Amendment No. 9 to Form S-1

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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

We are offering shares of our common stock. This is our initial public offering, and no public market currently exists for our common stock. We expect the initial public offering price to be between $ and $ per share. We have applied to list our common stock on the NASDAQ Global Market under the symbol “AGMX.”

Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 11.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the shares of common stock is expected to be made on or about , 2010. We have granted the underwriters an option for a period of 30 days to purchase, on the same terms and conditions set forth above, up to an additional shares of our common stock to cover overallotments. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $ and the total proceeds to us, before expenses, will be $ .

INFINITI, BioFilmChip, Intellipac and Qmatic are our trademarks. All other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners.

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we, nor the underwriters, have authorized anyone to provide you with additional or different information. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted.

Until , 2010 (25 days after the date of this prospectus), all dealers that buy, sell or trade in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Prospectus Summary

This summary highlights the information contained in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. For a more complete understanding of the information that you may consider important in making your investment decision, we encourage you to read this entire prospectus. Among the other information in this prospectus, you should carefully consider the information set forth under the heading “Risk Factors” and our financial statements and accompanying notes included elsewhere in this prospectus. Unless the context requires otherwise, the words “we,” “us,” “our,” “Company” and “AutoGenomics” refer to AutoGenomics, Inc.

Overview

We design, develop, manufacture and market a fully integrated molecular diagnostics platform called the INFINITI system that includes our highly automated bench-top INFINITI Analyzer, which has the versatility to run a large menu of genetic tests. By eliminating the need for multiple specialized instruments and automating many of the discrete processes of genetic testing, we believe our system can significantly improve laboratory productivity, workflow and cost per reportable result over many existing technologies and methods. Our system is easy to use, provides a high level of sensitivity and accuracy, and is capable of high volume testing and detecting multiple segments of target DNA, or biomarkers, at the same time on the same sample, which is referred to as multiplexing. Our system is designed to allow for the development of new and enhanced tests without modification to our platform. We believe these and other attributes of our system could reduce the cost and complexity of genetic testing and the need for specialized personnel, equipment and facilities, allowing a broader range of reference laboratories, hospital laboratories and specialty clinics to perform molecular diagnostics tests, and facilitating the acceptance and rapid adoption of our system.

As of March 31, 2010, we offered 42 tests for use on our INFINITI Analyzer, including tests focused in the areas of women’s health, cancer and personalized medicine, which we believe represent large and growing market opportunities in genetic testing. We intend to establish a large installed base of INFINITI Analyzers which in turn should generate significant recurring demand for our high margin testing consumables, including our test-specific BioFilmChips and Intellipac Reagent Management Modules. As of March 31, 2010, we had an installed base of 151 INFINITI Analyzers in reference laboratories, hospital laboratories and specialty clinics in North America, Europe, Asia, the Middle East and South America.

We have received U.S. Food and Drug Administration, or FDA, clearance for the INFINITI Analyzer and our Warfarin, FII, FV and FII-FV Panel tests, and we intend to seek clearance or approval, as necessary, for our other tests. Like many other companies offering molecular testing products on a commercial basis, most of the tests that we offer have not been cleared or approved for diagnostic use by the FDA. These molecular tests are available to laboratories on a research use only, or RUO, basis. As required by FDA regulations, these tests must be labeled “For Research Use Only. Not for use in diagnostic procedures.” Although our RUO products are used for clinical purposes by laboratories certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, as laboratory-developed tests pursuant to guidelines issued by the College of American Pathologists, we are not permitted to market these products for diagnostic purposes. As of March 31, 2010, 38 of our 42 tests were offered on an RUO basis. For the year ended December 31, 2009 and the three months ended March 31, 2010, sales of our RUO tests represented 86% and 82%, respectively, of our revenue from the sale of consumables. We believe that many other companies offering molecular tests on a commercial basis also derive significant revenue from the sale of RUO tests.

Industry Background

Molecular diagnostics tests, a new and expanding part of the in vitro diagnostics market, are used to detect genetic biomarkers associated with a predisposition to, or the presence of a particular disease, condition or other genetic variance. This information may enable physicians to achieve better patient outcomes and better contain health care costs through, for example, earlier diagnosis of disease, improved monitoring of disease progression and more personalized treatment selection. According to Kalorama Information, an independent market research firm, the

global molecular diagnostics market is expected to grow from an estimated $3.2 billion in 2007 to $5.4 billion in 2012, which represents a compound annual growth rate of 11%. Kalorama Information stated that a large portion of molecular diagnostic tests currently are performed through the use of tests assembled in-house by laboratories, commonly referred to as “home-brew” tests, and that these tests are not included in their global molecular diagnostics market estimates. We believe there are a number of trends that will increase the demand for molecular diagnostics tests, including the discovery of biomarkers associated with diseases, tailoring of therapies based on a patient’s genetic profile, decentralization of the molecular diagnostics market and the FDA’s consideration of new regulations that would require the relabeling of certain drugs to require genetic testing. We believe these trends are being driven primarily by an increased focus on cost containment and improved patient care.

We believe many existing technologies suffer from a number of drawbacks which significantly have limited the use of molecular diagnostics testing, including lack of automation, and the need for multiple specialized instruments and the utilization of expensive, highly-skilled technicians. Many of these existing technologies also have limited testing menus, are unable to multiplex, have a high cost per reportable result and/or have low sensitivity or accuracy. We believe these limitations have created the need in the molecular diagnostics market for a fully integrated, automated, multiplexing system to perform a large menu of cost-effective and easy to use tests with a high degree of accuracy and sensitivity.

Our Solution

We believe our INFINITI system addresses many of the current limitations of existing molecular diagnostic technologies. The INFINITI system is cost-effective, easy to use, highly sensitive, accurate and designed to multiplex. To use our system, an operator only needs to load prepared test samples into the bench-top INFINITI Analyzer, along with the specific BioFilmChips and Intellipac Reagent Management Modules for the desired tests. Once the INFINITI Analyzer is loaded and the tests are initiated, no supervision is required. After the test is completed, the system generates an electronic report that can be transmitted directly to a laboratory information system. Our system has several key advantages, including:

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Cost-effective and easy to use. The integrated, “load and go” design of the INFINITI Analyzer eliminates the need for complex protocols and manual intervention once a test is initiated, which should reduce the cost of tests by simplifying work flow and allowing the instrument to be operated without the need for highly-skilled laboratory technicians.

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Broad menu of tests. As of March 31, 2010, we offered 42 tests. We believe that this represents one of the broadest menus of commercially available molecular research use or diagnostic tests provided on a single platform. As we increase the number of tests available for use on our system, laboratories using our system will be able to broaden their molecular diagnostics offerings without additional capital investment or operator training. Our system is designed to allow for the development of new and enhanced tests without modification to our platform.

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Ability to multiplex. In many cases, the predisposition to a genetic disorder, or the presence of a particular disease, condition or genetic variance affecting therapy, is caused by multiple genetic mutations which necessitate testing for multiple biomarkers to diagnose those diseases, conditions or variances. Our system is able to multiplex, which reduces the amount of sample needed and the time required to run the test, and may reduce the need for multiple tests.

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Multiple Patient Array technology. Our proprietary Multiple Patient Array, or MPA, technology permits samples from up to four patients to be processed simultaneously on a single microarray, increasing system throughput by up to 300% and reducing the cost per sample by up to 75% as compared to our single patient microarrays. We also have developed the ability to produce an MPA that permits samples from up to eight patients to be processed simultaneously on a single microarray. We believe this technology will better enable us to address high volume molecular testing markets, such as those for human papillomavirus, or HPV, and other sexually transmitted diseases, or STDs. As these and other tests gain broader market acceptance, we believe that this technology affords us the flexibility to continue to offer highly competitive pricing while seeking to maintain our margins.

As of March 31, 2010, we offered the following 42 tests which can be run on the INFINITI Analyzer and focus on the areas of women’s health, infectious disease, cancer, personalized medicine, genetic disorders, cardiovascular disease/thrompbophilia, newborn screening and psychiatric disorders:

In developing our menu of tests, we have focused on a broad range of areas, with a particular focus on the areas of women’s health, cancer and personalized medicine, which we believe are potentially high value market segments. By offering a wide variety of tests for each of these markets, all of which can be run on our single platform, we believe we will provide a significant value proposition to laboratories that focus in these areas by allowing them to consolidate multiple testing platforms and/or expand their testing capabilities with limited additional investment in equipment or training.

We believe we are uniquely positioned to capitalize on substantial market opportunities in certain areas of women’s health, such as HPV, other STDs and breast cancer. According to Frost & Sullivan, an independent market research firm, the HPV molecular diagnostics market potential in the U.S. was approximately $1.1 billion in 2007. We believe this is one of the largest segments of the women’s health genetic testing market today. In addition, we believe that the STD and breast cancer testing markets represent large and growing opportunities in women’s health. We currently offer 14 tests that may be used by laboratories in the area of women’s health.

Due to the severity of the disease and the often high cost of treatment, tests to determine the predisposition to, diagnose or direct the treatment of various forms of cancer are becoming an important area of growth in molecular diagnostic testing. According to Frost & Sullivan, the U.S. market for cancer-focused molecular diagnostic tests was approximately $270 million in 2007 and is projected to grow to approximately $1.8 billion by 2014. We currently offer 18 tests that may be used by laboratories in the cancer-focused molecular diagnostic market.

We also intend to become a leading provider of genetic tests in the area of personalized medicine, which is tailoring treatments to an individual’s genetic profile. We believe that the use of these tests in diagnostic applications may help physicians better identify patients who will benefit from certain medications, potentially resulting in improved treatment quality and a reduction in health care costs associated with the prescription of ineffective medications. We believe this represents a significant market opportunity as physicians adopt these tests and as additional genetic variances are identified that may be relevant to treatment decisions. We currently offer 16 tests that may be used by laboratories in the area of personalized medicine.

HPV. Our strategy is to become a leading provider of HPV testing products. We have developed three HPV tests, our HPV Quad (Screening), HPV Genotyping and HPV-HR Quad tests, which are designed for screening and/or genotyping and each of which addresses a different segment of the HPV market. We believe that our tests offer several competitive advantages over many existing HPV screening and genotyping tests, such as the consolidation of multiple testing steps required in screening and genotyping, full automation, low sample requirement and a high degree of accuracy and specificity. We plan to seek pre-market approval, or PMA, from the FDA for our HPV-HR Quad test and 510(k) clearance for our HPV Genotyping test. Our HPV Quad (Screening) and HPV Genotyping tests have been CE marked. The CE marking indicates that these tests meet minimum standards of performance, safety and quality and can be commercially distributed throughout the European Economic Area, or EEA, and other countries outside the EEA that have accepted the CE marking as an acceptable certification of efficacy and safety of medical devices.

Other STDs. We also intend to become a leading provider of other STD testing products. We have launched a variety of panels to enable laboratories to screen for several of the most common sexually transmitted organisms, including Chlamydia trachomatis, Neisseria gonorrhea and Trichomonas vaginalis, among others. We believe that our tests allow laboratories to address some of the limitations of many of the current testing methods, including the ability to efficiently identify a broader range of organisms in a cost effective manner and the ability to screen for multiple organisms in a single sample collection.

Breast Cancer. We intend to become a leading provider of tests related to the diagnosis and treatment of breast cancer. We have developed tests such as our CHEK-2 and the Breast Cancer Panel-AJ tests, which are designed for use by laboratories as their tests to determine individuals at greater risk for early onset breast cancer, and our CYP450 2D6T test, which is designed for use as a laboratory-developed test to determine if a woman will benefit from Tamoxifen, a frequently prescribed drug for the prevention of breast cancer recurrence. We believe that our tests could play an

important role in improving patient outcomes and reducing health care costs related to breast cancer, and in improving the screening, early diagnosis and effective treatment of certain individuals with, or potentially at risk of developing, breast cancer.

Colorectal Cancer. We also have developed tests focused on genetic mutations associated with a response to certain treatments of colorectal cancer. Anti-epidermal growth factor receptor, or EGFR, drugs have emerged as prevalent anticancer therapeutics as they help neutralize EGFR over-activity that has been linked to several cancers, including colorectal cancer. However, certain genetic mutations are associated with poor response to anti-EGFR therapies. We have developed KRAS and KRAS-BRAF tests, which enable laboratories to identify these mutations. We believe that our tests could assist in reducing health care costs and maximizing the effectiveness of cancer treatment by assisting in the determination of the efficacy of anti-EGFR drugs.

Pharmacogenetic Tests. In addition, we intend to become a leading provider of tests designed to assess genetically determined variations in responses to drugs, an area known as pharmacogenetics. One of our leading offerings in this area is our CYP450 2C19 Panel test, which is designed to enable laboratories to identify certain gene variants that affect the metabolism and efficacy of the anticoagulant drug Plavix. Our other leading tests in this area currently include our CYP450 2C19 Plus, Warfarin and CYP450 2D6I tests, which are designed to enable laboratories to identify certain gene variants associated with responsiveness to certain medications for psychiatric disorders, the oral anticoagulant warfarin and certain antidepressants and cancer drugs, respectively. Our Warfarin test has been cleared by the FDA and our other pharmacogenetic tests currently are available on an RUO basis. We believe that our tests could improve patient care and diminish health care costs when used by laboratories to assess the efficacy and side effects of certain medications before they are given to patients.

Our objective is to become a leading provider of molecular diagnostics products to reference laboratories, hospital laboratories and specialty clinics. To achieve our objective, we intend to:

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors” elsewhere in this prospectus, including the following:

We were originally incorporated as Neuron Technologies, Incorporated in California in April 1999, and changed our name to AutoGenomics Incorporated in August 2000. We subsequently changed our name to AutoGenomics, Inc. in October 2002 and reincorporated in Delaware in November 2008. Our principal executive offices are located at 2980 Scott Street, Vista, California, 92081. Our telephone number is (760) 477-2248. Our website address is www.autogenomics.com. Information contained in or that can be accessed through our website is not incorporated by reference into this prospectus and should not be considered to be part of this prospectus.

From the anticipated net proceeds from this offering, we anticipate that we will use (i) approximately $ to repay the principal and interest under our outstanding subordinated promissory notes, (ii) approximately $ to fund research and development activities and clinical studies and clinical trials of our tests, including a clinical trial to support a PMA for our HPV-HR Quad test, (iii) approximately $ to fund the expansion of our sales and marketing operations and (iv) approximately $ to fund the expansion of our manufacturing capacity, including purchasing equipment. We anticipate that we will use the remainder of the net proceeds from this offering for additional working capital and general corporate purposes. See “Use of Proceeds.”

We have applied to list our common stock on the NASDAQ Global Market under the symbol “AGMX.”

Investing in our common stock involves a high degree of risk. You should carefully read and consider the information set forth under the heading “Risk Factors” and all other information set forth in this prospectus before deciding to invest in our common stock.

The number of shares of common stock outstanding after this offering is based on the following as of July 31, 2010: 7,802,431 shares of common stock, 1,579,227 shares of Series A Convertible Preferred Stock, 4,468,369 shares of Series B Convertible Preferred Stock, 6,411,089 shares of Series C Convertible Preferred Stock and 3,423,258 shares of Series D Convertible Preferred Stock, and excludes as of that date:

Effective immediately prior to the completion of this offering, each outstanding share of Series A Convertible Preferred Stock will automatically convert into two shares of our common stock and each outstanding share of our Series B, Series C and Series D Convertible Preferred Stock will convert into one share of our common stock.

Except as otherwise indicated, all information contained in this prospectus assumes no exercise by the underwriters’ of their overallotment option.

The following tables provide our summary financial data and should be read in conjunction with our audited financial statements, the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The summary statement of operations data for each of the years ended December 31, 2007, 2008 (as restated) and 2009 (as restated) were derived from our audited financial statements appearing elsewhere in this prospectus. The summary statement of operations data for the three months ended March 31, 2009 and March 31, 2010 and the summary balance sheet data as of March 31, 2010 were derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited financial data, in management’s opinion, has been prepared on the same basis as the audited financial statements and related notes included elsewhere in this prospectus, and includes all adjustments, consisting only of normal recurring adjustments, that our management considers necessary for a fair presentation of the information for the periods presented. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the full fiscal year or any other period.

Before deciding to invest in our common stock, you should carefully consider each of the following risk factors and all of the other information set forth in this prospectus. The following risks and the risks described elsewhere in this prospectus, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” could materially harm our business, financial condition, future results and cash flow. If that occurs, the trading price of our common stock could decline, and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

Since we have a limited operating history and limited current revenue, there is limited information available to evaluate our business.

We have a limited operating history upon which one can evaluate our business and our products. As an early commercial-stage company in the new and rapidly evolving market for molecular diagnostics, we face numerous risks and uncertainties. Based on our limited experience in developing and marketing new products and tests, we may not be able to effectively:

Our operations are subject to many of the risks inherent in the growth of a new business enterprise. The likelihood of our success must be evaluated in light of the challenges, expenses, difficulties, complications and delays frequently encountered in the operation of a new business. We cannot assure you that we will achieve anticipated revenue growth and become profitable. Our failure to meet any of these goals could have a material adverse effect on us and may force us to reduce or cease our operations.

We have a history of operating losses and negative cash flows since our inception and we may not be able to achieve or maintain profitability.

Since our inception, we have not been profitable. We have incurred substantial costs to develop our technology. As of March 31, 2010, we had an accumulated deficit of $67.9 million. We expect to continue to spend substantial financial and other resources on conducting clinical trials, seeking regulatory approvals, introducing new tests, expanding our sales and marketing activities, developing our technology, engaging in laboratory testing and manufacturing new products. As a result, we will need to generate significant revenue to achieve and maintain profitability.

Our ability to generate significant revenue will depend on our ability to successfully implement our business strategies and address the risks and uncertainties facing us, and we cannot assure you that we will be successful in these efforts. Even if we do address these risks successfully and implement our business strategies, we may not generate sufficient revenue to become profitable. If we were to achieve profitability, we cannot assure you that we would be able to sustain or increase profitability on a quarterly or annual basis in the future. We expect operating losses and negative cash flows to continue at least for 2010 as we continue to incur significant expenses.

Due to the nature of the molecular diagnostics testing market, our revenue and operating results may be difficult to predict and may vary significantly from period to period. The sales cycles for our products may be lengthy, which may make it difficult for us to accurately forecast revenue in a given period. Specifically, initial sales of our consumable products are often dependent on completing customer validation processes which may be time-consuming and unique to each customer. In addition to its length, the sales cycle associated with our products is subject to a number of significant risks, including the budgetary constraints of our customers, their inventory management practices and possibly internal acceptance reviews and the timing of FDA approval and review, all of which are beyond our control. Sales of our products will also involve the purchasing decisions of reference laboratories, hospital laboratories and specialty clinics, which can require many levels of pre-approvals, further lengthening sales time. These purchasing decisions are subject to a number of significant risk factors beyond their and our control and are difficult for us to predict. For example, reference laboratories, hospitals and specialty clinics may purchase fewer of our consumable products due to a decline in the volumes of tests needed at these facilities. As a result, we may expend considerable resources on unsuccessful sales efforts or we may not be able to complete sales as anticipated. Our international sales are also difficult to predict because they depend upon the activities of our distributors, over which we have limited control.

Our revenue and operating results may also vary due to the evolving mix between sales of our INFINITI Analyzer and consumables and the introduction of new tests. Changes in the relative mix of our INFINITI Analyzer and consumables sales can have a significant impact on our gross margin, as consumable sales typically have significantly higher margins than those of INFINITI Analyzer sales. Further, our revenue and operating results are difficult to predict because many of our tests have only recently been launched and we do not have sufficient history to forecast revenue reliably for those tests. The difficulty in accurately forecasting, and any period to period variations in, our revenue and operating results may cause our stock price to fluctuate significantly in the future.

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this prospectus.

We expect to continue to incur net losses at least for 2010. As of December 31, 2009, we did not have sufficient working capital to fund our planned operations through December 31, 2010 without additional financing. Also, as of March 31, 2010, we believe we did not have sufficient working capital to fund our planned operations through December 31, 2010 without additional financing. These conditions raise substantial doubt about our ability to continue as a going concern. Accordingly, the report of our independent registered public accounting firm on our audited financial statements included in this prospectus contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. However, the audited financial statements have been prepared assuming that we will continue as a going concern, which contemplates the recovery of our assets and the satisfaction

of our liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support our cost structure. Until that time, we will need to raise additional financing. While we actively seek additional financing to fund our development efforts, to commercialize our technologies and to fund our other business activities, there is no assurance such financing will be available to us when needed or that such financing would be available on under favorable terms. If we are unable to obtain sufficient funding, we may be required to significantly curtail our planned operations which may have a material adverse impact on our ability to continue as a going concern.

After completion of this offering, we may not be able to meet our cash requirements without obtaining additional capital from external sources, and if we are unable to do so, we may have to curtail or cease operations.

We anticipate that our current cash and cash equivalents and cash provided by this offering and our operating activities will be sufficient to meet our currently estimated cash requirements for at least the next 12 months. However, we expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure, commercialization, training and support, manufacturing and research and development activities. We operate in a market that makes our prospects difficult to evaluate, and we may need additional financing to execute on our current or future business strategies. The amount of additional capital we may need to raise depends on many factors, including:

We have a history of operating losses and negative cash flows since our inception and we may not be able to achieve or maintain profitability. We cannot be certain that additional capital will be available when and as needed or that our actual cash requirements will not be greater than anticipated. If we require additional capital at a time when investment in diagnostics companies or in the marketplace in general is limited due to the then-prevailing market or other conditions, we may not be able to raise such funds at the time that we desire or any time thereafter. If we are unable to raise additional capital, we may be required to curtail some or all of our operations, including commercialization and research and development efforts, and forced to forego otherwise valuable business opportunities. Any failure to raise additional capital when needed could have a material adverse effect on us. In addition, if we raise additional funds through the issuance of common stock, preferred stock or convertible securities, the percentage ownership of our stockholders could be significantly diluted, and any preferred stock or convertible securities may have rights, preferences or privileges senior to those of common stockholders. If we obtain additional debt financing, a substantial portion of our operating cash flow or other cash resources may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us.

Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations.

As of March 31, 2010, the principal amount of our total indebtedness was approximately $19.1 million. Our outstanding debt and related debt service obligations could have important adverse consequences to us, including:

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Failure to pay our indebtedness on time would constitute an event of default under the agreements governing such indebtedness, and could constitute an event of default under the agreements governing our other indebtedness. For example, the acceleration of more than $1.0 million of indebtedness constitutes an event of default under the terms of $7.3 million in aggregate principal amount of our subordinated promissory notes. An event of default under such agreements would give rise to these creditors’ ability to accelerate the applicable debt obligations and/or seek other remedies against us, which could have a material adverse effect on us.

We may incur substantially more debt in the future. This could further exacerbate the risks associated with our existing leverage.

We may incur substantial additional indebtedness in the future. The terms of certain of our debt securities restrict, but do not in all circumstances prohibit, our ability to do so. Specifically, the terms of certain of our outstanding subordinated notes restrict us from incurring additional indebtedness without the written consent of the holders of (i) 75% of the aggregate principal amount of all subordinated notes then outstanding ($19.1 million as of March 31, 2010), and (ii) 75% of the aggregate principal amount of notes held by two noteholders ($5.1 million as of March 31, 2010), in each case subject to exceptions for certain indebtedness in an amount not exceeding $4.0 million and for permitted refinancing indebtedness. Subject to these restrictions, we are not prohibited from issuing additional debt securities or incurring other indebtedness. Moreover, we intend to use a portion of the proceeds from this offering to repay all of our outstanding subordinated notes. After repayment of the subordinated notes, the debt incurrence restrictions described above would no longer apply. If our existing and contemplated levels of indebtedness are further increased, the related risks will increase correspondingly.

Our financial results depend on commercial acceptance of the INFINITI system, its menu of tests and the development of additional tests.

Our future depends on the success of the INFINITI system, which depends primarily on its acceptance by hospitals, reference laboratories and specialty clinics as a reliable, accurate and cost-effective replacement for traditional molecular diagnostics systems. Many hospitals and reference laboratories already use molecular diagnostics testing instruments in which they have made substantial investments, and may be reluctant to change their current procedures for performing such analyses. In addition, many laboratories and some hospitals and specialty clinics currently rely on their own “home-brew” testing methods. These laboratories, hospitals and specialty clinics may be reluctant to discontinue using “home-brew” tests due to the time and expense already invested in developing and validating these tests and their familiarity with these tests compared to the INFINITI system. If we are unable to displace molecular diagnostics testing instruments and “home-brew” tests currently in use, our market opportunity will be limited and we may not be able to achieve significant sales of our consumable products.

We continue to develop additional tests for our INFINITI system to respond to the needs of reference laboratories, hospital laboratories and specialty clinics. However, we cannot guarantee that we will be able to develop enough additional tests in a timely manner or in a manner that is cost-effective or at all. The development of new or enhanced products is a complex and uncertain process requiring the accurate anticipation of technological and market trends, as

well as precise technological execution. We are currently not able to estimate when or if we will be able to develop, obtain licenses to third-party intellectual property on commercially acceptable terms for, obtain regulatory approval or clearance for, commercialize or sell, additional tests or enhance existing products. If we are unable to increase sales of the INFINITI system and its tests or to successfully develop, obtain licenses to third-party intellectual property on commercially acceptable terms for, obtain regulatory approval or clearance for and commercialize, other products or tests, our revenue and our ability to achieve profitability would be impaired.

Our business may suffer if we have difficulty acquiring and retaining customers.

We may not succeed in acquiring and retaining a sufficiently large customer base for our molecular research use and diagnostics products. A large part of our business strategy depends on our ability to place a large number of INFINITI Analyzers with customers to drive sales of our consumable products. If we are unable to establish a large installed base of INFINITI Analyzers or if customers with which we place INFINITI Analyzers do not use them, we may not be able to generate revenue or successfully implement our business strategy. In addition, if we are unable to bring our products to market as quickly as anticipated or to acquire and develop our customer base as quickly as we have projected, our ability to generate revenue could be materially adversely impacted.

Because we derive a significant portion of our revenue from one of our customers, our business, financial condition and results of operations could be materially adversely affected by the loss of this customer, or a significant decline in sales to or a delay in collection of payments from this customer.

We have in the past and expect to continue to derive a significant portion of our revenue from a single customer. For the year ended December 31, 2009 and the three months ended March 31, 2010, sales of consumable products to Bostwick Laboratories, Inc. accounted for approximately 17% and 20%, respectively, of our revenue. Our continued business relationship with this customer and the amount of purchases and timing of payment by this customer may be impacted by several factors beyond our control, including product offerings by our competitors, pricing pressures or the financial health of this customer. The loss of this customer, or a significant decline in sales to or a delay in collection of payments from this customer, could materially adversely affect our business, financial condition and results of operations.

Failure by our customers or distributors to pay for products we have sold to them could have a material adverse effect on our financial condition and results of operations.

In certain cases, we may not be able to recognize revenue on sales even though we may have delivered products to our customers or distributors. For example, we have in the past sold, and may continue to sell, our INFINITI Analyzers to certain of our international distributors where our ability to collect payment was not reasonably assured. Although our customers and distributors are required to pay us for the products that we sell to them, from time to time, certain of our customers and distributors have not paid us or have delayed payment. As of March 31, 2010, approximately $1.2 million of our accounts receivable were 90 days or more past due. Where the collection of payment is not reasonably assured, in the past we have deferred, and in the future we may be required to defer, the recognition of revenue until we receive payment. For example, for the year ended December 31, 2009 and the three months ended March 31, 2010, we deferred the recognition of approximately $1.0 million and $1.2 million in revenue less $0.6 million and $0.7 million in cost of sales, respectively, from our international distributors. Deferring the recognition of revenue could impact our results of operations negatively for any period in which the related sales occurred. Although we currently have fully reserved for or deferred the recognition of revenue related to the amount of all late payments on our balance sheets, we also may incur unexpected costs or losses resulting from the sales in the event of any delays or failures to make payment for the products. If we are unable to collect payment from our customers or distributors for products we have sold to them, we may never be able to recover our costs to manufacture and sell such products, which could have a material adverse effect on our financial condition and results of operations.

If our customers are unwilling or unable to validate the INFINITI system or follow required protocols, our business could be harmed.

In most cases, we are dependent on our customers to validate our INFINITI system and the associated tests we offer. Individual laboratories have their own validation procedures and protocols that our system and tests must pass and we

cannot predict how long each validation process will take or whether laboratories will be willing or able to validate our system and tests. To the extent that any laboratories are unwilling or unable to validate our system and tests, we will not be able to generate meaningful revenue from sales to these laboratories.

Proper use of the INFINITI system also requires our customers to follow certain sample collection and other protocols. If we are unable to develop these protocols and train our customers in their use or if, despite our efforts, customers do not follow the required protocols, the INFINITI system may not generate a result or a correct result. Failure by our customers to follow required protocols may lead to a perception, even if unfounded, that the INFINITI system does not function properly. Such perceptions could damage our reputation and brand and reduce the frequency that our customers use the INFINITI system and purchase our consumable products.

Our business may be materially adversely affected if the molecular research use and diagnostics market fails to develop or if we fail to capture a significant share of the market.

Our business may suffer if the market for research use and molecular diagnostics products fails to develop or develops more slowly than expected. Our revenue is dependent on the acceptance of molecular research use and diagnostics products by laboratories, hospitals and specialty clinics and on the expanded use of molecular diagnostic testing by physicians and hospitals. Even if we are successful in gaining acceptance of our products in laboratories, hospitals and specialty clinics, our revenue may be limited if physicians and hospitals curtail or do not expand the use of molecular diagnostic testing. Moreover, we rely in part on reference laboratories to drive demand for molecular diagnostic testing with physicians and hospitals. Reference laboratories are private, commercial facilities that conduct high-volume routine and specialty testing and which are relied upon for testing by many physicians and hospitals. If these laboratories are unsuccessful in their efforts to drive demand for testing, or if laboratories that use our INFINITI system lose market share to other laboratories that use competing molecular diagnostics products, our growth potential will be limited. Even if the market does develop, we cannot assure you that we will be successful in capturing a significant share of it by expanding the sale of our products at the prices we currently project. In the event that the market in general, or our market share in particular, does not grow as we expect, our business may be materially adversely affected.

