities

Our investing activities consumed cash of $53.1 million during the year ended December 31, 2006, compared to consuming cash of $0.2 million during the year ended December 31, 2005. Cash consumed by investing activities for the year ended December 31, 2006 was related to the purchase of short-term investments of $52.9 million and the purchase of property and equipment of $0.3 million. Cash consumed by investing activities for the year ended December 31, 2005 was related to the purchase of property and equipment.

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Financing Activities

Our financing activities generated cash of $3.6 million during the year ended December 31, 2006, compared to generating cash of $2.0 million during the year ended December 31, 2005. Cash generated from financing activities for the year ended December 31, 2006 was due to a tax benefit from share-based payments and the proceeds from the exercise of employee stock options. Cash generated from financing activities for the year ended December 31, 2005 was due to proceeds from the exercise of employee stock options.

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

Contractual Obligations

The Company’s contractual obligations include operating lease obligations, purchase obligations for the procurement of materials that are required to produce its products for sale, and royalty commitments associated with the shipment and licensing of certain products. Royalty costs are generally based on a dollar amount per unit shipped or a percentage of the underlying revenue. As of December 31, 2006, we had a facility lease which included a one-year term expiring on September 30 2007, as well as an operating lease for a telephone system. We had no long-term debt, capital lease obligations, long-term purchase agreements or other commitments.

The impact that our contractual obligations as of December 31, 2006 are expected to have on our liquidity and cash flow in future periods is as follows:

	Payments Due in
									2010 and
Contractual Obligations	Total		2007		2008		2009		thereafter
Operating lease obligations(1)	$	269	$	219	$	25		13		12
Royalties accrued	$	1,628		1,628		—		—		—
Total	$	1,897	$	1,847	$	25	$	13	$	12

(1) This represents the future minimum lease payments.

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

•  success of our product sales and related collections;

•  future expenses to expand and support our sales and marketing activities;

•  costs relating to changes in regulatory policies or laws that affect our operations;

•  maintaining and expanding our manufacturing capacity;

•  the level of investment in research and development and clinical trials required to maintain and improve our technology position;

•  costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; and

•  our need or decision to acquire or license businesses, products or technologies.

If at any time sufficient capital is not available, either through existing capital resources or through raising additional funds, we may be required to delay, reduce the scope of, eliminate or divest one or more of our research, clinical or sales and marketing programs or our entire business.

56

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To date, all of our sales and costs have been denominated in US dollars. Accordingly, we believe that there is no material exposure to risk from changes in foreign currency exchange rates.

We hold no derivative financial instruments and do not currently engage in hedging activities.

Our exposure to interest rate risk at December 31, 2006 is related to the investment of our excess cash into highly liquid financial investments with original maturities of less than one year. We invest in short-term investments in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies credit quality standards for our investments. Due to the short term nature of our investments, we have assessed that there is no material exposure to interest rate risk arising from them.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Certain information required by this Item is included in Item 6 of Part II of this Form 10-K and is incorporated herein by reference. All other information required by this Item is included in Item 15 of this Form 10-K and is incorporated herein by reference.

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

Not applicable.

ITEM 9A.   CONTROLS AND PROCEDURES

(a)   Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Evaluation of disclosure controls and procedures.  As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(c). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer, concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Limitations on Effectiveness of Disclosure Controls.  We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to correct any material deficiencies that we may discover. Our goal is to ensure that our senior management has timely access to material information that could affect our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to modify our disclosure controls and procedures. The effectiveness of controls cannot be absolute because the cost to design and implement a control to identify errors or mitigate the risk of errors occurring should not outweigh the potential loss caused by errors that would likely be detected by the control. Moreover, we believe that disclosure controls and procedures cannot be guaranteed to be 100% effective all of the time. Accordingly, a control system, no matter how well designed and operated, can provide no absolute assurance that the control system’s objectives will be met. Inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in cost-effective control system, misstatements due to error or fraud may occur and not be detected.

57

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

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by Ernst & Young LLP, our independent registered public accounting firm, as stated in their attestation report which is included herein.

58

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Adeza Biomedical Corporation

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Adeza Biomedical Corporation maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Adeza Biomedical Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s 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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Adeza Biomedical Corporation maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Adeza Biomedical Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Adeza Biomedical Corporation as of December 31, 2006 and 2005, and the related statements of income, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006 and our report dated March 12, 2007 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Palo Alto, California
March 12, 2007

59

(c)   Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.   OTHER INFORMATION

None.

PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We have adopted a code of ethics, containing general guidelines for conducting our business consistent with the highest standards of business ethics. The code of ethics is designed to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder as well as under applicable rules of The Nasdaq National Market. Our code of ethics is available on the Investor Relations section of our website (www.adeza.com), which is under the Corporate section of our website. To the extent permitted by regulatory requirements, we intend to make such public disclosure by posting the relevant material on the Investor Relations section of our website in accordance with SEC rules.

The information required by this Item with respect to executive officers is set forth in Part I of this report and the information with respect to our directors, audit committee and audit committee financial expert is incorporated by reference to the information set forth under the caption “Election of Directors” in our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our annual meeting of stockholders.

The information required by this Item with respect to compliance with Section 16(a) of the Exchange Act is incorporated by reference by reference to the information set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” from our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our annual meeting of stockholders.

ITEM 11.   EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our annual meeting of stockholders.

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

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our annual meeting of stockholders.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our annual meeting of stockholders.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our annual meeting of stockholders.

60

PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Form 10-K.

1. Financial Statements.  The following financial statements of the Company and the Report of Independent Registered Public Accounting Firm are included in this Form 10-K on the pages indicated.

	Page
Report of Independent Registered Public Accounting Firm		63
Balance Sheets		64
Statements of Income		65
Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)		66
Statements of Cash Flows		67
Notes to Financial Statements		68

2. Financial Statement Schedules:  All financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements.

(b)   Exhibits

Exhibit
Number			Description
	3	.1(1)	Amended and Restated Certificate of Incorporation.
	3	.2(1)	Amended and Restated Bylaws
	4	.1(1)	Specimen Stock Certificate.
	10	.1(1)*	1995 Stock Option and Restricted Stock Plan.
	10	.2(2)*	2004 Equity Incentive Plan.
	10	.3(1)	Exclusive License Agreement, dated August 12, 1992, between Adeza and the Fred Hutchinson Cancer Research Center, together with the First Amendment to Exclusive License Agreement and Consent dated May 9, 1996 and Amendment No. 1 to Exclusive License Agreement dated April 30, 1998.†
	10	.4(1)	Investors’ Rights Agreement, dated September 19, 2001, between Adeza and certain Stockholders of Adeza.
	10	.5(1)	License Agreement, dated July 25, 1997, between Adeza and the Trustees of the University of Pennsylvania.†
	10	.6(1)	Agreement and Release, dated March 3, 1998, between Adeza and Matria Healthcare, Inc.†
	10	.7(1)	Net Industrial Space Lease, dated July 7, 1999, between Adeza and Tasman V, LLC.
	10	.8(3)	Third Amendment to the Net Industrial Space Lease, dated July 15, 2005 between Adeza and Tasman V, LLC.
	10	.9(3)	Net Industrial Space Lease, dated July 1, 2005, between Adeza and Tasman V, LLC.
	10	.10(1)	Service Agreement, dated as of March 31, 1999, between Adeza and Ventiv Health U.S. Sales LLC (formerly known as Snyder Healthcare Sales Inc.), together with First Amendment to Service Agreement dated March 8, 2002, Second Amendment to Service Agreement dated July 22, 2002, and Third Amendment to Service Agreement dated May 15, 2004.†
	10	.11(1)	Warrant to Purchase Shares of Series 3 Preferred Stock, dated March 23, 1999, between Adeza and Transamerica Business Credit Corporation and its assignees.
	10	.12(1)	Form of Indemnification Agreement for Directors and Officers.
	10	.13(1)	Agreement, dated December 24, 1998, between Adeza and Unilever PLC.†
	10	.14(1)	Second Amendment to Lease, dated October 12, 2004, between Adeza and Tasman V, LLC.
	10	.15(1)*	Management Continuity Agreement, dated October 21, 2004, between Adeza and Emory Anderson.
	10	.16(1)*	Management Continuity Agreement, dated October 21, 2004, between Adeza and Mark Fischer-Colbrie.

61

Exhibit
Number			Description
	10	.17(1)*	Form of Management Continuity Agreement, dated October 21, 2004, between Adeza and Durlin Hickok, Robert Hussa and Marian Sacco.
	10	.18(4)	Net Industrial Space Lease, executed on September 19, 2006, between Adeza and Tasman V, LLC.
	10	.19	Fifth Amendment to Service Agreement, dated as of December 11, 2006, between Adeza and Ventiv Commercial Services, LLC (formerly known as Ventiv Pharma Services, LLC and Ventiv Health U.S. Sales, LLC.††
	10	.20 *	Management Continuity Agreement, dated January 12, 2007, between Adeza and Emory Anderson.
	10	.21 *	Management Continuity Agreement, dated January 12, 2007, between Adeza and Mark Fischer-Colbrie.
	10	.22 *	Management Continuity Agreement, dated January 12, 2007, between Adeza and Durlin Hickok.
	10	.23 *	Management Continuity Agreement, dated January 12, 2007, between Adeza and Robert Hussa.
	10	.24 *	Management Continuity Agreement, dated January 12, 2007, between Adeza and Marian Sacco.
	23	.1	Consent of Independent Registered Public Accounting Firm.
	24	.1	Powers of Attorney (included on signature page).
	31	.1	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 of Emory V. Anderson.
	31	.2	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 of Mark D. Fischer-Colbrie.
	32	.1	Certification pursuant to 18 U.S.C. Section 1350 of Emory V. Anderson.
	32	.2	Certification pursuant to 18 U.S.C. Section 1350 of Mark D. Fischer-Colbrie.

(1)	Incorporated by reference to the registrant’s Registration Statement on Form S-1 (Registration No. 333-118012) initially filed with the Securities and Exchange Commission on August 6, 2004.
(2)	Incorporated by reference to the registrant’s Registration Statement on Form S-8 (Registration No. 333-122430) filed with the Securities and Exchange Commission on January 31, 2005.
(3)	Incorporated by reference to the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2006, as amended.
(4)	Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2006.
*	Management compensatory plan or contract.
†	Confidential Treatment granted. Omitted material for which confidential treatment has been granted has been filed separately with the Securities and Exchange Commission.
††	Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions of this exhibit under Rule 406 of the Securities Act of 1933. Omitted material for which confidential treatment has been separately requested has been separately filed with the Securities and Exchange Commission.

62

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Adeza Biomedical Corporation

We have audited the accompanying balance sheets of Adeza Biomedical Corporation as of December 31, 2006 and 2005, and the related statements of income, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Adeza Biomedical Corporation at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 6 to the consolidated financial statements, in fiscal year 2006 Adeza Biomedical Corporation changed its method of accounting for share-based payments.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Adeza Biomedical Corporation’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2007 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Palo Alto, California

March 12, 2007

63

ADEZA BIOMEDICAL CORPORATION

BALANCE SHEETS

	December 31,			December 31,
	2006			2005
	(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	45,921		$	89,722
Short-term investments		52,857			—
Accounts receivable, net of allowance of $323 and $435 at December 31, 2006 and 2005, respectively		9,576			9,182
Inventories		983			849
Prepaid expenses and other current assets		951			292
Current deferred tax asset		4,939			4,929
Total current assets		115,227			104,974
Property and equipment, net		454			348
Non-current deferred tax asset		189			193
Intangible assets, net		80			128
Total assets	$	115,950		$	105,643
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,368		$	1,994
Accrued compensation		2,577			2,216
Accrued royalties		1,628			1,427
Other accrued liabilities		1,527			1,246
Taxes payable		703			1,322
Deferred revenue		46			33
Total current liabilities		8,849			8,238
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized; 17,548 and 17,376 shares issued and outstanding at December 31, 2006 and December 31, 2005, respectively		17			17
Additional paid-in capital		136,988			132,432
Deferred compensation		—			(2,604	)
Accumulated other comprehensive income		9			—
Accumulated deficit		(29,913	)		(32,440	)
Total stockholders’ equity		107,101			97,405
Total liabilities and stockholders’ equity	$	115,950		$	105,643

See accompanying notes to financial statements.

64

ADEZA BIOMEDICAL CORPORATION

STATEMENTS OF INCOME

	Years Ended December 31,
	2006		2005			2004
	(In thousands, except
	per share amounts)
Product sales	$	51,983	$	43,603		$	33,596
Cost of product sales		7,924		6,134			2,195
Gross profit		44,059		37,469			31,401
Operating costs and expenses:
Sales and marketing		27,689		19,761			15,907
General and administrative		8,131		7,489			3,997
Research and development		6,903		5,092			2,451
Total operating costs and expenses		42,723		32,342			22,355
Income from operations		1,336		5,127			9,046
Interest income		4,693		2,689			233
Income before provision for income taxes		6,029		7,816			9,279
Provision for (benefit from) income taxes		3,502		(4,512	)		410
Net income	$	2,527	$	12,328		$	8,869
Net income per share:
Basic	$	0.14	$	0.73		$	8.05
Diluted	$	0.14	$	0.69		$	0.65
Shares used to compute net income per share:
Basic		17,476		16,883			1,102
Diluted		18,170		17,863			13,649

See accompanying notes to financial statements.

65

ADEZA BIOMEDICAL CORPORATION

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

																	Accumulated					Total
	Convertible										Additional						Other					Stockholders’
	Preferred Stock						Common Stock				Paid-In			Deferred			Comprehensive		Accumulated			Equity
	Shares			Amount			Shares		Amount		Capital			Compensation			Income		Deficit			(Deficit)
Balances at December 31, 2003		15,409		$	61,484			182	$	—	$	2,358		$	—		$	—	$	(53,637	)	$	(51,279	)
Deferred compensation related to stock options issued to employees		—			—			—		—		3,625			(3,625	)		—		—			—
Stock-based compensation related to stock options issued to nonemployees		—			—			—		—		356			—			—		—			356
Amortization of deferred compensation related to stock options issued to employees		—			—			—		—		—			393			—		—			393
Exercise of stock options at $0.32 to $10.00 per share for cash		—			—			9		—		23			—			—		—			23
Shares issued in initial public offering, net of offering costs of $7,135		—			—			4,313		5		61,860			—			—		—			61,865
Conversion of preferred stock to common stock		(15,409	)		(61,484	)		11,957		11		61,473			—			—		—			61,484
Net and comprehensive income		—			—			—		—		—			—			—		8,869			8,869
Balances at December 31, 2004		—		$	—			16,461	$	16	$	129,695		$	(3,232	)	$	—	$	(44,768	)	$	81,711
Deferred compensation related to stock options issued to employees		—			—			—		—		411			(411	)		—		—			—
Stock-based compensation related to stock options issued to nonemployees		—			—			—		—		50			—			—		—			50
Amortization of deferred compensation related to stock options issued to employees		—			—			—		—		—			1,039			—		—			1,039
Exercise of stock options and warrants at $0.32 to $13.55 per share for cash		—			—			915		1		2,016			—			—		—			2,017
Tax benefit of disqualifying dispositions		—			—			—		—		260			—			—		—			260
Net and comprehensive income		—			—			—		—		—			—			—		12,328			12,328
Balances at December 31, 2005		—		$	—			17,376	$	17	$	132,432		$	(2,604	)	$	—	$	(32,440	)	$	97,405
Deferred compensation related to stock options issued to employees		—			—			—		—		(2,604	)		2,604			—		—			—
Stock-based compensation related to stock options issued to nonemployees		—			—			—		—		37			—			—		—			37
Stock-based compensation related to stock options issued to employees		—			—			—		—		3,303			—			—		—			3,303
Exercise of stock options and warrants at $0.97 to $17.17 per share for cash		—			—			172		—		573			—			—		—			573
Tax benefit of disqualifying dispositions		—			—			—		—		3,247			—			—		—			3,247
Components of Comprehensive income:
Net income		—			—			—		—		—			—			—		2,527			2,527
Unrealized gain on available-for-sal e investments, net of tax		—			—			—		—		—			—			9		—			9
Comprehensive income																							2,536
Balances at December 31, 2006		—		$	—			17,548	$	17	$	136,988		$	—		$	9	$	(29,913	)	$	107,101

See accompanying notes.

66

ADEZA BIOMEDICAL CORPORATION

STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2006			2005			2004
	(In thousands)
Cash flows from operating activities:
Net income	$	2,527		$	12,328		$	8,869
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		220			192			169
Stock-based compensation expense		3,340			1,089			749
Tax benefit from share-based payments		(2,910	)		260			—
Other non-cash charges		—			—			7
Changes in operating assets and liabilities:
Accounts receivable		(394	)		(2,554	)		(1,334	)
Inventories		(134	)		(182	)		(77	)
Prepaid expenses and other assets		(650	)		(21	)		(7	)
Deferred tax asset		(6	)		(5,122	)		—
Accounts payable		374			(756	)		322
Accrued compensation		361			353			188
Accrued royalties		201			420			(2,442	)
Other accrued liabilities		2,909			1,816			207
Deferred revenue		13			(12	)		(369	)
Net cash provided by operating activities		5,851			7,811			6,282
Cash flows from investing activities:
Purchases of short-term investments		(52,857	)		—			—
Purchases of property and equipment		(278	)		(224	)		(144	)
Net cash used in investing activities		(53,135	)		(224	)		(144	)
Cash flows from financing activities:
Tax benefit from share-based payments		2,910			—			—
Net proceeds from issuances of common stock		573			2,017			61,888
Net cash provided by financing activities		3,483			2,017			61,888
Net increase (decrease) in cash and cash equivalents		(43,801	)		9,604			68,026
Cash and cash equivalents at beginning of year		89,722			80,118			12,092
Cash and cash equivalents at end of year	$	45,921		$	89,722		$	80,118
Supplemental cash flow information
Cash paid for income taxes	$	205		$	634		$	312

See accompanying notes to financial statements.

67

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

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

•  The TLi_IQ System and FullTerm, The Fetal Fibronectin Test, which are used to assess the risk of preterm birth in pregnant women.

•  The E-tegrity Test, which is used to determine the feasibility of embryo implantation in patients with infertility who are candidates for in vitro fertilization (“IVF”).

All of the Company’s assets are located in the U.S.

The Company entered into a Merger Agreement with Cytyc and Augusta Medical Corporation on February 11, 2007 whereby Augusta Medical Corporation commenced a tender offer to purchase all of the outstanding shares of the Company’s common stock at a price of $24.00 per share. Following the completion of the tender offer, which is scheduled to expire at 12:00 midnight, New York City time, on March 16, 2007, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement and in accordance with the relevant portions of the Delaware General Corporation Law (the “DGCL”), it is anticipated that Augusta Medical Corporation will be merged with and into Adeza with Adeza as the surviving corporation, whereby each issued and outstanding share of our common stock not directly or indirectly owned by Cytyc, Augusta Medical Corporation or Adeza will be converted into the right to receive the offer price of $24.00 per share. The purchase price is expected to be approximately $450 million, which will be paid by Cytyc at closing in cash. The acquisition is expected to close in the first half of 2007 and possibly as early as the end of March 2007.

A number of factors could prevent the Company from completing the merger with Cytyc, including but not limited to the failure to satisfy the conditions set forth in the Merger Agreement. If the Company does not complete the proposed merger with Cytyc for any reason, the Company’s business may be negatively impacted due to (i) the payment of a $13.35 million termination fee to Cytyc upon certain circumstances; (ii) the diversion of the Company’s management’s focus toward the proposed merger rather than its core business and other potential business opportunities; (iii) a change in the price of the Company’s common stock to the extent that the current market price reflects an assumption that the proposed merger will be completed; (iv) uncertainty about the effect of the termination of the proposed merger upon the Company’s employees and customers; and (v) negative publicity and/or negative impression of the Company in the investment community.

In connection with the proposed merger, the Company has incurred and will continue to incur certain expenses, including fees and/or expenses of its legal, accounting and financial advisors. Even if the Company does not complete the proposed merger, it must pay for services rendered by these advisors, which total approximately $1.5 million as of February 28, 2007. The Company’s discussion below assumes that it will continue forward as a separate corporate entity. If the proposed merger is consummated, the Company will be operated as a wholly owned subsidiary of Cytyc, and some of the Company’s expenses may be reduced through integration of the operations of both companies.

Basis of Presentation

The Company operates in one business segment, women’s health products. In the year ended December 31, 2006, the Company reported shipping costs billed to its customers as product sales and the related expense as cost of products sold. In the years ended December 31, 2005 and 2004, the Company reported $0.2 million and $0.1 million, respectively, in net shipping costs as cost of products sold.

68

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Use of Estimates

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

Revenue Recognition

Revenue from product sales is recognized when there is persuasive evidence an arrangement exists, delivery to the customer has occurred, the price is fixed or determinable and collectibility is reasonably assured. Revenue from laboratory services is recognized as tests are performed.

Effective July 1, 2002, the Company entered into a services agreement with a national laboratory that performed diagnostic tests. Under the terms of the agreement, the laboratory provided certain domestic product distribution and testing services for the Company. Through September 30, 2005, the Company recognized revenue upon the shipment of products to the end user from the national laboratory as the title, risks and rewards of ownership of the products pass from the Company to the end user at that time. On October 1, 2005, the Company discontinued using this national laboratory for fulfillment purposes and the Company began to recognize revenue upon shipment of our products from the Company’s manufacturing facilities.

During 2006, revenue on the Company’s product sales was recognized upon shipment to distributors or customers as the title, risks, and rewards of ownership of the products pass to the distributors or customers, and the selling price of the Company’s products was fixed and determinable at that point. Any advance payments received in excess of revenue recognized are classified as deferred revenue on the accompanying balance sheets. Customers have the right to return products that are defective. There are no other return rights.

During the years ended December 31, 2006, 2005 and 2004, 97%, 98%, and 97%, respectively, of the Company’s product revenues were derived from customers located in the US. Our product sales are derived primarily from the sale of our disposable Fetal Fibronectin Test cassettes.

Warranty Policy

The Company records a liability for product warranty obligations at the time of sale based upon historical warranty experience. The term of the warranty is generally twelve months. The Company also records any additional liability required for specific warranty matters when they become known and are reasonably estimable. The Company’s product warranty obligations are included in other accrued liabilities as follows (in thousands):

	Year Ended
	December 31,
	2006			2005
Balance at beginning of year	$	30		$	31
Charges to cost of product sales		36			30
Warranty costs incurred		(32	)		(34	)
Change in estimate related to accrued warranty costs		5			3
Balance at end of year	$	39		$	30

Research and Development

Research and development expenses consist of costs incurred for Company-sponsored research and development activities. These costs include direct and research-related allocated overhead expenses such as facilities costs, salaries and benefits, and material and supply costs in addition to costs associated with clinical trials. The Company expenses research and development costs as such costs are incurred.

69

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Concentrations of Risk

Cash, cash equivalents, short-term investments and accounts receivable are financial instruments which potentially subject Adeza to concentrations of credit risk. Adeza primarily invests in money market funds, and, by policy, limits the amount in any one type of investment, other than securities issued or guaranteed by the U.S. government. Adeza has not experienced any material credit losses and does not generally require collateral on receivables. For the year ended December 31, 2006 and 2005, no single customer represented greater than 5% of total revenues.

Cash Equivalents and Short-Term Investments

Cash equivalents consist of highly liquid financial instruments with original maturities of three months or less at the time of purchase. Short-term investments consist of financial instruments with original maturities ranging from 91 days to less than one year. Cash equivalents and short-term investments consist of commercial paper, corporate debt and money market funds held by a high-credit quality financial institution. Short-term investments are comprised of available-for-sale securities, which are carried at fair value, based on quoted market prices. Unrealized gains (losses) on available-for-sale securities are reflected as a component of accumulated other comprehensive income within shareholders’ equity.

Available-for-sale securities had maturities of less than one year and consisted of the following:

			Gross		Estimated
			Unrealized		Fair
	Cost		Gains		Value
	(In thousands)
As of December 31, 2006:
Short-term marketable securities:
Commercial paper	$	48,874	$	6	$	48,880
Corporate debt		3,976		1		3,977
Total	$	52,850	$	7	$	52,857
As of December 31, 2005:
Short-term marketable securities		—		—		—
Total	$	—	$	—	$	—

Property and Equipment

Property and equipment are stated at cost and reviewed for impairment whenever indicators are present. Depreciation is calculated using the straight-line method, and the cost is amortized over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the term of the lease, whichever is shorter.

70

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Intangible Assets

Intangible assets are comprised entirely of purchased patents. The following table sets forth the carrying amount of amortizable intangible assets (in thousands):

	As of			As of
	December 31,			December 31,
	2006			2005
Gross carrying amount	$	240		$	240
Less: accumulated amortization		(160	)		(112	)
Net carrying amount	$	80		$	128

Intangible assets are amortized on a straight line basis over their estimated useful lives of five years. Amortization expense is expected to be $48,000 for the year ending December 31, 2007 and $32,000 for the year ending December 31, 2008.

Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, and intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. Through December 31, 2006, there have been no such impairment losses.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

Stock-Based Compensation

Beginning January 1, 2006, the Company accounted for its employee stock option plans under the provisions of SFAS No. 123R. SFAS No. 123R requires the recognition of the fair value of stock-based compensation in net income. The fair value of the Company’s stock options was estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections in adopting and implementing SFAS No. 123R, including expected stock price volatility and the estimated life of each award. The fair value of stock-based awards is amortized over the vesting period of the award. The Company has elected to use the straight-line amortization method for awards granted after the adoption of SFAS No. 123R and continues to use a graded vesting amortization method for awards granted prior to the adoption of SFAS No. 123R.

The Company’s financial statements for the year ended December 31, 2006 reflect the impact of SFAS 123R using the modified prospective transition method. In accordance with the modified prospective transition method, the Company’s financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Share-based compensation expense is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the Company’s Financial Statements for the year ended December 31, 2006 included compensation expense for share-based payment awards granted prior to, but not yet vested as of, December 31, 2005 based on the grant date fair value

71

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

estimated in accordance with the pro forma provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.

Upon adoption of SFAS No. 123R, the Company has elected the “long form” method for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123R, paragraph 81. Under the “long form” method, the Company determines the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of the employee stock-based compensation “as if” the Company had adopted the recognition provisions of SFAS No. 123 since its effective date of January 1, 1995. The Company also determines the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of the tax effect of employee stock — based compensation awards that were issued after the adoption of SFAS No. 123R and outstanding at the adoption date.

Consistent with prior years, the Company uses the “with and without” approach as described in EITF Topic No. D-32 in determining the order in which our tax attributes are utilized. The “with and without” approach results in the recognition of the windfall stock option tax benefits only after all other tax attributes of the Company’s have been considered in the annual tax accrual computation. SFAS 123R prohibits the recognition of a deferred tax asset for an excess tax benefit that has not yet been realized. As a result, the Company will only recognize a benefit from stock-based compensation in paid-in-capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the indirect benefits of stock-based compensation on items such as the research tax credit or the domestic manufacturing deduction through the consolidated statement of income (continuing operations) rather than through paid-in-capital.

See Note 6 of our Financial Statements for further information regarding stock-based compensation.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts related to the estimated losses that may result from the inability of its customers to make required payments. This allowance is determined based upon historical experience and any specific customer collection issues that have been identified. Historically, the Company has not experienced significant credit losses related to an individual customer or groups of customers in any particular industry or geographic area.

The Company’s allowance for doubtful accounts is included in accounts receivable as follows (in thousands):

	Year Ended December 31,
	2006			2005			2004
Balance at beginning of year	$	355		$	236		$	164
Charges to bad debt expense		127			194			75
Bad debt costs realized		(239	)		(75	)		(3	)
Balance at end of year	$	243		$	355		$	236

The Company’s allowance for sales returns is included in accounts receivable as follows (in thousands):

	Year Ended December 31,
	2006			2005		2004
Balance at beginning of year	$	80		$	80	$	100
Charges to product sales		85			—		—
Sales returns incurred		(85	)		—		—
Change in estimate		—			—		(20	)
Balance at end of year	$	80		$	80	$	80

72

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Inventories and Cost of Product Sales

Inventories are stated at the lower of standard cost determined on a FIFO basis or market value. Cost of product sales represents the cost of materials, direct labor and overhead associated with the manufacture of our products, delivery charges, lab services and royalties.

Advertising Expense

The cost of advertising is expensed as incurred. Advertising expense for the years ended December 31, 2006, 2005, and 2004 was approximately $2,436,000, $1,369,000, and $1,057,000, respectively. The cost of advertising was included in selling and marketing expenses in the statements of income. The balance of capitalized advertising expense on the balance sheet was approximately $0.1 million as of December 31, 2006. There was no capitalized advertising expense on the balance sheet as of December 31, 2005.

Shipping and Handling Costs

The Company records shipping and handling costs billed to its customers as product sales and the related expense as cost of products sold.

Net Income Per Share

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

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

	Year Ended December 31,
	2006		2005		2004
	(In thousands, except per share data)
Numerator:
Net income	$	2,527	$	12,328	$	8,869
Denominator:
Weighted-average number of common shares used in basic earnings per share		17,476		16,883		1,102
Effect of dilutive securities:
Stock options		615		871		1,121
Warrants		79		109		157
Convertible preferred stock		—		—		11,269
Dilutive potential common shares		694		980		12,547
Weighted-average number of common shares and dilutive potential common shares used in diluted earnings per share		18,170		17,863		13,649
Net income per share:
Basic	$	0.14	$	0.73	$	8.05
Diluted	$	0.14	$	0.69	$	0.65

73

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

For the years ended December 31, 2006, 2005 and 2004 options to purchase approximately 0.4 million, 0.1 million and 0.3 million shares, respectively, of common stock with exercise prices greater than the average fair market value of the Company’s stock of $16.91, $15.76 and $13.37, respectively, were excluded from the diluted net loss per share calculation because the effect would have been antidilutive.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and is effective for the Company as of January 1, 2008. The Company does not believe that the adoption of SFAS 157 will materially impact its results of operations, financial position or cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 applies to all tax positions related to income taxes subject to FASB Statement 109, Accounting for Income Taxes. Under FIN 48, a company would recognize the benefit from a tax position only if it is more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position. FIN 48 clarifies how a company would measure the income tax benefits from the tax positions that are recognized, provides guidance as to the timing of the derecognition of previously recognized tax benefits and describes the methods for classifying and disclosing the liabilities within the financial statements for any unrecognized tax benefits. FIN 48 also addresses when a company should record interest and penalties related to tax positions and how the interest and penalties may be classified within the income statement and presented in the balance sheet. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company expects to adopt FIN 48 at the beginning of its fiscal year 2007. Differences between the amounts recognized in the statements of operations prior to and after the adoption of FIN 48 would be accounted for as a cumulative effect adjustment to the beginning balance of retained earnings. The Company does not expect the adoption of FIN 48 to have a material impact on its financial position, results of operations or cash flows.

2.   LICENSE ARRANGEMENTS

Adeza has entered into license, clinical trial, supply, and sponsored research and development agreements with universities, research organizations, and commercial companies. Certain of these agreements require payments of royalties on future sales of products resulting from such agreements and may subject Adeza to minimum annual royalty payments to such contract partners. During the years ended December 31, 2006, 2005, and 2004, the total of such royalty costs recorded were approximately $3,116,000, $2,695,000 and $1,900,000, respectively, excluding the effect of a non-recurring reduction in accrued royalties and related royalty costs of $2.7 million that was recorded in the year ended December 31, 2004. Royalty costs are included in cost of product sales. The non-recurring reduction of $2.7 million was primarily related to significant new information that Adeza received in October 2004 which allowed Adeza to conclude that no royalties were due or are required under a license agreement.

74

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

3.   INVENTORIES

Inventories consist of the following (in thousands):

	December 31,
	2006		2005
Raw materials	$	597	$	386
Work in process		193		197
Finished goods		193		266
	$	983	$	849

4.   PROPERTY AND EQUIPMENT

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

	December 31,
	2006			2005
Laboratory and other equipment	$	2,637		$	2,411
Furniture and fixtures		158			157
Leasehold improvements		140			131
		2,935			2,699
Less accumulated depreciation and amortization		(2,481	)		(2,351	)
Net property and equipment	$	454		$	348

5.   COMMITMENTS AND OBLIGATIONS

Leases

The Company leases facilities and office equipment under non-cancelable operating leases. The future minimum lease obligations are as follows (in thousands):

	Payments Due in
									2010 and
Contractual Obligations	Total		2007		2008		2009		thereafter
Operating leases	$	269	$	219	$	25	$	13	$	12

The facility lease obligations are comprised of a facility lease with one-year terms expiring on September 30, 2007. The Company also maintains several office equipment leases which expire on December 31, 2011.