We have limited experience pricing and marketing our products and we may not be able to appropriately adjust our pricing and marketing efforts in response to changes in the market.

We intend to generate revenue from one-time sales of the INFINITI Analyzer and recurring sales of consumables, including our BioFilmChips and Intellipac Reagent Management Modules. We have limited experience marketing and pricing molecular research use and diagnostics products. As such, we cannot assure you that our expectations as to pricing and marketing of these products are appropriate. The molecular research use and diagnostics market is also rapidly evolving, including due to regulatory changes and the introduction of new technologies. If we are unable to appropriately adjust our pricing and marketing efforts in response to this changing environment, we may lose market share by pricing our products too high or lose potential revenue by pricing our products lower than required to maintain or grow our market share. Our failure to price and market our products appropriately could impact our ability to attract and retain customers in the molecular research use and diagnostics market, or to establish and maintain recurring revenue streams on acceptable terms. In light of these factors, we cannot assure you that we will be able to attract a sufficient number of customers or generate sufficient revenue to support our operations.

We are subject to risks relating to the placement of INFINITI Analyzers under our domestic placement plans.

In the U.S., we offer the INFINITI Analyzer through direct sale and two placement plans, the Reagent Access Plan and Jump On INFINITI. Under our domestic placement plans, an INFINITI Analyzer is placed at the customer’s location at no direct cost to the customer to generate recurring demand for our high margin testing consumables, including our test-specific BioFilmChips and Intellipac Reagent Management Modules. The customers under our domestic placement plans are required by the terms of the plans to purchase minimum amounts of consumables. However, in almost all cases, these customers historically have not met this requirement. We have the right to reclaim an INFINITI Analyzer placed with a customer pursuant to a domestic placement plan if the customer does not purchase the minimum amount of consumables. During the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2010, we reclaimed three, four, 14 and five INFINITI Analyzers, respectively, either

because the customer failed to purchase the minimum amount of consumables or otherwise elected not to retain the INFINITI Analyzer at the end of the term of the applicable domestic placement plan. As of March 31, 2010, the aggregate amount of revenue we had received from customers participating in our domestic placement plans had exceeded the aggregate amount of the amortization of the historical costs of the Analyzers placed under the plans. However, we bear the costs of producing these INFINITI Analyzers and rely on the revenue from the sale of consumables to recoup our costs. As a result, we could expend significant resources to produce INFINITI Analyzers for our domestic placement plans and not generate enough revenue from the sale of consumables to recoup our costs, in which case our business could be materially adversely affected.

The capital spending policies of our customers have a significant effect on the demand for our products.

Our customers include reference laboratories, hospital laboratories and specialty clinics, and their capital spending policies can have a significant effect on the demand for our products. These policies are based on a wide variety of factors, including governmental regulation or price controls, reimbursement policies, the resources available for purchasing diagnostic tests, the spending priorities among various types of diagnostic tests and the policies regarding capital expenditures during recessionary periods. Any decrease in capital spending by reference laboratories, hospital laboratories or specialty clinics could cause our revenue to decline. As a result, we are subject to significant volatility in revenue. Therefore, our operating results can be materially affected by the spending policies and priorities of our customers.

Many of our competitors are large and well capitalized, and we face significant competition.

We face, and will continue to face, significant competition from organizations such as large in vitro diagnostics companies that compete directly or indirectly with us in the general molecular diagnostics market. We compete in an industry characterized by: (i) rapid technological change, (ii) evolving industry standards and regulatory requirements, (iii) emerging competition and (iv) new product introductions. Our competitors may develop and commercialize products and technologies that may mitigate any advantages our products may currently have and compete successfully with our products and technologies. Since several potentially competing companies and institutions have greater financial resources, more well-established brand names and larger existing customer bases than we do, they may be able to: (a) provide broader services and product lines, (b) make greater investments in research and development, (c) undertake more extensive sales efforts and marketing campaigns and (d) adopt more aggressive pricing policies than we are able. In addition, we compete against companies on the basis of the relative regulatory status of their and our products. Some of our competitors may have already received regulatory approval and conducted extensive clinical trials for tests we seek to sell. For example, other companies have received approval of PMAs from the FDA for HPV screening tests. We expect that it may take us several years to receive approval of a PMA for our HPV-HR Quad test and approval of a PMA by the FDA is not assured. Any tests that we offer on an RUO basis may be at a competitive disadvantage to similar tests offered by others that have received FDA approval, since FDA-approved tests generally do not require separate validation by customers.

We expect to continue to face competition from enhanced or alternative technologies and products. Our technology and products may be rendered obsolete or uneconomical by advances in existing technologies or products or the development of different technologies or products by one or more of our competitors. One of our competitors could develop a product that is superior to a product we offer or intend to offer. If we are unable to keep pace with technological advances in the molecular diagnostics market, our business, financial condition and results of operations may suffer.

We rely on the innovation and resources of larger industry participants and public programs to advance genetic research, establish the medical relevance of biomarkers, and educate physicians and clinicians on molecular diagnostics.

The link between the genetic variations that our products detect and the underlying disease states or response to medications are not always fully medically validated, and our current and future products may involve biomarkers whose medical relevance is unproven. Additionally, the availability of validated biomarkers is dependent on significant investment in genetic research, often funded through public programs for which there are no assurances of on-going support. Should any government limit patent rights to specific genetic information, private investment in this area

could also be significantly curtailed. In addition, the adoption of molecular diagnostics is dependent to a great extent on the education and training of physicians and clinicians. We do not have the resources to undertake such training, and we are relying on larger industry participants and professional medical colleges to establish, communicate and educate physicians and clinicians regarding the use and application of molecular diagnostics.

Growth in our business could strain our managerial, operational, manufacturing, customer support, sales, financial and information systems resources.

The anticipated future growth necessary to establish and expand our operations will place a significant strain on our managerial, operational, manufacturing, sales, financial and information systems resources. These increased demands could cause us to operate our business less effectively, which in turn could cause deterioration in the financial performance of our business. To increase revenues and achieve growth, we will need to establish and expand our sales efforts and continue to improve and develop our products. The future growth of our business will also require us to expand our customer support resources, including adding additional personnel for customer training and technical product support. If our customer support infrastructure does not keep pace with future growth of our customer base, we may lose customers and our reputation and future sales potential may be harmed. In addition, we expect that we will need to improve our financial and managerial controls, reporting systems and procedures, and that we also will need to expand, train and manage our workforce. We may be unable to hire, train and retain a sufficient number of qualified personnel or successfully manage our growth. This growth may also place increased burdens on our international distributors, increase the complexities we face related to international sales and increase our inventory-related risk. Future growth will also make it difficult for us to adequately predict the expenditures we will need to make in the future.

If we do not make the necessary capital or other expenditures to accommodate our anticipated growth, or if we are unable to manage our growth effectively, our business, financial condition and results of operations will suffer. We cannot anticipate all of the demands that our expanding operations will impose on our business, personnel, systems and controls and procedures, and our failure to appropriately address such demands could have a material adverse effect on us.

The loss of the services of one or more of our key personnel or failure to attract and retain other highly qualified personnel in the future could adversely affect operations and result in a loss of revenue.

We are dependent on the continued services and performance of senior management and educated, technically-trained personnel. We currently do not have employment or severance agreements with any of these persons. Our business also depends and will depend in the future on the ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel. Competition for such personnel is intense, and we cannot assure you that we will be able to successfully attract and retain sufficiently qualified personnel in the future. The failure to attract and retain necessary technical, managerial, marketing and customer service personnel could adversely affect our business and result in a loss of revenue.

We conduct business in a heavily regulated industry, and any changes in regulations or violations of regulations by us could adversely affect our business, prospects, results of operations or financial condition.

The clinical laboratory testing industry is highly regulated, and we cannot assure you that the regulatory environment in which we operate will not change significantly and adversely in the future. In particular, the laws and regulations governing the marketing of molecular research use or diagnostic products for use as laboratory-developed tests are extremely complex and in many instances there are no significant regulatory or judicial interpretations of these laws and regulations. While we believe that we are currently in material compliance with applicable laws and regulations, we cannot assure you that the FDA or other regulatory agencies would agree with our determination, and a determination that we have violated these laws, or a public announcement that we are being investigated for possible violations of these laws, could adversely affect our business, prospects, results of operations or financial condition.

In addition, a significant change in any of these laws may require us to change our business model in order to maintain compliance with these laws. For instance, the FDA has generally exercised enforcement discretion and not enforced applicable regulations with respect to laboratory-developed tests. However, the FDA recently held a meeting in July 2010, during which it indicated that it intends to reconsider its policy of enforcement discretion and to begin drafting an oversight framework for such tests. If the FDA imposes significant changes to the regulation of laboratory-

developed tests, including our RUO tests which are used as laboratory-developed tests, it could reduce our revenues or increase our costs and adversely affect our business, prospects, results of operations or financial condition.

Our failure to comply with regulatory requirements or receive regulatory clearance or approval for our products or operations in the U.S. or abroad would adversely affect our revenue and potential for future growth.

As a manufacturer of molecular research use and diagnostics products, our products are medical devices that are subject to extensive regulation in the U.S. by the FDA, and by respective authorities in foreign countries where we do business. The FDA regulates virtually all aspects of a medical device’s design and testing, manufacture, safety, labeling, storage, recordkeeping, reporting, clearance and approval, promotion and distribution. The FDA also regulates the export of medical devices to foreign countries. Failure to comply with the regulatory requirements of the FDA and other applicable U.S. regulatory requirements may subject a company to administrative or judicially imposed sanctions ranging from warning letters to criminal penalties or product withdrawal or recall. Unless an exemption applies, a medical device must receive either clearance or premarket approval from the FDA before it can be marketed in the U.S. For example, in limited circumstances, a product may be sold on an RUO basis before receiving clearance or premarket approval. The FDA’s 510(k) clearance process for Class II devices usually takes from three to twelve months, but may take significantly longer. The premarket approval process for Class III devices generally takes from one to three years from the time the application is filed with the FDA, but also can be significantly longer. Premarket approval typically requires extensive clinical data and can be significantly longer, more expensive and more uncertain than the 510(k) clearance process. Despite the time, effort and expense expended, there can be no assurance that a particular device ultimately will be approved or cleared by the FDA through either the 510(k) clearance process or the premarket approval process.

Medical devices may only be marketed for the indications for which they are approved or cleared. We may be required to obtain additional new premarket approvals, premarket approval supplements or 510(k) clearances to market additional products or for new indications for or modifications to our existing products. We cannot be certain that we would obtain additional premarket approvals or 510(k) clearances in a timely manner or at all. We have modified various aspects of our devices in the past and we determined that new approvals, supplements or clearances were not required. The FDA may not agree with our decisions not to seek approvals, supplements or clearances for particular device modifications. If the FDA requires us to obtain premarket approvals, supplement approvals, or 510(k) clearances for any modification to a previously cleared or approved device, we may be required to cease manufacturing and marketing the modified device or to recall such modified device until we obtain FDA clearance or approval and we may be subject to significant regulatory fines or penalties. In addition, we cannot assure you that the FDA will clear or approve such submissions in a timely manner, if at all.

We currently sell tests that have not been cleared or approved for clinical use by the FDA. These tests are labeled “For Research Use Only. Not for use in diagnostic procedures.” as required by FDA regulations. These tests are marketed to allow for the collection of research data and, in some cases, are used for clinical purposes by laboratories certified under CLIA as laboratory-developed tests pursuant to guidelines issued by the College of American Pathologists. We are not permitted to represent these products as effective in vitro diagnostic products, and must establish distribution controls to assure that our tests distributed for research, method comparisons or clinical studies or trials are used only for those purposes. As a result of a directed inspection for RUO issues in April 2009, on December 4, 2009, the FDA issued a letter to us indicating that certain of our promotional materials for our RUO tests may include diagnostic/clinical claims which may cause these products to be in vitro diagnostic tests for clinical use for which FDA clearance or approval is required. In addition, FDA noted that the allegations in its letter may not constitute an exhaustive list of potential violations and noted that we are required to comply with the RUO requirements for all of our products that have not received FDA clearance or approval. We responded to the FDA’s allegations in a letter dated December 14, 2009 and believe that we have taken appropriate action to modify and revise the promotional materials in light of the FDA’s concerns. However, the FDA has not yet responded to our submission and has not confirmed its agreement with our approach. If the FDA does not agree with our approach, it could require that we take additional steps, initiate enforcement action or require that we recall or withdraw certain or all of our RUO products from the market. Our failure to comply with the FDA’s regulatory requirements, obtain FDA clearance or approvals of new or existing products or new indications or product modifications that we develop in the future, any limitations imposed by the FDA

on such products’ development or use, or the costs of obtaining FDA clearance or approvals could have a material adverse effect on our business, particularly given the proportion of our business that is reliant upon RUO products.

Furthermore, the FDA has expressed its general concerns about the marketing of RUO products for use in the diagnosis or treatment of diseases. In addition, molecular diagnostics-related regulatory policies are complex and continuing to develop, and it is possible that the FDA could disagree with our interpretation of the existing regulations or that we could be exposed to additional regulation in the future. If any regulatory change results in the application of additional regulations to the molecular diagnostics industry, this could increase substantially the cost of developing and selling such testing products. For instance, our pharmacogenetic tests are in certain cases “companion diagnostics” for marketed drug and biologic products. Certain manufacturers of drugs and biologics have requested that the FDA enforce the requirement for 510(k) clearance or PMA approval in order for a test to be used to aid in the determination of a patient’s responsiveness and dosing to drugs and biologics. If the FDA were in the future to selectively take enforcement action against RUO and laboratory-developed tests functioning as companion diagnostics, we may be forced to stop selling certain of our RUO tests and our business would be materially adversely affected. For the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2010, sales of “companion diagnostic” tests represented 42.5%, 32.9%, 15.9% and 17.2%, respectively, of our consumable sales.

In many of the foreign countries in which we market our products, including those countries in the European Union, we are subject to extensive regulations similar to those of the FDA. The regulation of our products in Europe falls primarily within the EEA, which consists of the 27 member states of the European Union, as well as Iceland, Liechtenstein and Norway. Other European countries that are not part of the EEA, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the EEA with respect to medical devices

In the EEA, a medical device can only be placed on the market if it is in conformity with the essential requirements set forth in the European Directives (Directive 93/42/EEC on Medical Devices, Directive 90/385/EEC on Active Implantable Medical Devices, and Directive 98/79/EC on In Vitro Diagnostic Medical Devices, or the IVDD Directive). In vitro diagnostic medical devices that comply with the requirements of the IVDD Directive are entitled to bear the CE conformity mark, indicating that the device meets minimum standards of performance, safety and quality (i.e., the essential requirements), and can be commercially distributed throughout the EEA and other countries outside the EEA that have accepted the CE marking as an acceptable certification of efficiency and safety of medical devices. The European Standard Organizations (CEN and Cenelec) have adopted various standards applicable to medical devices. While not mandatory, compliance with these standards provides a presumption of conformity with the essential requirements of the European Directives. The European Commission currently is reviewing the medical devices legislative framework with the aim of simplifying it and ensuring a more uniform application of the provisions contained in the European Directives across the EEA. Failure to receive, or delays in the receipt of, relevant foreign qualifications, such as the CE marking, could have a material adverse effect on our international operations.

As discussed under “Business — Government Regulation,” there are additional regulatory requirements outside of the U.S. and the EEA, including certifications, registrations or approvals that may require third-party certification of compliance with ISO 13485:2003, a quality management system standard developed by the International Organization for Standardization, or ISO. This certification must be satisfied in order for us to market our products in those jurisdictions. If we fail to satisfy such requirements or obtain the requisite certifications, registrations or approvals in these countries, it could have a material adverse effect on our international operations.

We may fail to receive favorable clinical results from the diagnostic tests currently in development that require clinical trials, and even if we receive favorable clinical results, we may still fail to receive the necessary clearances or approvals to market these tests.

We are investing in the research and development of new products to expand the menu of testing options for the INFINITI system. To commercialize our products, we are required to undertake time-consuming and costly development activities, sometimes including clinical trials for which the outcome is uncertain. We are in the process of finalizing the protocol for the clinical trial necessary to support a PMA application to the FDA for our HPV-HR Quad test and intend to commence the clinical trial in the second half of 2010 once the protocol is complete. As discussed under “Use of Proceeds,” we intend to use a portion of the net proceeds of this offering to fund the clinical

trial. We do not know whether clinical trials of our HPV-HR Quad test or any other pre-clinical or clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

Clinical trials may also be delayed, halted or repeated as a result of ambiguous or negative interim results or unforeseen complications in testing. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:

Clinical investigations of in vitro diagnostic tests, including our products and product candidates, typically are exempt from the Investigational Device Exemption, or IDE, requirements. Thus, we do not need FDA’s prior approval to conduct clinical trials on our products, provided the testing is non-invasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce energy into the subject and is not used as a diagnostic procedure without confirmation of the diagnosis by another, medically established diagnostic device or procedure. The FDA requires each sponsor of a clinical trial to make this determination in the first instance, but the FDA can review any decision. If the FDA disagrees with our decision not to submit an IDE for the clinical trials we are currently conducting, the agency may retroactively require us to submit an IDE and halt the clinical trial until the IDE is approved.

Products that appear promising during early development and preclinical studies may, nonetheless, fail to demonstrate the results needed to support regulatory approval. Even if we receive favorable clinical results, we may still fail to obtain the necessary FDA clearance and approvals. Any such failure, or any material delay in obtaining the necessary clearance or approvals, could materially adversely affect our business, financial condition and results of operations.

Our products are subject to recalls even after receiving FDA clearance or approval, or after affixing the CE marking, which would harm our reputation and business.

We are subject to medical device reporting regulations (e.g., MDR, vigilance reporting) that require us to report to the FDA or governmental authorities in other countries if our products cause or contribute to a death or serious injury or malfunction in a way that would be reasonably likely to contribute to death or serious injury if the malfunction were to recur. The FDA and similar governmental authorities in other countries have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacturing. To date, we have not conducted a product recall. A government mandated, or voluntary, recall by us could occur as a result of component failures, manufacturing errors or design defects, including defects in labeling. Any recall would divert managerial and financial resources and could harm our reputation with customers. There can be no assurance that there will not be product recalls in the future or that such recalls would not have a material adverse effect on our business.

If we fail to comply with the FDA’s Quality System Regulation and similar requirements in other jurisdictions, our manufacturing could be delayed, and our product sales and profitability could suffer.

Our manufacturing processes are required to comply with the FDA’s Quality System Regulation, which covers the procedures concerning (and documentation of) the design, testing, production processes, controls, quality assurance, labeling, packaging, storage and shipping of our devices. We also are subject to similar requirements in other jurisdictions and to state requirements and licenses applicable to manufacturers of medical devices. In addition, we must engage in extensive recordkeeping and reporting and must make available our manufacturing facilities and records for periodic unscheduled inspections by governmental agencies, including the FDA, state authorities and comparable agencies in other countries. Moreover, failure to pass a Quality System Regulation inspection or to comply with these and other applicable regulatory requirements could result in disruption of our operations and manufacturing delays. Failure to take adequate corrective action could result in, among other things, significant fines, suspension of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions. Any failure to comply with applicable requirements could adversely affect our product sales and profitability.

Our quality system was audited by the California Department of Health Services, Food and Drug Branch in 2007. That audit resulted in two observations related to CAPA documentation and failure to make instructions available to employers to define how an activity is to be carried out. We responded to those observations on October 16, 2007 and have not received any further correspondence. The FDA also audited our quality system in April 2009. This audit resulted in a Form 483 notice of inspectional observations which identified eight deficiencies relating primarily to CAPA documentation. Within 10 days of the audit, on April 30, 2009, we formally addressed the observations from the audit. On September 22, 2009, we received a copy of the establishment inspection report, or EIR, from the FDA District Director for the audit conducted in April 2009. The cover letter that accompanied the EIR stated that the release of a copy of the EIR indicates that the FDA has concluded that the inspection is closed. Although we have addressed the audit observations from this audit, we cannot assure you that the FDA will not raise additional issues relating to our activities as a result of this or any other audit.

If the FDA or another regulatory agency determines that we have promoted off-label use of our products, or are not in compliance with restrictions on the marketing of products labeled for research use only, we may be subject to various penalties, including civil or criminal penalties, and the off-label use of our products or the use of our products labeled for research use only for clinical purposes may result in injuries that lead to product liability suits, which could be costly to our business.

The FDA and other regulatory agencies actively enforce regulations prohibiting the promotion of a medical device for a use that has not been cleared or approved by the FDA. Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians may use our products for off-label uses, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if the FDA or another regulatory agency determines that our promotional materials or training constitutes promotion of an off-label use, it could require us to modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties.

We also market tests that have not been cleared or approved for clinical diagnostic use by the FDA. These tests are labeled “For Research Use Only. Not for use in diagnostic procedures.” as required by FDA regulations. These tests are marketed to allow for the collection of research data and, in some cases, are used for clinical purposes by laboratories certified under CLIA as laboratory-developed tests pursuant to guidelines issued by the College of American Pathologists. These guidelines have not been adopted by the FDA and we are not permitted to represent these products as effective in vitro diagnostic products.

As required by the FDA, we have a policy in place requiring that our labeling and marketing practices comply with FDA regulations for products labeled for research use only. We also have a policy in place to refrain from making statements that could be considered off-label promotion of our products. Although our policy is to refrain from making statements that could be considered off-label promotion of our products or outside of the restrictions for products labeled for research use only, the FDA or another regulatory agency could conclude that we have engaged in off-label promotion or marketing of products labeled for research use only. If the FDA disagrees with the marketing of these products, we may be subject to a variety of enforcement actions ranging from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure or recall of our products, total or partial shutdown of production, withdrawal of approvals or clearances already granted, and criminal prosecution. In addition, the off-label use of our products or the use of our products labeled for research use only for clinical purposes, may increase the risk of injury to patients, and, in turn, the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us.

We may not be able to compete effectively if we are unable to protect our proprietary rights.

Our success depends in part on our ability to protect our intellectual property rights, which involves complex legal, scientific, and factual questions and uncertainties. We rely upon patent, trade secret, copyright and contract laws to protect proprietary technology and trademark law to protect brand identities. We cannot be certain that we have taken adequate steps to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours. We also cannot be certain that we have taken adequate steps to protect our inventions through patents or our brand identities through trademarks. To date we have not sought trademark protection for our brand identities in countries outside of the U.S., and this may adversely affect our ability to prevent unauthorized use of these brand identities after we or our distributors have expended resources to increase their recognition. Our success depends in part on our ability to obtain and maintain patent protection for our products and their use, maintain trade secret protection and operate without infringing upon the proprietary rights of others. Our policy is to protect our proprietary technology through patents, where appropriate, and in other cases, through trade secrets. In addition, we rely on the licenses of patents of third parties. We cannot assure you that any patent applications filed by, assigned to, or licensed to us will be granted, that any patents issued to or licensed by us will provide us with any competitive advantages or adequate protection for inventions, that any patents issued to or licensed by us will not be challenged, invalidated, held to be unenforceable, or circumvented by others or that issued patents, or patents that may be issued, will provide protection against competitive products or otherwise be commercially valuable.

If we fail to obtain and/or maintain patent protection for our products, our ability to gain a competitive advantage for these products will be affected materially which may have a material adverse effect on our results of operations. In particular, if we fail to obtain and/or maintain patent protection, competitors may be able to produce products that would be directly competitive with our products using similar or identical processes. Furthermore, patent law relating to the scope of claims in the fields of health care and biosciences generally, and molecular diagnostics in particular, is evolving and our patent rights are subject to this uncertainty. Should any government or court limit or alter patent rights relating to specific genetic information or diagnostic methods, our business could be materially and adversely affected. For example, on March 29, 2010, the U.S. District Court in New York invalidated seven patents held by Myriad Genetics related to the genes BRCA1 and BRCA2, whose mutations have been associated with breast cancer, indicating that such patents “are directed to a law of nature and were therefore improperly granted” and thus held that naturally occurring genes cannot be patented. If the case is upheld on appeal, all patents covering naturally occurring genes could be invalidated, which could adversely impact the scope of our patent protection relating to naturally

occurring genes and certain aspects of their diagnostic methods. Our patent rights on our products might conflict with the patent rights of others, whether existing now or in the future. We cannot assure you that the inventors of the patents and applications that we own and license were the first to invent or the first to file on the invention, which could eliminate the value of such patents. We also cannot assure you that a third party does not have or will not obtain patents that dominate the patents we own or license now or in the future. Consequently, we could be subject to charges of patent infringement. The defense and prosecution of patent claims are both costly and time-consuming even if the outcome is ultimately in our favor. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease selling the affected products. As our products are distributed in the marketplace, we expect to face opposition to our intellectual property by competitors. If we face opposition to our intellectual property, we likely will incur substantial costs defending our patents.

Additionally, we rely on trade secrets and proprietary know-how, which we seek to protect, in part, by confidentiality agreements with our collaborators, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any such breach or that our trade secrets will not otherwise become known or be independently developed by competitors.

Our success will depend partly on our ability to operate without infringing or misappropriating the proprietary rights of others. In the future, we may need to license intellectual property from third parties for certain tests and manufacturing processes needed for our business, and the failure to obtain such a license could harm our business.

The in vitro diagnostics industry has a history of patent litigation and likely will continue to experience patent litigation suits. A third party could claim that we are infringing a patent, which could prevent us from selling our INFINITI Analyzer and tests, or from developing new technologies we expect to utilize or products we expect to sell. We may be sued for infringing or misappropriating the proprietary rights of others. We may have to pay substantial damages, including treble damages and the opposing party’s attorney fees, for past infringement if it is determined that our products or their use infringe on a third party’s proprietary rights. In addition, in the future we may need to obtain one or more licenses to the intellectual property of others, and the failure to obtain such licenses could prevent us from manufacturing or selling the affected products.

Our INFINITI system utilizes a wide variety of technologies and we cannot assure you that we have identified or can identify all inventions and patents that may be infringed by the development, manufacture, sale and use of our INFINITI system, including its various components. If relevant patents are upheld as valid and enforceable and we are found to infringe, we could be prevented from selling our system unless we can obtain a license to use technology or ideas covered by such patents or are able to redesign our INFINITI system to avoid infringement. A license may not be available at all or on commercially reasonable terms, and we may not be able to redesign our INFINITI system to avoid infringement.

The landscape for intellectual property rights in the field of genetics is complex. Although a significant amount of intellectual property in the field of genetics is already in the public domain, some of our existing and future tests for the INFINITI system could require modification of those tests or the acquisition of certain rights from third parties related to those tests which we have not yet obtained to avoid infringement. For example, we have concluded that we should seek a license of a certain patent from a third party with respect to our EGFR RUO test. We may not be able to obtain such license at all or on terms that are commercially acceptable. In this case, we would seek to modify the test in order to avoid any need for a license from this third party. Modification of the EGFR RUO test, or of any of our existing or future tests, in order to avoid third party patents could be time-consuming and expensive, and could require us to obtain additional clinical data and to revise our filings with the FDA. Any such modification may not be able to be effectuated on commercially reasonable terms or at all. If we sell our EGFR RUO test without this license, or without this modification, we may be sued for patent infringement by the third party patent holder. If a court finds that we infringed the third party’s patent and that the infringement was willful, we could be ordered to pay treble damages and the patent holder’s attorneys’ fees, and we may be enjoined from further selling our EGFR RUO test which may materially impact our business, financial condition or results of operations. Acquisition of any necessary intellectual property rights from third parties related to any of our existing or future tests, including licenses to patents, could also be time-consuming and expensive, and could require us to pay significant royalties to third parties. And likewise any such rights may not be available on commercially reasonable terms or at all.

We cannot assure you that any third party intellectual property rights to use technology or biomarkers that we determine are necessary to our business and the development of new tests for the INFINITI system can be acquired on commercially reasonable terms or at all. Resulting limitations on our ability to offer certain tests or expand our menu of tests, could have a material adverse effect on our business, financial condition and results of operations and negatively impact a key basis upon which we compete.

We have hired and will continue to hire individuals who have experience in molecular diagnostics and these individuals may have confidential trade secret or proprietary information of third parties. We cannot assure you that these individuals will not use this third-party information in connection with performing services for us or otherwise reveal this third-party information to us. Thus, we could be sued for misappropriation of proprietary information and trade secrets. Such claims are expensive to defend and could divert our attention and result in substantial damage awards and injunctions that could have a material adverse effect on our business, financial condition or results of operations.

We may need to initiate lawsuits to protect or enforce our patents or other proprietary rights, which would be expensive and, if unsuccessful, may cause us to lose some of our intellectual property rights.

To protect or enforce our patent rights, it may be necessary for us to initiate patent litigation proceedings against third parties, such as infringement suits or interference proceedings. These lawsuits would be expensive, take significant time and would divert management’s attention from other business concerns. In the event that we seek to enforce any of our patents against an infringing party, it is likely that the party defending the claim will seek to invalidate the patents we assert, which could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly, and our patent applications at risk of not being issued. Further, these lawsuits may provoke the defendants to assert claims against us. The patent position of in vitro diagnostics firms is highly uncertain, involves complex legal and factual questions and recently has been the subject of much litigation. We cannot assure you that we will prevail in any of such suits or proceedings or that the damages or other remedies awarded to us, if any, will be commercially valuable.

We are subject to litigation, which, if adversely determined, could cause us to incur substantial losses.