Rent expense was approximately $224,000, $204,000 and $203,000 for the years ended December 31, 2006, 2005, and 2004, respectively.

6.   STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R. SFAS No. 123R establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured on the grant date, based on the fair value of the award and is recognized as an expense over the employee requisite service period. Prior to January 1, 2006, the Company accounted for its stock-based awards under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” and related Interpretations as permitted by SFAS No. 123.

75

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

Prior to the Adoption of SFAS No. 123R

Prior to the adoption of SFAS No. 123R, the Company provided disclosures required under SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosures.” $1.0 million of employee stock-based compensation expense was reflected in net income for the year ended December 31, 2005, respectively.

During the preparation of the notes to the consolidated condensed financial statements for the three months ended March 31, 2006, the Company determined that the calculation of its pro forma net income reported under SFAS 123 for the year ended December 31, 2005, as previously reported, was understated primarily as a result of an incorrect change in the fair value calculation (and, therefore, the amortization expense related to) options granted in August 2004. Accordingly, pro forma net income reported under SFAS 123 for the year ended December 31, 2005, presented in the tables below, was revised. These revisions had no effect on the Company’s previously reported results of operations or financial condition. The stock-based employee and director compensation expense previously reported for the year ended December 31, 2005 was $2.6 million, and the pro forma net income previously reported for the year ended December 31, 2005 was $10.8 million.

	Year Ended
	December 31, 2005
	(In thousands, except
	per share amounts)
Net income:
As reported	$	12,328
Add: Total stock based employee and director compensation expense determined under intrinsic value method for all awards, net of taxes		1,039
Less: Total stock based employee and director compensation expense determined under the fair value method for all awards, net of taxes		(4,856	)
Pro forma net income	$	8,511
Reported net income per share:
Basic	$	0.73
Diluted	$	0.69
Pro forma net income per share:
Basic	$	0.50
Diluted	$	0.48
Shares used to compute net income per share:
Basic		16,883
Diluted		17,863

Impact of Adoption of SFAS No. 123R

The Company elected to adopt the modified prospective application method as provided by SFAS No. 123R. Under that transition method, compensation costs recognized in the year ended December 31, 2006, include (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation costs for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.

In the year ended December 31, 2006, we recognized compensation expense in connection with the adoption of FAS 123R of $3.3 million. Diluted earnings per share was reduced by $0.07 for the year ended December 31, 2006,

76

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

respectively, as a result of the Company’s adoption of FAS 123R. As of December 31, 2006 the stock-based compensation capitalized as inventory was minimal.

As a result of adoption FAS 123R, the Company’s income before income taxes and net income for the year ended December 31, 2006 are $2.4 million and $1.0 million lower, respectively, than if the Company had continued to account for share-based compensation under Opinion 25.

Equity Incentive Program

The Company’s equity incentive program is a long-term retention program that is intended to attract and retain qualified management and technical employees and align stockholder and employee interests. At December 31, 2006, the equity incentive program consisted of the 2004 Equity Incentive Plan (the 2004 Plan). Under the 2004 Plan, options, stock appreciation rights, stock purchase rights and restricted stock may be issued to employees, officers, directors, and consultants of Adeza. The 2004 Plan permits the grant of share options for up to 1,875,000 shares of common stock. The maximum number of shares shall be increased annually on January 1 of each year by a number of shares equal to the lesser of (a) three percent of the number of shares issued and outstanding on the immediately preceding December 31, (b) 525,000 Shares, and (c) a number of Shares set by the Board. The 2004 Plan provides that the exercise price for incentive stock options will be no less than 100% of fair value of Adeza’s common stock on the date of grant. Generally, these options vest ratably over four years and have a term of 10 years. No restricted stock, stock appreciation or purchase rights have been issued as of September 30, 2006.

The following table provides certain information with respect to the 2004 Plan, which was in effect as of December 31, 2006:

					Number of Securities
					Remaining Available
					for Future Issuance
					Under Equity
	Number of				Compensation Plan
	Securities to be				(Excluding
	Issued upon		Weighted-Average		Securities
	Exercise of		Exercise Price of		Reflected in
	Outstanding Options		Outstanding Options		Column (a))
	(a)		(b)		(c)
Equity compensation plan approved by security holders		1,112,702	$	15.71		1,834,517

Upon adoption of SFAS 123(R), the Company used a blended historical volatility in deriving the expected volatility assumption as allowed under SFAS 123(R) and Staff Accounting Bulletin No. 107, or SAB 107. The blended historical volatility was based on a blend of the Company’s own historical experience and the Company’s peer group historical experience. The risk-free interest rate assumption was based upon observed interest rates appropriate for the term of our stock options. The expected term of stock options was based on a blend of the Company’s own historical experience and the Company’s peer group historical experience. As stock-based compensation expense recognized in the Statements of Income for the year ended December 31, 2006 was based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the Company’s historical experience.

77

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

The fair value of stock options granted to employees in the years ended December 31, 2006, 2005 and 2004 was estimated at the date of grant using the Black-Scholes model using the following weighted-average assumptions:

	Year Ended December 31,
	2006			2005			2004
Expected volatility		60	%		72	%		85	%
Risk-free interest rate		4.83	%		4.1	%		3.3	%
Expected term (in years)		4.9			4.6			4.0
Dividends		—			—			—

SFAS No. 123R requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock.

Stock option plans

2004 Equity Incentive Plan

In August 2004, the Company’s board of directors and stockholders approved the 2004 Equity Incentive Plan (the 2004 Plan), which became effective upon the completion of the Company’s initial public offering in December 2004. The Company has reserved a total of 1,875,000 shares of its common stock for issuance under the 2004 Plan, all of which are available for future grant. Under the 2004 Plan options, stock appreciation, stock purchase rights and restricted stock can be issued to employees, officers, directors, and consultants of Adeza. The 2004 Plan provides that the exercise price for incentive stock options will be no less than 100% of the fair value of Adeza’s common stock on the date of grant. Generally, these options vest ratably over four years and have a term of 10 years. There were no shares subject to repurchase as of December 31, 2006. No restricted stock, stock appreciation or purchase rights had been issued as of December 31, 2006.

1995 Stock Option and Restricted Stock Plan

In August 2004, the Company’s Board of Directors and stockholders approved amendments to the Company’s 1995 Stock Option and Restricted Stock Plan (the 1995 Plan) so that, upon completion of the Company’s initial public offering, the shares that were available for future grant under the 1995 Plan were allocated to the 2004 Plan. Additionally, any shares that are issuable upon exercise of options outstanding under the 1995 Plan that are forfeited after the completion of the Company’s initial public offering, are allocated to the 2004 Plan.

Under the 1995 Plan options and purchase rights were issuable to employees, officers, directors, consultants, and promotional representatives of Adeza. The 1995 Plan provided that the exercise price for incentive stock options would be no less than 100% of the fair value of Adeza’s common stock (no less than 85% of the fair value for nonqualified stock options), as determined by the Board of Directors on the date of grant. Generally, these options are immediately exercisable, subject to repurchase rights which lapse ratably over four years and have a term of 10 years. There were no shares subject to repurchase as of December 31, 2006 and 2005. No restricted stock purchase rights had been issued as of December 31, 2006.

78

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

							Weighted-		Weighted-Average
	Available			Options			Average		Remaining Contract		Aggregate
	for Grant			Outstanding			Exercise Price		Term (in years)		Intrinsic Value
	(In thousands)
Balance at December 31, 2005		2,035,208			1,668,688		$	8.53		—		—
Shares authorized		521,290			—			—		—		—
Options granted		(784,775	)		784,775			15.35		—		—
Options exercised		—			(171,376	)		3.34		—		—
Options forfeited		62,794			(62,794	)		15.65		—		—
Balance at December 31, 2006		1,834,517			2,219,293		$	11.14		7.8	$	9,444
Vested and expected to vest at December 31, 2006					2,114,405		$	10.96		7.8	$	9,378
Exercisable at December 31, 2006					990,847		$	7.21		6.1	$	7,972

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $14.91 as of December 31, 2006, which would have been received by the option holders had all option holders with in-the-money options exercised their options as of that date. Stock options that expired during the year ended December 31, 2006 were minimal.

The weighted average grant date fair value of options granted during the year ended December 31, 2006 was $7.26 per share. The total intrinsic value of options exercised during the year ended December 31, 2006 was approximately $2.4 million. The total cash received from employees as a result of stock option exercises during the year ended December 31, 2006 was approximately $0.6 million. In connection with these exercises, the tax benefits realized by the Company for the year ended December 31, 2006 was $3.2 million.

The Company settles employee stock option exercises with newly issued common shares.

As of December 31, 2006, the unrecorded deferred stock-based compensation balance related to stock options was $8.3 million, and that amount will be recognized over an estimated weighted average amortization period of 2.0 years.

79

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

The following summarizes options outstanding and exercisable as of December 31, 2006:

			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life		Price		Exercisable		Price
$ 0.97 - $ 0.97		103,471		1.58 years	$	0.97		103,471	$	0.97
$ 3.33 - $ 3.33		418,775		5.31 years	$	3.33		412,049	$	3.33
$ 8.51 - $ 8.51		58,625		7.59 years	$	8.51		34,836	$	8.51
$10.00 - $10.00		525,720		7.59 years	$	10.00		296,389	$	10.00
$12.08 - $14.79		159,850		8.61 years	$	13.69		53,731	$	13.43
$15.11 - $15.11		669,175		9.96 years	$	15.11		0	$	0.00
$15.88 - $17.17		135,973		8.81 years	$	17.13		41,611	$	17.10
$19.70 - $19.70		75,000		7.94 years	$	19.70		37,500	$	19.70
$20.09 - $20.09		14,700		8.96 years	$	20.09		5,380	$	20.09
$22.20 - $22.20		28,004		9.16 years	$	22.20		5,880	$	22.20
		2,219,293						990,847

During the year ended December 31, 2005 several consultants became employees of the Company and the Company recorded deferred stock-based compensation for the excess of the estimated fair value of its common stock over the option exercise prices at the dates of the changes in status of $546,000 related to option grants held by non employees which converted to employees during the year. Stock-based compensation expense is being recognized over the remaining option vesting period.

During the year ended December 31, 2004, the Company recorded deferred stock compensation for the excess of the estimated fair value of its common stock over option exercise prices at the date of grant of $3,625,000 related to options granted to employees and directors. Stock-based compensation expense is being recognized over the option vesting period of four years using the straight-line method.

For options granted to non employees, the Company determined the estimated fair value of the options using the Black-Scholes option pricing model. Compensation expense is generally being recognized over the option vesting period. For the years ended December 31, 2006, 2005 and 2004, the Company recorded stock-based compensation expense of approximately $37,000, $50,000 and $356,000, respectively, in connection with options granted to nonemployees.

80

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

Convertible preferred stock

All shares of convertible preferred stock converted into common stock upon the closing of the Company’s initial public offering on December 10, 2004. Convertible preferred stock consisted of the following (in thousands, except share information):

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

Warrants

In conjunction with a loan and security agreement with MMC/GATX Partnership No. 1 and Transamerica Business Credit Corporation, Adeza issued warrants to purchase 236,301 shares of Series 3 convertible preferred stock at an exercise price of $2.92 per share. The warrants are scheduled to expire on the later of ten years from the date of the grant or five years after the closing of a public offering. The fair value assigned to these warrants, as determined using the Black-Scholes valuation model, was approximately $475,000. In determining the fair value of the warrants the following assumptions were used: expected volatility of 50%; expected life of 10 years; expected dividend yield of 0%; risk-free interest rate of 6%; stock price at date of grant and exercise price of $2.92 per share. The fair value of these warrants was netted against the related debt and was amortized to interest expense over the terms of the various notes. The Company amortized $24,000 as interest expense in the year ended December 31, 2003 related to these warrants. No interest was amortized in the years ended December 31, 2005 and 2006 related to these warrants. As a result of the completion of the Company’s initial public offering the warrants were exercisable for 196,915 shares of common stock. During 2005 MMC/GATX Partnership exercised in full the warrant it held on a net, or cashless, basis pursuant to which the warrant holder received 78,413 shares of common stock. Warrants to purchase 99,884 shares of common stock at an exercise price of $3.50 per share are outstanding and exercisable at December 31, 2006.

Common stock

The Company has reserved the following shares of common stock for the issuance of options and rights granted under the Company’s stock option plans, as follows:

	December 31,
	2006		2005
Options outstanding		2,219,293		1,668,688
Shares reserved for future option grants		1,834,517		2,035,208
Warrants outstanding		99,884		99,884
		4,153,694		3,803,780

81

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

8.   INCOME TAXES

For financial reporting purposes, “Income before income taxes” was $6,029,000, 7,816,000, and $9,279,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

The provision for (benefit from) income taxes consists of the following:

	Years Ended December 31,
	2006			2005			2004
	(In thousands)
Current:
Federal	$	3,299		$	180		$	210
State		423			430			200
Total current		3,722			610			410
Deferred:
Federal		(416	)		(4,488	)		—
State		196			(634	)		—
Total deferred		(220	)		(5,122	)		—
Total provision	$	3,502		$	(4,512	)	$	410

The Company’s income tax provision (benefit) differs from the amounts computed by applying the federal statutory income tax rate of 34% to pretax income (loss) for the years ended December 31, 2004 and 2005 and 35% to pretax income (loss) for the year ended December 31, 2006 as follows:

	Years Ended December 31,
	2006		2005			2004
	(In thousands)
U.S. federal taxes at federal statutory rate	$	2,110	$	2,657		$	3,155
State taxes, net of federal benefit		403		(135	)		132
Net operating losses not benefitted (benefitted)		—		(7,407	)		(3,091	)
Non deductible stock compensation		784		215			—
Other individually immaterial items		205		158			214
Total provision (benefit)	$	3,502	$	(4,512	)	$	410

82

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

	December 31,
	2006		2005
	(In thousands)
Deferred tax assets:
Net operating losses	$	1,976	$	5,054
Research credits		1,646		1,531
Capitalized research and development		171		156
Other, net		652		691
Non-deductible stock compensation		683		—
Total deferred tax assets		5,128		7,432
Valuation allowance		—		(2,310	)
Net deferred tax assets	$	5,128	$	5,122

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. In December 2006, based upon the level of historical taxable income and projections for future taxable income, we concluded that it was more likely than not that our deferred tax assets would be realized with the exception of deferred tax assets related to stock option benefits. The valuation allowance decreased by $2,310,000 and $6,960,000, and increased by $8,070,000 during the years ended December 31, 2006, 2005 and 2004, respectively.

The Company is tracking the portion of its deferred tax assets attributable to stock option benefits in a separate memo account pursuant to SFAS No. 123R. Therefore, these amounts are no longer included in the Company’s gross or net deferred tax assets. Pursuant to SFAS No. 123R, footnote, 82, the benefit of these stock option benefits will only be recorded to equity when they reduce cash taxes payable. As a result, $1,715,000 of the change in the valuation allowance in 2006 related to amounts accounted for in the memo account.

The Company’s income taxes payable for federal and state tax purposes has been reduced by the tax benefits associated with the exercise of stock option in the current year. The benefits applicable to stock options were credited to equity during the years ended December 31, 2006 and 2005 were $3,247,000 and $260,000, respectively.

As of December 31, 2006, the Company had federal net operating loss carry forwards of approximately $9,970,000. The Company also has state net operating loss carryforwards of approximately $3,690,000. The Company also had federal and state research and development tax credit carry forwards of approximately $600,000 and $1,100,000, respectively. The federal net operating loss and tax credit carry forwards will expire at various dates beginning in 2007 through 2024, if not utilized. The state net operating losses expires at various dates beginning in 2007. The state research and development tax credit carry forward indefinitely. The Company also has alternative minimum tax credit carryforwards of $270,000 which have no expiration date.

As of December 31, 2006, the portion of the federal net operating loss carry forward which relate to stock option benefits is approximately $4,200,000. The portion of the state net operating loss carry forward which relate to stock option benefits is approximately $3,690,000. Pursuant to SFAS No 123R, the benefit of these net operating loss carry forwards will only be recorded to equity when they reduce cash taxes payable.

The Company has reviewed whether the utilization of its net operating losses and research credits were subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. We do not expect the disclosed net operating losses and research credits carryovers to expire before utilization.

83

ADEZA BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS — (Continued)

9.   BENEFIT PLAN

The Company’s 401(k) Plan allows eligible employees to make contributions of their qualified compensation subject to IRS limits. The Company has the discretion to make matching contributions each year. The Company had not made any matching contributions through January 31, 2007. Effective February 1, 2007, the Company began matching 50% up to a maximum of $3,000 per employee. Employees become eligible for participation in the 401(k) Plan after completing 30 days of employment with the Company.

10.   RELATED PARTY TRANSACTIONS

In 2000, a loan offer was made to an officer of the Company. The agreement to the loan was ratified by the Board of Directors on April 21, 2001, for an amount of $183,000, with the minimum interest rate allowed by the internal revenue service. According to the terms agreed upon, 20% of the loan would be forgiven in principal and accrued interest at the end of each twelve months of employment. The loan would be due and payable within 30 days following termination by Adeza for cause. In the event of a change of control or merger with another company or of termination without cause, the loan and accumulated interest would be forgiven. The loan contemplated was executed on February 28, 2003 for $109,800, which was issued to the officer at that time. All other terms were in accordance with the original loan offer. Subject to the officer’s continued employment, the loan and related interest would have been forgiven in 2003 to 2006. On August 4, 2004, the Company, upon approval of its Board of Directors, forgave the remaining balance of the loan. In the year ended December 31, 2004, $76,250 of the principal was forgiven and recorded to general and administrative expenses.

11.   SELECTED QUARTERLY INFORMATION (UNAUDITED)

	2006								2005
	Fourth		Third		Second		First		Fourth			Third		Second		First
	(In thousands)
Total sales	$	14,690	$	13,471	$	13,029	$	10,793	$	11,940		$	11,419	$	10,634	$	9,610
Gross profit		12,389		11,510		11,122		9,038		10,365			9,716		9,205		8,183
Income before income taxes		3,088		1,855		1,074		12		2,062			2,286		1,931		1,537
Provision for (benefit from) income taxes		1,855		1,104		537		6		(4,831	)(1)		136		102		81
Net income		1,233		751		537		6		6,893			2,150		1,829		1,456
Basic net income per share	$	0.07	$	0.04	$	0.03	$	0.00	$	0.40		$	0.13	$	0.11	$	0.09
Diluted net income per share	$	0.07	$	0.04	$	0.03	$	0.00	$	0.38		$	0.12	$	0.10	$	0.08

(1) Provision for (benefit from) income taxes in the fourth quarter of 2005 includes a non-recurring benefit from income taxes of $5.1 million primarily related to a reversal in our valuation allowance for deferred tax assets.

12.   SUBSEQUENT EVENT (UNAUDITED)

On February 11, 2007, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Cytyc Corporation, a Delaware corporation (“Cytyc”) and Augusta Medical Corporation, a Delaware corporation and a direct wholly-owned subsidiary of Cytyc (“Purchaser”), under which Purchaser will acquire all of the shares of the Company’s common stock for a purchase price of $24.00 per share, net to the holders thereof, in cash. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Purchaser will commence a tender offer to acquire all the outstanding Shares as promptly as practicable (and in any event within 10 business days). The purchase price is expected to be approximately $450 million, which will be paid by Cytyc at closing in cash. The acquisition is subject to satisfying a number of closing conditions, including shareholder and regulatory approvals, and is expected to close before the end of March 2007.

84

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the issuer, a corporation organized and existing under the laws of the State of Delaware, has duly caused this to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale, State of California on this 15th day of March 2007.

ADEZA BIOMEDICAL CORPORATION

By:  /s/  Emory V. Anderson

Emory V. Anderson

President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Emory V. Anderson and Mark D. Fischer-Colbrie, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Exchange Act, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the date indicated above:

Signature	Title(s)
/s/  Emory V. Anderson Emory V. Anderson	President, Chief Executive Officer and Director (principal executive officer)
/s/  Mark D. Fischer-Colbrie Mark D. Fischer-Colbrie	Senior Vice President, Finance and Administration and Chief Financial Officer (principal financial and accounting officer)
/s/  Andrew E. Senyei, MD Andrew E. Senyei, MD	Chairman of the Board
/s/  Craig C. Taylor Craig C. Taylor	Director
/s/  Kathleen D. LaPorte Kathleen D. LaPorte	Director
/s/  Michael P. Downey Michael P. Downey	Director
/s/  C. Gregory Vontz C. Gregory Vontz	Director

85

EXHIBIT INDEX

Exhibit
Number			Description
	3	.1(1)	Amended and Restated Certificate of Incorporation.
	3	.2(1)	Amended and Restated Bylaws.
	4	.1(1)	Specimen Stock Certificate.
	10	.1(1)*	1995 Stock Option and Restricted Stock Plan.
	10	.2(2)*	2004 Equity Incentive Plan.
	10	.3(1)	Exclusive License Agreement, dated August 12, 1992, between Adeza and the Fred Hutchinson Cancer Research Center, together with the First Amendment to Exclusive License Agreement and Consent dated May 9, 1996 and Amendment No. 1 to Exclusive License Agreement dated April 30, 1998.†
	10	.4(1)	Investors’ Rights Agreement, dated September 19, 2001, between Adeza and certain Stockholders of Adeza.
	10	.5(1)	License Agreement, dated July 25, 1997, between Adeza and the Trustees of the University of Pennsylvania.†
	10	.6(1)	Agreement and Release, dated March 3, 1998, between Adeza and Matria Healthcare, Inc.†
	10	.7(1)	Net Industrial Space Lease, dated July 7, 1999, between Adeza and Tasman V, LLC.
	10	.8(3)	Third Amendment to the Net Industrial Space Lease, dated July 15, 2005 between Adeza and Tasman V, LLC.
	10	.9(3)	Net Industrial Space Lease, dated July 1, 2005, between Adeza and Tasman V, LLC.
	10	.10(1)	Service Agreement, dated as of March 31, 1999, between Adeza and Ventiv Health U.S. Sales LLC (formerly known as Snyder Healthcare Sales Inc.), together with First Amendment to Service Agreement dated March 8, 2002, Second Amendment to Service Agreement dated July 22, 2002, and Third Amendment to Service Agreement dated May 15, 2004.†
	10	.11(1)	Warrant to Purchase Shares of Series 3 Preferred Stock, dated March 23, 1999, between Adeza and Transamerica Business Credit Corporation and its assignees.
	10	.12(1)	Form of Indemnification Agreement for Directors and Officers.
	10	.13(1)	Agreement, dated December 24, 1998, between Adeza and Unilever PLC.†
	10	.14(1)	Second Amendment to Lease, dated October 12, 2004, between Adeza and Tasman V, LLC.
	10	.15(1)*	Management Continuity Agreement, dated October 21, 2004, between Adeza and Emory Anderson.
	10	.16(1)*	Management Continuity Agreement, dated October 21, 2004, between Adeza and Mark Fischer-Colbrie.
	10	.17(1)*	Form of Management Continuity Agreement, dated October 21, 2004, between Adeza and Durlin Hickok, Robert Hussa and Marian Sacco.
	10	.18(4)	Net Industrial Space Lease, executed on September 19, 2006, between Adeza and Tasman V, LLC.
	10	.19	Fifth Amendment to Service Agreement, dated as of December 11, 2006, between Adeza and Ventiv Commercial Services, LLC (formerly known as Ventiv Pharma Services, LLC and Ventiv Health U.S. Sales, LLC.††
	10	.20*	Management Continuity Agreement, dated January 12, 2007, between Adeza and Emory Anderson.
	10	.21*	Management Continuity Agreement, dated January 12, 2007, between Adeza and Mark Fischer-Colbrie.
	10	.22*	Management Continuity Agreement, dated January 12, 2007, between Adeza and Durlin Hickok.
	10	.23*	Management Continuity Agreement, dated January 12, 2007, between Adeza and Robert Hussa.
	10	.24*	Management Continuity Agreement, dated January 12, 2007, between Adeza and Marian Sacco.
	23	.1	Consent of Independent Registered Public Accounting Firm.
	24	.1	Powers of Attorney (included on signature page).
	31	.1	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 of Emory V. Anderson.
	31	.2	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 of Mark D. Fischer-Colbrie.

Exhibit
Number			Description
	32	.1	Certification pursuant to 18 U.S.C. Section 1350 of Emory V. Anderson.
	32	.2	Certification pursuant to 18 U.S.C. Section 1350 of Mark D. Fischer-Colbrie.

(1)	Incorporated by reference to the registrant’s Registration Statement on Form S-1 (Registration No. 333-118012) initially filed with the Securities and Exchange Commission on August 6, 2004.
(2)	Incorporated by reference to the registrant’s Registration Statement on Form S-8 (Registration No. 333-122430) filed with the Securities and Exchange Commission on January 31, 2005.
(3)	Incorporated by reference to the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2006, as amended.
(4)	Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2006.
*	Management compensatory plan or contract.
†	Confidential Treatment granted. Omitted material for which confidential treatment has been granted has been filed separately with the Securities and Exchange Commission.
††	Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions of this exhibit under Rule 406 of the Securities Act of 1933. Omitted material for which confidential treatment has been separately requested has been separately filed with the Securities and Exchange Commission.

EX-10.19

Exhibit 10.19

CONFIDENTIAL TREATMENT REQUESTED

FIFTH AMENDMENT TO
SERVICE AGREEMENT

     This fifth amendment (the “Fifth Amendment”) made as of May 14, 2006 (the “Effective Date”), by and between VENTIV COMMERCIAL SERVICES, LLC, a New Jersey limited liability company (formerly known as Ventiv Pharma Services, LLC and Ventiv Health U.S. Sales, LLC) (“Ventiv”) and ADEZA BIOMEDICAL CORPORATION, a Delaware corporation (“Adeza”) to a certain Service Agreement made as of March 31, 1999 by and between Ventiv and Adeza, as amended by a First Amendment made as of March 8, 2001 (the “First Amendment”), a Second Amendment made as of July 22, 2002 (the “Second Amendment”), a Third Amendment made as of May 15, 2004 (the “Third Amendment”), and a Fourth Amendment made as of March 30, 2006 (the “Fourth Amendment”) (the Service Agreement as amended by the First Amendment, Second Amendment, Third Amendment and Fourth Amendment shall be referred to herein as the “Amended Agreement”). Ventiv and Adeza may each be referred to herein as a “Party” and collectively, the “Parties”.

PREAMBLE

     Ventiv and Adeza desire to further amend the Agreement by extending the Term upon the terms and conditions set forth herein.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, it is agreed as follows:

     1.   Construction. Except as provided in this Fifth Amendment, the terms and conditions set forth in the Amended Agreement shall remain unaffected by execution of this Fifth Amendment. To the extent any provisions or terms set forth in this Fifth Amendment conflict with the terms set forth in the Amended Agreement, the terms set forth in this Fifth

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

CONFIDENTIAL TREATMENT REQUESTED

Amendment shall govern and control. Terms not otherwise defined herein, shall have the meanings set forth in the Amended Agreement.

     2.   The Extended Term. The Term of the Amended Agreement shall be extended through May 14, 2008 (the “Extended Term”), unless terminated earlier as provided in the Amended Agreement.

     3.   The Fixed Fess payable by Adeza to Ventiv during the Extended Term, as set forth in Exhibit B attached to the Second Amendment (“Second Amended Schedule B, Compensation – Fixed Fees, Variable Fees and Finder’s Fees), are revised to provide for the payment of the following Fixed Fees from Adeza to Ventiv:

	Monthly Fee Per	Yearly Fee Per
	Sales	Sales
Period	Representative	Representative
May 15, 2006 – May 14, 2007 (“Extended Year One”)	$[***]	$[***]
May 15, 2007 – May 14, 2008 (“Extended Year Two”)	$[***]	$[***]

     Notwithstanding anything to the contrary contained in the Amended Agreement, the Parties shall reconcile [***] assumptions on a monthly basis.

     The above monthly fees are calculated based on the assumption of no turnover of Ventiv Sales Representatives. [***].

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

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CONFIDENTIAL TREATMENT REQUESTED

     4.   Pass-through expenses shall remain as set forth in the Amended Agreement, and in addition, any costs associated with the training of new Ventiv Sales Representatives replaced in accordance with Section 3 above shall be [***].

     5.   In the event the Ventiv Sales Representative(s) are utilizing Ventiv’s proprietary sales force automation software, Adeza shall [***].

     6.   The Variable Fees payable by Adeza to Ventiv each year during the Extended Term are as follows: Adeza shall pay to Ventiv, Variable Fees based on performance, with the maximum amount due during each year of the Extended Term of $[***] (the “Variable Fees”). Ventiv shall be entitled to receive the Variable Fees based upon [***] (as agreed to in advance, in writing by Adeza and Ventiv) pursuant to a formula to be agreed upon between the parties.

     7.   The Parties confirm that Ventiv has been providing (and shall continue during the Extended Term to provide) Adeza with the sales force automation services for up to [***] Adeza sales representatives and up to [***] Adeza Managers as set forth on Exhibit A attached hereto. Exhibit A sets forth the responsibilities and obligations of both Ventiv and Adeza in connection with sales force automation services, including the fees to be paid by Adeza to Ventiv for performance of the sales force automation services.

     8.   Counterparts; Execution. This Fifth Amendment may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Execution and delivery of this Fifth Amendment by exchange of facsimile copies bearing the facsimile signature of a Party hereto shall constitute a valid and binding execution and delivery of this Fifth Amendment by such party. Such facsimile copies shall constitute enforceable original documents.

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

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CONFIDENTIAL TREATMENT REQUESTED

     9.   Binding Effect. The terms of this Fifth Amendment are intended by the Parties to be the final expression of their agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement. The Parties further intend that this Fifth Amendment constitute the complete and exclusive statement of its terms and shall supersede any prior agreement with respect to the subject matter hereof.

     WHEREFORE, the parties hereto have caused this Fifth Amendment to be executed by their duly authorized representatives.

VENTIV COMMERCIAL SERVICES, LLC

By:

Name: Terrell G. Herring

Title: President and Chief Executive Officer

ADEZA BIOMEDICAL
CORPORATION

By:

Name:

Title:

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

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CONFIDENTIAL TREATMENT REQUESTED

EXHIBIT A
SALES FORCE AUTOMATION SERVICES

Ventiv shall provide [***] (the “Hardware”) and sales force automation software to up to [***] Adeza sales representatives and sales force automation software (i.e. no Hardware) to up to [***] Adeza Managers (collectively, the “Adeza Employees”). Ventiv shall support and maintain such Hardware and software, as more fully set forth in this Exhibit A (the “Sales Force Automation Services”).

Ventiv shall sublicense the following Target Software, Inc. products to Adeza for use by the Adeza Employees.

• Target BackOffice Core

• Target CommSync Server

• Target Mobile Web Sales Management Edition

• Target Mobile Field Sales Pocket Edition

• Target BackOffice Management Reporting Option

• Target SFA Third Party Sales Data Support Option

• Target SFA Organizational Call Support Option

1. Sublicense Grant; Ownership of Intellectual Property Rights; Restrictions. (a) Adeza acknowledges that Target Software is the sole owner of all rights, title and interest in and to all software to support the [***] which will be provided to the Adeza Sales Representatives (“Mobile SFA”) as well as the automation system which will allow Adeza to customize and deliver certain call reporting data (collectively with Mobile SFA, the “SFA”), (including but not limited to all intellectual property contained therein and including without limitation, all modules and components, and all existing versions and any versions to be developed in the future in any media now known or hereafter to be developed) and that Ventiv is merely a licensee of SFA pursuant to a certain license agreement by and between Target Software and Ventiv (the “Target Software License”).