We are, from time to time, during the normal course of operating our businesses, subject to various litigation claims and legal disputes. Some of the litigation claims may not be covered under our insurance policies or our insurance carriers may seek to deny coverage. As a result, we might be required to incur significant legal fees, which may have a material adverse impact on our financial position. In addition, because we cannot predict the outcome of any action, it is possible that, as a result of current and/or future litigation, we will be subject to adverse judgments or settlements that could significantly reduce our earnings or result in losses.

If our products contain undetected defects or errors or do not operate as expected, we could incur significant unexpected expenses, experience product returns and lost sales, suffer damage to our brand and reputation and be subject to product liability or other claims and product recalls and other field or regulatory actions.

Our products are complex and may contain undetected defects, errors or failures, particularly when first introduced or when new versions are released. Some errors and defects may be discovered only after a product has been installed and used by the customer. To the extent our products incorporate technologies of third parties, we will be dependent on the reliability of these technologies. For example, our INFINITI Analyzer incorporates a leading third-party operating system, and we are therefore dependent on the third party to notify its customers when it makes changes to the operating system. Due to problems associated with changes made to the third-party operating system, we did not ship any INFINITI Analyzers during the quarter ended March 31, 2008. If our products contain undetected defects or errors or do not operate as expected, we could experience decreased sales and increased product returns, loss of customers and market share and increased service, warranty and insurance costs. In addition, our reputation and brand could be damaged, and we could face potential legal claims regarding our products and be subject to product recalls or corrections and other field or regulatory actions. A successful product liability or other claim or product recall could result in negative publicity and further harm our reputation, result in unexpected expenses and materially adversely impact our business, financial condition and results of operations.

We may be held liable for any inaccuracies associated with our tests, which may require us to defend ourselves in costly litigation.

We may be subject to claims resulting from false identification of genetic variations or other misdiagnoses made in connection with our tests. Litigating any such claims could be costly. We could expend significant funds during any litigation proceeding brought against us. Further, if a court were to require us to pay damages to a plaintiff or if we agree to pay damages in settlement of a claim, the amount of such damages could materially adversely affect our business, financial condition and results of operations.

We are subject, directly or indirectly, to federal and state health care fraud and abuse laws and regulations and could face substantial penalties if we are unable to fully comply with such laws.

While we do not control referrals of health care services or bill directly to Medicare, Medicaid or other third-party payors, many health care laws and regulations apply to our business. For example, we are subject to health care fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business. These health care laws and regulations include, for example:

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs, and the curtailment or restructuring of our operations. We currently do not have a comprehensive compliance program concerning our relationships with health care providers and we will need to implement such a program as our operations grow. Any penalties, damages, fines, exclusions, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of these laws are broad and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

If third-party payors do not reimburse our customers for the use of our clinical diagnostic products or if they reduce reimbursement levels, our ability to sell our products will be harmed.

We sell our products primarily to reference laboratories, hospital laboratories and specialty clinics, substantially all of which receive reimbursement for the health care services they provide to their patients from third-party payors, such as Medicare and Medicaid, private insurance plans and managed care programs. These third-party payors may deny reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to reimburse for procedures and devices deemed to be experimental, or medically unnecessary.

In the U.S., the American Medical Association assigns specific Current Procedural Terminology, or CPT, codes, which are necessary for reimbursement of diagnostic tests. Once the CPT code is established, the Centers for Medicare and Medicaid Services establish reimbursement payment levels and coverage rules under Medicaid and Medicare, and private payors independently establish rates and coverage rules. Although there are previously assigned CPT codes for the tests that we offer and our tests are therefore approved for reimbursement by Medicare and Medicaid as well as most third-party payors, certain of our future products may not be approved for reimbursement.

Third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. Increasingly, Medicare, Medicaid and other third-party payors are challenging the prices charged for medical services, including clinical diagnostic tests. Levels of reimbursement may decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors may adversely affect the demand for and price levels of our products. If our customers are not reimbursed for our products, they may reduce or discontinue purchases of our products, which would cause our revenue to decline.

Our ability to use our net operating loss and research and development credit carryforwards may be subject to limitations.

As of December 31, 2009, we had approximately $44.4 million of net operating loss carryforwards and $0.8 million of research and development credit carryforwards for U.S. federal income tax purposes. Realization of any tax benefit from our carryforwards is dependent on: (1) our ability to generate future taxable income, and (2) the absence of certain “ownership changes” of our common stock. An “ownership change,” as defined in the applicable federal income tax rules, could place significant limitations, on an annual basis, on the amount of our future taxable income which may be offset by our carryforwards. Such limitations, in conjunction with the net operating loss expiration provisions, could effectively eliminate our ability to utilize a substantial portion of our carryforwards.

Although we have not conducted a study to make this determination, it is possible that we have incurred one or more “ownership changes” in the past, in which case our ability to use our carryforwards may be limited. In addition, the issuance of shares of our common stock (including due to this offering) could cause an “ownership change” which could also limit our ability to use our carryforwards. Other issuances of shares of our common stock which could cause an “ownership change” include the issuance of shares of common stock upon future conversion or exercise of outstanding options and warrants.

We may be unsuccessful in our long-term goal of expanding our product offerings outside the U.S.

For the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2009 and 2010, 30%, 38%, 42%, 16% and 27%, respectively, of our revenue was from sales to customers in countries outside the U.S., including countries in Europe, Asia, the Middle East and South America. We are dependent on third-party distributor relationships in these countries to market, sell and provide customer and technical support for our products. Distributors may not commit the necessary resources to market, sell and support our products to the level of our expectations. If distributors do not perform adequately, or we are unable to locate distributors in particular geographic areas, our ability to realize long-term international revenue growth would be materially adversely affected.

Furthermore, there are risks inherent in doing business internationally, including:

Any of these factors could have a material adverse effect on our business, results of operations or financial condition.

Manufacturing risks and inefficiencies may adversely affect our ability to produce products.

We must manufacture or engage third parties to manufacture components of our products in sufficient quantities and on a timely basis, while maintaining product quality and acceptable manufacturing costs and complying with regulatory requirements. In determining the required quantities of our products and the manufacturing schedule, we must make significant judgments and estimates based on historical experience, inventory levels, current market trends and other related factors. Because of the inherent nature of estimates, there could be significant differences between our estimates and the actual amounts of products we require.

We may also experience unforeseen technical complications in the processes we use to develop, manufacture, customize or receive orders for our products. Such complications could materially delay or limit the use of products we attempt to commercialize, substantially increase the anticipated cost of our products or prevent us from implementing our processes at appropriate quality and scale levels, thereby causing our business to suffer.

We recently relocated and expanded our manufacturing facilities, which carries with it potential risks relating to our ability to make products in an ISO certified manner. If we do not manage this relocation effectively or experience delays in establishing or certifying our manufacturing operations at our new facility, our business may be harmed.

On June 2, 2010, we completed our move of our manufacturing and research and development activities from our former facility in Carlsbad, California to our new facility in Vista, California. Our Carlsbad manufacturing operations were certified by a third-party certification organization, TÜV SÜD AMERICA Inc., to be in compliance with ISO 13485:2003. We plan to seek new ISO 13485:2003 certification now that our operations have been relocated to our new Vista facility.

ISO 13485:2003 certification is not a prerequisite for marketing our products in the U.S. Similarly, the products that we currently market in the EEA do not require third-party ISO certification for sale in that jurisdiction. However, the EU Medical Devices Directives set forth stringent quality system requirements that must be met for marketing of medical device products in the EEA. Products manufactured in conformity with ISO 13485:2003 are presumed to comply with those quality system requirements. For all of our products currently CE-marked and sold in the EEA, we are able to self-certify conformity of our quality management system with ISO 13485:2003. A few of our other products that we do not currently market in the EEA, including our STD-6 Quad, CT-NG Quad, Leuko Quad and Pelvic Inflammatory Disease Panel tests, qualify as List B products under the In Vitro Medical Devices Directive (Directive 98/79/EC), and cannot be marketed in the EEA unless their manufacturing facilities are ISO 13485:2003 certified or have third-party certifications to similar standards. Although we do not currently market these List B products in the EEA, we would need a third-party ISO 13485:2003 certification for our new Vista facility in order to market these products in the EEA in the future.

Other jurisdictions, such as Canada and Turkey, do require third-party certification of compliance with ISO 13485:2003 prior to marketing. For the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2010, we derived approximately 1.7%, 8.4%, 4.9% and 8.8% of our revenue, respectively, from sales to jurisdictions requiring this third-party certification. Products manufactured in our new Vista facility cannot be marketed in those countries until we receive our ISO 13485:2003 certification. Moreover, even in jurisdictions where third-party ISO 13485:2003 certification has not been adopted as a regulatory requirement, we believe third-party ISO 13485:2003 certification makes us more competitive in the marketplace, as customers increasingly recognize the standard as an indication of product quality.

Given the varying jurisdictional approaches to ISO certification and compliance, we have sought to manage our transition to the Vista facility by building an adequate inventory of INFINITI Analyzers and consumable products at our Carlsbad facility to meet our anticipated demand from sales and internal needs before commencing the relocation of our manufacturing operations. If our inventory of INFINITI Analyzers or consumable products is subsequently damaged or subject to theft, or if the demand for these products is greater than we anticipate during the relocation of our manufacturing operations, our ability to execute our business strategy would be harmed and we may lose business opportunities that would otherwise be available to us. Additionally, the ISO certification process involves an internal validation process, as well as internal and third-party audits by certification bodies. We expect to complete the internal and third-party audits of our Vista facility before the end of 2010. However, if our audits are delayed or if the time

needed to re-establish and obtain a new ISO certification for manufacturing operations at our Vista facility is longer than we expect, this may affect our ability to market our products in jurisdictions that require a third-party ISO 13485:2003 certification for all or some of our product offerings, which in turn could have a material adverse effect on our business, financial condition or results of operations.

We have limited experience with the specialized film coating process needed to produce our BioFilmChip Microarrays, and there are limited alternative sources for this aspect of our manufacturing process.

Our BioFilmChip Microarray consists of polyester film, which is coated by several layers of emulsion to form the microarray. To date, we have outsourced the special film coating process needed to produce our BioFilmChip Microarrays. In connection with the establishment of manufacturing operations at our new Vista, California facility, we purchased the film coating equipment required to conduct this process ourselves. We have not yet installed this equipment and have no experience as a company conducting the film coating process. If we are unable to successfully operate and maintain this equipment and produce the coated film necessary for our BioFilmChip Microarrays, we will have to again outsource this operation to a third party. Film coating capacity is limited and is becoming less available in the marketplace as film vendors move away from analog formats and focus increasingly on digital formats. Although we believe we have adequate coated film for the foreseeable future, we cannot guarantee that we would be able to obtain an alternative supply if we are unable to manufacture the coated film ourselves.

We will need to expand manufacturing capacity by ourselves or with third parties.

We will need to either continue to build internal manufacturing capacity or contract with one or more manufacturing partners, or both. We currently rely solely on internal manufacturing of our products. Due to the complexity of our manufacturing process and the advanced technologies we employ, we may encounter difficulties in manufacturing our products. We may not be able to build manufacturing capacity internally or find one or more suitable manufacturing partners, or both, to meet the volume, regulatory and quality requirements necessary to be successful in the market. If our products do not consistently meet our customers’ performance expectations or the requirements of the FDA and authorities in other countries, we may be unable to generate sufficient revenue to become profitable. Significant additional resources, implementation of additional manufacturing equipment and changes in our manufacturing processes and organization may be required for the scale-up of each new product prior to commercialization or to meet increasing customer demand once commercialization begins, and this work may not be successfully or efficiently completed. Any delay in establishing or inability to expand our manufacturing capacity could delay our ability to develop or sell our products, which would result in lost revenue and materially adversely harm our business, financial condition and results of operations.

Our business may be materially adversely affected if we are unable to find alternate suppliers.

We have relationships with suppliers who are sources of raw materials and components for our product offerings. We do not have long-term agreements with our suppliers and have not arranged for alternate suppliers. It may be difficult to find alternate suppliers in a timely manner and on terms acceptable to us. Additionally, some of the components of the INFINITI system are produced by only a few outside vendors. In the event that we become subject to a shortage of components or raw materials, our business, financial condition and results of operations could be materially adversely affected.

Our business and future operating results may be adversely affected by events outside of our control.

We develop and manufacture the INFINITI system in our facility located in Vista, California. Any damage to our facilities or the manufacturing equipment we use would be costly and could require substantial lead time to repair or replace. Our business and operating results may be harmed due to interruption of our manufacturing by events outside of our control, including earthquakes, tornadoes and fires. Other possible disruptions may include power loss and telecommunications failures. In the event of a disruption, we may lose customers and we may be unable to regain those customers thereafter. Our insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

We use hazardous chemicals, biological materials and infectious diseases in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our research and development and manufacturing processes involve the controlled use of hazardous materials, including chemicals, biological materials and infectious diseases. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our insurance coverage and our total assets. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. Compliance with environmental laws and regulations may be expensive, and may impair our research, development and production efforts. If we fail to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs, or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on our business of new or amended environmental laws or regulations, or any changes in the way existing and future laws and regulations are interpreted and enforced.

We will incur significant increased costs as a result of operating as a public company, and compliance with public company requirements may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, and will be required to undertake additional activities to comply with laws applicable to public companies. For example, we will be subject to the requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the NASDAQ Stock Market Rules, each of which imposes various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time in an effort to comply with these and other public company requirements. Moreover, these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, along with changes in accounting requirements and financial reporting, are creating uncertainty for public companies. We are currently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice continues to evolve as guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty and higher costs regarding compliance matters. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result a diversion of management’s time and attention away from revenue-generating activities. If our efforts to comply with new laws, regulations and standards are unsuccessful due to ambiguities related to practice or otherwise, regulatory authorities may initiate legal proceedings against us and our business may be harmed. We also expect that being a public company and these new rules and regulations will make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

We have identified material weaknesses in our internal control over financial reporting. If we are not able to effectively remediate the identified material weaknesses, the accuracy and timing of our financial reporting may be adversely affected.

In the first and second quarter of 2010, we identified two material weaknesses in our internal control over financial reporting, as defined in rules established by the Public Company Accounting Oversight Board, or PCAOB. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. The first material weakness was the result of two different internal

control deficiencies with respect to revenue recognition. The first control deficiency involved the failure to appropriately document negotiated terms and conditions that deviated from our standard terms and conditions, and to consistently and accurately communicate the negotiated terms and conditions to accounting management so that the transactions could be properly recorded in the accounting records. This control deficiency did not result in adjustments to our financial statements because, independent of and prior to identifying the control deficiency, and in connection with the preparation of our financial statements, we had deferred the recognition of revenue from these sales as collection of the payments related to these sales was not reasonably assured. See “—Failure by our customers or distributors to pay for products we have sold to them could have a material adverse effect on our financial condition and results of operations.”

The second control deficiency related to the misapplication of generally accepted accounting principles, or GAAP, with respect to the timing of the recognition of revenue for product sales characterized by multiple deliverables or additional elements. More specifically, during the year ended December 31, 2009, in connection with the sale of an INFINITI system we granted one of our domestic customers the right to trade in the system for our new INFINITI Plus system at the time it becomes available for sale, so long as the customer pays us an incremental amount for the new system. We previously recognized $120,000 of revenue in our statement of operations for the year ended December 31, 2009 with respect to this sale. However, under GAAP, based on the specific facts of the arrangement, we have now deferred the recognition of revenue from this sale until the earliest to occur of (i) both the exercise of the customer’s right to trade in the system for, and our shipment of, the INFINITI Plus system, (ii) notification by the customer to us of its election to forgo the exercise of the right, or (iii) such time (if any) as we determine the right has expired. Though we do not intend to continue to provide customers with the right to trade in systems as described above, in the event we do provide customers with such an option, we will recognize revenue for the sale of the applicable systems in accordance with GAAP. In addition, during the years ended December 31, 2008 and 2009, in connection with the initial sale of INFINITI systems to certain customers, we agreed to provide training to these customers on how to use our system. We previously recognized $245,000 and $100,000 of revenue in our statements of operations for the years ended December 31, 2008 and 2009, respectively, with respect to sales to customers for which we agreed to provide such training but for which such training had not yet been completed. Because such training is considered a deliverable with no objective reliable evidence of fair value within the overall sales transaction, we are required to defer revenue recognition until completion of the related training.

The second material weakness in our internal control over financial reporting related to our financial statement closing process and resulted from having identified numerous post-closing accounting adjustments we were required to record in connection with the preparation of our 2009 financial statements, and having discovered in the first quarter of 2010 certain errors related to our accounting for warrants issued with our subordinated promissory notes. Such errors involved calculating and allocating the fair value of the warrants and calculating the amortization of the related interest expense.

As a result of the misapplication of GAAP in revenue recognition and certain errors related to our accounting for warrants issued with our subordinated promissory notes described above, we restated our financial statements as of December 31, 2008 and 2009 and for each of the two years in the period ended December 31, 2009 to correct the misstatements. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Internal Control Over Financial Reporting” and Note 2 to the financial statements for more information on these restatements.

In response to the identification of the material weaknesses described above, we adopted a remediation plan and have taken the following steps:

We believe that the actions taken will remediate the control deficiencies that resulted in the identified material weaknesses but we cannot assure you that our internal control over financial reporting, as modified, will enable us to remedy these deficiencies or avoid material weaknesses in the future. If the remediation measures taken are not effective, or we engage in other activities that result in the identification of additional material weaknesses in our internal control over financial reporting, we could be subject to inaccurate financial reporting or material misstatements in our annual or interim financial statements and we may not be able to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. If any of these were to occur, our reputation, investor perceptions of us and the price of our common stock could be negatively impacted and you may not be able to rely on our financial statements.

As a public company, we will be subject to the requirements related to Section 404 of the Sarbanes-Oxley Act. If we are unable to comply with these requirements in a timely manner, it may affect the reliability of our internal control over financial reporting and negatively impact our business and stock price.

We are not currently required to comply with regulations promulgated under Section 404 of the Sarbanes-Oxley Act. We have historically operated as a private company and the number and qualifications of our finance and accounting staff have not been consistent with those of a public company. We also currently do not have an internal audit function. Further, our independent registered public accounting firm has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting. However, for the year ending December 31, 2011, pursuant to Section 404 of the Sarbanes-Oxley Act, our management will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting. In addition, under current U.S. Securities and Exchange Commission, or SEC, rules, our independent registered public accounting firm will also be required to deliver an attestation report on the operating effectiveness of our internal control over financial reporting beginning with the year ending December 31, 2011. We have taken actions to improve our internal control over financial reporting, including expanding our finance and accounting staff, and expect to spend significant time and resources continuing that effort in the future.

The process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and economic and regulatory environments. We cannot assure you that our efforts will be adequate to satisfy our reporting obligations as a public company or that we will be able to successfully complete the procedures and certification and attestation requirements related to Section 404 of the Sarbanes-Oxley Act or that we or our independent registered public accounting firm will not identify additional material weaknesses or significant deficiencies in our internal control over financial reporting. If we identify any reason that we cannot certify as to the effectiveness of our internal control over financial reporting, we could incur additional costs remedying the cause of our failure to certify as to the effectiveness of our internal control over financial reporting, and our reputation, investor perceptions of us and the price of our common stock could be materially adversely affected and you may not be able to rely on our financial statements.

There has been no prior market for our common stock, and an active trading market may not develop.

Prior to this offering, there has been no public market for our common stock. An active trading market may not develop following the closing of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value and increase the volatility of your shares. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. The price of our stock could decline if one or more equity research analysts

downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for investors purchasing shares in this offering.

The initial public offering price for the shares of our common stock sold in this offering will be determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our common stock following this offering. In addition, the market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:

These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our financial condition and results of operations.

We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We currently do not plan to declare dividends on shares of our common stock in the foreseeable future. See “Dividend Policy” for more information. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our common stock appreciates and you sell your shares at a profit. There is no guarantee that the price of our common stock that will prevail in the market after this offering will ever exceed the price that you pay. In addition, the lack of dividends may limit the number of potential buyers of our common stock.

After this offering and giving effect to the use of proceeds therefrom, we will have shares of common stock outstanding. Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales may occur, could cause the market price of our common stock to decline. After the lock-up agreements pertaining to this offering expire, additional stockholders will be able to sell their shares in the public market,

subject to legal restrictions on transfer. As described in “Shares Eligible for Future Sale — Registration Rights,” we also have granted certain of our security holders registration rights which, subject to certain limitations, will permit them to cause us to file a registration statement with respect to the registrable securities held by them. As soon as practicable upon completion of this offering, we also intend to file a registration statement covering shares of our common stock issuable upon exercise of outstanding stock options or reserved for future issuance under our equity incentive and stock purchase plans. We may also sell additional shares of common stock in subsequent public offerings, which may materially adversely affect market prices for our common stock. See “Shares Eligible for Future Sale” for more information.

We have broad discretion in the use of the net proceeds from this offering, and our investment of these proceeds may not yield a favorable return.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in “Use of Proceeds.” Accordingly, you will have to rely upon the judgment of our management with respect to the use of the proceeds. Our management may spend a portion or all of the net proceeds from this offering in ways that our stockholders may not desire or that may not yield a significant return or any return at all. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may also invest the net proceeds from this offering in a manner that does not produce income or that loses value.

As a new investor, you will experience immediate and substantial dilution as a result of this offering.

The initial public offering price of our common stock will be considerably more than the net tangible book value per share of our outstanding common stock. Accordingly, investors purchasing shares of common stock in this offering will:

To the extent outstanding stock options and warrants are exercised, there will be further dilution to new investors. See “Dilution” for more information.

Certain provisions of our corporate governing documents and Delaware Law could make an acquisition of our company more difficult.

Our certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors. For example, our certificate of incorporation and bylaws:

These and other provisions in our organizational documents could allow our board of directors to affect your rights as a stockholder in a number of ways, including making it more difficult for stockholders to replace members of the

board of directors. Because our board of directors is responsible for approving the appointment of members of our management team, these provisions could in turn affect any attempt to replace the current management team. These provisions could also limit the price that investors would be willing to pay in the future for shares of our common stock.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, which, subject to certain exceptions, impose certain restrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock. See “Description of Capital Stock — Provisions of our Certificate of Incorporation and Bylaws and Delaware Law that May Have an Anti-Takeover Effect.”

We estimate that our net proceeds (after deducting underwriting discounts and commissions payable to the underwriters and our estimated offering expenses) from this offering will be approximately $ million ($ million if the underwriters exercise their overallotment option in full), based upon an assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus. A $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and our estimated offering expenses. Similarly, an increase or decrease in the number of shares we sell in the offering will increase or decrease, as applicable, our net proceeds by an amount equal to such number of shares multiplied by the public offering price, less underwriting discounts and commissions.

The notes described above were issued in September and October 2008 and March 2009 through March 2010 and bear a weighted average annual interest rate of 7.9%, with the principal and accrued interest balances generally due two years after issuance. We have used and intend to use the proceeds from the issuances of the notes for general corporate purposes. As of June 30, 2010, there was an aggregate of $20.4 million of principal and accrued interest outstanding under the notes. For each additional day that the notes remain outstanding, we are required to pay approximately $4,000 of additional interest under the notes. In addition, we will be required to pay a redemption premium under one of the notes equal to approximately $65,000 if it is repaid prior to August 19, 2010. As of June 30, 2010, there was an aggregate of $2.1 million of principal and accrued interest outstanding under the notes we have issued to our directors, executive officers and holders of more than 5% of our common stock. See “Certain Relationships and Related Persons Transactions — Subordinated Promissory Notes Financings.”

The expected use of the net proceeds of this offering represents our current intentions based upon our present plans and business condition. The amounts and timing of our actual expenditures may vary significantly and will depend upon numerous factors, such as the level of research and development investment required by our business (including for clinical studies and trials), cash flows from operations, the anticipated growth of our business and other factors. Pending the allocation of the net proceeds of this offering, we intend to invest the net proceeds in short-term, interest-bearing obligations, investment grade instruments, certificates of deposit or guaranteed obligations of the U.S. government.

We do not anticipate paying any cash dividends after this offering and for the foreseeable future. Instead, we anticipate that all of our earnings on our common stock will be used to provide working capital, to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our future earnings, capital requirements, financial condition, future prospects, financing arrangements, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits, and other factors our board of directors deems relevant.

The following table sets forth our capitalization as of March 31, 2010 (i) on an actual basis, (ii) on a pro forma basis to reflect the conversion of all outstanding shares of Series A, Series B, Series C and Series D Convertible Preferred Stock into 17,294,841 shares of our common stock and (iii) on a pro forma as adjusted basis to reflect the conversion of all such shares, the sale of shares of our common stock in this offering at an assumed initial offering price of $ per share, the midpoint of the range on the cover page of this prospectus, and after deducting underwriting discounts and commissions and our estimated offering expenses, and the application of $ of the net proceeds of this offering to repay the principal and interest under our outstanding subordinated promissory notes.

The pro forma and pro forma as adjusted information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with “Use of Proceeds,” “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Capital Stock” and our financial statements and the related notes appearing elsewhere in this prospectus.

As of March 31, 2010, we had a net tangible book deficit of $64.9 million, or approximately $8.36 per share of common stock, not taking into account the conversion of all outstanding series of convertible preferred stock into common stock. Net tangible book deficit per share represents the amount of our total tangible assets less total liabilities, divided by the number of common shares outstanding.

After giving effect to the conversion of all outstanding series of convertible preferred stock into common stock as of March 31, 2010, we would have had a net tangible book deficit of $19.3 million, or $0.77 per share of common stock. Pro forma net tangible book value or deficit per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of March 31, 2010 after giving effect to the conversion of all outstanding series of convertible preferred stock into shares of common stock, which will occur immediately prior to the completion of this offering.

After giving effect to the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and our estimated offering expenses, our pro forma net tangible book value as of March 31, 2010 would have been approximately $ million, or approximately $ per share. This amount represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $ per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price. We determine dilution to new investors participating in this offering by subtracting the pro forma net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock in this offering.

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and our estimated offering expenses, a $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, the pro forma net tangible book value by $ per share to our existing stockholders, and the dilution in pro forma net tangible book value by $ per share to new investors participating in this offering.

The following table summarizes, as of March 31, 2010, the differences for our existing stockholders and new investors in this offering, with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid before deducting fees and expenses at an assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and our estimated offering expenses. The following table assumes the conversion of all series of convertible preferred stock into common stock, which will be effected immediately prior to the completion of this offering.

The discussion and tables above assume no exercise of the underwriters’ overallotment option. If the underwriters’ overallotment option is exercised in full:

In addition, the above discussion and tables assume no exercise of stock options or warrants to purchase common stock or preferred stock. As of March 31, 2010, we had outstanding options to purchase a total of 5,168,061 shares of common stock, warrants to purchase a total of 5,842,840 shares of common stock and warrants to purchase 652,727 shares of preferred stock convertible into an equal number of shares of common stock at a weighted average exercise price of $1.49 per share, $5.13 per share and $2.82 per share, respectively. One warrant to purchase 568,000 shares of common stock includes a weighted average anti-dilution provision that is triggered if we issue shares of our common stock (or are deemed to issue shares of our common stock by virtue of issuing common-stock equivalents) at a price equal to less than $4.00 per share, subject to certain exceptions for (a) issuances pursuant to compensatory plans, (b) issuances upon the exercise of convertible or exercisable securities outstanding prior to the date of the warrant (August 19, 2009), (c) issuances of Series C Convertible Preferred Stock for at least $2.75 per share, (d) commercial credit arrangements, equipment financings or similar transactions, (e) bona fide acquisitions, mergers or similar transactions and (f) transactions involving issuances to customers, vendors or strategic partners.

If all of the outstanding options and warrants as of March 31, 2010 had been exercised (and the convertible preferred stock issuable upon the exercise of the preferred stock purchase warrants was converted into common stock), our pro forma net tangible book deficit would have been $0.47 per share of common stock, pro forma net tangible book value after this offering would be $ per share of common stock and dilution in pro forma net tangible book value to investors in this offering would be $ per share of common stock.

In addition, if all of the outstanding options and warrants as of March 31, 2010 were so exercised (and the convertible preferred stock issuable upon the exercise of the preferred stock purchase warrants was so converted) as of such date, before deducting underwriting discounts and commissions and our estimated offering expenses, (i) existing stockholders would have purchased shares representing % of the total shares for $ , or approximately % of the total consideration paid, with an average price per share of $ and (ii) using an assumed public offering price of $ per share, shares purchased by new stockholders in this offering would represent approximately % of the total shares for approximately $ , or approximately % of the total consideration paid.

The selected financial data set forth below is derived in part from and should be read in conjunction with our financial statements, the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The statement of operations data for each of the years ended December 31, 2007, 2008 (as restated) and 2009 (as restated) and the balance sheet data as of December 31, 2008 (as restated) and 2009 (as restated) were derived from our audited financial statements appearing elsewhere in this prospectus. The statement of operations data for the nine months ended December 31, 2005 and the year ended December 31, 2006, and the balance sheet data as of December 31, 2005, 2006 and 2007 were derived from our audited financial statements that are not included in this prospectus. The summary statement of operations data for the three months ended March 31, 2009 and March 31, 2010 and the summary balance sheet data as of March 31, 2010 were derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited financial data, in management’s opinion, has been prepared on the same basis as the audited financial statements and related notes included elsewhere in this prospectus, and includes all adjustments, consisting only of normal recurring adjustments, that our management considers necessary for a fair presentation of the information for the periods presented. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the full fiscal year or any other period.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this prospectus. This discussion may contain forward-looking statements which are based upon current expectations that involve risks and uncertainties. Our actual results and the timing of many events could differ materially from those anticipated in forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to certain restatement adjustments made to our audited financial statements for the years ended December 31, 2009 and 2008. See Note 2 to the financial statements included elsewhere in this prospectus for additional information.