     (b) Subject to the terms, conditions and restrictions herein set forth, including without limitation, payment of the service fees set forth below, Ventiv hereby grants, and Adeza accepts, a limited, nonsublicensable, nonexclusive, non-transferable, non-assignable sublicense (the “Sublicense”) to Use (as defined below) SFA in accordance with the terms and conditions herein set forth for the Extended Term (or any extension thereof as agreed to in writing by the Parties). For purposes of the sublicense herein granted, “Use” means the copying of all or any portion of SFA from storage units or media for processing and operation, provided that any such use is for the Adeza’s internal business purposes only and is limited to the purposes for which SFA is designed. Adeza acknowledges that it understands and agrees that Ventiv, as a licensee of SFA,

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

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CONFIDENTIAL TREATMENT REQUESTED

is itself authorized to only use SFA in accordance with the Target Software License, and therefore, the scope of the license granted to Ventiv is thereby limited. Adeza agrees and acknowledges that neither it nor its employees shall, during the Extended Term or at any time thereafter, directly or indirectly, alone or with any person, use all or any portion of SFA in any manner which is inconsistent with its intended purpose or in any manner which violates the terms of this Fifth Amendment or which is otherwise inconsistent of the permitted Use. Without limiting the foregoing, Adeza agrees that neither it nor its employees shall:

     (i) sell, lease, rent, loan, assign, pledge, encumber, sublicense, distribute, resell or otherwise transfer all or any part of SFA;

     (ii) transfer, share, disclose, assign, sublicense or otherwise transfer SFA or any confidential or proprietary information related thereto, to any third party;

     (iii) permit any person to use SFA other than the Adeza Employees authorized pursuant hereto;

     (iv) decompile, disassemble, reverse engineer or otherwise attempt to discover any source code or underlying trade secrets of Target Software, Inc. and/or contained in SFA;

     (v) remove, obscure or alter any copyright notice, restricted rights legend or other notice of proprietary rights that appears or is contained on or in SFA;

     (vi) modify, adapt, alter, or translate SFA;

     (vii) export SFA or the direct product of such software outside the United States except as authorized by the laws and regulations of the United States and any export permits that may be required;

     (viii) use SFA in violation of applicable copyright laws, trade secret laws or other intellectual property laws;

     (ix) merge SFA with any other software to create a new program or library of programs wherein SFA loses its own identity;

     (x) sublicense or transfer SFA to any third party for a service business, outsourcing or any other purpose;

     (xi) otherwise use or copy SFA without the express prior written consent of Target Software, Inc.;

     (xii) Use SFA after the expiration or earlier termination of the Extended Term; or

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

6

CONFIDENTIAL TREATMENT REQUESTED

          (xiii) allow more than [***] Adeza sales representatives and [***] Adeza Managers to use the SFA (unless Adeza agrees to pay the additional per user fees as agreed to by Ventiv).

     (c) Adeza acknowledges that all materials and intellectual property created or generated by Target Software in connection with the performance of any technical support or any related services hereunder shall be the sole and exclusive property of Target Software, provided that, as between Ventiv, Adeza and Target Software, all Data (as defined below) shall be the sole and exclusive property of Adeza. Adeza further acknowledges that Target Software reserves all right, title and interest in and to SFA, the related documentation (the “Documentation”), and any updates thereto or new versions thereof, and to materials created or generated by Target Software in connection with the performance of any services related thereto. Adeza hereby assigns to Target Software all rights, titles, and interest in and to any and all derivative works of SFA, the Documentation, materials created by Target Software. While the foregoing assignment is intended to be self-executing, without the need for additional written agreement or acknowledgment, Adeza shall execute and deliver any additional written agreement evidencing such assignment upon the request of Target Software. In addition, Adeza acknowledges that SFA and its structure, organization and source code constitute valuable trade secrets of Target Software. Nothing in this Fourth Amendment shall be construed to give Adeza any right, title or interest to Target Software’s proprietary information, other than the sublicense rights granted by Ventiv hereunder and subject to the terms and conditions herein set forth. In any event, neither Ventiv nor Target Software shall have any rights, title or interest in Adeza’s Data (as hereinafter defined). “Data” means all information submitted by Adeza to be processed by SFA, as contemplated by this Fourth Amendment, wherever residing, in all media and in any form, including raw data, compilations, analyses and summaries of such information. Data shall include, but not be limited to, information about the Adeza Sales Representatives, targeted physicians and medical entities, call reports and related information, and all reports and compilations prepared by Adeza in connection therewith.

          (i) Notwithstanding anything set forth in the Agreement to the contrary, all copies of SFA and the Documentation (as such terms are defined herein) shall be returned to Ventiv upon the expiration or earlier termination of the Agreement, it being agreed and acknowledged that Adeza shall not be entitled to retain any copies thereof upon such expiration or termination.

     (d) Adeza is aware and acknowledges that Target Software has made no representation, and has not granted any warranty, express or implied, nor has Target Software otherwise assured that: (i) Adeza’s use of SFA shall meet Adeza’s requirements; (ii) operation of SFA shall be uninterrupted or error free; (iii) SFA shall operate in the combination that may be selected for use by the Adeza; or (iv) SFA complies with any regulations including CFR Title 21, Parts 11, 203 and 205 (the “Regulations”) or any other applicable statute, code, law or regulation.

     (e) Term of Sublicense. The Parties hereto understand and agree that the Sublicense granted hereunder shall be for the Extended Term (and any extension thereof as agreed to in

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

7

CONFIDENTIAL TREATMENT REQUESTED

writing by the Parties). Notwithstanding the foregoing, the Sublicense granted hereunder shall automatically terminate (without the necessity of any further action by either Party) upon the first of the following to occur: (i) the expiration or earlier termination of the Agreement; or (ii) the termination of the Target Software License (a “Termination Event”). Ventiv may terminate the Sublicense (as defined in Exhibit A hereof) and, in addition, Target Software shall have the right to terminate its permission to Ventiv to sublicense Target SFA as contemplated hereunder, upon breach of Adeza’s obligations respecting restrictions on the use of Target SFA (as set forth in Exhibit A).

     (f) Assignment of Sublicense. The Sublicense granted by this Fourth Amendment may not be assigned or transferred by Adeza without the prior written consent of Target Software and Ventiv.

     (g) Help Desk Support and Maintenance and Support of SFA. Ventiv shall provide Adeza with the following [***] levels of technical support and maintenance: [***].

     (h) Adeza understands and acknowledges that Adeza has contracted hereunder directly with Ventiv (and not Target Software) for the performance of the Services. Therefore, notwithstanding Target Software’s consent to the Sublicense and Adeza’s permitted use of the SFA in connection with this Fourth Amendment, Adeza shall look solely to Ventiv for any breach by Ventiv of Ventiv’s performance obligations hereunder.

     (i) Upon receipt of written consent from Adeza, Ventiv and Target Software, Inc. may disclose, on their websites, in press releases, sales materials and in standard presentations to potential customers, that Adeza uses the SFA and the scale of usage of such software by Adeza (i.e., number of users, etc.).

     (j) The Parties agree and acknowledge that Target Software, Inc. is an intended third party beneficiary of this Fifth Amendment with respect to its proprietary rights, and, therefore, that Target Software, Inc. may avail itself to any and all applicable rights and remedies at law or in equity in the event of any breach of the terms and conditions set forth herein with respect thereto.

2. Ventiv Responsibilities.

     Ventiv shall provide Adeza with the following:

     [***]

3. Adeza responsibilities.

     (a) Adeza may, at its option, request that Ventiv provide either: [***].

     (b) Required data to load SFA and data warehouse.

     (c) Sample accountability and compliance, if applicable.

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

8

CONFIDENTIAL TREATMENT REQUESTED

4. Fees and Costs for Sales Force Automation Services

     Adeza shall pay Ventiv the following fees:

     (i) Service Fees — Adeza shall pay Ventiv a fixed service fee (the “Monthly Fee”) based on the number of Adeza Employees with access to SFA (beginning upon the first day of such access):

	monthly Fee Per
	Adeza Sales	monthly Fee Per
Period	Representative	Adeza Manager
Through July 31, 2006	$[***]	$[***]
August 1, 2006 through July 31, 2007	$[***]	$[***]
August 1, 2007 through end of Extended Year Two	$[***]	$[***]

     (ii) Invoices for fees due from Adeza for performance by Ventiv of the Services will be sent by Ventiv monthly in arrears on a per Adeza Employee basis. Billing terms are as set forth in the Amended Agreement.

     (iii) Adeza will be credited $[***] per Adeza Employee per month through July 31, 2006; $[***] per month for the period August 1, 2006 through July 31, 2007; and $[***] per month for the period August 1, 2007 through Extended Year Two in the event Adeza elects to provide [***]. Adeza shall notify Ventiv, in writing, of this election.

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

9

CONFIDENTIAL TREATMENT REQUESTED

SCHEDULE 1
DETAILED ANALYSIS AND REPORTING LEVELS

Work to be performed
		Standard
		Annual	Standard	Typical
Database	Base assumptions	Frequency	Timing	Turnaround
Initial Data Loads	Data provided from one source in basic Ventiv provided layout	[***]	[***]	[***]
Universe Deletions	Data provided from one source in basic Ventiv provided layout	[***]	[***]	[***]
Universe Merges	Data provided from one source in basic Ventiv provided layout	[***]	[***]	[***]
Universe Additions	Data provided from one source in basic Ventiv provided layout	[***]	[***]	[***]
Universe Zip/Terr Changes	Standard (zip code :from territory :to territory) format	[***]	[***]	[***]
Major realignments (more	Standard (zip code :from territory :
than 25% of universe changes)	to territory) format	[***]	[***]	[***]
Universe matches to third party	Matchable unique identifiers	[***]	[***]	[***]
Target changes		[***]	[***]	[***]
Data Extracts	standard format-no charge for setup	[***]	[***]	[***]
Data Extracts to	standard format-no charge for setup-per

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

10

CONFIDENTIAL TREATMENT REQUESTED

Work to be performed
		Standard
		Annual	Standard	Typical
Database	Base assumptions	Frequency	Timing	Turnaround
third party vendors	run charge (TBD with complexity.
Standard Reports	Base assumptions	Standard Frequency	Standard Timing	[***]
Call Activity	Standard Format	[***]	[***]	[***]
National Level Dashboard Reports	Standard Format	[***]	[***]	[***]
		[***]	[***]	[***]
Territory Summary	Customized to specific activity measurements within set up matrix (calls, targets only, reach, frequency, sample distribution)	[***]	[***]	[***]
Call Planning	Hourly rate	[***]	[***]	[***]
Alignments	Hourly rate	[***]	[***]	[***]
Incentive Compensation	Hourly rate	[***]	[***]	[***]
Non-Standard Reporting	Hourly rate	[***]	[***]	[***]
Web Portal Customizations	Hourly rate	[***]	[***]	[***]
Data Extract Set Up and Modifications	Hourly rate	[***]	[***]	[***]
Data Set up For Third Party Data	Hourly Rate	[***]	[***]	[***]

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

11

CONFIDENTIAL TREATMENT REQUESTED

Work to be performed
		Standard
		Annual	Standard	Typical
Database	Base assumptions	Frequency	Timing	Turnaround
*All customizations performed at hourly rate of $[ *** ] per hour.		[***]	[***]	[***]

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

12

EX-10.20

Exhibit 10.20

ADEZA BIOMEDICAL CORPORATION

AMENDED AND RESTATED

MANAGEMENT CONTINUITY AGREEMENT

     This Amended and Restated Management Continuity Agreement (the “Agreement”) is dated as of January 12, 2007 by and between Emory V. Anderson (“Employee”) and Adeza Biomedical Corporation., a Delaware corporation (the “Company” or “Adeza”). This Agreement amends sections 2(b)(i) – (iv) and section 5(a) of the Management Continuity Agreement entered into by and between Employee and the Company on October 21, 2004. This Agreement is intended to provide Employee with certain benefits described herein upon the occurrence of specific events.

RECITALS

     A. It is expected that another company may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company’s Board of Directors. The Board of Directors recognizes that such consideration can be a distraction to Employee and can cause Employee to consider alternative employment opportunities. The Board of Directors has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.

     B. The Company’s Board of Directors believes it is in the best interests of the Company and its stockholders to retain Employee and provide incentives to Employee to continue in the service of the Company.

     C. The Board of Directors further believes that it is imperative to provide Employee with certain benefits upon a Change of Control and, under certain circumstances, upon termination of Employee’s employment, which benefits are intended to provide Employee with financial security and provide sufficient income and encouragement to Employee to remain with the Company, notwithstanding the possibility of a Change of Control.

     D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by Employee, to agree to the terms provided in this Agreement.

     Now therefore, in consideration of the mutual promises, covenants and agreements contained herein, and in consideration of the continuing employment of Employee by the Company, the parties hereto agree as follows:

     1. At-Will Employment. The Company and Employee acknowledge that Employee’s employment is and shall continue to be at-will, as defined under applicable law, and that Employee’s employment with the Company may be terminated by either party at any time for any or no reason. If Employee’s employment terminates for any reason, Employee shall not be entitled to any payments, benefits, award or compensation other than as provided in this Agreement. The terms of this Agreement shall terminate upon the earlier of (i) the date on which Employee ceases to be employed as an executive corporate officer of the Company, other than as a result of an involuntary termination by the Company without Cause (as defined below) or Employee’s resignation for Good Reason (as defined below); or (ii) the date that all obligations of the parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. The rights and duties created by this Section 1 may not be modified in any way except by a written agreement executed by an officer of the Company upon direction from the Board of Directors.

2. Benefits Upon a Change of Control; Termination of Employment.

          (a) Treatment of Stock Options and Other Equity Awards Upon a Change of Control. In the event of a Change of Control and regardless of whether Employee’s employment with the Company is terminated in

connection with the Change in Control, the vesting of each stock option and other equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the effective date of a Change of Control shall accelerate such that 75% of the aggregate number of unvested option shares and other equity awards shall become immediately vested immediately prior to the effective date of the Change of Control, with the vesting acceleration applied with respect to each outstanding option or equity award in the order in which the award was granted. Each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted.

          (b) Termination Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time within 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 24 months after the effective date of the termination (the “Severance Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Severance Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 200% of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, (iii) a lump sum payment as soon as practicable after the date of termination of employment equal to a pro-rata portion of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs based on the number of completed months of Employee’s employment during such fiscal year; (iv) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law; (v) each stock option and equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the date of termination of employment shall become immediately vested as to 100% of the then unvested option shares; and (vi) each equity award granted on or after July 23, 2004 shall remain exercisable for a period of eighteen (18) months following Employee’s termination date (but not later than the expiration date of the award as set forth in the applicable award agreement). Each such option and equity award shall otherwise be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted. In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (c) Termination Not Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time prior to or more than 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 12 months after the effective date of the termination (the “Benefit Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Benefit Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 50% of the bonus paid to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, (iii) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to COBRA or other applicable law through the earlier of the end of the Benefit Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law; (iv) each stock option and equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the date of termination of employment shall become immediately vested on such date as to that number of shares that would have vested in accordance with the terms of such option or equity award as of the date 12 months after the date of termination of employment (assuming that Employee had remained an employee of the Company for 12 months after the date of termination of employment) and each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted, provided however that the vested shares underlying an equity award granted on or after July 23, 2004, shall remain exercisable for a period of eighteen (18) months following Employee’s termination date (but not later than the expiration date of the award as set forth in the applicable award agreement). In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (d) Termination for Cause. If Employee’s employment is terminated for Cause at any time, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

          (e) Voluntary Resignation other than for Good Reason. If Employee voluntarily resigns from the Company for any reason other than Good Reason, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the terms of the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

     3. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

          (a) Change of Control. “Change of Control” shall mean the occurrence of any of the following events:

               (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities without the approval of the Board;

               (ii) Merger/Sale of Assets. A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

               (iii) Change in Board Composition. A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of August 1, 2004 or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but an Incumbent Director shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

          (b) Cause. “Cause” for termination of Employee’s employment will exist if Employee is terminated by the Company, for any of the following reasons, as determined in good faith by the Company: (i) Employee’s gross negligence or willful failure substantially to perform his duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Employee’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Employee of any proprietary information or trade secrets of the Company or any other party to whom the Employee owes an obligation of nondisclosure as a result of his relationship with the Company; or (iv) Employee’s willful breach of any of his obligations under any written agreement or covenant with the Company.

          (c) Good Reason. “Good Reason” for Employee’s resignation of his employment will exist if Employee tenders his resignation to the Company with 30 days prior written notice to the Company within 120 days of the occurrence of any of the following events: (i) a material reduction in the Employee’s job responsibilities, as of immediately prior to the Change of Control for purposes of Section 2(b) above and as of immediately prior to the termination date for purposes of Section 2(c) above; (ii) relocation by the Company of the Employee’s work site which has the effect of increasing Employee’s then-current commute by more than 50 miles; (iii) any reduction in Employee’s then-current base salary and/or target bonus (other than in connection with a general decrease in the base salaries and target bonus for all other executives of the Company); (iv) a material reduction in Employee’s benefits (other than a general decrease in the benefit

programs offered to all other executives of the Company); or (v) the Company’s failure to obtain agreement from any acquiror or successor to assume the Company’s obligations under this Agreement.

     4. Parachute Payments. In the event that the severance and other benefits provided for in this Agreement to Employee (the “Benefit”), determined without regard to any additional payment required under this section 4, would (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties payable with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then Employee shall be entitled to receive from the Company an additional payment (the “Gross-Up Payment”) in an amount sufficient to reimburse Employee for both (A) such Excise Tax, and (B) the income, excise, employment and any other taxes imposed on the Gross Up Payment provided under this Section 4. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and to Employee within fifteen (15) calendar days after the date on which Employee’s right to the Benefit is triggered (if requested at that time by the Company or by Employee) or such other time as requested by the Company or by Employee. If the accounting firm determines that no Excise Tax is payable with respect to the Benefit, it shall furnish the Company and Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to such Benefit. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Employee.

          5. Limitations and Conditions on Benefits

     (a) Income and Employment Taxes. Employees agrees that he shall be responsible for any applicable taxes of any nature (including any penalties or interest that may apply to such taxes) that the Company reasonably determines apply to any payment made hereunder, that his receipt of any benefit hereunder is conditioned on his satisfaction of any applicable withholding or similar obligations that apply to such benefit, and that any cash payment owed hereunder will be reduced to satisfy any such withholding or similar obligations that may apply. Notwithstanding any provision of this Agreement to the contrary, if, at the time of Employee’s termination of employment, he is a “specified employee” as defined in Code Section 409A, and one or more of the payments or benefits received or to be received by Employee pursuant to this Agreement would constitute deferred compensation subject to Code Section 409A, no such payment or benefit will be provided under the Agreement until the earliest of (A) the date which is six (6) months after Employee’s “separation from service” for any reason, other than death or “disability” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of Employee’s death or “disability” (as such term is used in Section 409A(a)(2)(C) of the Code), or (C) the effective date of a “change in the ownership or effective control” or a “change in ownership of a substantial portion of the assets” of the Company (as such terms are used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 5(a) shall only apply to the extent required to avoid Employee’s incurrence of any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of the Agreement would cause Employee to incur any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company may reform such provision to maintain to the maximum extent practicable in accordance with the original intent of the applicable provision without violating the provisions of Code Section 409A, including without limitation to limit payment or distribution of any amount of benefit hereunder in connection with a change of control to a transaction meeting the definitions referred to in clause (C) above, or in connection with a disability as referred to in (B) above.

     (b) Release Prior to Receipt of Benefits. Prior to the receipt of any benefits under this Agreement, Employee shall execute a release of claims agreement (the “Release”) in the form provided by the Company. Such Release shall specifically relate to all of Employee’s rights and claims in existence at the time of such execution and shall confirm Employee’s obligations under the Company’s standard form of proprietary information agreement.

     6. Conflicts. Employee represents that his performance of all the terms of this Agreement will not breach any other agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement. Employee further represents that he is entering into or has entered into an employment relationship with the Company of his own free will and that he has not been solicited as an employee in any way by the Company.

     7. Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee’s rights hereunder and thereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

     8. Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

     9. Miscellaneous Provisions.

          (a) No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source.

          (b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Employee and by an authorized officer of the Company (other than Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

          (c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void.

          (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.

          (e) Severability. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.

          (f) Arbitration. Employee and the Company agree to attempt to settle any disputes arising in connection with this Agreement through good faith consultation. In the event that Employee and the Company are not able to resolve any such disputes within fifteen (15) days after notification in writing to the other, Employee and the Company agree that any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator mutually agreed upon by the parties. The arbitrator will apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Except as set forth in Subparagraph (e) above, the arbitrator shall not have authority to modify the terms of this Agreement. The Company shall pay the costs of the arbitration proceeding. Each party shall, unless otherwise determined by the arbitrator, bear its or his own attorneys’ fees and expenses, provided however that if Employee prevails in an arbitration proceeding, the Company shall reimburse Employee for his reasonable attorneys’ fees and costs. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the Company and Employee may apply to any court of competent

jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision.

          (g) Legal Fees and Expenses. The parties shall each bear their own expenses, legal fees and other fees incurred in connection with the execution of this Agreement.

          (h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 10(h) shall be void.

          (i) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee.

          (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

     The parties have executed this Agreement on the date first written above.

ADEZA BIOMEDICAL CORPORATION.
By:	/s/ Mark D. Fischer-Colbrie
Title:	Chief Financial Officer
Address: 1240 Elko Drive
	Sunnyvale, California 94089
EMORY V. ANDERSON
Signature:	/s/ Emory V. Anderson
Address: 1240 Elko Drive
	Sunnyvale, California 94089

EX-10.21

Exhibit 10.21

ADEZA BIOMEDICAL CORPORATION

AMENDED AND RESTATED

MANAGEMENT CONTINUITY AGREEMENT

     This Amended and Restated Management Continuity Agreement (the “Agreement”) is dated as of January 12, 2007, by and between Mark Fischer-Colbrie (“Employee”) and Adeza Biomedical Corporation., a Delaware corporation (the “Company” or “Adeza”). This Agreement amends sections 2(b)(i) – (iv) and section 5(a) of the Management Continuity Agreement entered into by and between Employee and the Company on October 21, 2004. This Agreement is intended to provide Employee with certain benefits described herein upon the occurrence of specific events.

RECITALS

     A. It is expected that another company may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company’s Board of Directors. The Board of Directors recognizes that such consideration can be a distraction to Employee and can cause Employee to consider alternative employment opportunities. The Board of Directors has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.

     B. The Company’s Board of Directors believes it is in the best interests of the Company and its stockholders to retain Employee and provide incentives to Employee to continue in the service of the Company.

     C. The Board of Directors further believes that it is imperative to provide Employee with certain benefits upon a Change of Control and, under certain circumstances, upon termination of Employee’s employment, which benefits are intended to provide Employee with financial security and provide sufficient income and encouragement to Employee to remain with the Company, notwithstanding the possibility of a Change of Control.

     D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by Employee, to agree to the terms provided in this Agreement.

     Now therefore, in consideration of the mutual promises, covenants and agreements contained herein, and in consideration of the continuing employment of Employee by the Company, the parties hereto agree as follows:

     1. At-Will Employment. The Company and Employee acknowledge that Employee’s employment is and shall continue to be at-will, as defined under applicable law, and that Employee’s employment with the Company may be terminated by either party at any time for any or no reason. If Employee’s employment terminates for any reason, Employee shall not be entitled to any payments, benefits, award or compensation other than as provided in this Agreement. The terms of this Agreement shall terminate upon the earlier of (i) the date on which Employee ceases to be employed as an executive corporate officer of the Company, other than as a result of an involuntary termination by the Company without Cause (as defined below) or Employee’s resignation for Good Reason (as defined below); or (ii) the date that all obligations of the parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. The rights and duties created by this Section 1 may not be modified in any way except by a written agreement executed by an officer of the Company upon direction from the Board of Directors.

     2. Benefits Upon a Change of Control; Termination of Employment.

          (a) Treatment of Stock Options and Other Equity Awards Upon a Change of Control. In the event of a Change of Control and regardless of whether Employee’s employment with the Company is terminated in

connection with the Change in Control, the vesting of each stock option and other equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the effective date of a Change of Control shall accelerate such that 50% of the aggregate number of unvested option shares and other equity awards shall become immediately vested immediately prior to the effective date of the Change of Control, with the vesting acceleration applied with respect to each outstanding option or equity award in the order in which the award was granted. Each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted.

          (b) Termination Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time within 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 18 months after the effective date of the termination (the “Severance Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Severance Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 150% of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, (iii) a lump sum payment as soon as practicable after the date of termination of employment equal to a pro-rata portion of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs based on the number of completed months of Employee’s employment during such fiscal year; (iv) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law; (v) each stock option and equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the date of termination of employment shall become immediately vested as to 100% of the then unvested option shares; and (vi) each equity award granted on or after July 23, 2004, shall remain exercisable for a period of eighteen (18) months following Employee’s termination date (but not later than the expiration date of an award as set forth in the applicable award agreement). Each such option and equity award shall otherwise be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted. In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (c) Termination Not Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time prior to or more than 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 6 months after the effective date of the termination (the “Benefit Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Benefit Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 25% of the bonus paid to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, (iii) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to COBRA or other applicable law through the earlier of the end of the Benefit Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law; and (iv) each stock option and equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the date of termination of employment shall become immediately vested on such date as to that number of shares that would have vested in accordance with the terms of such option or equity award as of the date 12 months after the date of termination of employment (assuming that Employee had remained an employee of the Company for 12 months after the date of termination of employment) and each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted, provided however that the vested shares underlying an equity award granted on or after July 23, 2004, shall remain exercisable for a period of eighteen (18) months following Employee’s termination date (but not later than the expiration date of the award as set forth in the applicable award agreement). In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (d) Termination for Cause. If Employee’s employment is terminated for Cause at any time, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

          (e) Voluntary Resignation other than for Good Reason. If Employee voluntarily resigns from the Company for any reason other than Good Reason, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the terms of the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

     3. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

          (a) Change of Control. “Change of Control” shall mean the occurrence of any of the following events:

               (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities without the approval of the Board;

               (ii) Merger/Sale of Assets. A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

               (iii) Change in Board Composition. A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of August 1, 2004 or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but an Incumbent Director shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

          (b) Cause. “Cause” for termination of Employee’s employment will exist if Employee is terminated by the Company, for any of the following reasons, as determined in good faith by the Company: (i) Employee’s gross negligence or willful failure substantially to perform his duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Employee’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Employee of any proprietary information or trade secrets of the Company or any other party to whom the Employee owes an obligation of nondisclosure as a result of his relationship with the Company; or (iv) Employee’s willful breach of any of his obligations under any written agreement or covenant with the Company.

          (c) Good Reason. “Good Reason” for Employee’s resignation of his employment will exist if Employee tenders his resignation to the Company with 30 days prior written notice to the Company within 120 days of the occurrence of any of the following events: (i) a material reduction in the Employee’s job responsibilities, as of immediately prior to the Change of Control for purposes of Section 2(b) above and as of immediately prior to the termination date for purposes of Section 2(c) above; (ii) relocation by the Company of the Employee’s work site which has the effect of increasing Employee’s then-current commute by more than 50 miles; (iii) any reduction in Employee’s then-current base salary and/or target bonus (other than in connection with a general decrease in the base salaries and target bonus for all other executives of the Company); (iv) a material reduction in Employee’s benefits (other than a general decrease in the benefit

programs offered to all other executives of the Company); or (v) the Company’s failure to obtain agreement from any acquiror or successor to assume the Company’s obligations under this Agreement.

     4. Parachute Payments. In the event that the severance and other benefits provided for in this Agreement to Employee (the “Benefit”), determined without regard to any additional payment required under this section 4, would (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties payable with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then Employee shall be entitled to receive from the Company an additional payment (the “Gross-Up Payment”) in an amount sufficient to reimburse Employee for both (A) such Excise Tax, and (B) the income, excise, employment and any other taxes imposed on the Gross Up Payment provided under this Section 4. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and to Employee within fifteen (15) calendar days after the date on which Employee’s right to the Benefit is triggered (if requested at that time by the Company or by Employee) or such other time as requested by the Company or by Employee. If the accounting firm determines that no Excise Tax is payable with respect to the Benefit, it shall furnish the Company and Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to such Benefit. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Employee.

          5. Limitations and Conditions on Benefits

     (a) Income and Employment Taxes. Employees agrees that he shall be responsible for any applicable taxes of any nature (including any penalties or interest that may apply to such taxes) that the Company reasonably determines apply to any payment made hereunder, that his receipt of any benefit hereunder is conditioned on his satisfaction of any applicable withholding or similar obligations that apply to such benefit, and that any cash payment owed hereunder will be reduced to satisfy any such withholding or similar obligations that may apply. Notwithstanding any provision of this Agreement to the contrary, if, at the time of Employee’s termination of employment, he is a “specified employee” as defined in Code Section 409A, and one or more of the payments or benefits received or to be received by Employee pursuant to this Agreement would constitute deferred compensation subject to Code Section 409A, no such payment or benefit will be provided under the Agreement until the earliest of (A) the date which is six (6) months after Employee’s “separation from service” for any reason, other than death or “disability” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of Employee’s death or “disability” (as such term is used in Section 409A(a)(2)(C) of the Code), or (C) the effective date of a “change in the ownership or effective control” or a “change in ownership of a substantial portion of the assets” of the Company (as such terms are used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 5(a) shall only apply to the extent required to avoid Employee’s incurrence of any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of the Agreement would cause Employee to incur any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company may reform such provision to maintain to the maximum extent practicable in accordance with the original intent of the applicable provision without violating the provisions of Code Section 409A, including without limitation to limit payment or distribution of any amount of benefit hereunder in connection with a change of control to a transaction meeting the definitions referred to in clause (C) above, or in connection with a disability as referred to in (B) above.

     (b) Release Prior to Receipt of Benefits. Prior to the receipt of any benefits under this Agreement, Employee shall execute a release of claims agreement (the “Release”) in the form provided by the Company. Such Release shall specifically relate to all of Employee’s rights and claims in existence at the time of such execution and shall confirm Employee’s obligations under the Company’s standard form of proprietary information agreement.

     6. Conflicts. Employee represents that his performance of all the terms of this Agreement will not breach any other agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement. Employee further represents that he is entering into or has entered into an employment relationship with the Company of his own free will and that he has not been solicited as an employee in any way by the Company.

     7. Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee’s rights hereunder and thereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

     8. Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

     9. Miscellaneous Provisions.

          (a) No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source.

          (b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Employee and by an authorized officer of the Company (other than Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

          (c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void.

          (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.

          (e) Severability. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.

          (f) Arbitration. Employee and the Company agree to attempt to settle any disputes arising in connection with this Agreement through good faith consultation. In the event that Employee and the Company are not able to resolve any such disputes within fifteen (15) days after notification in writing to the other, Employee and the Company agree that any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator mutually agreed upon by the parties. The arbitrator will apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Except as set forth in Subparagraph (e) above, the arbitrator shall not have authority to modify the terms of this Agreement. The Company shall pay the costs of the arbitration proceeding. Each party shall, unless otherwise determined by the arbitrator, bear its or his own attorneys’ fees and expenses, provided however that if Employee prevails in an arbitration proceeding, the Company shall reimburse Employee for his reasonable attorneys’ fees and costs. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the Company and Employee may apply to any court of competent

jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision.

          (g) Legal Fees and Expenses. The parties shall each bear their own expenses, legal fees and other fees incurred in connection with the execution of this Agreement.

          (h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 10(h) shall be void.

          (i) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee.

          (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

     The parties have executed this Agreement on the date first written above.

ADEZA BIOMEDICAL CORPORATION.
By:	/s/ Emory V. Anderson
Title:	President and CEO
Address: 1240 Elko Drive
	Sunnyvale, California 94089
MARK FISCHER-COLBRIE
Signature:	/s/ Mark D. Fischer-Colbrie
Address: 1240 Elko Drive
	Sunnyvale, California 94089

EX-10.22

Exhibit 10.22

ADEZA BIOMEDICAL CORPORATION

AMENDED AND RESTATED

MANAGEMENT CONTINUITY AGREEMENT

     This Amended and Restated Management Continuity Agreement (the “Agreement”) is dated as of January 12, 2007, by and between Durlin E. Hickok (“Employee”) and Adeza Biomedical Corporation., a Delaware corporation (the “Company” or “Adeza”). This Agreement amends sections 2(b)(i) – (iv) and section 5(a) of the Management Continuity Agreement entered into by and between Employee and the Company on October 21, 2004. This Agreement is intended to provide Employee with certain benefits described herein upon the occurrence of specific events.

RECITALS

     A. It is expected that another company may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company’s Board of Directors. The Board of Directors recognizes that such consideration can be a distraction to Employee and can cause Employee to consider alternative employment opportunities. The Board of Directors has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.

     B. The Company’s Board of Directors believes it is in the best interests of the Company and its stockholders to retain Employee and provide incentives to Employee to continue in the service of the Company.