We design, develop, manufacture and market a fully integrated molecular diagnostics platform called the INFINITI system, which consists of our highly automated bench-top INFINITI Analyzer and consumables, including our BioFilmChips and Intellipac Reagent Management Modules, used to run tests on our system. As of March 31, 2010, we offered 42 tests in the areas of women’s health, infectious disease, cancer, personalized medicine, genetic disorders, cardiovascular disease/thrombophilia, newborn screening and psychiatric disorders. As of that date, we also had nine tests under development.

In the U.S., we offer our INFINITI Analyzer through direct sale and our placement plans, in which an INFINITI Analyzer is placed at the customer’s location at no direct cost to the customer to generate significant recurring demand for our high margin testing consumables, including our test-specific BioFilmChips and Intellipac Reagent Management Modules. To execute our domestic marketing strategy, we have established a direct sales force, which, as of March 31, 2010, was comprised of 13 sales persons located in key metropolitan cities in the U.S. We also offer our INFINITI Analyzer on a direct sale basis internationally through our network of distributors. We intend to establish a large installed base of INFINITI Analyzers which in turn should generate significant recurring demand for our high margin testing consumables. As of March 31, 2010, we had an installed base of 151 INFINITI Analyzers in reference laboratories, hospital laboratories and specialty clinics in North America, Europe, Asia, the Middle East and South America.

From inception in April 1999 through our fiscal year ended March 31, 2005, we focused on the design and development of the INFINITI system. In 2005, we launched the INFINITI Analyzer and our first four tests. Since our inception, we have incurred significant operating losses, including net losses of $9.3 million, $13.1 million, $19.0 million, $4.3 million and $4.7 million in the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2009 and 2010, respectively. As of March 31, 2010, we had an accumulated deficit of $67.9 million. Our historical operating losses are the result of significant expenses associated with the development of our INFINITI Analyzer and tests and sales and marketing expenses related to our product launch in 2005 and our ongoing sales and marketing efforts. In addition, we incurred significant general and administrative expenses as we developed infrastructure to support our business. We expect to continue to incur operating losses at least for 2010 as we expand our test menu, conduct clinical studies and trials of certain of our tests and invest in the continued commercialization of our INFINITI system product offerings. As a result of our history of operating losses and negative cash flows and our current expectations regarding our working capital levels if we do not complete this offering or access other sources of external capital, in its report on our financial statements for the fiscal year ended December 31, 2009, our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern. See “— Working Capital Commitments and Liquidity” and Note 1 to our financial statements.

In the U.S., market and economic conditions continue to be challenging with tight credit conditions and slow economic growth. Continued concerns about the systemic impact of inflation, health care reforms, including changes

in reimbursement policies and the scope of health insurance coverage, the levels of sovereign debt in the U.S. and Europe, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, the real estate market and expected increases in income taxes have contributed to relatively low expectations for the U.S. economy. These conditions, combined with relatively low business and consumer confidence and high levels of unemployment could continue to contribute to adverse market and economic conditions. As a result of these conditions, the cost and availability of credit may continue to be adversely affected by illiquid credit markets and wider credit spreads. Continued uncertainty with respect to these conditions may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers. If these market conditions continue, they may limit our ability to timely replace maturing liabilities, and access the capital markets to meet liquidity needs and invest in new technologies and products, resulting in adverse effects on our financial condition and results of operations.

We generate revenue from the sale of our products, which include our INFINITI Analyzer and consumable products, including our BioFilmChips, Intellipac Reagent Management Modules and various disposable products consumed in the testing process. In the U.S., we offer the INFINITI Analyzer through direct sale and our placement plans, in which an INFINITI Analyzer is placed at the customer’s location at no direct cost to the customer to generate significant recurring demand for our high margin testing consumables, including our test-specific BioFilmChips and Intellipac Reagent Management Modules. The INFINITI Analyzer is offered on a direct sale basis internationally through our network of distributors. Our goal is to establish a large installed base of INFINITI Analyzers in reference laboratories, hospital laboratories and specialty clinics. Generally, the pricing of our consumables for customers that participate in our domestic placement plans is higher than for our customers who own INFINITI Analyzers; however, we may discount the price of consumables depending on the volume of the products purchased by our customers. We believe this installed base will drive the consumption of our consumable testing products. We expect that the number of INFINITI Analyzers sold or placed could vary from period to period and the mix will depend principally upon the preferences of our customers. We expect to generate revenue through sales of our products in both the domestic and international markets, driven in part by the growth of genetic testing generally, the expansion of our sales force and our international distribution network, the placement of additional INFINITI Analyzers and the development by us of additional tests.

We believe that the variability of our revenue from period to period depends on the product sales mix of INFINITI Analyzers and consumables for the given period. While we anticipate that our revenue from the sale of consumables will grow over time as we increase our installed base, we could experience variability in our revenue from the sale of INFINITI Analyzers depending on the number of these products we sell in a given period. In the U.S., we believe that for the foreseeable future our placement plans will continue to account for more placements of the INFINITI Analyzer than will sales. In addition, as our installed base increases over time, we expect that revenue from the sale of consumables will become a larger portion of our revenue and the sale of INFINITI Analyzers will have a smaller impact on the variability of such revenue.

For the year ended December 31, 2009 and the three months ended March 31, 2010, sales of consumable products to Bostwick Laboratories, Inc. accounted for approximately 17% and 20%, respectively, of our revenue.

Cost of sales includes the expenses related to the production and estimated warranty costs of our various products. Included in these costs are materials, labor, and general manufacturing overhead and other costs. Our general manufacturing overhead and other costs include indirect labor, facilities costs, and depreciation of capitalized manufacturing equipment and INFINITI Analyzers placed under our domestic placement plans.

Our current operating structure is designed to accommodate the anticipated increase in demand for INFINITI Analyzers and consumable products. At current production levels, we are unable to fully absorb our overhead costs resulting in a gross loss for each of the periods presented. We expect as demand for our products and production levels

increase we will absorb an increasing percentage of our overhead costs; however, there can be no assurances as to when we will be able to generate a gross profit from product sales.

Research and development expenses include the cost of the personnel and consultants related to our activities in developing and improving our INFINITI Analyzer and the development and expansion of our test menu. Also included in research and development costs are expenditures related to clinical studies and trials undertaken to validate and to obtain FDA clearance for our tests. We expense all research and development costs in the period in which they are incurred. We believe that continued development and improvement of our INFINITI Analyzer and expansion of our test menu are drivers for our future success and we expect increasing research and development expenditures for the foreseeable future.

Starting in the second half of 2010, we plan to incur significant expenditures for a clinical trial related to a pre-market approval from the FDA for our HPV-HR Quad test. We expect the clinical trial to take two to three years to complete and to cost approximately $10 million.

General and administrative expenses include the costs of the personnel and consultants charged to administration, finance and accounting, human resources and regulatory affairs. General and administrative expenses also include corporate, administration, accounting, patent and facility costs and depreciation. We expect general and administrative expenses to increase in the foreseeable future as a result of the need to hire additional personnel to support the anticipated growth of the business and as a result of higher legal, accounting and related expenses associated with being a public company.

Sales and marketing expenses include the costs of personnel related to selling and marketing the INFINITI system, advertising and trade show participation. We expect a significant increase in sales and marketing expenses in the foreseeable future to drive the growth of our installed base and related sales revenue from our consumable products.

Interest income includes interest earned on our cash balances. These balances are invested primarily in money market accounts.

Interest expense is a combination of non-cash charges related to short-term notes that have been converted into shares of our Series C and Series D Convertible Preferred Stock and long term subordinated promissory notes that are outstanding.

We have freestanding warrants outstanding to purchase shares of our convertible preferred stock and common stock. We classify the fair value of warrants to purchase shares of our convertible preferred stock and certain warrants to purchase our common stock as a liability. The fair value of these warrants are re-measured at each balance sheet date and any change in fair value is recognized as a component of other income or expense. We will continue to adjust the liability for changes in fair value until the earlier of the expiration of the warrants or their exercise, at which time the liability will be reclassified into stockholders’ deficit.

The fiscal periods discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2009 and 2010.

Our financial statements and related notes included elsewhere in this prospectus are prepared in accordance with GAAP. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. We base such estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by company management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement preparation, financial condition, results of operations and cash flows will be affected.

The following accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe to be most critical to understanding and evaluating our financial condition and results of operation.

We generate revenue from the sale of our products, which include our INFINITI Analyzer and consumable products, including our BioFilmChips, Intellipac Reagent Management Modules and various disposable products consumed in the testing process. We adjust our sales revenue for estimated returns and allowances, which historically have been insignificant. We offer our INFINITI Analyzer through direct sale. In addition, in the U.S. we offer our INFINITI Analyzer through our placement plans, in which an INFINITI Analyzer is placed at the customer’s location at no direct cost to the customer to generate significant recurring demand for our high margin testing consumables, including our test-specific BioFilmChips and Intellipac Reagent Management Modules. We do not recognize revenue on the placement of our INFINITI Analyzer through our domestic placement plans. Since the asset has been placed at a customer location and we retain legal title, we record our domestic placement plan assets at our cost to manufacture and charge the related depreciation expense as a cost of sale over its expected life.

We recognize revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed to the customer, delivery has occurred, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title and risk of loss generally pass to customers upon shipment. In circumstances whether either title or risk of loss pass upon arrival at the shipping destination or acceptance, revenue recognition is deferred until such events occur.

Certain INFINITI Analyzer sales are accounted for as multiple-element arrangements. A multiple-element arrangement is a transaction which may involve the delivery or performance of multiple products, services or rights to use assets, and where performance may occur at different points in time or over different periods of time. For arrangements containing multiple elements, the revenue relating to the undelivered elements is deferred at estimated fair value until delivery of the deferred elements. Where an undelivered element has no objective reliable evidence of fair value within the overall sales transaction, the revenue relating to the delivered and undelivered elements is deferred until delivery of all of the elements.

On shipments where sales are not recognized, gross profit, representing the difference between the amount of the receivable recorded and the cost of inventory shipped, is generally recorded as deferred profit and included in accrued expenses. In certain instances where customer payments are received prior to product shipment, the customer’s payments are recorded as customer advances which are also included in accrued expenses.

These accounting policies require the use of significant management judgment. We use judgment when we assess collectability based on a customer’s credit worthiness and past payment history. If payment cannot be reasonably assured, we defer recognition of revenue until receipt of payment.

We provide a one year warranty on our INFINITI Analyzer. Accruals are provided for the estimated warranty expense at the time the associated revenue is recognized. The estimates of warranty expense are based on actual expenses incurred historically to service our INFINITI Analyzer. We do not accrue warranty expense for international sales because our international distributors generally are responsible for servicing any INFINITI Analyzers they sell to customers. Warranty expense accruals inherently require the use of management judgment. If we were to experience an increase in warranty claims or if our cost of servicing these warranties increased, our gross margins would be affected adversely.

We account for income taxes utilizing the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or expense in the period that includes the enactment date. Future tax benefits are recognized to the extent that realization of such benefit is more likely than not.

At December 31, 2009, we had federal tax net operating loss carryforwards of $44.4 million and state tax net operating loss carryforwards of $41.8 million. The federal and state tax net operating loss carryforwards will begin to expire in 2020 and 2012, respectively. At December 31, 2009, we had federal research and development credit carryforwards of $0.8 million and state research credit carryforwards of $1.0 million. The federal research and development credit carryforwards will begin to expire in 2022. The state research credit carryforwards do not expire.

Utilization of net operating loss carryforwards, credit carryforwards and certain deductions may be subject to substantial annual limitation as a result of ownership change limitations provided by the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, and similar state provisions. The tax benefits related to future utilization of federal and state net operating loss carryforwards, credit carryforwards and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. We have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation as a result of the complexity and cost associated with such a study, and the fact that there may be additional ownership changes in the future. Such a limitation may occur as a result of a change in ownership resulting from this offering. If we have experienced an ownership change at any time since our formation, utilization of the net operating loss or credit carryforwards to offset future taxable income and taxes, respectively, would be subject to an annual limitation under Section 382 of the Internal Revenue Code, which is determined by first multiplying the value of our stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of all or a portion of the net operating loss or credit carryforwards before utilization. Until a study is completed and any limitation known, no amounts of domestic net operating losses or tax credit carryforwards are being considered as an uncertain tax position and disclosed as unrecognized tax benefits under current guidance no benefits have been realized to date. The deferred tax assets related to these domestic loss and credit carryforwards and the offsetting valuation allowances have also been removed from the financial statements with no impact on earnings. These amounts are not recognized until they can be measured after a Section 382 analysis is completed.

Effective January 1, 2006, we adopted prospectively stock-based compensation guidance which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on fair value. We recognize compensation expense over the vesting period using the straight-line method and classify these amounts in the statement of operations based on the department to which the related employee reports.

We have elected to use the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was estimated at each grant date using the following assumptions:

The weighted average exercise price per share of employee stock options granted during the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2010 was $0.50, $1.78, $2.63 and $2.74, respectively. No employee stock option grants were made during the three months ended March 31, 2009.

We derived the risk-free interest rate assumption from the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. We based the assumed dividend yield on our expectation that we will not pay dividends in the foreseeable future. We calculated the weighted average expected life of options using the simplified method. This decision was based on the lack of relevant historical data because of our limited historical experience. In addition, because of our limited historical data, the estimated volatility incorporates the historical volatility of comparable companies with publicly-available share prices. We estimate forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We utilized our historical forfeitures to estimate our future forfeiture rate at 4.0% for 2007, 2008, 2009 and the three months ended March 31, 2009 and 2010.

We performed a contemporaneous valuation analysis of our common stock as of December 31, 2007, April 30, 2008, July 31, 2008, September 30, 2008 and December 31, 2008. Each valuation was prepared in accordance with the methodologies prescribed by the American Institute of Certified Public Accountants, or AICPA, Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. In accordance with the AICPA guidance, we considered a variety of valuation methodologies (market approach, income approach and cost approach).

These analyses result in estimates of the fair market value of our common stock at December 31, 2007 of $0.64 per share, April 30, 2008 of $2.75 per share, July 31, 2008 of $4.73 per share, September 30, 2008 of $4.73 per share and December 31, 2008 of $2.63 per share. Since we had no corporate milestones between December 31, 2007 and April 30, 2008 to which we could specifically assign the change in valuation during that period, we allocated the change ratably to each period. We used the following methodologies in determining the valuation of our common stock:

As of December 31, 2008, a liquidity event in the near term seemed less likely than it did as of September 30, 2008 as a result of the eroding equity markets. Between September 30 and December 31, 2008, equity markets experienced substantial uncertainty and instability due to concerns fueled by, among other things, the U.S. government conservatorship of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, the declared bankruptcy of Lehman Brothers Holdings Inc., the U.S. government financial assistance to key financial institutions such as American International Group Inc., Citibank and Bank of America and other federal government interventions in the U.S. financial system. Global market and economic conditions were unprecedented and challenging with tighter credit conditions and recession in most

major economies at that time. These factors caused us to conclude that the estimated enterprise value of our company had declined significantly. Specifically, under the market approach, we concluded that our estimated enterprise value had decreased because the market capitalizations and forward revenue multiples of public comparable companies selected by us had declined. In addition, under the income approach, we concluded that our estimated enterprise value decreased significantly between the two dates due to, among other things, the probability that our future performance at that time might be negatively impacted due to the recession.

Once our enterprise value was determined for each scenario, we then allocated a portion of the enterprise value to our common stock based on a “best economic outcome” model. For the initial public offering scenarios, the value assigned to the common stock is determined using a fully diluted outstanding share analysis based on the conversion of all preferred equity instruments into common stock. For M&A, dissolution/no value to common and private company scenarios, the model uses a break point analysis to determine the various enterprise values at which holders of each series of preferred stock would elect to convert to common stock and the points at which the holders of options and warrants would exercise as a result of the value of the common stock exceeding the exercise price. Each scenario was assigned a weighting factor based on the probability of occurrence.

The resulting portion of the estimated enterprise value that was allocated to the common stockholders under the model was then discounted to present value using our weighted average cost of capital. In those outcomes where we remained a private company, we estimated a likely discount for lack of liquidity as a private company and removed this amount from the value available to common stockholders. An at-the-money put option model was used to determine the discount for lack of liquidity at each valuation date. We relied on the Black-Scholes option pricing framework to determine the theoretical value of an at-the-money put option on our common stock which could be exercised in a liquidity event occurring at a future estimated date. The per share value derived from this analysis was then divided by the common share price derived from the PWERM analysis to determine the percentage discount that could be inferred using this model.

The following tables summarize significant assumptions utilized in the PWERM analysis as of April 30, 2008, July 31, 2008, September 30, 2008 and December 31, 2008:

As of December 31, 2009, we utilized the following valuation methodologies to calculate our enterprise value: (i) a selected companies analysis using publicly available information regarding historical and projected future financial performance, including last twelve months, or LTM, and projected next fiscal year revenues for 14 companies in the molecular diagnostics industry with publicly traded equity securities, (ii) a selected transactions analysis using publicly available information regarding the historical financial performance, including LTM revenues, for 20 companies in the molecular diagnostics industry that have been acquired and (iii) a discounted cash flow analysis to determine the net present value of our future cash flows based on our management’s best estimates of our future financial performance from January 2010 to December 2015, utilizing discount rates ranging from 24.0% to 26.0% based on our weighted average cost of capital and terminal value growth rates of 4.0% to 6.0%.

A PWERM analysis was then used to allocate a portion of the implied enterprise value for our company based on those analyses to our common stock based on six possible scenarios: (i) an initial public offering of our common stock at June 30, 2010 at a price per share of our common stock based on an implied enterprise value equal to a multiple of our management’s estimate of our 2010 revenue; (ii) an initial public offering of our common stock at December 31, 2010 at a price per share of our common stock based on an implied enterprise value equal to multiple of our management’s estimate of our 2011 revenue; (iii) a merger or sale of our company at December 31, 2011 at a price per share of our common stock based on an implied enterprise value equal to a multiple of our management’s estimate of our 2011 revenue; (iv) a merger or sale of our company at December 31, 2011 at a price per share of our common stock based on an implied enterprise value equal to a multiple of our management’s estimate of our 2011 revenue; (v) a dissolution of our company at June 30, 2010 with no value available to be distributed to the holders of our common stock; and (vi) our remaining a private company. For purposes of the PWERM analysis, the foregoing scenarios were assigned a probability of 15.0%, 25.0%, 10.0%, 30.0%, 15.0% and 5.0%, respectively. For the initial public offering scenarios, the value assigned to our common stock was determined using the number of outstanding shares of our common stock assuming the conversion of all outstanding shares of our preferred stock into shares of our common stock. For the merger or sale scenarios, a break point analysis was used to determine the various enterprise values at which holders of each series of our outstanding shares of preferred stock would elect to convert their shares of our preferred stock into shares of our common stock and the points at which the holders of outstanding options and warrants to acquire shares of our common stock would exercise their options or warrants. The values allocated to our common stock as of a future date under each scenario by the PWERM analysis were then discounted

using a weighted average cost of capital of 25.0% to calculate an implied present value of the value allocated to our common stock under the PWERM analysis.

Finally, because our stock was not publicly traded, the implied present value of the value allocated to our common stock under the PWERM analysis was discounted by 15.0% for lack of marketability based on the Black-Scholes put option pricing model to take into account variables including an expected time to liquidity under the six possible scenarios described above the potential share price volatility of our common stock, and a risk-free rate of return.

The foregoing analysis resulted in an estimate of the fair market value of our common stock as of December 31, 2009 of $2.74 per share. The equity markets remained turbulent for much of 2009 making a liquidity event unlikely. Accordingly, for stock compensation purposes, we determined that our common stock value remained unchanged from December 2008 through September 2009 at $2.63 per share. We allocated the increase in per share value ratably to each period from October 2009 through December 2009.

The following summarizes the significant assumptions utilized in our analysis as of December 31, 2009:

We did not conduct a valuation of our common stock as of March 31, 2010. However, we do not believe that any changes occurred during the three months ended March 31, 2010 which materially impacted the value of our common stock. Accordingly, for stock compensation purposes, we determined that our common stock value remained unchanged from December 31, 2009 through March 31, 2010 at $2.74 per share.

Determining the fair market value of our common stock involves complex and subjective judgments including estimates of revenue, earnings, assumed market growth rates and estimated costs, as well as appropriate discount rates. At the time of each of the above-referenced valuations, the significant estimates used in the discounted cash flow approach included our best estimates of our revenue and revenue growth rates for several years into the future. Although each time we prepared such forecasts we did so based on assumptions that we believed to be reasonable and appropriate at that time, there can be no assurance that any such estimates for earlier periods or for future periods will prove to be accurate.

The following is a quarterly summary of our stock option activity beginning in 2007:

We recognized employee-stock based compensation in the statements of operations as follows:

The total compensation cost related to unvested stock option grants not yet recognized as of March 31, 2010 was $3.9 million, and the weighted average period over which these grants are expected to vest is 2.26 years.

Based on the initial public offering price of $ per share, the intrinsic value of stock options outstanding at March 31, 2010 would have been $ million, of which $ million and $ million would have been related to stock options that were vested and unvested, respectively, at that date.

We record equity instruments issued to non-employees as expense at their fair value over the related service period and we revalue them periodically as the equity instruments vest. Stock-based compensation expense related to non-employee consultants totaled $6,000, $336,000, $135,000, $36,000 and $37,000 for the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2009 and 2010, respectively.

In December 2007, we issued an aggregate of 200,000 shares of common stock and in January 2008 we paid $91,770 to fully satisfy $519,699 of accrued salaries earned prior to March 2005.

Our 2008 Equity Incentive Award Plan and the 2008 Employee Stock Purchase Plan, which were approved by our stockholders in October 2008, are considered compensatory plans and compensation expense will be recorded. Compensation expense will depend on the level of enrollment in these plans and assumptions used in the determination of the fair market value of the awards at date of grant.

We have estimated the fair value of all outstanding common stock warrants issued with our subordinated promissory notes. The warrant obligation is adjusted to fair value at the end of each reporting period. Such fair values were estimated using the Black-Scholes valuation model. Although we determined the common stock warrants include an implied down-side protection feature, we preformed a Monte-Carlo simulation and concluded that the value of the feature is de minimis and the use of the Black-Scholes valuation model is considered to be a reasonable method to value the warrants. We will continue to adjust the warrant liability for changes in fair value until the earlier of the expiration of the warrants or their exercise, at which time the liability will be reclassified to stockholders’ equity (deficit).

Inventory valuations are stated at the lower of cost (on a first-in, first-out (FIFO) basis) or market and include direct labor, materials and manufacturing overhead. Our inventory includes raw materials, work-in-process and finished goods in instrument and reagent production. We periodically review inventory for evidence of slow-moving or obsolete parts and expired reagents, and a reserve is recorded based on management’s reviews of inventories on hand, compared to estimated future usage and sales, and assumptions about the likelihood of obsolescence.

Sales revenue for the three months ended March 31, 2010 was $0.8 million compared to $1.2 million for the three months ended March 31, 2009. Revenue for the three months ended March 31, 2010 consisted of $0.8 million from the sale of consumables. Revenue for the three months ended March 31, 2009 consisted of $0.2 million from the sale of INFINITI Analyzers and $1.0 million from the sale of consumables. The decrease in sales of INFINITI Analyzers and consumables was due primarily to the deferral of revenue on sales of Analyzers to international distributors until the receipt of payment, constrained financial resources limiting marketing efforts, the challenging worldwide sales environment and a decrease in domestic sales headcount.

Cost of sales for the three months ended March 31, 2010 was $1.5 million compared to $2.2 million for the three months ended March 31, 2009. The $0.7 million decrease in cost of goods sold is due primarily to lower costs for materials, labor and overhead attributable to the lower sales of both INFINITI Analyzers and consumables during the period.

Research and development expenses for the three months ended March 31, 2010 were $0.8 million compared to $0.9 million for the three months ended March 31, 2009. The decrease in research and development expenditures is due primarily to constrained resources during the three months ended March 31, 2010.

General and administrative expenses for the three months ended March 31, 2010 were $1.6 million compared to $1.0 million for the three months ended March 31, 2009. The increase in general and administrative expense is due primarily to increases in accounting and audit fees, stock compensation costs and lease expenditures related to our new corporate facility.

Sales and marketing expenses for the three months ended March 31, 2010 were $0.8 million compared to $1.1 million for the three months ended March 31, 2009. The decrease in sales and marketing expense is due primarily to a decrease in sales bonuses on lower sales revenue, a decreased sales and marketing headcount and constrained financial resources limiting marketing programs.

Interest income for the three months ended March 31, 2010 was $4,000 compared to $8,000 for the three months ended March 31, 2009. The decrease in interest income is due to lower average cash balances in the three months ended March 31, 2010.

Interest expense for the three months ended March 31, 2010 was $0.8 million compared to interest expense of $0.2 million for the three months ended March 31, 2009. The increase of $0.6 million increase in interest expense is attributable to increases in principal and amortization of debt discount related to our subordinated promissory notes.

Other expense for the three months ended March 31, 2010 consisted of a net charge of $0.2 million compared to a net charge of $27,000 for the three months ended March 31, 2009. The increase in other expense is due primarily to costs incurred related to this public offering.

The change in the fair value of warrant liabilities decreased our net loss by $0.3 million for the three months ended March 31, 2010 and increased our net loss by $62,000 for the three months ended March 31, 2009. The decrease in the change in fair value of warrant liabilities is due to the decreased remaining life of the associated warrants resulting in lower valuations.

Revenue for the year ended December 31, 2009 was $5.9 million compared to $4.8 million for the year ended December 31, 2008. Revenue for the year ended December 31, 2009 consisted of $2.5 million from the sale of INFINITI Analyzers and $3.4 million from the sale of consumables. Revenue for the year ended December 31, 2008 consisted of $2.9 million from the sale of INFINITI Analyzers and $1.9 million from the sale of consumables and other. The decline in revenue from INFINITI Analyzer sales in 2009 was due to the deferral of the recognition of revenue on sales of Analyzers to international distributors until payment is received from certain international distributors. The increase in consumable and other sales in 2009 was primarily a function of the increase in our installed base of INFINITI Analyzers from 85 at December 31, 2008 to 144 at December 31, 2009.

Cost of sales for the year ended December 31, 2009 was $7.0 million compared to $5.4 million for the year ended December 31, 2008. The increase of $1.6 million was attributable to an increase in the material costs, labor and overhead associated with product sales during the period of $0.6 million and other charges totaling $1.0 million. The other charges include an increase of $0.3 million related to production personnel, an increase of $0.2 million related to field service and customer service functions in anticipation of increased product and service demand, an increase of $0.2 million in occupancy expenses related to our new manufacturing facility, increased production capacity charges of $0.2 million and amortization of INFINITI Analyzers capitalized under our domestic placement plans of $0.1 million as a result of growth in our installed base.

Research and development expenses for the year ended December 31, 2009 were $3.5 million compared to $3.7 million for the year ended December 31, 2008. Research and development expenses decreased, attributable to a $0.2 million decrease in material expenses related to continued development of our diagnostic tests and our INFINITI Analyzer and a $0.1 million decrease in professional fees, offset in part by a $0.2 million increase in headcount related expenses.

General and administrative expenses for the year ended December 31, 2009 were $4.7 million compared to $3.8 million for the year ended December 31, 2008. The increase primarily was driven by a net increase of $0.9 million in occupancy expenses related to our new corporate facility.

Sales and marketing expenses for the year ended December 31, 2009 were $4.4 million compared to $4.8 million for the year ended December 31, 2008. Sales and marketing expenses decreased, attributable to a decrease of $0.3 million in headcount and travel and entertainment related expenses and a decrease of $0.1 million in other operating expenses.

Interest income for the year ended December 31, 2009 was $19,000, compared to interest income of $0.2 million for the year ended December 31, 2008. The decrease in interest income was the result of lower average cash balances and interest rates in 2009.

Interest expense for the year ended December 31, 2009 was $1.8 million compared to interest expense of $0.3 million for the year ended December 31, 2008. The increase of $1.5 million in interest expense primarily was related to the

issuance of approximately $8.5 million additional aggregate principal amount of two-year subordinated promissory notes in 2009 bearing a weighted average annual interest rate of approximately 7.3%.

Other expenses net for the year ended December 31, 2009 were $2.5 million compared to $32,000 for the year ended December 31, 2008. The increase was due to the write-off of initial public offering related costs of $2.5 million incurred in 2008.

The change in the fair value of warrant liabilities increased our net loss by $0.9 million for the year ended December 31, 2009 and increased our net loss by $0.2 million for the year ended December 31, 2008. The change is primarily attributable to the increase in the value of the underlying preferred stock and the reclassification of common stock warrants to liabilities.

Revenue for the year ended December 31, 2008 was $4.8 million compared to $1.6 million for the year ended December 31, 2007. Revenue for the year ended December 31, 2008 consisted of $2.9 million from the sale of INFINITI Analyzers and $1.9 million from the sale of consumables and other. Revenue for the year ended December 31, 2007 consisted of $1.1 million from the sale of INFINITI Analyzers and $0.5 million from the sale of consumables. The increase in INFINITI Analyzer sales in 2008 was driven by the expansion of our national sales force in the U.S. and the continuing development of sales in Europe, Asia and South America through distributors, while the increase in consumable and other sales in 2008 was primarily a function of the increase in our installed base of INFINITI Analyzers from 38 at December 31, 2007 to 85 at December 31, 2008.

Cost of sales for the year ended December 31, 2008 was $5.4 million compared to cost of sales of $3.7 million for the year ended December 31, 2007. The increase of $1.7 million was primarily attributable to material costs, labor and overhead associated with the increase in product sales during the period, and other charges, including an increase of $1.1 million related to personnel in our production, field service and customer service functions in anticipation of increased product and service demand, excess and obsolete inventory reserves and scrap charges of $0.5 million as a result of product updates and products that failed to meet specification and amortization of INFINITI Analyzers capitalized under our domestic placement plans of $0.1 million as a result of growth in our installed base, offset in part by decreased production capacity charges of $1.0 million.