     C. The Board of Directors further believes that it is imperative to provide Employee with certain benefits upon a Change of Control and, under certain circumstances, upon termination of Employee’s employment, which benefits are intended to provide Employee with financial security and provide sufficient income and encouragement to Employee to remain with the Company, notwithstanding the possibility of a Change of Control.

     D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by Employee, to agree to the terms provided in this Agreement.

     Now therefore, in consideration of the mutual promises, covenants and agreements contained herein, and in consideration of the continuing employment of Employee by the Company, the parties hereto agree as follows:

     1. At-Will Employment. The Company and Employee acknowledge that Employee’s employment is and shall continue to be at-will, as defined under applicable law, and that Employee’s employment with the Company may be terminated by either party at any time for any or no reason. If Employee’s employment terminates for any reason, Employee shall not be entitled to any payments, benefits, award or compensation other than as provided in this Agreement. The terms of this Agreement shall terminate upon the earlier of (i) the date on which Employee ceases to be employed as an executive corporate officer of the Company, other than as a result of an involuntary termination by the Company without Cause (as defined below) or Employee’s resignation for Good Reason (as defined below); or (ii) the date that all obligations of the parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. The rights and duties created by this Section 1 may not be modified in any way except by a written agreement executed by an officer of the Company upon direction from the Board of Directors.

     2. Benefits Upon a Change of Control; Termination of Employment.

          (a) Treatment of Stock Options and Other Equity Awards Upon a Change of Control. In the event of a Change of Control and regardless of whether Employee’s employment with the Company is terminated in connection with the Change in Control, the vesting of each stock option and other equity award to purchase the Company’s

Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the effective date of a Change of Control shall accelerate such that 50% of the aggregate number of unvested option shares and other equity awards shall become immediately vested immediately prior to the effective date of the Change of Control, with the vesting acceleration applied with respect to each outstanding option or equity award in the order in which the award was granted. Each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted.

          (b) Termination Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time within 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 18 months after the effective date of the termination (the “Severance Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Severance Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 150% of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, (iii) a lump sum payment as soon as practicable after the date of termination of employment equal to a pro-rata portion of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs based on the number of completed months of Employee’s employment during such fiscal year; (iv) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law; and (v) each stock option and equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the date of termination of employment shall become immediately vested on such date as to that number of shares that would have vested in accordance with the terms of such option or equity award as of the date 12 months after the date of termination of employment (assuming that Employee had remained an employee of the Company for 12 months after the date of termination of employment). Each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted, provided however that the vested shares underlying an equity award granted on or after July 23, 2004, shall remain exercisable for a period of eighteen (18) months following Employee’s termination date (but not later than the expiration date of the award as set forth in the applicable award agreement). In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (c) Termination Not Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time prior to or more than 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 6 months after the effective date of the termination (the “Benefit Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Benefit Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 25% of the bonus paid to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, and (iii) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to COBRA or other applicable law through the earlier of the end of the Benefit Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (d) Termination for Cause. If Employee’s employment is terminated for Cause at any time, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

          (e) Voluntary Resignation other than for Good Reason. If Employee voluntarily resigns from the Company for any reason other than Good Reason, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s

termination of employment and Employee’s benefits will be continued under the terms of the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

     3. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

          (a) Change of Control. “Change of Control” shall mean the occurrence of any of the following events:

               (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities without the approval of the Board;

               (ii) Merger/Sale of Assets. A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

               (iii) Change in Board Composition. A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of August 1, 2004 or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but an Incumbent Director shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

          (b) Cause. “Cause” for termination of Employee’s employment will exist if Employee is terminated by the Company, for any of the following reasons, as determined in good faith by the Company: (i) Employee’s gross negligence or willful failure substantially to perform his duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Employee’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Employee of any proprietary information or trade secrets of the Company or any other party to whom the Employee owes an obligation of nondisclosure as a result of his relationship with the Company; or (iv) Employee’s willful breach of any of his obligations under any written agreement or covenant with the Company.

          (c) Good Reason. “Good Reason” for Employee’s resignation of his employment will exist if Employee tenders his resignation to the Company with 30 days prior written notice to the Company within 120 days of the occurrence of any of the following events: (i) a material reduction in the Employee’s job responsibilities, as of immediately prior to the Change of Control for purposes of Section 2(b) above and as of immediately prior to the termination date for purposes of Section 2(c) above; (ii) relocation by the Company of the Employee’s work site which has the effect of increasing Employee’s then-current commute by more than 50 miles; (iii) any reduction in Employee’s then-current base salary and/or target bonus (other than in connection with a general decrease in the base salaries and target bonus for all other executives of the Company); (iv) a material reduction in Employee’s benefits (other than a general decrease in the benefit programs offered to all other executives of the Company); or (v) the Company’s failure to obtain agreement from any acquiror or successor to assume the Company’s obligations under this Agreement.

     4. Parachute Payments. In the event that the severance and other benefits provided for in this Agreement to Employee (the “Benefit”), determined without regard to any additional payment required under this section 4, would (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties payable with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then Employee shall be entitled to receive from the Company an additional payment (the

“Gross-Up Payment”) in an amount sufficient to reimburse Employee for both (A) such Excise Tax, and (B) the income, excise, employment and any other taxes imposed on the Gross Up Payment provided under this Section 4. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and to Employee within fifteen (15) calendar days after the date on which Employee’s right to the Benefit is triggered (if requested at that time by the Company or by Employee) or such other time as requested by the Company or by Employee. If the accounting firm determines that no Excise Tax is payable with respect to the Benefit, it shall furnish the Company and Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to such Benefit. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Employee.

          5. Limitations and Conditions on Benefits

     (a) Income and Employment Taxes. Employees agrees that he shall be responsible for any applicable taxes of any nature (including any penalties or interest that may apply to such taxes) that the Company reasonably determines apply to any payment made hereunder, that his receipt of any benefit hereunder is conditioned on his satisfaction of any applicable withholding or similar obligations that apply to such benefit, and that any cash payment owed hereunder will be reduced to satisfy any such withholding or similar obligations that may apply. Notwithstanding any provision of this Agreement to the contrary, if, at the time of Employee’s termination of employment, he is a “specified employee” as defined in Code Section 409A, and one or more of the payments or benefits received or to be received by Employee pursuant to this Agreement would constitute deferred compensation subject to Code Section 409A, no such payment or benefit will be provided under the Agreement until the earliest of (A) the date which is six (6) months after Employee’s “separation from service” for any reason, other than death or “disability” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of Employee’s death or “disability” (as such term is used in Section 409A(a)(2)(C) of the Code), or (C) the effective date of a “change in the ownership or effective control” or a “change in ownership of a substantial portion of the assets” of the Company (as such terms are used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 5(a) shall only apply to the extent required to avoid Employee’s incurrence of any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of the Agreement would cause Employee to incur any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company may reform such provision to maintain to the maximum extent practicable in accordance with the original intent of the applicable provision without violating the provisions of Code Section 409A, including without limitation to limit payment or distribution of any amount of benefit hereunder in connection with a change of control to a transaction meeting the definitions referred to in clause (C) above, or in connection with a disability as referred to in (B) above.

     (b) Release Prior to Receipt of Benefits. Prior to the receipt of any benefits under this Agreement, Employee shall execute a release of claims agreement (the “Release”) in the form provided by the Company. Such Release shall specifically relate to all of Employee’s rights and claims in existence at the time of such execution and shall confirm Employee’s obligations under the Company’s standard form of proprietary information agreement.

     6. Conflicts. Employee represents that his performance of all the terms of this Agreement will not breach any other agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement. Employee further represents that he is entering into or has entered into an employment relationship with the Company of his own free will and that he has not been solicited as an employee in any way by the Company.

     7. Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee’s rights hereunder and thereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

     8. Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

     9. Miscellaneous Provisions.

          (a) No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source.

          (b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Employee and by an authorized officer of the Company (other than Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

          (c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void.

          (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.

          (e) Severability. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.

          (f) Arbitration. Employee and the Company agree to attempt to settle any disputes arising in connection with this Agreement through good faith consultation. In the event that Employee and the Company are not able to resolve any such disputes within fifteen (15) days after notification in writing to the other, Employee and the Company agree that any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator mutually agreed upon by the parties. The arbitrator will apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Except as set forth in Subparagraph (e) above, the arbitrator shall not have authority to modify the terms of this Agreement. The Company shall pay the costs of the arbitration proceeding. Each party shall, unless otherwise determined by the arbitrator, bear its or his own attorneys’ fees and expenses, provided however that if Employee prevails in an arbitration proceeding, the Company shall reimburse Employee for his reasonable attorneys’ fees and costs. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the Company and Employee may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision.

          (g) Legal Fees and Expenses. The parties shall each bear their own expenses, legal fees and other fees incurred in connection with the execution of this Agreement.

          (h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation

of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 10(h) shall be void.

          (i) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee.

          (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

     The parties have executed this Agreement on the date first written above.

ADEZA BIOMEDICAL CORPORATION.
By:	/s/ Mark D. Fischer-Colbrie
Title:	Chief Financial Officer
Address: 1240 Elko Drive
	Sunnyvale, California 94089
DURLIN E. HICKOK
Signature:	/s/ Durlin E. Hickok
Address: 1240 Elko Drive
	Sunnyvale, California 94089

EX-10.23

Exhibit 10.23

ADEZA BIOMEDICAL CORPORATION

AMENDED AND RESTATED

MANAGEMENT CONTINUITY AGREEMENT

     This Amended and Restated Management Continuity Agreement (the “Agreement”) is dated as of January 12, 2007, by and between Robert O. Hussa (“Employee”) and Adeza Biomedical Corporation., a Delaware corporation (the “Company” or “Adeza”). This Agreement amends sections 2(b)(i) – (iv) and section 5(a) of the Management Continuity Agreement entered into by and between Employee and the Company on October 21, 2004. This Agreement is intended to provide Employee with certain benefits described herein upon the occurrence of specific events.

RECITALS

     A. It is expected that another company may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company’s Board of Directors. The Board of Directors recognizes that such consideration can be a distraction to Employee and can cause Employee to consider alternative employment opportunities. The Board of Directors has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.

     B. The Company’s Board of Directors believes it is in the best interests of the Company and its stockholders to retain Employee and provide incentives to Employee to continue in the service of the Company.

     C. The Board of Directors further believes that it is imperative to provide Employee with certain benefits upon a Change of Control and, under certain circumstances, upon termination of Employee’s employment, which benefits are intended to provide Employee with financial security and provide sufficient income and encouragement to Employee to remain with the Company, notwithstanding the possibility of a Change of Control.

     D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by Employee, to agree to the terms provided in this Agreement.

     Now therefore, in consideration of the mutual promises, covenants and agreements contained herein, and in consideration of the continuing employment of Employee by the Company, the parties hereto agree as follows:

     1. At-Will Employment. The Company and Employee acknowledge that Employee’s employment is and shall continue to be at-will, as defined under applicable law, and that Employee’s employment with the Company may be terminated by either party at any time for any or no reason. If Employee’s employment terminates for any reason, Employee shall not be entitled to any payments, benefits, award or compensation other than as provided in this Agreement. The terms of this Agreement shall terminate upon the earlier of (i) the date on which Employee ceases to be employed as an executive corporate officer of the Company, other than as a result of an involuntary termination by the Company without Cause (as defined below) or Employee’s resignation for Good Reason (as defined below); or (ii) the date that all obligations of the parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. The rights and duties created by this Section 1 may not be modified in any way except by a written agreement executed by an officer of the Company upon direction from the Board of Directors.

     2. Benefits Upon a Change of Control; Termination of Employment.

          (a) Treatment of Stock Options and Other Equity Awards Upon a Change of Control. In the event of a Change of Control and regardless of whether Employee’s employment with the Company is terminated in

connection with the Change in Control, the vesting of each stock option and other equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the effective date of a Change of Control shall accelerate such that 50% of the aggregate number of unvested option shares and other equity awards shall become immediately vested immediately prior to the effective date of the Change of Control, with the vesting acceleration applied with respect to each outstanding option or equity award in the order in which the award was granted. Each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted.

          (b) Termination Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time within 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 18 months after the effective date of the termination (the “Severance Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Severance Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 150% of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, (iii) a lump sum payment as soon as practicable after the date of termination of employment equal to a pro-rata portion of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs based on the number of completed months of Employee’s employment during such fiscal year; (iv) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law; and (v) each stock option and equity award to purchase the Company’s Common Stock granted to Employee over the course of his employment with the Company and held by Employee on the date of termination of employment shall become immediately vested on such date as to that number of shares that would have vested in accordance with the terms of such option or equity award as of the date 12 months after the date of termination of employment (assuming that Employee had remained an employee of the Company for 12 months after the date of termination of employment). Each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted, provided however that the vested shares underlying an equity award granted on or after July 23, 2004, shall remain exercisable for a period of eighteen (18) months following Employee’s termination date (but not later than the expiration date of the award as set forth in the applicable award agreement). In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (c) Termination Not Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time prior to or more than 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 6 months after the effective date of the termination (the “Benefit Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Benefit Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 25% of the bonus paid to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, and (iii) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to COBRA or other applicable law through the earlier of the end of the Benefit Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (d) Termination for Cause. If Employee’s employment is terminated for Cause at any time, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

          (e) Voluntary Resignation other than for Good Reason. If Employee voluntarily resigns from the Company for any reason other than Good Reason, then Employee shall not be entitled to receive payment of any severance

benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the terms of the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

     3. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

          (a) Change of Control. “Change of Control” shall mean the occurrence of any of the following events:

               (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities without the approval of the Board;

               (ii) Merger/Sale of Assets. A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

               (iii) Change in Board Composition. A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of August 1, 2004 or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but an Incumbent Director shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

          (b) Cause. “Cause” for termination of Employee’s employment will exist if Employee is terminated by the Company, for any of the following reasons, as determined in good faith by the Company: (i) Employee’s gross negligence or willful failure substantially to perform his duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Employee’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Employee of any proprietary information or trade secrets of the Company or any other party to whom the Employee owes an obligation of nondisclosure as a result of his relationship with the Company; or (iv) Employee’s willful breach of any of his obligations under any written agreement or covenant with the Company.

          (c) Good Reason. “Good Reason” for Employee’s resignation of his employment will exist if Employee tenders his resignation to the Company with 30 days prior written notice to the Company within 120 days of the occurrence of any of the following events: (i) a material reduction in the Employee’s job responsibilities, as of immediately prior to the Change of Control for purposes of Section 2(b) above and as of immediately prior to the termination date for purposes of Section 2(c) above; (ii) relocation by the Company of the Employee’s work site which has the effect of increasing Employee’s then-current commute by more than 50 miles; (iii) any reduction in Employee’s then-current base salary and/or target bonus (other than in connection with a general decrease in the base salaries and target bonus for all other executives of the Company); (iv) a material reduction in Employee’s benefits (other than a general decrease in the benefit programs offered to all other executives of the Company); or (v) the Company’s failure to obtain agreement from any acquiror or successor to assume the Company’s obligations under this Agreement.

     4. Parachute Payments. In the event that the severance and other benefits provided for in this Agreement to Employee (the “Benefit”), determined without regard to any additional payment required under this section 4, would (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties payable with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively

referred to as the “Excise Tax”), then Employee shall be entitled to receive from the Company an additional payment (the “Gross-Up Payment”) in an amount sufficient to reimburse Employee for both (A) such Excise Tax, and (B) the income, excise, employment and any other taxes imposed on the Gross Up Payment provided under this Section 4. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and to Employee within fifteen (15) calendar days after the date on which Employee’s right to the Benefit is triggered (if requested at that time by the Company or by Employee) or such other time as requested by the Company or by Employee. If the accounting firm determines that no Excise Tax is payable with respect to the Benefit, it shall furnish the Company and Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to such Benefit. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Employee.

          5. Limitations and Conditions on Benefits

     (a) Income and Employment Taxes. Employees agrees that he shall be responsible for any applicable taxes of any nature (including any penalties or interest that may apply to such taxes) that the Company reasonably determines apply to any payment made hereunder, that his receipt of any benefit hereunder is conditioned on his satisfaction of any applicable withholding or similar obligations that apply to such benefit, and that any cash payment owed hereunder will be reduced to satisfy any such withholding or similar obligations that may apply. Notwithstanding any provision of this Agreement to the contrary, if, at the time of Employee’s termination of employment, he is a “specified employee” as defined in Code Section 409A, and one or more of the payments or benefits received or to be received by Employee pursuant to this Agreement would constitute deferred compensation subject to Code Section 409A, no such payment or benefit will be provided under the Agreement until the earliest of (A) the date which is six (6) months after Employee’s “separation from service” for any reason, other than death or “disability” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of Employee’s death or “disability” (as such term is used in Section 409A(a)(2)(C) of the Code), or (C) the effective date of a “change in the ownership or effective control” or a “change in ownership of a substantial portion of the assets” of the Company (as such terms are used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 5(a) shall only apply to the extent required to avoid Employee’s incurrence of any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of the Agreement would cause Employee to incur any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company may reform such provision to maintain to the maximum extent practicable in accordance with the original intent of the applicable provision without violating the provisions of Code Section 409A, including without limitation to limit payment or distribution of any amount of benefit hereunder in connection with a change of control to a transaction meeting the definitions referred to in clause (C) above, or in connection with a disability as referred to in (B) above.

     (b) Release Prior to Receipt of Benefits. Prior to the receipt of any benefits under this Agreement, Employee shall execute a release of claims agreement (the “Release”) in the form provided by the Company. Such Release shall specifically relate to all of Employee’s rights and claims in existence at the time of such execution and shall confirm Employee’s obligations under the Company’s standard form of proprietary information agreement.

     6. Conflicts. Employee represents that his performance of all the terms of this Agreement will not breach any other agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement. Employee further represents that he is entering into or has entered into an employment relationship with the Company of his own free will and that he has not been solicited as an employee in any way by the Company.

     7. Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee’s rights hereunder and thereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

     8. Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

     9. Miscellaneous Provisions.

          (a) No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source.

          (b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Employee and by an authorized officer of the Company (other than Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

          (c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void.

          (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.

          (e) Severability. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.

          (f) Arbitration. Employee and the Company agree to attempt to settle any disputes arising in connection with this Agreement through good faith consultation. In the event that Employee and the Company are not able to resolve any such disputes within fifteen (15) days after notification in writing to the other, Employee and the Company agree that any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator mutually agreed upon by the parties. The arbitrator will apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Except as set forth in Subparagraph (e) above, the arbitrator shall not have authority to modify the terms of this Agreement. The Company shall pay the costs of the arbitration proceeding. Each party shall, unless otherwise determined by the arbitrator, bear its or his own attorneys’ fees and expenses, provided however that if Employee prevails in an arbitration proceeding, the Company shall reimburse Employee for his reasonable attorneys’ fees and costs. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the Company and Employee may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision.

          (g) Legal Fees and Expenses. The parties shall each bear their own expenses, legal fees and other fees incurred in connection with the execution of this Agreement.

          (h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation

of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 10(h) shall be void.

          (i) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee.

          (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

     The parties have executed this Agreement on the date first written above.

ADEZA BIOMEDICAL CORPORATION.
By:	/s/ Mark D. Fischer-Colbrie
Title:	Chief Financial Officer
Address: 1240 Elko Drive
	Sunnyvale, California 94086
ROBERT O. HUSSA
Signature:	/s/ Robert O. Hussa
Address: 1240 Elko Drive
	Sunnyvale, California 94089

EX-10.24

Exhibit 10.24

ADEZA BIOMEDICAL CORPORATION

AMENDED AND RESTATED

MANAGEMENT CONTINUITY AGREEMENT

     This Amended and Restated Management Continuity Agreement (the “Agreement”) is dated as of January 12, 2007, by and between Marian E. Sacco (“Employee”) and Adeza Biomedical Corporation., a Delaware corporation (the “Company” or “Adeza”). This Agreement amends sections 2(b)(i) – (iv) and section 5(a) of the Management Continuity Agreement entered into by and between Employee and the Company on October 21, 2004. This Agreement is intended to provide Employee with certain benefits described herein upon the occurrence of specific events.

RECITALS

     A. It is expected that another company may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company’s Board of Directors. The Board of Directors recognizes that such consideration can be a distraction to Employee and can cause Employee to consider alternative employment opportunities. The Board of Directors has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.

     B. The Company’s Board of Directors believes it is in the best interests of the Company and its stockholders to retain Employee and provide incentives to Employee to continue in the service of the Company.

     C. The Board of Directors further believes that it is imperative to provide Employee with certain benefits upon a Change of Control and, under certain circumstances, upon termination of Employee’s employment, which benefits are intended to provide Employee with financial security and provide sufficient income and encouragement to Employee to remain with the Company, notwithstanding the possibility of a Change of Control.

     D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by Employee, to agree to the terms provided in this Agreement.

     Now therefore, in consideration of the mutual promises, covenants and agreements contained herein, and in consideration of the continuing employment of Employee by the Company, the parties hereto agree as follows:

     1. At-Will Employment. The Company and Employee acknowledge that Employee’s employment is and shall continue to be at-will, as defined under applicable law, and that Employee’s employment with the Company may be terminated by either party at any time for any or no reason. If Employee’s employment terminates for any reason, Employee shall not be entitled to any payments, benefits, award or compensation other than as provided in this Agreement. The terms of this Agreement shall terminate upon the earlier of (i) the date on which Employee ceases to be employed as an executive corporate officer of the Company, other than as a result of an involuntary termination by the Company without Cause (as defined below) or Employee’s resignation for Good Reason (as defined below); or (ii) the date that all obligations of the parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. The rights and duties created by this Section 1 may not be modified in any way except by a written agreement executed by an officer of the Company upon direction from the Board of Directors.

2. Benefits Upon a Change of Control; Termination of Employment.

          (a) Treatment of Stock Options and Other Equity Awards Upon a Change of Control. In the event of a Change of Control and regardless of whether Employee’s employment with the Company is terminated in

connection with the Change in Control, the vesting of each stock option and other equity award to purchase the Company’s Common Stock granted to Employee over the course of her employment with the Company and held by Employee on the effective date of a Change of Control shall accelerate such that 50% of the aggregate number of unvested option shares and other equity awards shall become immediately vested immediately prior to the effective date of the Change of Control, with the vesting acceleration applied with respect to each outstanding option or equity award in the order in which the award was granted. Each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted.

          (b) Termination Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time within 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 18 months after the effective date of the termination (the “Severance Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Severance Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 150% of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, (iii) a lump sum payment as soon as practicable after the date of termination of employment equal to a pro-rata portion of the bonus payment made to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs based on the number of completed months of Employee’s employment during such fiscal year; (iv) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law; and (v) each stock option and equity award to purchase the Company’s Common Stock granted to Employee over the course of her employment with the Company and held by Employee on the date of termination of employment shall become immediately vested on such date as to that number of shares that would have vested in accordance with the terms of such option or equity award as of the date 12 months after the date of termination of employment (assuming that Employee had remained an employee of the Company for 12 months after the date of termination of employment). Each such option and equity award shall be exercisable in accordance with the provisions of the agreement and plan pursuant to which such option or award was granted, provided however that the vested shares underlying an equity award granted on or after July 23, 2004, shall remain exercisable for a period of eighteen (18) months following Employee’s termination date (but not later than the expiration date of the award as set forth in the applicable award agreement). In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (c) Termination Not Following a Change of Control. In the event that Employee’s employment is terminated as a result of an involuntary termination other than for Cause or if Employee resigns for Good Reason at any time prior to or more than 12 months following the effective date of a Change of Control, then Employee will be entitled to receive severance benefits as follows: (i) severance payments during the period from the date of Employee’s termination until the date 6 months after the effective date of the termination (the “Benefit Period”) equal to the base salary which Employee was receiving immediately prior to the Change of Control, which payments shall be paid during the Benefit Period in accordance with the Company’s standard payroll practices, (ii) a lump sum payment as soon as practicable after the date of termination of employment equal to 25% of the bonus paid to Employee for the Company’s fiscal year prior to the Company’s fiscal year in which the termination occurs, and (iii) continuation of the health insurance benefits provided to Employee immediately prior to the Change of Control at Company expense pursuant to COBRA or other applicable law through the earlier of the end of the Benefit Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

          (d) Termination for Cause. If Employee’s employment is terminated for Cause at any time, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

          (e) Voluntary Resignation other than for Good Reason. If Employee voluntarily resigns from the Company for any reason other than Good Reason, then Employee shall not be entitled to receive payment of any severance

benefits. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment and Employee’s benefits will be continued under the terms of the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

     3. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

          (a) Change of Control. “Change of Control” shall mean the occurrence of any of the following events:

               (i) Ownership. Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities without the approval of the Board;

               (ii) Merger/Sale of Assets. A merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

               (iii) Change in Board Composition. A change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of August 1, 2004 or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but an Incumbent Director shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company).

          (b) Cause. “Cause” for termination of Employee’s employment will exist if Employee is terminated by the Company, for any of the following reasons, as determined in good faith by the Company: (i) Employee’s gross negligence or willful failure substantially to perform duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Employee’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Employee of any proprietary information or trade secrets of the Company or any other party to whom the Employee owes an obligation of nondisclosure as a result of her relationship with the Company; or (iv) Employee’s willful breach of any of her obligations under any written agreement or covenant with the Company.

          (c) Good Reason. “Good Reason” for Employee’s resignation of her employment will exist if Employee tenders her resignation to the Company with 30 days prior written notice to the Company within 120 days of the occurrence of any of the following events: (i) a material reduction in the Employee’s job responsibilities, as of immediately prior to the Change of Control for purposes of Section 2(b) above and as of immediately prior to the termination date for purposes of Section 2(c) above; (ii) relocation by the Company of the Employee’s work site which has the effect of increasing Employee’s then-current commute by more than 50 miles; (iii) any reduction in Employee’s then-current base salary and/or target bonus (other than in connection with a general decrease in the base salaries and target bonus for all other executives of the Company); (iv) a material reduction in Employee’s benefits (other than a general decrease in the benefit programs offered to all other executives of the Company); or (v) the Company’s failure to obtain agreement from any acquiror or successor to assume the Company’s obligations under this Agreement.

     4. Parachute Payments. In the event that the severance and other benefits provided for in this Agreement to Employee (the “Benefit”), determined without regard to any additional payment required under this section 4, would (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties payable with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively

referred to as the “Excise Tax”), then Employee shall be entitled to receive from the Company an additional payment (the “Gross-Up Payment”) in an amount sufficient to reimburse Employee for both (A) such Excise Tax, and (B) the income, excise, employment and any other taxes imposed on the Gross Up Payment provided under this Section 4. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and to Employee within fifteen (15) calendar days after the date on which Employee’s right to the Benefit is triggered (if requested at that time by the Company or by Employee) or such other time as requested by the Company or by Employee. If the accounting firm determines that no Excise Tax is payable with respect to the Benefit, it shall furnish the Company and Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to such Benefit. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Employee.

          5. Limitations and Conditions on Benefits

     (a) Income and Employment Taxes. Employees agrees that she shall be responsible for any applicable taxes of any nature (including any penalties or interest that may apply to such taxes) that the Company reasonably determines apply to any payment made hereunder, that her receipt of any benefit hereunder is conditioned on her satisfaction of any applicable withholding or similar obligations that apply to such benefit, and that any cash payment owed hereunder will be reduced to satisfy any such withholding or similar obligations that may apply. Notwithstanding any provision of this Agreement to the contrary, if, at the time of Employee’s termination of employment, she is a “specified employee” as defined in Code Section 409A, and one or more of the payments or benefits received or to be received by Employee pursuant to this Agreement would constitute deferred compensation subject to Code Section 409A, no such payment or benefit will be provided under the Agreement until the earliest of (A) the date which is six (6) months after Employee’s “separation from service” for any reason, other than death or “disability” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of Employee’s death or “disability” (as such term is used in Section 409A(a)(2)(C) of the Code), or (C) the effective date of a “change in the ownership or effective control” or a “change in ownership of a substantial portion of the assets” of the Company (as such terms are used in Section 409A(a)(2)(A)(v) of the Code). The provisions of this Section 5(a) shall only apply to the extent required to avoid Employee’s incurrence of any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder. In addition, if any provision of the Agreement would cause Employee to incur any penalty tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company may reform such provision to maintain to the maximum extent practicable in accordance with the original intent of the applicable provision without violating the provisions of Code Section 409A, including without limitation to limit payment or distribution of any amount of benefit hereunder in connection with a change of control to a transaction meeting the definitions referred to in clause (C) above, or in connection with a disability as referred to in (B) above.

     (b) Release Prior to Receipt of Benefits. Prior to the receipt of any benefits under this Agreement, Employee shall execute a release of claims agreement (the “Release”) in the form provided by the Company. Such Release shall specifically relate to all of Employee’s rights and claims in existence at the time of such execution and shall confirm Employee’s obligations under the Company’s standard form of proprietary information agreement.

     6. Conflicts. Employee represents that her performance of all the terms of this Agreement will not breach any other agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement. Employee further represents that she is entering into or has entered into an employment relationship with the Company of her own free will and that she has not been solicited as an employee in any way by the Company.

     7. Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee’s rights hereunder and thereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

     8. Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

     9. Miscellaneous Provisions.

          (a) No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source.

          (b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Employee and by an authorized officer of the Company (other than Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

          (c) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement concerning similar subject matter dated prior to the date of this Agreement, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void.

          (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.

          (e) Severability. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.

          (f) Arbitration. Employee and the Company agree to attempt to settle any disputes arising in connection with this Agreement through good faith consultation. In the event that Employee and the Company are not able to resolve any such disputes within fifteen (15) days after notification in writing to the other, Employee and the Company agree that any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator mutually agreed upon by the parties. The arbitrator will apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Except as set forth in Subparagraph (e) above, the arbitrator shall not have authority to modify the terms of this Agreement. The Company shall pay the costs of the arbitration proceeding. Each party shall, unless otherwise determined by the arbitrator, bear its or her own attorneys’ fees and expenses, provided however that if Employee prevails in an arbitration proceeding, the Company shall reimburse Employee for her reasonable attorneys’ fees and costs. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the Company and Employee may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision.

          (g) Legal Fees and Expenses. The parties shall each bear their own expenses, legal fees and other fees incurred in connection with the execution of this Agreement.

          (h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation

of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 10(h) shall be void.

          (i) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee.

          (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

     The parties have executed this Agreement on the date first written above.

ADEZA BIOMEDICAL CORPORATION.
By:	/s/ Mark D. Fischer-Colbrie
Title:	Chief Financial Officer
Address:	1240 Elko Drive
	Sunnyvale, California 94089

MARIAN E. SACCO
Signature:	/s/ Marian E. Sacco
Address:	1240 Elko Drive
	Sunnyvale, California 94089

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-122403) pertaining to the 1995 Stock Option and Restricted Stock Plan and the 2004 Equity Incentive Plan of Adeza Biomedical Corporation of our reports dated March 12, 2007, with respect to the financial statements of Adeza Biomedical Corporation, Adeza Biomedical Corporation management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Adeza Biomedical Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

/s/ Ernst & Young LLP

Palo Alto, California
March 12, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Emory V. Anderson, certify that:

1.	I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2006 of Adeza Biomedical Corporation;
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(s) 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 this 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 officers 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 function):

(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.

/s/ Emory V. Anderson
Emory V. Anderson
President and Chief Executive Officer
March 15, 2007

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Mark D. Fischer-Colbrie, certify that:

1.	I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2006 of Adeza Biomedical Corporation;
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(s) 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 this 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 fro 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(s) 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 function):

(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 controls over financial reporting.

/s/ Mark D. Fischer-Colbrie
Mark D. Fischer-Colbrie
Senior Vice President, Finance and Administration and
Chief Financial Officer
March 15, 2007

EX-32.1

Exhibit 32.1

ADEZA BIOMEDICAL CORPORATION

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 Annual Report of Adeza Biomedical Corporation (the “Company”) on Form 10-K for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Emory V. Anderson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(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.

/s/ Emory V. Anderson
Emory V. Anderson
President and Chief Executive Officer
March 15, 2007

EX-32.2

Exhibit 32.2

ADEZA BIOMEDICAL CORPORATION

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 Annual Report of Adeza Biomedical Corporation (the “Company”) on Form 10-K for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark D. Fischer-Colbrie, Vice President of Finance and Administration and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(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.

/s/ Mark D. Fischer-Colbrie
Mark D. Fischer-Colbrie
Senior Vice President, Finance and Administration and
Chief Financial Officer
March 15, 2007