Research and development expenses for the year ended December 31, 2008 were $3.7 million compared to $2.6 million for the fiscal year ended December 31, 2007. The increase in research and development expenses was related to a $0.5 million increase in material requirements, a $0.4 million increase in personnel related expenses, a $0.1 million increase in consulting fees to support the development of our expanding menu of diagnostic tests and continued improvement of our INFINITI Analyzer and a $0.1 million increase in operating expenses.

General and administrative expenses for the year ended December 31, 2008 were $3.8 million compared to $2.4 million for the year ended December 31, 2007. The increase was driven by a $0.6 million increase in payroll and consulting fees, a $0.5 million increase in other operating expenses to support our growing infrastructure and a $0.3 increase in professional fees.

Sales and marketing expenses for the year ended December 31, 2008 were $4.8 million compared to $2.7 million for the fiscal year ended December 31, 2007. The increase in sales and marketing expenses was attributable to a $1.9 million increase in personnel expenses, including travel expenses, related to the increase in headcount, and a $0.2 million increase in other operating expenses in support of our sales growth.

Interest income for the year ended December 31, 2008 was $0.2 million compared to $0.3 million for the year ended December 31, 2007. The difference resulted from higher average cash balances and interest rates in the year ended December 31, 2007 than in the year ended December 31, 2008.

Interest expense for the year ended December 31, 2008 was $0.3 million compared to no interest expense for the year ended December 31, 2007. The interest expense for the year ended December 31, 2008 was related to promissory notes converted into our Series D Convertible Preferred Stock in March 2008 and long term subordinated promissory notes issued in September and October 2008.

Other expense net for the year ended December 31, 2008 was $32,000 compared to other income net of $7,000 for the year ended December 31, 2007. The increase in net expense was due primarily to currency exchange losses between the U.S. dollar and the Euro from Euro denominated sales of our products and collection of the associated receivables.

The change in the fair value of warrant liabilities increased our net loss by $0.2 million for the year ended December 31, 2008 and decreased our net loss by $0.1 million for the year ended December 31, 2007. The change was attributable to the increase in the fair value of the related warrants as a result of the increase in the value of the underlying preferred stock.

From inception in April 1999 through March 31, 2010, we have financed our operations primarily through sales of privately placed shares of convertible preferred stock and subordinated promissory notes.

Our primary uses of cash are to fund operating expenses, inventory purchases and the acquisition of machinery and equipment. Cash used to fund operating expenses excludes the impact of non-cash items such as the provision for excess and obsolete inventory, depreciation, stock-based compensation and non-cash interest expense and is impacted by the timing of when we pay these expenses as reflected in the change in our outstanding accounts payable and accrued expenses. Acquisitions of machinery and equipment primarily consist of our cost to manufacture INFINITI Analyzers utilized in our domestic placement plans, purchases of laboratory equipment, computer hardware and software and facility improvements.

As of March 31, 2010, we had cash and cash equivalents of $4.1 million compared to $2.4 million as of March 31,

The following table summarizes our cash flows for each of the periods indicated:

Net cash used in operating activities for the year ended December 31, 2007 consisted of a net loss of $9.3 million plus $0.6 million of decreases in working capital and $0.1 million related to revaluation of warrant liabilities, offset in part by depreciation and amortization of $0.4 million and $0.1 million of non-cash compensation. The primary changes in working capital accounts were an increase of $0.8 million in inventory as a result of increased purchasing and production activity in anticipation of increased sales volume and an increase of $0.4 million in accounts receivable as a result of significant sales growth in 2007, offset in part by an increase of $0.7 million in accounts payable and other current liabilities as a result of increased operational volume and the timing of payments.

Net cash used in operating activities for the year ended December 31, 2008 consisted of a net loss of $13.1 million plus $2.9 million of decreases in working capital, offset in part by $1.2 million of stock-based compensation, depreciation and amortization of $0.6 million, $0.3 million of non-cash interest expense related to subordinated notes that were converted into shares of convertible preferred stock in March 2008 and subordinated promissory notes issued in September and October, $0.2 million of provisions for excess inventory and $0.1 million related to revaluation of warrant liabilities. The primary changes in working capital accounts were an increase of $3.5 million in inventory as a result of increased purchasing and production activity in anticipation of increased sales volume and an increase of $0.3 million in accounts receivable as a result of increased sales volume, offset in part by an increase of $0.9 million in accounts payable.

Net cash used in operating activities for the year ended December 31, 2009 consisted of a net loss of $19.0 million offset in part by $1.0 million of increases in working capital accounts, $2.5 million in unpaid deferred financing costs charged to non-operating expense, $1.8 million of non-cash interest expense related to subordinated promissory notes, $1.5 million of stock-based compensation expense, $0.8 million of depreciation and amortization, $0.6 million of non-cash expense related to the cancellation and reissuance of common stock warrants issued to certain holders of subordinated promissory notes to double the number of warrant shares exercisable, $0.4 million of provisions for doubtful accounts and excess inventory and $0.3 million related to revaluation of preferred stock warrant liabilities. The primary changes to the working capital accounts were a decrease of $0.4 million in inventory, a $0.8 million increase in other current and non-current liabilities, an increase of $1.0 million in deferred rent expense related to our new corporate facility, offset by a $0.5 million decrease in accounts payable and a $0.8 million increase in accounts receivable.

Net cash used in operating activities for the three months ended March 31, 2010 consisted of a net loss of $4.7 million and $0.3 million related to fair value changes in warrant liabilities, offset in part by $1.0 million of changes in working capital, $0.8 million of non-cash interest and other expense related to subordinated promissory notes, $0.7 million in stock compensation expense and $0.2 million of depreciation and amortization. The primary changes in working capital were a $0.3 million increase in non-current liabilities, a $0.5 million decrease in inventory, a $0.6 million increase in current liabilities and a $0.1 million decrease in accounts receivable offset in part by a $0.4 million decrease in accounts payable.

Net cash used in investing activities for all periods noted above consisted primarily of invested capital and facility investment to manufacture INFINITI Analyzers utilized in our domestic placement plans and purchases of machinery and equipment, including furniture, computer equipment and software, in support of all functional areas of the business.

Net cash provided by financing activities prior to 2008 consisted primarily of sales of shares of convertible preferred stock issued in private placement transactions. For 2008, net cash provided by financing activities was attributable to the sale of $3.2 million of subordinated promissory notes issued in private placement transactions. For 2009, net cash provided by financing activities was attributable to the sale of $8.5 million of subordinated promissory notes issued in private placement transactions. For the three months ended March 31, 2009 and 2010, net cash provided by financing activities primarily was attributable to the sale of $2.0 million and $5.8 million, respectively, of subordinated promissory notes issued in private placement transactions.

As of December 31, 2009, the annual amounts of future minimum payments under certain of our contractual obligations were:

In addition, in February and March 2010, we issued $5.25 million aggregate principal amount of subordinated notes in a private placement to certain accredited investors. The notes bear interest at the rate of 6.0% per annum, with the principal and accrued interest balances due two years after the date of issuance. We may elect to prepay the notes at any time without penalty. In the private placement, we also issued warrants to purchase an aggregate of 1,575,000 shares of our common stock with an exercise price of $5.00 per share. The warrants will not become exercisable until one year after issuance and have a term of five years.

Pursuant to the terms of the warrants, we will be required to prepare and file a registration statement for the resale of the warrants and the shares of common stock issuable upon exercise of the warrants following the later of (a) the first anniversary of the closing dates of the private placement and (b) the date when we are required to comply with the periodic reporting requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act. We will be required to maintain the effectiveness of this registration statement for a period of up to 180 days. If we intend to file a registration statement on our behalf after the later of the times referenced in (a) and (b) above, the investors in the private placement will have the right, subject to certain limitations, to cause us to include in the registration the warrants and shares of common stock issuable upon exercise of the warrants. These registration rights will terminate as

to any investor when all of such investor’s warrants and shares of common stock underlying the warrants may be sold pursuant to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, during any 90-day period.

In February and March 2010, we issued $425,000 in subordinated notes bearing interest at the rate of 6% per annum with principal and accrued interest balances due two years after the date of issuance and a $100,000 subordinated promissory note bearing interest at the rate of 6% per annum with principal and accrued interest balances due 120 days after the date of issuance. The $100,000 note was paid in full in June 2010. The remaining notes, together with all accrued and unpaid interest, may be paid in full at any time prior to maturity. In connection with these notes, we issued warrants to purchase 149,100 shares of our common stock at an exercise price of $4.00 per share. The warrants are exercisable beginning one year after the date of issuance and expire five years from the date of issuance.

In April 2010, we and one of our note holders amended a $1.0 million principal amount subordinated promissory note to extend the maturity date of the note from August 2010 to April 2011. In connection with this amendment, we cancelled a warrant to purchase 284,000 shares of our common stock at an exercise price of $7.00 per share held by the note holder which was to expire five years after the issuance date, and reissued to the holder a warrant to purchase 284,000 shares of our common stock at an exercise price of $5.00 per share which will expire six and one-half years after the original issuance date of the cancelled warrant. Also in April 2010, we and the applicable note holders amended approximately $5.0 million in aggregate principal amount of our subordinated promissory notes to extend the maturity dates from between August 2010 and December 2011 to April 2012. In connection with these amendments, we cancelled warrants to purchase 1,431,360 shares of our common stock at an exercise price of $7.00 per share held by the note holders which were to expire five years after the issuance date, and reissued to the holders warrants to purchase 1,431,360 shares of our common stock at an exercise price of $5.00 per share which will expire six and one-half years after the original issuance date of the cancelled warrants.

On August 31, 2010, a $100,000 principal amount subordinated promissory note is scheduled to mature. We intend to repay this note with our available cash. In 2011, approximately $8.2 million in aggregate principal amount of our subordinated promissory notes is scheduled to mature. The remaining approximately $10.7 million in aggregate principal amount of our outstanding subordinated promissory notes is scheduled to mature in 2012. As discussed under “Use of Proceeds,” we intend to use a portion of the net proceeds from this offering to repay the principal and interest under our outstanding subordinated promissory notes.

We do not have any off-balance sheet financing arrangements or unconsolidated special-purpose entities.

We have a history of operating losses and negative cash flows since our inception and we may not be able to achieve or maintain profitability. If we do not consummate this offering or obtain additional capital from other external sources, we do not expect to have sufficient working capital to fund our planned operations through December 31, 2010. As a result, our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements for the year ended December 31, 2009.

We anticipate that our current cash and cash equivalents and cash provided by this offering and our operating activities will be sufficient to meet our currently estimated cash requirements for at least the next 12 months. We anticipate that we will use the proceeds from this offering to fund research and development activities, to fund clinical studies and clinical trials of our tests, to fund the expansion of our sales and marketing operations, to fund the expansion of our manufacturing capacity and for other working capital and general corporate purposes. We expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure, commercialization, manufacturing and research and development activities, and as a result we may need additional capital financing. The amount of additional capital we may need to raise depends on many factors, including:

We cannot be certain that additional capital will be available when and as needed or that our actual cash requirements will not be greater than anticipated. If we require additional capital at a time when investment in diagnostics companies or in the marketplace in general is limited by the then prevailing market or other conditions, we may not be able to raise such funds at the time that we desire or any time thereafter. In addition, if we raise additional funds through the issuance of common stock or securities convertible into shares of common stock, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us.

In October 2009, the Financial Accounting Standards Board, or FASB, issued new revenue recognition standards for arrangements with multiple deliverables, where certain of those deliverables are non-software related. The new standards modify the requirements that must be met for an entity to recognize revenue from the sale of a delivered item that is part of a multiple-element arrangement when other items have not yet been delivered. The new standards eliminate the requirement that all undelivered elements must have either: (i) vendor specific objective evidence, or VSOE, or (ii) third-party evidence, or TPE, before an entity can recognize the portion of overall arrangement consideration that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. Overall arrangement consideration will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. The residual method of allocating arrangement consideration has been eliminated. Additionally, the new standards modify the software revenue recognition guidance to exclude from its scope tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. These new updates are effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and are effective for us beginning in the first quarter of fiscal 2011, although early adoption is permitted. We are currently evaluating the impact of adopting these new standards on our consolidated financial position, results of operations and cash flows.

In May 2009, the FASB issued authoritative guidance on required disclosures for subsequent events. The guidance is intended to establish general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The guidance is effective for interim or annual financial periods ending after June 15, 2009, and was adopted prospectively. The adoption did not have a significant impact on the determination or reporting of our financial results.

In June 2008, the FASB issued guidance related to the evaluation of whether a financial instrument or its embedded features are indexed to the issuer’s common stock. The guidance became effective for fiscal years and interim periods beginning after December 15, 2008. The guidance sets forth a procedure to determine whether a financial instrument or its embedded features should be classified as debt or equity and applies to all such instruments outstanding as of the date of adoption, with any resulting adjustment applied to retained earnings. If a financial instrument or its embedded features are determined not to be equity, they shall be classified as either an asset or a liability and their fair value shall

be remeasured periodically. We evaluated the common stock warrants issued in connection with our subordinated promissory note issuances in 2008 and 2009 and determined that the guidance applies both to the warrants that we issued in 2008, which subsequently were cancelled and reissued in December 2009, and to all such warrants issued in 2009.

Our exposure to market risk is currently confined to our cash and cash equivalents. We have not used derivative financial instruments for speculation or trading purposes. In addition, we have not invested in auction rate securities. Our subordinated promissory notes have a weighed average fixed annual interest rate of 7.9%, and therefore changes in interest rates generally will affect the fair value of these debt instruments.

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve these objectives, we invest our cash primarily in liquid money market funds. As a result, we believe we have minimal interest rate risk; however, a one percentage point change in the average interest rate on our portfolio would have changed interest income for 2009 by approximately $11,000.

In the first and second quarter of 2010, we identified two material weaknesses in our internal control over financial reporting, as defined in rules established by the PCAOB. The first material weakness was the result of two different internal control deficiencies with respect to revenue recognition. The first control deficiency involved the failure to appropriately document negotiated terms and conditions that deviated from our standard terms and conditions, and to consistently and accurately communicate the negotiated terms and conditions to accounting management so that the transactions could be properly recorded in the accounting records. The control deficiency did not result in adjustments to our financial statements because, independent of and prior to identifying the control deficiency, and in connection with the preparation of our financial statements, we had deferred the recognition of revenue from these sales as collection of the payments related to these sales was not reasonably assured. See “Risk Factors — Failure by our customers or distributors to pay for products we have sold to them could have a material adverse effect on our financial condition and results of operations.”

The second control deficiency related to the misapplication of GAAP with respect to the timing of the recognition of revenue for product sales characterized by multiple deliverables or additional elements. More specifically, during the year ended December 31, 2009, in connection with the sale of an INFINITI system, we granted one of our domestic customers the right to trade in the system for our new INFINITI Plus system at the time it becomes available for sale, so long as the customer pays us an incremental amount for the new system. We previously recognized $120,000 of revenue in our statement of operations for the year ended December 31, 2009, with respect to this sale. However, under GAAP, based on the specific facts of the arrangements, we have now deferred the recognition of revenue from this sale until the earliest to occur of (i) both the exercise by the customer of their right to trade in the system for, and our shipment of, the INFINITI Plus system, (ii) notification by the customer to us of its election to forgo the rights, or (iii) such time (if any) as we determine the rights had expired. Though we do not intend to continue to provide customers with an option to trade in systems as described above, in the event we do provide customers with such an option, we will recognize revenue for the sale of the applicable systems in accordance with GAAP. In addition, during the years ended December 31, 2008 and 2009, in connection with the initial sale of INFINITI systems to certain customers, we agreed to provide training to these customers on how to use our system. We previously recognized $245,000 and $100,000 of revenue in our statements of operations for the years ended December 31, 2008 and 2009, respectively, with respect to sales to customers for which we agreed to provide such training but for which such training had not yet been completed. Because such training is considered a deliverable with no objective reliable evidence of fair value within the overall sales transaction, we are required to defer revenue recognition until completion of the related training.

to record in connection with the preparation of our 2009 financial statements, and having discovered in the first quarter of 2010 certain errors related to our accounting for warrants issued with our subordinated promissory notes. Such errors involved calculating and allocating the fair value of the warrants and calculating the amortization of the related interest expense.

We restated our financial statements to correct these misstatements. The following table sets forth the net effects of the restatement on selected items within our statements of operations for the periods presented:

In response to the identification of the material weaknesses described above, we adopted a remediation plan and have taken the following steps:

We believe that the actions taken will remediate the control deficiencies that resulted in the identified material weaknesses but we cannot assure you that our internal control over financial reporting, as modified, will enable us to remedy these deficiencies or avoid material weaknesses in the future. If the remediation measures taken are not effective, or we engage in other activities that result in the identification of additional material weaknesses in our internal control over financial reporting, we could be subject to inaccurate financial reporting or material misstatements in our annual or interim financial statements and we may not be able to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002. If any of these were to occur, our reputation, investor perceptions of us and the price of our common stock could be negatively impacted and you may not be able to rely on our financial statements.

We design, develop, manufacture and market a fully integrated molecular diagnostics platform called the INFINITI system that includes our highly automated bench-top INFINITI Analyzer, which has the versatility to run a large menu of genetic tests. By eliminating the need for multiple specialized instruments and automating many of the discrete processes of genetic testing, we believe our system can significantly improve laboratory productivity, workflow and cost per reportable result over many existing technologies and methods. Our system is easy to use, provides a high level of sensitivity and accuracy and is capable of high volume testing and multiplexing. Our system is designed to allow for the development of new and enhanced tests without modification to our platform. We believe these and other attributes of our system could reduce the cost and complexity of genetic testing and the need for specialized personnel, equipment and facilities, allowing a broader range of reference laboratories, hospital laboratories and specialty clinics to perform molecular diagnostics tests, and facilitating the acceptance and rapid adoption of our system.

As of March 31, 2010, we offered 42 tests for use on our INFINITI Analyzer, including tests focused in the areas of women’s health, cancer and personalized medicine, which we believe represent large and growing market opportunities in genetic testing. Each of our tests includes BioFilmChips and Intellipac Reagent Management Modules specific to the test. We have plans to increase the number of tests offered in each of our target market segments, which we believe will further increase the utility of our system to customers. We believe the depth and breadth of our test menu is a strong competitive advantage that will allow laboratories to more efficiently utilize laboratory space, labor and capital investment. We also have entered into collaborative relationships with leading research and academic institutions for the development of additional tests, which we anticipate will allow us to significantly increase the breadth of our test menu. As of March 31, 2010, we had nine tests under development, including two new tests in the area of cancer.

We intend to establish a large installed base of INFINITI Analyzers which in turn should generate significant recurring demand for our high margin testing consumables, including our test-specific BioFilmChips and Intellipac Reagent Management Modules. As of March 31, 2010, we had an installed base of 151 INFINITI Analyzers in reference laboratories, hospital laboratories and specialty clinics in North America, Europe, Asia, the Middle East and South America.

We have received FDA clearance for the INFINITI Analyzer and our Warfarin, FII, FV and FII-FV Panel tests, and we intend to seek clearance or approval, as necessary, for our other tests. Like many other companies offering molecular testing products on a commercial basis, most of the tests that we offer have not been cleared or approved for diagnostic use by the FDA. These molecular tests are available to laboratories on an RUO basis. As required by FDA regulations, these tests must be labeled, “For Research Use Only. Not for use in diagnostic procedures.” Although our RUO products are used for clinical purposes by laboratories certified under CLIA, as laboratory-developed tests pursuant to guidelines issued by the College of American Pathologists, we are not permitted to market these products for diagnostic purposes. As of March 31, 2010, 38 of our 42 tests were offered on an RUO basis. For the year ended December 31, 2009 and the three months ended March 31, 2010, sales of RUO tests represented 86% and 82%, respectively, of our revenue from the sale of consumables. We believe that many other companies offering molecular tests on a commercial basis also derive significant revenue from the sale of RUO tests.

2012, which represents a compound annual growth rate of 11%. Kalorama Information stated that a large portion of molecular diagnostic tests currently are performed through the use of “home-brew” tests, and these tests are not included in their global molecular diagnostics market estimates. We believe there are a number of trends that will impact the demand for molecular diagnostics tests:

Scientists have developed a variety of genetic analysis methods, including DNA sequencing, gene expression and genotyping, to detect genetic biomarkers. These analytical methods are performed using various genetic testing technologies, the most common being polymerase chain reaction, or PCR, which involves amplifying, or generating billions of copies of, the DNA sequence in question and then detecting the DNA with the use of fluorescent dyes. Existing technologies for in vitro diagnostic genetic testing are often practiced through commercially available kits, semi-automated systems and “home-brew” tests. These existing testing platforms have a number of drawbacks, which we believe have limited their use significantly, including:

These limitations have created the need in the molecular diagnostics market for a fully integrated system to perform a large menu of automated, cost-effective and easy to use tests with a high degree of accuracy and sensitivity.

We believe our INFINITI system will address many of the current limitations of existing molecular diagnostic technologies. The INFINITI system is cost-effective, easy to use, highly sensitive, accurate and designed to mulitplex. To use our system, an operator only needs to load prepared test samples into the bench-top INFINITI Analyzer, along with the specific BioFilmChips and Intellipac Reagent Management Modules, for the desired tests. Once the INFINITI Analyzer is loaded and the tests are initiated, no supervision is required. After the test is completed, the system generates an electronic report that can be transmitted directly to a laboratory information system. Our system has several key advantages, including:

Our objective is to become a leading provider of molecular diagnostics products to reference laboratories, hospital laboratories and specialty clinics. To achieve our objective, we intend to:

The INFINITI Analyzer, the centerpiece of the INFINITI system, is a bench-top instrument that integrates and automates the discrete processes of sample handling, reagent management, hybridization, detection and results analysis of genes in a self-contained system. The INFINITI Analyzer has been designed to operate on a “load and go” basis, which means that to run a test, an operator only needs to load prepared samples into the INFINITI Analyzer along with the specific BioFilmChips, the multilayer microarrays on which tests are run, and the Intellipac Reagent Management Modules, the reagent-holding conduit designed to communicate all relevant information about a test to the INFINITI Analyzer without any intervention from the operator. Once the INFINITI Analyzer is loaded and the tests are initiated, no supervision is required. From the perspective of the operator, the test protocols are identical, which eliminates the need to repeatedly train operators when additional tests are added. After the test is completed, the INFINITI Analyzer generates an electronic report that can be transmitted directly to a laboratory information system.

We are also developing new products, including our next generation analyzer, the INFINITI Plus, and our INFINITI ASSIST, both of which are currently in Beta trial. The INFINITI Plus will be able to process samples from 48 different patients simultaneously for those customers who require a higher throughput than that offered by the INFINITI Analyzer. Both analyzers will be marketed concurrently and will use the same consumables. The INFINITI ASSIST will enable the operator to perform the up-front sample preparation automatically. We intend to release these instruments for commercial sale in 2010.

The following is a description of our tests that are available for sale. Unless otherwise indicated, the tests described below have not been cleared or approved for diagnostic use by the FDA and are sold on an RUO basis.

HPV Quad (Screening). Our HPV Quad (Screening) test is designed to screen four different patient samples for 13 high-risk and two low-risk types of HPV simultaneously on a single BioFilmChip.

HPV Genotyping. Our HPV Genotyping test is designed to identify 26 high and low-risk HPV types and help identify women at high risk for the development of cervical disease and cervical cancer.

HPV-HR Quad. Our HPV–HR Quad test is designed to genotype 14 high-risk types of HPV in four different patient samples simultaneously on a single BioFilmChip.

Respiratory Virus Panel. Our Respiratory Virus Panel test is designed to detect the presence of 24 common respiratory viruses found in the human respiratory tract.

Flu A-SOIV. Our Flu A-SOIV test is designed to detect the presence of Flu A and 2009 H1N1, common respiratory viruses found in the human respiratory tract.

MDR-TB. Our multidrug-resistant tuberculosis, or MDR-TB, test is designed to detect the presence of tuberculosis and assess drug resistance to the tuberculosis treatments rifampin, isoniazid and pyrazinamide.

NTM. Our nontuberculous mycobacterium, or NTM, test is designed to detect the presence of 12 of the most common pathogenic NTMs from a single sample.

STD-6 QUAD. Our STD-6 QUAD test is designed to detect the presence of six common microorganisms that cause sexually transmitted microorganisms (Chlamydia trachomatis, Neisseria gonorrhea, Trichomonas vaginalis, Ureaplasma urealyticum, Mycoplasma hominis and Mycoplasma genitalium) in four different patient samples simultaneously on a single BioFilmChip.

CT-NG Quad. Our CT-NG Quad test is designed to detect the presence of Chlamydia trachomatis and Neisseria gonorrhea in four different patient samples simultaneously on a single BioFilmChip.

Leuko Quad. Our Leuko Quad test is designed to detect Chlamydia trachomatis, Neisseria gonorrhea and Trichomonas vaginalis in four patient samples simultaneously on a single BioFilmChip.

Urogen Quad. Our Urogen Quad test is designed to detect Ureaplasma urealyticum, Mycoplasma hominis and Mycoplasma genitalium in four patient samples simultaneously on a single BioFilmChip.

Pelvic Inflammatory Disease Panel. Our Pelvic Inflammatory Disease Panel test is designed to detect the presence of microorganisms, including Chlamydia trachomatis, Neisseria gonorrhea, Trichomonas vaginalis, Ureaplasma urealyticum, Mycoplasma hominis and Mycoplasma genitalium.

Candida Vaginitis Panel. Our Candida Vaginitis Panel is designed to detect the presence of the organisms that can cause five sexually transmitted fungal infections: Candida albicans, Candida parapsilosis, Candida tropicalis, Candida glabrata and Candida krusei.

Bacterial Vaginosis Panel. Our Bacterial Vaginosis Panel is designed to detect the presence of the organisms that can cause six sexually transmitted bacterial infections: Bacteroides fragilis, Gardnerella vaginalis, Mobiluncus mulieris, Mobiluncus curtisii, Atopobium vaginae and Prevotella bivia.

5-FU. Our Fluorouracil, or 5-FU, test is designed to detect and identify point mutations in the Dihydropyrimidine Dehyrogenase, MTHFR and Thymidylate Synthase genes that affect the toxicity and efficacy of 5-FU, a leading chemotherapy drug. 5-FU is given as a treatment for several types of cancer, including colon, rectal, breast, stomach and pancreatic cancers.

EGFR. Our EGFR test is designed to identify receptors that may indicate whether cancer patients will respond to drugs that inhibit EGFR expression, such as Tarceva and Gefitinib.

NAT-2. Our N-acetyltransferase 2, or NAT-2, test is designed to identify select variants of the NAT-2 gene which are associated with an increased risk of developing bladder and other types of cancer.

KRAS. Our KRAS test is designed to identify select mutations of the KRAS gene in colorectal cancer patients, who may not benefit from anti-EGFR therapies, such as Cetuximab and Panitumumab.

KRAS-BRAF. Our KRAS-BRAF test is designed to identify select mutations of the BRAF gene and the KRAS gene in metastatic colorectal cancer patients who have been found to not respond to certain anti-EGFR therapies, such as Cetuximab and Panitumumab.

UGT1A1. Our UGT1A1 test is designed to identify a select variant of the UGT1A1 gene that affects the toxicity of Irinotecan, a leading cancer drug.

CYP450 2D6T. Our CYP450 2D6T test is designed to identify select variants of the CYP450 2D6 gene that affect the efficacy of Tamoxifen, a breast cancer drug.

CHEK-2. Our CHEK-2 test is designed to identify select variants of the CHEK-2 gene that are associated with an increased risk of developing breast cancer. Mutations in the CHEK-2 gene also have been associated with other hereditary and somatic (not inherited) cancers, including prostate, lung, colon, kidney, thyroid and ovarian cancers.

Breast Cancer Panel-AJ. Our Breast Cancer Panel-AJ test is designed to identify three genetic mutations common in the Ashkenazi Jewish population in the breast cancer 1, or BRCA1, and breast cancer 2, or BRCA2, genes that are associated with an increased risk of developing breast cancer.

Ashkenazi Jewish Panel. Our Ashkenazi Jewish Panel test is designed to detect 31 genetic mutations associated with susceptibility to eight genetic diseases that occur more frequently in the Ashkenazi Jewish population, including Tay-Sachs disease, Canavan disease, familial dysautonomia, Gaucher’s disease, Fanconi Anemia, Niemann-Pick disease and Bloom Syndrome.

CFTR-31. Our CFTR-31 test is designed to detect the presence of 31 mutations in the cystic fibrosis transmembrane conductance regulator, or CFTR, gene which are associated with an increased risk of developing cystic fibrosis.

CYP450 2C19 Panel. Our CYP450 2C19 Panel test is designed to identify select variants of the CYP450 2C19 gene that affect the metabolism and efficacy of the anticoagulant drug Plavix.

Warfarin. Our Warfarin test is designed to identify select variants of the CYP450 2C9 and Vitamin K epoxide reductase, or VKORC1, genes that affect the metabolism of the oral anticoagulant warfarin. This test received 510(k) clearance from the FDA in January 2008.

CYP450 2C9-VKORC1. Our CYP450 2C9-VKORC1 test is designed to identify select variants of the CYP450 2C9 and VKORC1 genes that affect the metabolism of warfarin. The test is designed to detect expanded numbers of CYP450 2C9/VKORC1 variants found in certain ethnic groups as compared to our Warfarin test.

CYP450 2C19 Plus. Our CYP450 2C19 Plus test is designed to identify select variants of the CYP450 2C19 gene that affect the efficacy of many drugs, including diazepam (an antiepileptic drug) and pantoprazole (a proton pump inhibitor).

TAMX3. Our TAMX3 test is designed to identify select variants of the CYP450 2D6, CYP450 3A5 and SULT1A1 genes which affect the metabolism of certain drugs, including the cancer drug Tamoxifen.

CYP450 2D6I. Our CYP450 2D6I test is designed to identify select variants of the CYP450 2D6 gene that affect the efficacy of many drugs, including the antidepressants Paroxetine and Fluoxetine, and the cancer drug Tamoxifen.

MDR-1. Our MDR-1 test is designed to identify select variants of the MDR-1 gene, which is helpful in predicting how certain drugs will penetrate through different pharmacological barriers in the body and how new anti-cancer or anti-parasite agents will interact with MDR-1 and potential liver toxicity.

CYP450 3A4 / CYP450 3A5. Our CYP450 3A4 and CYP450 3A5 tests are designed to identify select variants of the CYP450 3A4 and CYP450 3A5 genes that affect the metabolism of many drugs, including most calcium channel blockers, most benzodiazepines and human immunodeficiency virus, or HIV, protease inhibitors. The presence of these variants may be used to determine the cause of amplified side effects to a drug and unresponsiveness to the therapeutic effects of a drug.

Factor II / Factor V / FII-V Panel. Our Factor II, Factor V and FII-V Panel tests are designed to identify select variants of the Factor II and Factor V genes associated with an increased risk of developing blood clots. Each of these tests received 510(k) clearance from the FDA in February 2007.

Factor II Plus / MTHFR / Factor II Plus–V Panel / FII-FV-MTHFR Panel / FII Plus-FV-MTHFR Panel. Our Factor II Plus, MTHFR, Factor II Plus-V Panel, FII-FV-MTHFR Panel, and FII Plus-FV-MTHFR Panel thrombophilia tests are designed to identify select variants of the Factor II, Factor V and Methylenetetrahydrofolate reductase, or MTHFR, genes associated with an increased risk of developing blood clots.

We are developing the following tests to be run on the INFINITI Analyzer, focused on the areas of women’s health, infectious disease, cancer, personalized medicine, genetic disorders and psychiatric disorders:

ALS. We are developing our amyotrophic lateral sclerosis, or ALS, test to identify select genetic variants associated with the development of the inherited form of ALS. ALS, which is often referred to as “Lou Gehrig’s Disease,” is a progressive neurodegenerative disease that affects nerve cells in the brain and the spinal cord.

Thalassemia. We are developing our Thalassemia test to identify select variants of the alpha globin genes associated with alpha thalassemia. Alpha thalassemia is a group of blood disorders that affect the production of normal hemoglobin and causes different forms of anemia.

Carbamazepine. We are developing our carbamazepine test to identify a select variant of the human leukocyte antigen, or HLA, gene that is associated with an increased risk of serious dermal toxicities to carbamazepine in individuals with Asian ancestry, including South Asian Indians. Carbamazepine is a drug used to treat epilepsy, bipolar disorder and neuropathic pain.

Warfarin Resistance Panel. We are developing our Warfarin Resistance Panel to identify with a single test select variants of the CYP450 2C9, VKORC1, Factor II and Factor V genes that play a role in resistance to warfarin.

BRAF Panel. We are developing our BRAF Panel to identify select variants in regions important for BRAF activity, which we believe could assist in developing proper therapeutic treatment of certain cancers.

MRSA-HAI. We are developing our MRSA-HAI test to detect the presence of certain microorganisms that may be associated with hospital acquired infections, or HAIs, including MRSA.

PIK3CA. We are developing our PIK3CA test to identify a select variant of the PIK3CA gene which is linked to gynecological malignancy, including ovarian cancer.

C. diff. We are developing our C. diff. test to detect the presence of Clostridium difficile, or C. diff., which is a bacterium that can cause symptoms ranging from diarrhea to life-threatening inflammation of the colon.

Codeine. We are developing our Codeine test to identify select variants of the CYP450 2D6 and UGT2B7 genes, which determine an individual’s ability to metabolize codeine. Certain individuals exhibiting these variants transform codeine into morphine, potentially resulting in toxicity to nursing infants whose mothers have been prescribed the drug.

The completion of our development of the tests described above and its timing are subject to a number of factors, some of which are beyond our control, including factors impacting the cost of development, changes in customer demand and the results of our research and development activities. For these or other reasons, we could cease development of any of these tests at any time. As a result, we cannot assure you that we will develop the tests described above on a timely basis or at all.

We also intend to become a leading provider of genetic tests in the area of personalized medicine. We believe that the use of these tests in diagnostic tests may identify patients who will benefit from certain medications, potentially resulting in improved treatment quality and a reduction in health care costs associated with the prescription of ineffective medications. We believe this represents a significant market opportunity as physicians begin to adopt these tests and as additional genetic variances are identified that may be relevant to treatment decisions. We currently offer 16 tests that may be used by laboratories in the area of personalized medicine.

The United States Center for Disease Control and Prevention, or CDC, estimates that approximately 20 million Americans currently are infected with HPV and that an additional 6 million individuals contract the virus annually. Certain types of HPV are primary causes of cervical cancer, a disorder which has had deleterious effects on women’s health. The American Cancer Society estimated that, in 2009, over 11,000 women were diagnosed with, and that over 4,000 women died from, cervical cancer. The primary cervical cancer screening method for the last 50 years has been the Pap test. While the Pap test is currently the standard of care for cervical cancer screening, the Pap test itself has a number of limitations, including: (1) false negatives due to sampling errors, (2) inherently subjective nature of the test and (3) limited predictive value and inability to detect high-risk HPV types, the primary cause of cervical cancer. Recent studies have concluded that molecular diagnostics tests for high-risk HPV types are more accurate than the Pap test in detecting cervical cancer and a large market opportunity has emerged for HPV testing. We believe that the information elicited from HPV testing has become highly relevant to the treatment and early diagnosis of cervical cancer, as reflected by the March 2009 recommendation of the American Society of Colposcopy and Cervical Pathology that certain women with high-risk HPV types, as determined by HPV genotyping tests, be referred for immediate coloscopy.

Our strategy is to become a key provider of HPV testing products. We have developed three HPV tests, which are designed for screening and/or genotyping and each of which addresses a different segment of the HPV market segment. Our HPV-HR Quad test, designed to screen for and genotype 14 high-risk types of HPV simultaneously, our HPV Quad (Screening) test, designed to screen for 13 high-risk and two low-risk types of HPV and our HPV Genotyping test, designed to identify 26 high and low-risk types of HPV. Our HPV-HR Quad and HPV Quad (Screening) tests are designed to allow a laboratory to test samples from four different patients simultaneously on a single BioFilmChip. We believe our tests offer several competitive advantages over existing HPV screening and genotyping tests, such as the consolidation of multiple testing steps required in screening and genotyping, full automation, low sample requirement and a high degree of accuracy and specificity. We plan to seek a PMA for our HPV-HR Quad test and 510(k) clearance for our HPV Genotyping test. Our HPV Quad (Screening) and HPV Genotyping tests have been CE marked in accordance with applicable law. The CE marking indicates that these tests meet minimum standards of performance, safety and quality and can be commercially distributed throughout the EEA and other countries outside the EEA that have accepted the CE marking as an acceptable certification of efficacy and safety of medical devices.

According to the CDC, there are approximately 19 million new cases of STDs each year in the United States, with direct medical costs to the U.S. health care system estimated at $16.4 billion annually. Chlamydia, the common name for the bacterium Chlamydia trachomatis, Gonorrhea, the disease caused by the bacterium Neisseria gonorrhea, and

Trichomoniasis, the disease caused by the parasite Trichomonas vaginalis, represent three of the most common STDs in the U.S. While both men and women may become infected, these conditions have particular impact on adolescent girls and young women. When undiagnosed and untreated these infections can contribute to health problems such as pelvic inflammatory disease, infertility, poor pregnancy outcomes and increased susceptibility to certain other diseases such as HIV. According to the CDC, there are an estimated 2.8 million cases of Chlamydia and more than 700,000 cases of Gonorrhea in the U.S. each year, with more than half of these cases going undiagnosed and unreported. The CDC also estimates that there are more than 7.4 million new cases of trichomoniasis each year, making it the most common curable STD among young sexually active women.

We intend to capitalize on the significant market opportunity in the area of STD testing by providing solutions to some of the inadequacies and inefficiencies of many of the current testing methods. We believe that physicians presently lack the tools to identify some of these organisms efficiently or in a cost-effective manner, if at all. Conversely, we believe that our molecular identification techniques are well suited to test for these infections in a cost-effective manner. We have launched a variety of panels consisting of tests for the three organisms listed above and several others. Our panels are designed to screen for multiple organisms in a single sample collection. We believe that this may reduce health care costs by reducing the number of physician visits required to obtain the correct diagnosis.

Except for non-melanoma skin cancer, breast cancer is the most common form of cancer in women. According to the CDC, nearly 200,000 women were diagnosed with, and over 40,000 women died of, breast cancer in 2006, the latest year for which data is available. We have developed tests such as our CHEK-2 and the Breast Cancer Panel-AJ tests, which are designed for use by laboratories in their tests to determine individuals at greater risk for early onset breast cancer, and our CYP450 2D6T test, which is designed for use in laboratory developed tests to determine if a woman will benefit from Tamoxifen, a frequently prescribed drug for the prevention of breast cancer recurrence. If specific variants are present, the patient cannot convert Tamoxifen to an active form of the drug and the medication is not effective. We believe that our tests could play an important role in improving patient outcomes and reducing health care costs related to breast cancer and in improving the screening, early diagnosis and effective treatment of certain individuals with, or potentially at risk of developing, breast cancer.

The American Cancer Society estimated that, in 2009, there were over 100,000 new cases of colon cancer and over 40,000 new cases of rectal cancer, and that these diseases caused nearly 50,000 deaths during that year, making it the second leading cause of cancer-related deaths in the U.S. during that year. Anti-EGFR drugs have emerged as prevalent anticancer therapeutics as they help neutralize EGFR over-activity that has been linked to several cancers, including colorectal cancer. However, certain genetic mutations are associated with poor response to anti-EGFR therapies. We have developed KRAS and KRAS-BRAF tests, which enable laboratories to identify these mutations. We believe that our tests could assist in reducing health care costs and maximizing the effectiveness of cancer treatment by assisting in the determination of the efficacy of anti-EGFR drugs.

In addition, we intend to become a leading provider of tests designed to assess genetically determined variations in responses to drugs, an area known as pharmacogenetics. One of our leading offerings in this area is our CYP450 2C19 Panel test, which is designed to enable laboratories to identify certain gene variants that affect the metabolism and efficacy of the anticoagulant drug Plavix. Plavix is the most commonly prescribed anti-platelet drug in the United States, with more than 25 million total prescriptions filled in the U.S. in 2009, including more than 8 million new prescriptions, based on data from IMS Health Incorporated, or IMS. As of March 2010, the FDA now requires the Plavix label to include language informing doctors that patients with CYP450 2C19 mutations have a diminished response to the drug, and thus, such patients may be susceptible to a heart attack, stroke or cardiovascular death due to the ineffectiveness of the drug. We believe that such FDA requirements may increase the demand for molecular diagnostics tests such as ours. Our other leading tests in this area currently include our CYP450 2C19 Plus, Warfarin

and CYP450 2D6I tests, which are designed to enable laboratories to identify certain gene variants associated with responsiveness to certain medications for psychiatric disorders, the oral anticoagulant warfarin and certain antidepressants and cancer drugs, respectively. Warfarin is the most commonly prescribed anticoagulant in the United States, with more than 30 million total prescriptions filled in the U.S. in 2009, including more than 14 million new prescriptions, based on data from IMS. Our Warfarin test has been cleared by the FDA and the others currently are available for research use only. We believe that our tests could improve patient care and diminish health care costs when used by laboratories to assess the efficacy and side effects of certain medications before they are given to patients.

The INFINITI system uses four key technological innovations that automate the discrete processes of genetic testing for clinical laboratories in a fully integrated molecular diagnostics system. These four innovations are: (1) the INFINITI Analyzer; (2) the BiofilmChip; (3) the Intellipac Reagent Management Module; and (4) the multiplexing test format (the ability to detect multiple disease-specific biomarkers on one or more samples simultaneously).

The INFINITI Analyzer hardware is controlled by the Qmatic scheduling software, which is embedded within the on-board computer. The Qmatic software has a schedule manager that is designed to control all operations of the INFINITI Analyzer, including test protocol, fluid handling, robotics, optical detection and results analysis. This proprietary scheduling software gives the INFINITI Analyzer flexibility. Some key features include: (1) processing of 24 microarrays simultaneously; (2) running multiple samples and multiple tests at the same time; (3) test protocol monitoring; and (4) multiplexing different patient samples on the single microarray for increased throughput and reduced cost.

Tests are processed automatically and read by the built-in confocal microscope. Results are analyzed and presented in numerical and graphical format. The data generated is analyzed and formatted as a result report. The electronic results report can be reviewed via the LCD screen or can be transmitted directly to a laboratory information system.

The BioFilmChip has a set of unique universal immobilized capture probes, or zip codes. Specific zip codes are immobilized at each predetermined spot to the microarray. A target gene-specific detection primer is hybridized (the reaction of complementary DNA sequences) to the PCR amplicon of the sample. (PCR, or Polymerase Chain Reaction, is an enzymatic reaction that makes millions of copies of DNA. The PCR-copied products are known as PCR amplicons.) The hybridized detection primer is designed to extend in the presence of a fluorescence precursor to produce a fluorescent extension product which hybridizes to the microarray (the process increases the signal so that the detection system can read it). The detection primer has two complementary parts: one target specific and the other immobilized capture probe specific. The capture probe specific part has no sequence homology with the target. After hybridization and washing of the excess unbound probes, the chip is scanned for fluorescence and the data is analyzed. Once multiplexed PCR is complete, the amplicons are subjected to the detection primer extension reaction, which proceeds for several extension cycling steps. At the beginning of each cycle, a primer anneals to the amplicon and is extended. During extension, a fluorescence dye-labeled nucleotide is incorporated. At the end of a cycle, the extended primer is denatured from its target, which is then available for another cycle in which a new primer anneals. Thus, multiple dye-labeled probes are generated, which will hybridize to the microarray. Where certain systems only use target or signal amplification, we believe our combined target and signal amplification technologies can increase the sensitivity and specificity over these widely-used stand-alone amplification methods. For example, we have conducted studies which have demonstrated that our system has achieved sensitivity to the level of detection of 10 copies of mycobacterium tuberculosis and five copies of HPV, which we believe is more sensitive than many other commercially available tests.

This schematic illustrates the microarray test process. In the microarray test process, first, PCR is used to make millions of copies of the sample DNA. The sample copies then react (hybridize) with the detection primer specific to the genetic variant being tested. (See 1, Detection Primer Hybridization above). Then, each hybridized sample copy and detection primer go through an extension process, which incorporates a fluorescence dye-labeled nucleotide into the sample. (See 2, Detection Primer Extension above). The resulting product is referred to as a dye-labeled probe. The dye-labeled probe then binds to a specific site on the microarray that corresponds to its detection primer tag (or zip code). The INFINITI Analyzer scans for presence of the dye-labeled probe at the appropriate site to determine whether the genetic variant being tested for is present in the sample DNA.

The 3' ends of the detection primers contain sequences complementary to the amplicon sequence being analyzed. Extension of the primers occurs only when the 3' end of a particular primer precisely matches its complementary amplicon sequence. The requirement for perfect matching is intended to confer specificity on the reaction and makes the discrimination between wild type and mutant alleles, or variants, possible. It is important to emphasize that the detection primer extension process involves labeling of complementary probes. However, no amplification of the amplicon occurs during this step. The hybridization module is where the extended detection primers are applied to the microarray, which is positioned in a sealed hybridization chamber maintained at a specific temperature. During this step, anti-zip codes that are part of the extended detection primers target and hybridize to complementary immobilized zip code oligonucleotides spotted on the microarray. Only those spots where labeled primers have hybridized to their complementary zip codes are labeled with a fluorescent molecule and are therefore detected by the optics module. Genotypes specific to each sample are then assigned.

Our proprietary MPA technology permits samples from up to four patients to be processed simultaneously on a single microarray, increasing system throughput by up to 300% and reducing the cost per sample by up to 75% as compared to our single test microarrays. We also have developed an MPA that permits samples from up to eight patients to be processed simultaneously.

This schematic illustrates the MPA technology. Patient samples are first individually processed as described in Figure 1 above. During this process, each patient sample is assigned a separate set of detection primer tags. The detection primer tags correspond to one of four separate zones on the microarray (one zone for each patient sample). After the dye-labeled probes bind to the specific site on the microarray that corresponds to its detection primer tag, the INFINITI Analyzer scans for presence of the dye-labeled probes at the appropriate sites to determine whether the genetic variant being tested for is present in each of the patient samples.

The optics module in the INFINITI Analyzer is a lightproof assembly comprised of a three-axis electromechanical stage, camera and laser and a photomultiplier tube. Using an excitation wavelength from the laser light source, the camera takes micron-level pictures of reference fluorescent dye spots on the BioFilmChip. The integrated software uses that data to calculate the location of the spots on the specific microarray, and the optics module scans those calculated locations. The optics module scans and analyzes the microspots on the microarray. We have demonstrated capability to increase the number of spots on a BioFilmChip to up to 1,024.

Our research and development efforts are focused on developing additional tests and new products, including our next generation analyzer, the INFINITI Plus, and the INFINITI ASSIST, improving current tests and supporting clinical studies and trials for certain tests. We spent $2.6 million, $3.7 million, $3.5 million, $0.9 million and $0.8 million on research and development in the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2009 and 2010, respectively.

Developing new tests is our primary research and development focus. Developing a broad menu of tests should increase the value of our system, drive additional placements and increase consumable sales. We plan to address the areas of women’s health, infectious disease, cancer, personalized medicine, genetic disorders, cardiovascular disease/thrombophilia, newborn screening and psychiatric disorders. We also focus our research and development efforts on improving existing tests as new genetic research becomes available. For example, we conducted various studies to detect alleles involved with warfarin metabolism that are more common among certain ethnic groups. This resulted in the development of our CYP450 2C9 / VKORC1 test, which detects warfarin sensitivity among diverse ethnic groups.

Our research and development efforts also include conducting clinical studies and trials to support our FDA 510(k) clearance and PMAs, as necessary, and to explore opportunities to enhance the INFINITI Analyzer. Apart from internal development, we expect to gain access to intellectual property and specific tests through collaborating with

clinical researchers in academic and private settings. We have entered into strategic partnerships with leading scientific institutions for the development of additional tests. Where appropriate, we enter into royalty agreements with our collaborative partners to license intellectual property for use in our tests.

Our sales and marketing strategy is to focus on key customers and market segments to establish a large installed base of INFINITI Analyzers. We focus our sales efforts on reference laboratories, hospital laboratories and specialty clinics and emphasize the work flow efficiency, low cost, ease of use, bench-top convenience, high quality and consistent results of our system, as well as the potential versatility afforded by a broad test menu on a single system. We believe our system’s advantages over existing technologies and the adoption of our product by key opinion leaders will generate demand from both larger clinical laboratories and hospital laboratories, as well as smaller reference laboratories, hospital laboratories and specialty clinics that would prefer to offer molecular diagnostics tests in-house, but where it has not traditionally been economical to develop their own tests. Our goal is to place a large base of INFINITI Analyzers in the market to generate sales of our high margin testing consumables, including our BioFilmChips and Intellipac Reagent Management Modules.

In the U.S., we offer the INFINITI Analyzer through direct sale and two placement plans, our Reagent Access Plan and Jump On INFINITI. Under both plans, an INFINITI Analyzer is placed at the customer’s location at no direct cost to the customer to generate significant recurring demand for our high margin testing consumables, including our test-specific BioFilmChips and Intellipac Reagent Management Modules. Also under both plans, in the event that certain consumable sales thresholds are not met we have the right to reclaim INFINITI Analyzers, which we may exercise in our discretion. The principal difference between the Reagent Access Plan and Jump On INFINITI is that the Reagent Access Plan typically provides for a term of three to four years while Jump On INFINITI typically provides for a month-to-month term. The INFINITI Analyzer is offered on a direct sale basis internationally through our network of distributors. To execute our marketing strategy, we have established a direct sales force, which, as of March 31, 2010, was comprised of 13 sales persons located in key metropolitan cities in the U.S. To supplement our sales and marketing effort, we maintain a customer support team that is comprised of training specialists, hotline staff, field service engineers and test specialists. Our technical service line is staffed by experienced molecular biologists and engineers who are well trained on the functioning of the INFINITI system and are able to provide assistance rapidly to domestic customers. We also have assigned product managers who focus on the major molecular diagnostics categories of infectious disease, cancer, genetic disorders and pharmacogenetics to develop product specific strategies to identify market opportunities and to position the product against competitors to maximize market penetration.

As of March 31, 2010, we have established distributor relationships in 22 countries where the INFINITI system is marketed. These countries include Canada, Mexico, major countries in Europe, China, Russia, Brazil and countries in the Middle East. We plan to expand our global distribution networks aggressively, with an emphasis on Europe, Asia, the Middle East and South America, to increase international sales.

We have entered into distributor agreements, pursuant to which our distributors purchase our products from us at a discount to market price and resell them to ultimate customers in the countries described above. Under the distributor agreements, the distributors generally are responsible for all customer sales, support and service activities relating to our products in the applicable countries. The distributor agreements generally also provide the distributors with the exclusive right to sell products in the applicable country or countries, so long as they meet minimum purchase requirements. With respect to the distributor agreements that do not include minimum purchase requirements, the distributor is required to use best efforts to meet specified sales objectives. The distributor agreements expire between December 31, 2010 and June 30, 2014, but either provide for automatic renewal or require the parties to negotiate extensions in good faith. Either party generally may terminate the distributor agreements (subject to applicable notice and cure periods) if the other party materially breaches the agreement. We also may terminate the distributor agreements in the event that (i) minimum purchase requirements (if applicable) are not met, (ii) in the event the distributor experiences certain insolvency or bankruptcy events or (iii) upon other specified events. Under certain of the distributor agreements, the distributor may terminate the agreement after a specified notice period has expired if it does not have appropriate regulatory approvals to market and sell our products.

To increase company and product awareness, we attend major trade shows for the diagnostic industry and actively participate in scientific abstract presentations by key customers. We also collaborate with research partners in preparing publications for leading journals, advertise our products and sponsor molecular diagnostics events. In addition, we conduct online seminars and grand rounds to promote the utility of our products to our potential customers. Our system also has been discussed in several published peer review articles.

We operate within an approximately 125,000 square foot building in Vista, California, that houses our research and development, manufacturing and warehousing operations and our administrative offices, under a lease that expires on January 31, 2018.

We manufacture INFINITI Analyzers, BioFilmChips and Intellipac Reagent Management Modules. We have implemented a fully integrated enterprise resource planning software system developed specifically for medical manufacturing companies. We have relationships with vendors who are sources of raw materials and components for our product offerings, including reagents, oligonucleotides used for microarray spotting and film coating for our microarrays. Film coating capacity is becoming less available in the marketplace as film vendors move away from analog formats and focus increasingly on digital formats. However, we believe we have sufficient coating capacity for the foreseeable future, and we are in the process of developing the ability to coat film in-house.

We are registered with the FDA as a Medical Device Manufacturing Establishment and have established a quality system that we believe is in compliance with the FDA’s Quality Systems Regulations and we plan to seek ISO certification for our Vista facility. Our quality system covers all phases of product design and development, the manufacturing operations from purchasing to shipping, product distribution, installation and servicing.

We face competition in the molecular testing markets primarily from laboratory-developed tests and products developed by companies such as Abbott Laboratories Inc., Becton, Dickinson and Company, Cepheid Inc., Gen-Probe Incorporated, Hologics, Inc., Innogenetics NV, Luminex Corporation, Nanosphere, Inc., Genmark Diagnostics, Inc., Qiagen NV, Roche Diagnostics and Sequenom, Inc. We believe that the INFINITI system competes with products offered by these companies primarily on the basis of number of tests, cost-effectiveness, ease of use, bench top design, accuracy of results, clinical validations and FDA clearance, throughput and multiplexing capability. We believe that only two of the competitors listed above currently offer on a commercial basis self-contained, integrated systems for molecular diagnostic testing. In addition to the other bases described above, we believe that the INFINITI system competes with these systems on the bases of its MPA technology and its ability to run multiple tests on the same sample simultaneously.

Many of our competitors have substantially greater financial, technical, research and other resources and larger, more established marketing, sales and distribution services organizations than we do. Many of our competitors also offer broader product lines outside of the molecular research use or diagnostic testing market, and many have greater brand recognition than we do. Moreover, our competitors may make rapid technological developments that may result in our technologies and products becoming obsolete before we recover the expenses incurred to develop them or before they generate significant revenue. Our success will depend, in part, on our ability to establish successful marketing, sales and distribution efforts.

As of June 30, 2010, we had 16 issued patents, including six in the U.S. and 10 foreign counterparts, two allowed U.S. patent applications, one allowed foreign counterpart and 20 pending patent applications, including seven in the U.S. and 13 foreign counterparts. Our issued patents expire between 2018 and 2025. Our patent and patent applications cover certain of the technologies relating to the method and design of the BioFilmChip and its film technology, the design of the INFINITI Analyzer, the Intellipac Reagent Management Module, and the system’s chemistry methods, system robotics and signal enhancements.

In addition to our own test development efforts, we are currently using, and intend to use in the future, certain tests and biomarkers in the INFINITI system that have been developed by third parties. While a significant amount of intellectual property in the field of genetics is already in the public domain, one of our tests requires, and some of the future tests developed by us, or by third parties on our behalf for use in our system, may require, that we license the right to use certain intellectual property from third parties and pay customary royalties or make one time payments. We license certain patents used in our UGT1A1 test. The license requires that we pay $75,000 and a royalty equal to six percent of net sales of our tests that incorporate the patented technology. The patents covered by the license expire between July 5, 2015 and May 28, 2024. The license expires when the last patent covered by the license expires. The license is terminable by us upon 90 days notice or by the licensor upon certain bankruptcy or liquidation events involving us, or 30 days after licensor’s written notice of our failure to observe a material obligation of the license. We have also granted a license to one of our patents relating to oligonucleotides of CYP450 1A1, CYP450 3A4, CYP450 2D6 and NAT-2 to Mayo Laboratories. The license requires the licensee to pay, among other amounts, a royalty equal to six percent of net sales of any products that incorporate the patented technology. The license is terminable by the licensee upon 30 days notice or by us upon their failure to cure a payment default within 45 days or their failure to cure a material breach of the license other than a payment default within 90 days.

The health care industry, and thus our business, is subject to extensive federal, state, local and foreign regulation. Some of the pertinent laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of subjective interpretations. In addition, these laws and their interpretations are subject to change.

Both federal and state governmental agencies continue to subject the health care industry to intense regulatory scrutiny, including heightened civil and criminal enforcement efforts. As indicated by work plans and reports issued by these agencies, the federal government will continue to scrutinize, among other things, the billing practices of health care providers and the marketing of in vitro diagnostic health care products. The federal government also has increased funding in recent years to fight health care fraud, and various agencies, such as the U.S. Department of Justice, the Office of Inspector General of the Department of Health and Human Services, or OIG, and state Medicaid fraud control units, are coordinating their enforcement efforts.

We believe that we have structured our business operations and relationships with our customers to comply with applicable legal requirements. However, it is possible that governmental entities or other third parties could interpret these laws differently and assert otherwise. We discuss below the statutes and regulations that are most relevant to our business and most frequently cited in enforcement actions.

The Federal Food, Drug and Cosmetic Act, or FFDCA, includes within the definition of a medical device any instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory, intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals. Our in vitro diagnostic products are considered by the FDA to be medical devices. Among other things, pursuant to the FFDCA and its implementing regulations, the FDA regulates the research, testing, manufacturing, safety, labeling, storage, recordkeeping, pre-market clearance or approval, marketing and promotion, and sales and distribution of medical devices in the U.S. to ensure that medical products distributed domestically are safe and effective for their intended uses. In addition, the FDA regulates the export of medical devices manufactured in the U.S. to international markets.

Unless an exemption applies, each medical device that we wish to market in the U.S. must first receive either clearance of a 510(k) pre-market notification or approval of a PMA, from the FDA pursuant to the FFDCA. The FDA’s 510(k) clearance process usually takes from three to twelve months, but it can take significantly longer and clearance is never guaranteed. The process of obtaining PMA approval is much more costly, lengthy and uncertain. It generally takes

from one to three years or even longer and approval is not guaranteed. Our INFINITI Analyzer, as well as our Factor II, Factor V, and Factor II-V Panel tests are covered by 510(k) clearances granted in February 2007. Our Warfarin test is covered by a 510(k) clearance granted in January 2008.

The FDA decides whether a device must undergo either the 510(k) clearance or PMA approval process based upon statutory criteria. These criteria include the level of risk that the agency determines is associated with the device and a determination whether the product is a type of device that is similar to devices that are already legally marketed. Devices deemed to pose relatively less risk are placed in either Class I or II, which requires the manufacturer to submit a pre-market notification requesting 510(k) clearance, unless an exemption applies. The pre-market notification must demonstrate that the proposed device is “substantially equivalent” in intended use and in safety and effectiveness to a legally marketed “predicate device” that is either in Class I or Class II or is a Class III device that was in commercial distribution before May 28, 1976, for which the FDA has not yet called for submission of a PMA application. We believe that most of our tests are Class II devices for which 510(k) clearance is required, and we believe our HPV-HR Quad test is a Class III device subject to PMA requirements.

Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medical devices, which include compliance with the applicable portions of the FDA’s Quality System Regulations, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials, or General Controls. Many Class I devices are exempt from pre-market regulation, however, some Class I devices require pre-market clearance by the FDA through the 510(k) pre-market notification process described below.

Class II devices are subject to the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. Pre-market review and clearance by the FDA for Class II devices is generally accomplished through the 510(k) pre-market notification procedure. Pursuant to the Medical Device User Fee and Modernization Act of 2002, or MDUFMA, as of October 2002, 510(k) pre-market notification submissions are subject to user fees, unless a specific exemption applies. Certain Class II devices are exempt from this pre-market review process.

Class III devices are those devices which are deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device. The safety and effectiveness of Class III devices cannot be assured solely by the General Controls and the other requirements described above. These devices are required to undergo the PMA approval process in which the manufacturer must demonstrate the safety and effectiveness of the device to the FDA’s satisfaction. These devices almost always require formal clinical trials to demonstrate safety and effectiveness. A PMA application must provide extensive preclinical and clinical trial data and also information about the device and its components regarding, among other things, device design, manufacturing and labeling. Pre-market approval applications (and supplemental pre-market approval applications) are subject to significantly higher user fees under MDUFMA than are 510(k) pre-market notifications. After approval of a PMA, a new PMA or PMA supplement is required in the event of a modification to the device, its labeling or its manufacturing process.

Medical devices can be marketed only for the indications for which they are cleared or approved. 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, requires a new 510(k) clearance or could require a PMA approval. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any decision. If the FDA disagrees with a manufacturer’s decision not to pursue a new 510(k) clearance, the agency may retroactively require the manufacturer to pursue 510(k) clearance or PMA approval. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA approval is obtained. We have made modifications to our 510(k) cleared system, but have determined that, in our view, based on FDA guidance as to when to submit a 510(k) notification for changes to a cleared device, new 510(k) clearances or PMA approvals are not required. We cannot assure you that the FDA would agree with any of our decisions not to pursue 510(k) clearance or PMA approval. If the FDA requires us to pursue 510(k) clearance or PMA approval for any modification, we also may be required to cease marketing and/or recall the modified device until we obtain a new 510(k) clearance or PMA approval.

A clinical trial may be required in support of a 510(k) submission and generally is required for a PMA application. These trials generally require an effective Investigational Device Exemption, or IDE, from the FDA for a specified number of patients, unless the product is exempt from IDE requirements or deemed a non significant risk device eligible for more abbreviated IDE requirements. The IDE application must be supported by appropriate data, such as animal and laboratory testing results. Clinical trials may begin 30 days after the submission of the IDE application unless the FDA or the appropriate institutional review boards at the clinical trial sites place the trial on clinical hold. In the future, we expect to submit additional 510(k) notifications or PMA applications in order to market new claims, uses or products.

In order to market our devices for in vitro clinical diagnostic tests, clearance of a 510(k) or approval of a PMA is required. We believe that most of our tests are subject to the 510(k) process. Before we can submit a medical device for 510(k) clearance, we may have to perform a method comparison study at clinical sites to ensure that end-users can use the test successfully. Method comparison studies typically require several months to complete and, although they may be conducted in a clinical environment, they are not typically regulated as clinical trials. A few of our tests, such as the HPV-HR Quad test, may require a PMA. PMA tests are typically more complex than 510(k) notifications and must generally be supported by clinical trials to demonstrate the clinical utility of the device under intended conditions of use. These trials are longer and more complex and may take a year or more to complete.

Clinical investigations of in vitro diagnostic tests, including our products and product candidates, typically are exempt from the IDE requirements. Thus, we do not need FDA’s prior approval to conduct clinical trials on our products, provided the testing is non-invasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce energy into the subject and is not used as a diagnostic procedure without confirmation of the diagnosis by another, medically established diagnostic device or procedure. Our devices that are undergoing clinical testing to support FDA clearance or approval can not be used for clinical diagnosis unless the diagnosis is confirmed by another medically established test or procedure.

We currently sell products that have not been cleared or approved for clinical use by the FDA to clinical laboratories to use for research purposes. We are not permitted to market these products for in vitro diagnostic use, and must establish distribution controls to assure that these products are not used for diagnostic purposes. We therefore market these products to laboratories for research or investigational use in the collection of research data. As required by FDA regulations, the tests are labeled, “For Research Use Only. Not for use in diagnostic procedures.” In some cases, laboratories certified under CLIA may use our products in their own laboratory-developed clinical tests when no FDA regulated analyte specific reagents or in vitro diagnostic products are available pursuant to guidelines recently issued by the College of American Pathologists. These guidelines have not been adopted or approved by FDA. While we believe that the sale of our products that have not been cleared or approved by the FDA for research purposes complies with FDA’s laws and regulations, the FDA may determine otherwise. If the FDA disagrees with the marketing of these products, we may be subject to a variety of enforcement actions ranging from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure or recall of our products, total or partial shutdown of production, withdrawal of approvals or clearances already granted, and criminal prosecution.

After a device is placed on the market, regardless of the classification or pre-market pathway, it remains subject to significant regulatory requirements. Even if regulatory approval or clearance of a medical device is granted, the FDA may impose limitations or restrictions on the uses and indications for which the device may be labeled and promoted. Medical devices may be marketed only for the uses and indications for which they are cleared or approved. FDA regulations prohibit a manufacturer from promoting a device for an unapproved, or “off-label” use. Manufacturers that sell products to laboratories for research or investigational use in the collection of research data are similarly prohibited from promoting such products for clinical or diagnostic tests. While we have policies in place to restrict the promotion of our products sold on an RUO basis, we cannot assure you that the FDA would agree that our practices do not constitute the promotion of these products for a clinical or diagnostic use without clearance or approval.

Device manufacturers must establish registration and device listings with the FDA. Our manufacturing processes and those of our suppliers are required to comply with the applicable portions of the Quality Systems Regulations, which cover the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of our products. Domestic facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. The FDA also may inspect foreign facilities that export products to the U.S.

We are required to report to the FDA if our products cause or contribute to a death or serious injury or malfunction in a way that would likely cause or contribute to death or serious injury were the malfunction to recur. We are also subject to correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FFDCA that may present a risk to health. We have never submitted a medical device report for our products, nor conducted a recall or FDA-reportable correction or removal. The FDA and authorities in other countries can require the recall of products in the event of material defects or deficiencies in design or manufacturing. The FDA can also withdraw or limit our product approvals or clearances in the event of serious, unanticipated health or safety concerns.

The FDA has broad regulatory and enforcement powers. If the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement actions ranging from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure or recall of our products, total or partial shutdown of production, withdrawal of approvals or clearances already granted, and criminal prosecution. The FDA can also require us to repair, replace or refund the cost of devices that we manufactured or distributed. In the event that one of our suppliers fails to maintain compliance with our quality requirements or FDA’s applicable regulatory requirements, we may have to qualify a new supplier and could experience manufacturing bottlenecks or delays as a result. Furthermore, the regulation and enforcement of in vitro reagents and equipment by the FDA is an evolving area that is subject to change. While we believe that we are in compliance with the current regulatory requirements and policies of the FDA, the FDA may impose more rigorous regulations or policies that may expose us to enforcement actions or require a change in our business practices. If any of these events were to occur, it could materially adversely affect us.

Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a number of laws whose purpose is to eliminate fraud and abuse in federal health care programs. Our business is subject to compliance with these laws.

The federal health care programs Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal health care program, such as Medicare or Medicaid. The definition of “remuneration” has been broadly interpreted to include anything of value, including, for example, gifts, discounts, the furnishing of free supplies, equipment or services, credit arrangements, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal health care covered business, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal health care programs. In addition, some kickback allegations have been claimed to violate the Federal False Claims Act, discussed in more detail below.

The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the health care industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, Congress authorized the OIG to issue a series of regulations, known as “safe harbors.” These safe harbors set forth requirements that, if met in their entirety, will assure health care providers

and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal, or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG.

Many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of patients for health care items or services reimbursed by any payor, not only the Medicare and Medicaid programs, and do not contain identical safe harbors.

Government officials have focused their enforcement efforts on marketing of health care services and products, among other activities, and have brought cases against numerous pharmaceutical and medical device companies, and certain sales and marketing personnel for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.

Another development affecting the health care industry is the increased use of the federal civil False Claims Act and, in particular, actions brought pursuant to the False Claims Act’s “whistleblower” or “qui tam” provisions. The False Claims Act imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program. The qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically. In addition, various states have enacted false claim laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal health care program.

When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of $5,500 to $11,000 for each separate false claim. There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The False Claims Act has been used to assert liability on the basis of inadequate care, kickbacks and other improper referrals, improper use of Medicare numbers when detailing the provider of services, and allegations as to misrepresentations with respect to the services rendered. Our future activities relating to the reporting of discount and rebate information and other information affecting federal, state and third-party reimbursement of our products, and the sale and marketing of our products, may be subject to scrutiny under these laws. We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly adversely affect our financial performance.

Among other things, the Health Insurance Portability and Accountability Act of 1996 (as amended by the Health Information Technology for Economic and Clinical Health Act), or HIPAA, created two new federal crimes: health care fraud and false statements relating to health care matters. The HIPAA health care fraud statute prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment and/or exclusion from government-sponsored programs. The HIPAA false statements statute prohibits, among other things, knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for health care benefits, items or services. A violation of this statute is a felony and may result in fines and/or imprisonment.

In addition to creating two new federal health care crimes, regulations implementing HIPAA also establish uniform standards governing the conduct of certain electronic health care transactions and protecting the security and privacy of individually identifiable health information maintained or transmitted by health care providers, health plans and health care clearinghouses, which are referred to as “covered entities.” Three standards have been promulgated under HIPAA’s regulations: the Standards for Privacy of Individually Identifiable Health Information, which restrict the use

and disclosure of certain individually identifiable health information; the Standards for Electronic Transactions, which establish standards for common health care transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures; and the Security Standards, which require covered entities to implement and maintain certain security measures to safeguard certain electronic health information. Although we are not a covered entity, we expect that our customers generally will be covered entities and may ask us to contractually comply with certain aspects of these standards. Recent amendments to HIPAA make its requirements applicable to such business associates of covered entities. While the government intended this legislation to reduce administrative expenses and burdens for the health care industry, our compliance with certain provisions of these standards entails significant costs for us, and our failure to comply could lead to enforcement action that could have a material adverse effect on our business.

In addition to federal regulations issued under HIPAA, some states have enacted privacy and security statutes or regulations that, in some cases, are more stringent than those issued under HIPAA. In those cases, it may be necessary to modify our planned operations and procedures to comply with the more stringent state laws. If we fail to comply with applicable state laws and regulations, we could be subject to additional sanctions.

Our primary customers are clinical laboratories that bill many different payor groups. The majority of reimbursement dollars for traditional laboratory services are provided by health maintenance organizations, or HMOs, and other managed care plans, as well as government health care programs, such as Medicare and Medicaid. HMOs and other managed care plans typically contract with a limited number of clinical laboratories and then designate the laboratory or laboratories to be used for tests ordered by participating physicians.

There are a number of factors that influence coverage and reimbursement for diagnostic tests. In the U.S., the American Medical Association assigns specific CPT codes, which are necessary for reimbursement of diagnostic tests. Once the CPT code is established, the Centers for Medicare and Medicaid Services establish reimbursement payment levels and coverage rules under Medicaid and Medicare, and private payors establish rates and coverage rules independently.

The design of our products and the potential market for their use may be directly or indirectly affected by U.S. and other government regulations governing coverage and reimbursement for diagnostic testing services. The availability of third-party reimbursement for our products and services may be limited or uncertain. Third-party payors may deny coverage if they determine that the prescribed product or service has not received appropriate FDA or other government regulatory clearances, is not used in accordance with cost-effective treatment methods as determined by the payor, or is deemed by the third-party payor to be experimental, unnecessary or inappropriate. Furthermore, third-party payors are increasingly challenging the prices charged for health care products and services.

In order for us to market our products in other countries, we must obtain regulatory approvals or registrations and comply with extensive safety and quality regulations in other countries. These regulations, including the requirements for approvals or registrations and the time required for regulatory review, if required, vary from country to country. Failure to obtain required regulatory approval or registration in any foreign country in which we plan to market our products may harm our ability to generate revenue and harm our business.

Many foreign countries in which we market or may market our products have regulatory bodies and restrictions similar to those of the FDA. International sales are subject to foreign government regulation, the requirements of 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 differ.

Outside of the U.S., we currently sell our products in Argentina, Austria, Brazil, Canada, China, Czech Republic, France, Germany, Israel, Italy, Kuwait, Liechtenstein, Mexico, Monaco, Portugal, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, Spain, Switzerland, Turkey and the United Kingdom.

European Countries. Austria, Czech Republic, France, Germany, Italy, Liechtenstein, Portugal, Slovakia, Slovenia, Spain and the United Kingdom are all member states of the EEA, which consists of the 27 member states of the European Union, as well as Iceland, Liechtenstein and Norway. In the EEA, a medical device can only be placed on the market if it is in conformity with the essential requirements set out in the European Medical Devices Directives (Directive 93/42/EEC on Medical Devices, Directive 90/385/EEC on Active Implantable Medical Devices and the IVDD Directive). In vitro diagnostic medical devices that comply with the requirements of the IVDD Directive are entitled to bear the CE conformity mark, indicating that the device meets minimum standards of performance, safety and quality (i.e., the essential requirements), and can be commercially distributed throughout the EEA and other countries outside the EEA that have accepted the CE marking as an acceptable certification of efficiency and safety of medical devices. For certain classes of devices, certification by a recognized European Notified Body may be required to permit the manufacturer to affix the CE marking on its products and commercially distribute those products throughout the EEA.

The provisions of the European Medical Devices Directives are also applicable in the territory of the Principality of Monaco. In Switzerland medical devices are primarily regulated by the Federal law on Medicinal Products and Medical Devices (the Heilmittelgesetz or HMG), and the Medical Devices Ordinance (the Medizinprodukteverordnung or MepV), whose provisions on medical devices mirror those of the European Medical Devices Directives. In particular, Switzerland recognizes conformity assessments undertaken and certifications issued by EEA Notified Bodies and medical devices that comply with the essential requirements of the European Medical Devices Directives and bear the CE marking can be commercialized in the territory of Switzerland, with the additional requirement that the instructions for use, labeling, and packaging information must be in three of the official languages of Switzerland, namely German, French and Italian.

The CE marking of conformity was affixed to the INFINITI Analyzer in accordance with the IVDD Directive in June 2008. We also have CE marked 12 of our tests: Factor II, Factor V, Factor II-V Panel, Methylenetetrahydrofolate reductase (MTHFR), FII-FV-MTHFR Panel, HPV Quad (Screening), HPV Genotyping, Warfarin, 2C9-VKORC1 Panel, CFTR-31, UGT1A1 and CYP450 2C19 Plus. The CE marking allows the INFINITI Analyzer to be marketed in the EEA. Our tests that are not CE marked are offered to European laboratories on an RUO basis to conduct research projects and other pre-market activities. We are working with our European distributors to prioritize and fulfill requirements to affix CE marking as required by applicable law. We cannot assure you that we will be able to obtain necessary foreign government approvals or successfully comply with foreign regulations. Our failure to do so could hurt our business, results of operations and financial condition.

Argentina. Regulatory approval for marketing our products in the Republic of Argentina is granted by Administración Nacional de Medicamentos, Alimentos y Tecnología Médica, or ANMAT. Regulations, requirements and timing for approval are simplified in the case of imported products which are produced and authorized for commercialization in countries approved by ANMAT as enforcing high regulatory standards, including the U.S.. In such cases, proof of authorization for the production and commercialization of the medical product in such countries must be filed before ANMAT. Our distributor has submitted an application for registration, and has notified us that our certificate has been granted.

Brazil. In Brazil, in vitro diagnostic medical devices are subject to regulation by the National Health Surveillance Agency, or ANVISA. The importer, manufacturer or distributor of the devices must be a Brazilian company bearing the necessary permits, and the product must be registered with ANVISA in order to be imported into the country, industrialized, displayed for sale or marketed. In Brazil, we sell our products through a Brazilian distributor. We believe our distributor bears the appropriate permits to import, store and distribute our medical devices. Our distributor has submitted an application for registration of our products, which is currently pending. Our distributor is withholding sales of the IVD kits until we have obtained the necessary registrations for our products.

Canada. In Canada, in vitro diagnostic medical devices are regulated by Health Canada, under the Canadian Food and Drugs Act and Medical Device Regulations. These laws require the issuance of a Medical Device License to the manufacturer prior to import into or sale of the device in Canada, and the issuance of an Establishment License for most other parties involved in the import or sale of the device. In Canada, the INFINITI system is likely classified as a Class 3 IVDD Medical Device, and may be deemed Class 4 for some of its future diagnostic indications. Manufacturers of Class 3 and 4 devices must have ISO 13485:2003 certification under the Canadian Medical Devices Conformity Assessment System from a third party certifying body in order to gain a Device License. Canadian law also imposes

certain postmarket requirements on manufacturers concerning distribution records, recalls, complaint reporting and mandatory problem reporting. We are in the process of preparing the submission for our products. Because we do not yet hold a Device License, we currently sell our products in Canada for research use only.

China. China’s State Food and Drug Administration, or SFDA, is the central authority that monitors and supervises the importation and distribution of medical devices in China. Medical devices, including in vitro diagnostic devices, are classified into one of three different categories, Class I, Class II and Class III, depending on the degree of risks associated with the device in question and the extent of control needed to ensure safety and effectiveness. We believe our devices fall within Class II and therefore will require clinical evaluations conducted in China. Before a medical device manufactured outside of China can be imported into China for distribution, the manufacturer must register and obtain a registration certificate for the medical device pursuant to the Administrative Measures Governing the Registration of Medical Devices issued by the SFDA in 2004. Any imported in vitro diagnostic reagent that must be used with the medical device in performing tests should also be registered with SFDA pursuant to the Administrative Measures Governing the Registration of IVD Reagents (Trial) before it can be imported and used in China. Any entity that wishes to distribute such imported devices and IVD reagents in China must apply for a distribution license. Likewise, the IVD reagent may only be distributed in China by an entity with a distribution license. Our distributor has submitted our application for registration, which is currently pending. While our application for registration is pending, our distributor purchases and imports, but does not re-sell, our products in China.

Israel. The Israeli Health Ministry regulates certain aspects relating to medical devices, but there are no comprehensive laws and regulations in Israel that regulate or require registration of all medical devices and supervision by the Ministry of Health. Certain medical devices that are deemed “special medical devices” are subject to registration with the Ministry of Health pursuant to the Public Health Regulations (Special Medical Devices) of 1994, or the Special Medical Devices’ Regulations. Our products do not fall within the Special Medical Devices’ Regulations, and thus, at this time, the specific standards and requirements with respect to special medical devices do not apply to our products.

Even though Israeli medical device laws do not require our products to be registered, the Ministry of Health maintains a voluntary registry of medical devices and has issued a procedure for voluntary registration. Medical devices that have not been registered may only receive a one-time import authorization. The import authorization requires confirmation of FDA clearance or approval or CE mark with respect to the medical device. To permit importation on a regular basis, the medical device must be registered. Our distributor has registered a number of our products and our registration is valid until July 2015.

Kuwait. In Kuwait, the Ministry of Health regulates the import and sale of medical devices and generally requires their approval. However, depending on the type of device, the procedures and approvals may vary. In vitro diagnostic medical devices, such as ours, do not require registration. Rather, the Ministry of Health accepts clearances and approvals by the FDA or a CE mark for approval in Kuwait.

Mexico. In Mexico, medical devices are regulated under the General Health Law and the Medical Materials Regulations. The Ministry of Health enforces compliance with these laws and regulations through the Federal Commission for the Protection against Sanitary Risks, or COFEPRIS. Medical devices fall within the definition of “health products” (insumos para la salud), and are categorized into three classes, depending on the risk involved with their use. The General Health Law and the Medical Materials Regulations require the registration of medical devices (whether produced locally or abroad) prior to marketing in Mexico, and foreign companies must have legally appointed distributor(s) responsible for importing registered medical devices. In this regard, manufacturers must provide, among other documentation, a certificate of free sale or equivalent and a certificate of good production practices, in both cases issued by the health authority from the device’s country of origin. Furthermore, the distributor must provide a Sanitary Operation Notice (Aviso de Funcionaimiento) to COFEPRIS, that it will be marketing the relevant medical device. Our distributor in Mexico has submitted an application for registration of our products, which is currently pending. While our application for registration is pending, our distributor imports, but does not re-sell, our products in Mexico.

Russia. In Russia, the administration of the medical devices sector is primarily within the jurisdiction of the Russian Ministry of Healthcare and Social Development and the State Committee for Standardization, Metrology and Certification, as well as certain other state agencies. In order to be sold or used in the Russian Federation, our products must be assigned (i) a relevant registration certificate and entered into the Russian national register of

medical equipment and (ii) a separate certificate of conformity with safety and quality requirements. For imported medical devices manufactured outside of Russia, the registration certificate will not be issued without a certificate of conformity to the relevant ISO standards or other similar third-party certifications, such as a CE certificate of conformity. A registration application has been submitted for our products and is currently pending.

Saudi Arabia. The Kingdom of Saudi Arabia, or the Kingdom, regulates medical devices pursuant to the Regulations on the Supervision of Medical Devices and Products issued by the Saudi Food and Drug Authority, or the Saudi FDA, by decree number 1-8-1429 dated December 27, 2008, or the Regulations. Under the Regulations, a “medical device” is generally defined as any medical instrument, machine or appliance. A manufacturer located outside the Kingdom must appoint an authorized local representative licensed by the Saudi FDA to offer such medical device in the Kingdom on its behalf. The manufacturer of a medical device, acting through its local representative who wishes to place a medical device on the market of the Kingdom must list the medical device with the Saudi FDA and obtain marketing authorization from the Saudi FDA. A medical device must comply with the regulations of at least one of the Global Harmonization Task Force countries, which include Australia, Canada, Japan or the U.S., or the EU, for the Saudi FDA to approve its sale in the Kingdom. The Saudi FDA can request additional documentation and information regarding the medical device in its discretion prior to listing the medical device or granting marketing authorization to the Applicant. In order to import and sell our products in Saudi Arabia, our distributor has listed our products with the Saudi FDA.

Singapore. In Singapore, the primary regulation governing the marketing of medical devices is the Health Products Act and the Health Products (Medical Devices) Regulations, collectively the Singapore Regulations. The Singapore Regulations prescribe licensing requirements for the manufacture of medical devices, the import of medical devices and the supply by wholesale of medical devices in Singapore. Any person who manufactures medical devices, imports medical devices or supplies medical devices by wholesale in Singapore must comply with the Singapore Regulations, any licensing conditions and any applicable legislative requirements, including the presentation of the labeling on the medical device, advertising of medical devices, measures taken to verify quality, safety or efficacy of medical devices and the maintenance of records in relation to the medical devices. Our distributor is licensed to import our products into Singapore and is responsible for handling importation requirements.

Turkey. In Turkey, medical devices are regulated by the Ministry of Health, pursuant to the Medical Device Regulation, In Vitro Diagnostic Devices Regulation and Active Implantable Medical Devices Regulation. Additionally, the Communiqué on Provision of Healthcare Services includes certain provisions regarding reimbursement of medical devices. Within the harmonization process of Turkish legislation with acquis communautaire, these regulations have been harmonized with the EU Directives. In vitro diagnostic medical devices are a sub-group of medical devices, and are regulated under the In Vitro Diagnostic Devices Regulation, or IVDDR, which is parallel to the Directive 98/79/EC of the European Parliament and of the Council of 27 October 1998 on in vitro diagnostic medical devices. Under the IVDDR, in vitro diagnostic devices cannot be placed on the Turkish market unless the devices fulfil certain design and manufacturing requirements and carry the CE mark to certify that the devices meet EU consumer safety, health or environmental requirements. In addition to the requirements set forth in the IVDDR, the Turkish Ministry of Health requires ISO 13458:2003 certification for the medical devices to be placed on the market, and ISO certification for medical devices to be reimbursed by the Social Security Institution. Turkish authorities also require the registration of medical devices by any legal person that is the manufacturer, exporter or importer of the medical device in Turkey or its authorized Turkish representative. Our distributor in Turkey has informed us that our products are registered in Turkey. After the sale and delivery of the products, the importer must provide post-sale maintenance and repair services for 10 years and must establish technical service stations with sufficient staff, pursuant to Law No. 4077 on Protection of Consumers and the Regulation on Providing Post-Sale Services for Industrial Goods. We, as the manufacturer of the devices, are jointly and individually liable for providing the post-sale services together with the technical service stations.

Our corporate offices are located at 2980 Scott Street, Vista, California, in approximately 125,000 square feet occupied under a lease that commenced on February 1, 2009 and will expire on January 31, 2018. This facility houses our research and development, manufacturing and warehousing operations and our administrative offices.

As of July 31, 2010, we had approximately 103 full-time employees. None of our employees is represented by a labor union and we consider our employee relations to be good.

We are from time to time subject to various claims and legal actions during the ordinary course of business. We believe that there are currently no claims or legal actions that would, in management’s judgment based on information currently available, have a material adverse effect on our results of operations or financial condition.

The following table sets forth information about our directors and executive officers as of July 31, 2010. The biographies for Mr. Kureshy and our other directors, below, include information on the directors’ experience, qualifications, attributes or skills that have lead our board to conclude that they should serve on our board.

Fareed Kureshy: Mr. Kureshy has been Chairman, President and Chief Executive Officer of AutoGenomics since its founding in April 1999. Mr. Kureshy has 30 years of entrepreneurial leadership experience in the health care industry. Mr. Kureshy served as President and Chief Executive Officer of Sequenom, Inc. from 1996 to 1998, and as President of Behring Diagnostics, Inc. and PB Diagnostics Systems, Inc. from 1991 to 1996, where he set up the infrastructure to design, develop, manufacture and market platform technologies in the areas of chemistry, immunoassays and DNA analysis. Mr. Kureshy also spent 12 years at Abbott Laboratories from 1976 to 1987 where he held various management positions. Mr. Kureshy holds undergraduate degrees in physics, chemistry and mathematics from Karachi University, an undergraduate degree in engineering from Northrop University and has completed graduate engineering studies. He was awarded an M.B.A. from Southern Methodist University. Our board of directors has determined that Mr. Kureshy brings to our board knowledge of our business and his historical understanding of our operations combined with his extensive entrepreneurial leadership, operations, strategic planning and marketing experience in the healthcare industry in which we operate, and therefore he should serve on our board.

Thomas V. Hennessey, Jr.: Mr. Hennessey joined AutoGenomics as an employee in January 2008 as Chief Operating Officer and Chief Financial Officer and has served as a director of AutoGenomics since 2001. Mr. Hennessey served as AutoGenomics’ Chief Financial Officer in his capacity as an independent contractor in December 2007 and in his capacity as a non-employee director from January 2007 through November 2007. Mr. Hennessey has 30 years of experience in the medical and technology industries. Mr. Hennessey was an independent consultant to AutoGenomics from January 2003 until December 2007. From 2001 until 2003, he was Chief Operating Officer and Chief Financial Officer of Photovac, Inc. He has also served as Chief Operating Officer and Chief Financial Officer for several public and private start-up companies, including Behring Diagnostics, Inc., Autoimmune, Inc., Medical Diagnostics, Inc., Cambridge Heart, Inc. and Sonamed Corporation. Mr. Hennessey received a S.B. and a S.M. degree in mechanical engineering from MIT and an M.B.A. from Harvard Business School. Our board of directors had determined that Mr. Hennessey brings to the board his knowledge of our operations as well as management and financial experience, having served as Chief Operating Officer and Chief Financial Officer for several public and private start-up companies in the medical and technology industries in which we operate, and therefore he should serve on our board.

Nanibhushan Dattagupta, Ph.D.: Dr. Dattagupta joined AutoGenomics in April 2006 as Chief Scientific Officer. From November 2005 until April 2006, he was an independent consultant to AutoGenomics. From 1998 until November 2005, Dr. Dattagupta was the President and Chief Scientific Officer of Applied Gene Technologies Inc. Dr. Dattagupta has over 35 years of research and management experience in pharmaceutical research and development, clinical diagnostics and therapeutic drugs. Dr. Dattagupta has held executive positions at Bayer AG,

Gen-Probe Incorporated, Chugai Biopharmaceuticals, Inc. and Applied Gene Technologies Inc. Dr. Dattagupta is also an inventor or co-inventor of 59 issued U.S. patents and numerous issued and pending patents internationally. He is an author or co-author of 57 scientific publications in peer reviewed journals. He received a B.S., an M.S. and a Ph.D. in chemistry from Calcutta University.

Shailendra Singh, Ph.D.: Dr. Singh has been Vice President, System Development of AutoGenomics since its founding in April 1999. Dr. Singh has 32 years of experience in software engineering, systems development and integration, the last 27 years having been spent in the health care industry and participating in the invention and development of eight medical instruments. Dr. Singh has held the position of Vice President of Systems Development at Sequenom, Inc., PB Diagnostics Systems, Inc. and Behring Diagnostics, Inc. Dr. Singh received a B.S. in electrical engineering, an M.E. in electrical engineering and a Ph.D. in electrical engineering from Southern Methodist University.

Ramanath Vairavan: Mr. Vairavan is Senior Vice President, Sales and Marketing of AutoGenomics and has been an executive officer of AutoGenomics since its founding in April 1999. Mr. Vairavan has over 30 years of experience in the health care industry in the areas of research, product development, manufacturing, sales, marketing and business development. He began his career with Hoechst AG / Behring Diagnostics, Inc. where he held various management positions in research, development, operations, international sales and marketing in the U.S., Singapore and Germany. Mr. Vairavan received a B.S. in chemical engineering and an M.S. in biomedical engineering from Washington University and an M.B.A. from Fairleigh Dickinson University.

William H. Davidson, D.B.A.: Dr. Davidson has served as a director of AutoGenomics since February 2007. Dr. Davidson has been Chairman of MESA Research Group, a strategy consulting firm, since 1984 and is a former tenured professor at the Marshall Business School at the University of Southern California, where he served from 1985 to 1998. He was a partner at Deloitte & Touche in its management consulting unit from 1996 to 1997. Dr. Davidson has served on four public company boards and more than a dozen private company boards. The public company boards include UTi Worldwide, a supply chain services and solutions company, and Broadcast International, a communication software company where he served as non-executive chairman from 2007 to 2009 and as a member of its compensation and governance and nominating committees. Dr. Davidson holds both an M.B.A. and a D.B.A. in management from Harvard Business School. Our board of directors has determined that, as the Chairman of MESA Research Group since 1984 and a former partner of Deloitte & Touche LLP in its management consulting unit, Dr. Davidson contributes to our board his experience in the area of strategic management, including international business and organization development and maximizing leadership effectiveness, and therefore he should serve on our board. Dr. Davidson also brings to the board public company directorial and governance experience having served on the board of directors and board committees of public companies which will be important experience for our board following this offering.

Laurence M. Demers, Ph.D.: Dr. Demers has served as a director of AutoGenomics since March 2008. Dr. Demers, DABCC, FACB is Distinguished Professor of Pathology and Medicine at the M. S. Hershey Medical Center of The Pennsylvania State University, where he has served since 1973. Dr. Demers is a director of the Core Endocrine Laboratory in the Pennsylvania State University Hospital and director of the Pennsylvania State Clinical Research Center Core Laboratory. Dr. Demers is a diplomat of the American Board of Clinical Chemistry, a fellow of the National Academy of Clinical Biochemistry, a past president of the American Association for Clinical Chemistry as well as a past president of the National Academy of Clinical Biochemistry, and the founding director of Clinical Chemistry at the M.S. Hershey Medical Center. His primary research interests have been in the areas of biochemical endocrinology, laboratory automation, thyroid disease, metabolic bone disease and breast cancer. Dr. Demers has had extensive experience as principle investigator of clinical trials for both the pharmaceutical and diagnostic industry. Dr. Demers holds an A.B. in biology from Merrimack College and a Ph.D. in biochemistry from State University of New York. Dr. Demers has over 30 years of experience directing clinical laboratories at the university hospital level and understands the issues involved in medical diagnostics, including molecular diagnostics. Our board of directors has determined that Dr. Demers brings to our board his scientific knowledge and understanding of our product offerings and knowledge of the pharmaceutical industry and the diagnostic industry in which we operate, and therefore he should serve on our board.

Eric S. Kentor: Mr. Kentor has served as a director of AutoGenomics since March 2008. Mr. Kentor has over 20 years experience advising and working for organizations in the health care sector and has served as an independent business consultant since 2002. From 1995 until 2001, Mr. Kentor was Sr. Vice President, General Counsel and Corporate Secretary of MiniMed Inc., where he also served as an original and permanent member of MiniMed’s Executive Management Committee. From 1994 to 1995, he was Vice President of Legal Services for Health Net and also served as Executive Counsel of Health Net’s parent corporation, Health Net, Inc. From 1987 until 1994, Mr. Kentor practiced with the national law firm of McDermott, Will & Emery LLP, where he was elected partner in 1992. Mr. Kentor has served on the boards of directors of both private and public companies. Mr. Kentor previously served on the board of directors of Endocare, Inc., a previously public medical device company, from 2005 to 2009 and served on its compensation, nominating and corporate governance and audit committees. Mr. Kentor is also a member of the board of directors of the Boys and Girls Club of the West Valley. Mr. Kentor holds a B.A. in political science from UCLA and received a J.D. from the UCLA School of Law. Our board of directors has determined that Mr. Kentor’s legal experience advising and working for organizations in the healthcare sector such as ours provides our board with legal, regulatory and compliance insights, and therefore he should serve on our board. Our board also believes that Mr. Kentor brings to the board public company directorial and governance experience having served on the board of directors and committees of Endocare, Inc. Mr. Kentor’s public company directorial and governance experience will be important to our board following this offering.

Randall R. Lunn: Mr. Lunn has served as a director of AutoGenomics since January 2000. Mr. Lunn has nearly 30 years of experience in the venture capital industry. Mr. Lunn is a Managing Director of Catalina Ventures, which he established in February 2010. Mr. Lunn was a founder and managing director of Palomar Ventures Management, LLC, a venture capital firm focusing on early stage information technology companies, from 1999 to June 2007, and he was a retired managing director of that firm from July 2007 to December 2009. From 1990 to 1999, Mr. Lunn was Managing Partner of U.S. Operations for Techno Venture Management, an international venture capital firm. From 1982 to 1990, Mr. Lunn was a founder and general partner of Fairfield Venture Partners. Mr. Lunn began his venture capital career in 1979 as a founder of Harrison Capital, the venture arm of Texaco. He currently serves on the boards of directors of Continuous Computing Corporation, a private company provider of telecommunications infrastructure platforms and solutions. Mr. Lunn holds a B.A., a B.E. and an M.B.A. from Dartmouth College and currently serves on the Board of Overseers of Dartmouth’s Thayer School of Engineering. Our board of directors has determined that Mr. Lunn brings to our board his experience in the venture capital industry, including financial experience, as well as experience serving on the boards of directors of several start-up and early-stage companies such as ours, and therefore he should serve on our board.

Thomas R. Testman: Mr. Testman has served as a director of AutoGenomics since March 2001. Mr. Testman retired as a managing partner of Ernst & Young LLP in 1992 after over 30 years of service, during which time his responsibilities among others have included managing the regional and national health care and management consulting practices. He has also managed area audit and tax practices. Mr. Testman has previously served on several public boards of directors, including MiniMed, Inc. from 1995 to 2001, ChromaVision Medical Systems, Inc. from 1998 to 2003, Nichols Institute Diagnostics from 1994 to 2000, Specialty Laboratories, Inc. from 1994 to 2004, Amylin Pharmaceuticals, Inc. from 2002 to 2007 and Endocare, Inc. from 2003 to 2008. He also is on the board of directors of three private health care companies and has served on several other private health care companies’ boards during the past 15 years. Mr. Testman received an M.B.A. from Trinity University and is a certified public accountant (retired). Our board of directors has determined that Mr. Testman’s audit and management consulting experience at Ernst & Young LLP, combined with his public company directorial and governance experience, including as chairman of other public companies’ audit committees, provides Mr. Testman with the knowledge, skills and perspective necessary to lead our audit committee, and therefore he should serve on our board.

Eugene J. Zurlo: Mr. Zurlo has served as a director of AutoGenomics since January 2005. Mr. Zurlo has over 50 years of experience in the health care industry as a manager, executive and investor. Mr. Zurlo has been managing director of Zurlo Investment Trust, an active investor in real estate, pharmaceutical and early-stage healthcare companies, since 1997 and is a director of the following private companies: Penny Creek Associates LLC, Plasma Technologies, LLC and BriteAge Corporation. He was founder of Hemasure, Inc. and served in the positions of Chairman from 1996 to 1997 and President and Chief Executive Officer from 1993 to 1996, and before that held senior executive positions at

Millipore Corporation, where he served as Senior Vice President of Operations, Baxter International, Inc., where he served as Senior Vice President of several divisions, including Laboratory Diagnostics, and the New York Blood Center, where he served as Chief Operating Officer. He holds a B.S. in pharmacy from Fordham University and an M.S. in pharmacy administration from Long Island University. Our board of directors has determined that Mr. Zurlo contributes to our board extensive management and operations experience, as well as scientific knowledge and knowledge of the health care industry and diagnostic industry in which we operate, and therefore he should serve on our board.

Our board of directors is composed of nine directors. All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. A resolution of the board of directors may change the authorized number of directors, however our certificate of incorporation and bylaws currently limit the number to not more than 15 nor fewer than five directors. Our board of directors has determined that each of our non-employee directors is independent within the meaning of NASDAQ rules.

Our board of directors directs the management of our business and affairs, as provided by Delaware law, and conducts its business through meetings of the board of directors and standing committees. Our board of directors currently has an audit committee, compensation committee and nominating committee. Our board of directors may establish other committees to facilitate the management of our business. The membership and function of each of the committees are described below.

Audit Committee. The audit committee of our board of directors consists of Thomas R. Testman (Chairman), Eric S. Kentor and Randall R. Lunn. The audit committee, which is composed solely of independent directors, has sole authority for hiring the company’s independent auditors, oversees the results and scope of the audit and other services provided by our independent auditors, oversees our audit and control functions and reviews all related persons transactions. Our board of directors has determined that each of Messrs. Testman and Lunn qualifies as an “audit committee financial expert” as defined by the rules under the Exchange Act. The background and experience of each of our audit committee members are set forth above.

Compensation Committee. The compensation committee of our board of directors consists of Eric S. Kentor (Chairman), William H. Davidson and Eugene J. Zurlo. The compensation committee, comprised solely of independent directors, oversees our compensation plans and is responsible for setting the compensation of our chief executive officer. Such oversight includes reviewing and, as it deems appropriate, recommending to our board of directors policies, practices and procedures relating to the compensation of our directors, officers and other managerial employees and exercising authority under our equity incentive plans.

Nominating and Corporate Governance Committee. The nominating and corporate governance committee of our board of directors consists of William H. Davidson (Chairman), Laurence M. Demers, Fareed Kureshy and Thomas R. Testman. The nominating and corporate governance committee is responsible for recruiting and retaining qualified persons to serve on our board of directors, including proposing such individuals to the board of directors for nomination for election as directors, evaluating the performance, size and composition of the board of directors and overseeing our corporate governance programs and compliance activities. The nominating and corporate governance committee considers written suggestions from stockholders, including potential nominees for election as directors.

Prior to completing this offering, we will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics will be available on our website at www.autogenomics.com. Any amendments to the code, or any waivers of its requirements with respect to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions will be promptly disclosed on our website.

None of the members of our compensation committee has at any time during our last completed fiscal year been one of our officers or employees. None of our executive officers currently serves, or during our last completed fiscal year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers on our board of directors or compensation committee.

The non-employee members of our board of directors are reimbursed for travel, lodging and other reasonable expenses incurred in attending board of directors or committee meetings. We do not currently provide any cash compensation to our non-employee directors. From time to time, we have granted stock options to our non-employee directors as compensation for their services, although there has been no formal policy in place with respect to such awards.

Following the completion of this offering, we will provide cash compensation in the form of an annual retainer of $35,000 for each non-employee director. We will also pay an additional annual retainer of $10,000 to the lead non-employee director, $10,000 to the chairman of our audit committee, $7,500 to each other non-employee member of our audit committee, $7,000 to the chairman of our compensation committee, $5,000 to each other non-employee member of our compensation committee, $5,000 to the chairman of our nominating and corporate governance committee and $3,000 to each other non-employee member of our nominating and corporate governance committee. In lieu of receiving this cash compensation, the directors will be able to elect to receive restricted stock units with an equal value. We will continue to reimburse our non-employee directors for their reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors.

Following the completion of this offering, any non-employee director who is first elected to the board of directors will be granted a restricted stock unit covering 10,000 shares of our common stock on the date of his or her initial election to the board of directors. In addition, on the date of each annual meeting of our stockholders following this offering, each non-employee director will be eligible to receive a restricted stock unit covering 5,000 shares of our common stock units.

The restricted stock units granted to non-employee directors described above will vest one year after they were granted, subject to the director’s continuing service on our board of directors on that date. The terms of these restricted stock units are described in more detail under “— Employee Plans — 2008 Equity Incentive Award Plan.”

The following table summarizes the compensation received by our non-employee directors during the year ended December 31, 2009.

In this section we summarize our plans and programs for compensating our executive officers who are named in the Summary Compensation Table that appears below. These “named executive officers” consist of our Chief Executive Officer and President, our Chief Financial Officer, and our three other most highly paid executive officers as determined by total compensation for the year ended December 31, 2009. These individuals are: Fareed Kureshy, President and Chief Executive Officer; Thomas V. Hennessey, Jr., Chief Operating Officer and Chief Financial Officer; Nanibhushan Dattagupta, Ph.D., Chief Scientific Officer; Shailendra Singh, Ph.D., Vice President, System Development; and Ramanath Vairavan, Senior Vice President, Sales and Marketing.

We recognize that our ability to excel depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees. To this end, we strive to create an environment of mutual respect, encouragement and teamwork — an environment that rewards commitment and performance and that is responsive to the needs of our employees. The objectives of our compensation and benefits programs for our employees generally, and for our named executive officers specifically, are to:

Each of our compensation elements fulfills one or more of these objectives. These elements consist of (1) base salary, (2) annual cash bonus, (3) long-term equity incentives and (4) health and welfare benefits and other compensation. Each of these components aligns the interests of our named executive officers with the interests of our stockholders in different ways, whether through focusing on short-term and long-term performance goals, promoting an ownership mentality toward one’s job, linking individual performance to our overall performance or by ensuring healthy employees. This mix of compensation is intended to ensure that total compensation reflects our overall success or failure and to motivate executive officers to meet appropriate performance measures. In determining each element of compensation for any given year, our board of directors and our compensation committee consider each element individually and then review the resulting total compensation and determine whether it is reasonable and competitive. We have no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Each of these compensation elements is described in more detail below.

Historically our board of directors has developed, reviewed and approved each of the elements of the executive compensation program of our company as a whole and for our named executive officers individually. Our compensation committee has had primary authority to grant stock options to our employees and consultants, although the full board of directors has retained this authority with respect to directors. Following the completion of this offering, our compensation committee will assume responsibility for the oversight of our compensation programs and policies, including with respect to our named executive officers. The full board of directors will continue to administer our compensation programs and policies with respect to directors.

Compensation for our named executive officers has historically been highly individualized, resulted from arm’s length negotiations and been based on a variety of informal factors including, in addition to the factors listed above, our financial condition and available resources, our need for that particular position to be filled and the compensation levels of our other executive officers, each as of the time of the applicable compensation decision. In years past, our full board of directors reviewed the performance of all named executive officers, generally on an annual basis, and

based on this review and the factors described above, set the executive compensation package for each named executive officer for the coming year. However, there was no predetermined time of year for such review. Upon consummation of this offering, the compensation committee will take on the responsibility for this annual review and decision-making process.

The compensation committee and the board of directors hold executive sessions that are not attended by any members of management or non-independent directors, as needed from time to time. The compensation committee and the board of directors discuss our chief executive officer’s compensation package with him, but make decisions with respect to his compensation without him present.

The board of directors and our compensation committee has not undertaken a formal review of relevant market compensation data in setting named executive officer compensation. Instead, our board of directors and our compensation committee rely primarily upon the judgment of their members in making compensation decisions, after reviewing our performance and financial condition and carefully evaluating a named executive officer’s performance during the year against established goals, leadership qualities, operational performance, business responsibilities, career with us, current compensation arrangements and long-term potential to enhance stockholder value. Following completion of this offering, we anticipate that our compensation committee will determine executive compensation, at least in part, by reference to the compensation information for the executives of a peer group of comparable companies, and utilize the services of an independent executive compensation consultant to assist it in the process. To date, our compensation committee has not referred to any compensation information for comparable companies. We also anticipate that our compensation committee may make adjustments in executive compensation levels in the future as a result of this more formal market comparison process.

Our chief executive officer, with the assistance and support of the human resources department and our other executive officers, aids the board of directors by providing recommendations regarding the compensation of all of our named executive officers, other than him. The board of directors and our compensation committee also, on occasion, meet with our chief executive officer to obtain recommendations with respect to our compensation programs and practices generally. The compensation committee and the board of directors consider, but are not bound to accept, the chief executive officer’s recommendations with respect to named executive officer compensation.

We strive to achieve an appropriate mix between equity incentive awards and cash payments in order to meet our objectives. Any apportionment goal is not applied rigidly and does not control our compensation decisions, and our compensation committee does not have any policies for allocating compensation between long-term and short-term compensation or cash and non-cash compensation. Our mix of compensation elements is designed to reward recent results and motivates long-term performance through a combination of cash and equity incentive awards. We believe the most important indicator of whether our compensation objectives are being met is our ability to motivate our named executive officers to deliver superior performance and retain them to continue their careers with us on a cost-effective basis.

The compensation levels of the named executive officers reflect to a significant degree the varying roles and responsibilities of such executives. As a result of the compensation committee’s and the board of director’s assessment of the roles and responsibilities of our chief executive officer and president and chief operating officer and chief financial officer within our company, there are significant compensation differentials between these named executive officers and our other named executive officers.

We do not have a formal policy to adjust or recover awards or payments if the relevant performance measures upon which they are based are restated or are otherwise adjusted in a manner that would otherwise reduce the size of the initial payment or award.

In general, base salaries for our named executive officers are initially established through arm’s length negotiation at the time the executive is hired, taking into account such executive’s qualifications, experience and prior salary. Base salaries of our named executive officers are approved and reviewed annually by our compensation committee and our board of directors and adjustments to base salaries are based on the scope of an executive’s responsibilities, individual

contribution, prior experience and sustained performance. Decisions regarding salary increases may take into account the executive officer’s current salary, equity ownership, and the amounts paid to an executive officer’s peers inside our company by conducting an internal analysis, which compares the pay of each executive officer to other members of the management team. Base salaries are also reviewed in the case of promotions or other significant changes in responsibility. No formulaic base salary increases are provided to our named executive officers. This strategy is consistent with our intent of offering compensation that is both cost-effective, competitive and consistent with our financial resources. As an early commercial-stage company, we have historically operated with limited cash resources. Consequently, our board of directors and compensation committee have been limited in the ability to consider significant increases in cash compensation for our named executive officers.

In early 2009, our board of directors reviewed the base salaries for all of the named executive officers employed by us at that time and set the base salaries to be in effect during 2009, which base salaries remained unchanged from 2008 levels. The base salaries for our named executive officers as of January 1, 2009 were as follows:

In early 2009, due to the prevailing economic climate, our executives agreed to reduce their base salaries by 30%. These reductions remained in effect until August 2009, at which time the base salaries were reinstated to the previous levels. In December 2009, our executives again agreed to reduce their base salaries by 30%. This reduction was reversed in February 2010, and our executives’ base salaries remain at the levels set forth in the table above.

The actual base compensation paid to all of our named executive officers for 2009 is set forth in the “Summary Compensation Table” below.

In addition to base salaries, our compensation committee and board of directors have the authority to award annual cash bonuses to our named executive officers. To date, such bonuses have been paid on a discretionary basis in cases where the compensation committee and the board of directors desire to reward outstanding performance by our named executive officers. Bonuses are not based upon the achievement of specified performance goals. No bonuses were earned or paid to our named executive officers during 2009 due to adverse financial conditions and limited cash flow, but we intend to reward outstanding performance by our named executive officers in future years as our financial condition and cash flow improve.

The goals of our long-term, equity-based incentive awards are to align the interests of our named executive officers with the interests of our stockholders. Because vesting is based on continued employment, our equity-based incentives also encourage the retention of our named executive officers through the vesting period of the awards. In determining the size of the long-term equity incentives to be awarded to our named executive officers, we take into account a number of internal factors, such as the relative job scope, the value of existing long-term incentive awards, individual performance history, prior contributions to us, the size of prior grants, competitive considerations and our limited cash resources. Our compensation committee does not refer to formal competitive market data in determining long-term equity incentive awards. Based upon these factors, the compensation committee determines the size of the long- term equity incentives at levels it considers appropriate to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value. We have not granted any equity awards other than stock options to date.

To reward and retain our named executive officers in a manner that best aligns employees’ interests with stockholders’ interests, we use stock options as the primary incentive vehicles for long-term compensation. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of the stock options to our future performance. Because employees are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, we believe stock options provide meaningful incentives to employees to achieve increases in the value of our stock over time.

We use stock options to compensate our named executive officers both in the form of initial grants in connection with the commencement of employment and additional or “refresher” grants. To date there has been no set program for the award of additional or “refresher” grants, and the compensation committee retains discretion to make stock option awards to employees at any time, including in connection with the promotion of an employee, to reward an employee, for retention purposes or for other circumstances recommended by management or the compensation committee.

The exercise price of each stock option grant is the fair market value of our common stock on the grant date, as determined by our board of directors. Stock option awards to our named executive officers typically vest over a four-year period as follows: 25% of the shares underlying the option vest on each of the first four anniversaries of the vesting commencement date established at the time of grant. For new hire awards, the vesting commencement date is typically the new employee’s date of hire. For awards to existing employees or service providers the vesting commencement date is typically the same as the grant date. Some of the option awards granted to our named executive officers in the past were fully vested on the date of grant. The board of directors granted these awards in consideration of the officer’s past service to our company. For a description of certain accelerated vesting provisions applicable to our stock options, see “— Equity Incentive Plans — 2008 Equity Incentive Award Plan” and “— 2000 Equity Incentive Plan” below. We do not have any security ownership requirements for our named executive officers.

Each of our named executive officers other than Mr. Kureshy received option grants during 2009, as set forth below under “— Grants of Plan Based Awards.” The compensation committee granted these awards based on its subjective review of each executive’s performance during the previous year.

In early 2010, we granted Mr. Kureshy, Mr. Hennessey, Mr. Dattagupta, Mr. Singh and Mr. Vairavan options to purchase 300,000, 40,000, 20,000, 10,000 and 10,000 shares of our common stock, respectively, all at an exercise price per share of $2.74. The compensation committee granted these awards based on its subjective review of each executive’s performance during the previous year, its review and consideration of the named executive officers’ respective unvested equity holdings, its desire to reward the executives for service to the company during 2009 and early 2010 in spite of base salary reductions and its determination that such awards were advisable in order to continue to retain and incentivize such officers.

As discussed above under “— Compensation Determination Process,” the compensation levels of our named executive officers reflect to a significant degree the varying roles and responsibilities of such executives, and there are significant compensation differentials between our named executive officers. The compensation committee believes that the total compensation of Mr. Kureshy should be greater than that of our other named executive officers due to his significant role and responsibilities within our company. As a result, the compensation committee awarded significantly more stock options to Mr. Kureshy than it did to the other named executive officers. In addition, the salary reductions we implemented in 2009 resulted in a greater reduction in Mr. Kureshy’s compensation (on an absolute dollar basis) than our other named executive officers due to the fact that his base salary is greater. Finally, the compensation committee believes that Mr. Kureshy’s overall equity holdings should be more substantial than those of our other named executive officers in light of his internal position relative to our other named executive officers. While Mr. Kursehy’s existing equity holdings are more substantial than those of our other named executive officers, the compensation committee felt it was appropriate to maintain this disparity.

The compensation committee believes that these same considerations also apply to Mr. Hennessey relative to our other named executive officers (other than Mr. Kureshy), albeit to a lesser degree. As a result, the award to Mr. Hennessey was larger than the award to the other named executive officers. The compensation committee awarded the foregoing option awards to Mr. Hennessey, Mr. Dattagupta, Mr. Singh and Mr. Vairavan in a manner that corresponds to the compensation committee’s assessment of their respective roles and responsibilities within our company.

As stated above, the ultimate determination as to the size of the foregoing awards was subjective, and no formal or objective analysis was applied by the compensation committee.

As a privately owned company, there has been no active market for our common stock. Accordingly, we have had no program, plan or practice pertaining to the timing of stock option grants to named executive officers coinciding with the release of material non-public information.

All of our full-time employees, including our named executive officers, are eligible to participate in our 401(k) plan. Pursuant to our 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit of $16,500 in 2010 (additional salary deferrals not to exceed $5,500 are available to those employees 50 years of age or older) and to have the amount of this reduction contributed to our 401(k) plan. We do not make matching or profit sharing contributions under our 401(k) plan.

The establishment of competitive benefit packages for our employees is an important factor in attracting and retaining highly qualified personnel.

Our named executive officers are eligible to participate in all of our employee benefit plans, including our medical, dental, vision, group life, and disability insurance plans, in each case on the same basis as other employees. We believe that these health and welfare benefits help ensure that we have a productive and focused workforce through reliable and competitive health and other benefits.

We do not provide significant perquisites or personal benefits to our named executive officers.

We do not have any employment or severance agreements with our named executive officers.

As described above, we routinely grant our named executive officers stock options under our equity incentive plans. For a description of the change in control provisions in such equity incentive plans applicable to these stock options, see “— Employee Plans — 2008 Equity Incentive Award Plan” and “— 2000 Equity Incentive Plan” below.

The compensation committee and our board of directors have considered the potential future effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for our President and Chief Executive Officer and each of the other named executive officers (other than our Chief Financial Officer), unless compensation is performance based. As we are not currently publicly-traded, our board of directors has not previously taken the deductibility limit imposed by Section 162(m) into consideration in setting compensation. Our compensation committee, however, has adopted a policy that, where reasonably practicable, we will seek to qualify the variable compensation paid to our executive officers for an exemption from the deductibility limitations of Section 162(m).

In approving the amount and form of compensation for our executive officers, the compensation committee will continue to consider all elements of the cost to our company of providing such compensation, including the potential impact of Section 162(m).

We account for stock-based payments in accordance with the requirements of stock-based compensation guidance.

The following table summarizes the compensation that we paid to our named executive officers during the years ended December 31, 2007, 2008 and 2009.

The following table shows information regarding grants of equity awards during the year ended December 31, 2009 to each of our named executive officers.

The following table shows grants of stock options outstanding on December 31, 2009 to each of our named executive officers.

None of our named executive officers exercised any options during the year ended December 31, 2009.

In June 2010, management assessed our compensation program for the purpose of reviewing and considering any risks presented by our compensation policies and practices that are reasonably likely to have a material adverse effect on us.

As part of that assessment, management reviewed the primary elements of our compensation program, including base salary, short-term incentive compensation and long-term incentive compensation. Management’s risk assessment included a review of the overall design of each primary element of our compensation program, and an analysis of the various design features, controls and approval rights in place with respect to compensation paid to management and other employees that mitigate potential risks to us that could arise from our compensation program.

Following the assessment, management determined that our compensation policies and practices did not create risks that were reasonably likely to have a material adverse effect on us and reported the results of the assessment to our compensation committee.

Our board of directors has adopted, and our stockholders have approved, a 2008 Equity Incentive Award Plan, or the “2008 Plan.” The 2008 Plan became effective upon its approval by our stockholders on November 2, 2008. The purpose of the 2008 Plan is to promote the success and enhance the value of our company by continuing to link the personal interests of participants to those of our stockholders and by providing participants with an incentive for outstanding performance.

A summary of the principal provisions of the 2008 Plan is set forth below. This summary is qualified in its entirety by reference to the 2008 Plan itself. The form of the 2008 Plan is filed as an exhibit to the registration statement of which this prospectus is a part.

Shares Available for Awards. We reserved initially 2,000,000 shares of our common stock for issuance under the 2008 Plan. The number of shares reserved under the 2008 Plan will be increased by (1) the number of shares of common stock available for issuance and not subject to awards granted under our 2000 Equity Incentive Plan as of the effective date of the 2008 Plan and (2) the number of shares of common stock related to awards granted under our 2000 Equity Incentive Plan on or before the effective date of the 2008 Plan that are repurchased, forfeited, expired or are cancelled on or after the effective date of the 2008 Plan. As of July 31, 2010, the aggregate number of shares available for issuance under the 2008 Plan as a result of awards from or that were repurchased, forfeited, expired, or cancelled in the 2000 Plan was 509,028 shares. The maximum number of shares of common stock that may be added to the share reserve under the 2008 Plan pursuant to the preceding two sentences will not exceed 6,600,000 shares. The 2008 Plan contains an “evergreen provision” that allows for an annual increase in the number of shares available for issuance under the 2008 Plan on January 1 of each year, beginning on the first January 1 following the completion of this offering and on each subsequent January 1 throughout and including January 1, 2018. The annual increase in the number of shares shall be equal to the least of:

As of July 31, 2010, options to purchase 1,795,000 shares of our common stock had been issued under the 2008 Plan, 3,000 of the options granted had been exercised and 112,900 of the options granted had been forfeited, resulting in 1,679,100 options outstanding.

The 2008 Plan also provides for an aggregate limit on the number of shares of common stock that may be issued under the 2008 Plan over the course of its ten-year term of 23,600,000 shares, subject to changes in our capital structure as set forth in the 2008 Plan.

To the extent that an award terminates, expires, lapses for any reason or is settled in cash, any shares of common stock subject to the award will again be available for the grant of an award pursuant to the 2008 Plan. Any shares of common stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation with respect to any award and any shares forfeited by a participant or repurchased by us will be available for subsequent grant under the 2008 Plan.

Administration. The compensation committee of our board of directors administers the 2008 Plan (except with respect to any award granted to non-employee directors, which is administered by our full board of directors). Following the completion of this offering, to administer the 2008 Plan, our compensation committee must consist of

at least two members of our board of directors, each of whom is a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act, and, with respect to awards that are intended to constitute performance-based compensation under Section 162(m) of the Internal Revenue Code, an “outside director” for purposes of Section 162(m). Subject to the terms and conditions of the 2008 Plan, our compensation committee has the authority to select the persons to whom awards are to be made, to determine the type or types of awards to be granted to each person, the number of shares to be subject to such awards and the terms and conditions of such awards, and to make all other determinations and decisions and to take all other actions necessary or advisable for the administration of the 2008 Plan. Our compensation committee is also authorized to establish, adopt, amend or revise rules relating to administration of the 2008 Plan, subject to certain restrictions. Our board of directors may at any time revert to itself the authority to administer the 2008 Plan. Our board of directors administers the 2008 Plan with respect to awards to non-employee directors. The board of directors and any committee exercising discretion under the 2008 Plan from time to time are referred to in this section as the plan administrator.

Eligibility. Options, stock appreciation rights, or SARs, restricted stock and other awards under the 2008 Plan may be granted to individuals who are our officers or employees or are the officers or employees of our parent or subsidiary companies, if any, on the date of grant. Such awards may also be granted to our non-employee directors and consultants but only employees may be granted incentive stock options, or ISOs. As of March 31, 2010, there were seven non-employee directors, and approximately 100 employees who would have been eligible for awards under the 2008 Plan, if the 2008 Plan had been in effect on that date. Certain individuals who are consultants covered by active consulting agreements would also be eligible for awards.

Awards. The 2008 Plan provides that the plan administrator may grant or issue stock options, SARs, restricted stock, restricted stock units, dividend equivalents, stock payments and performance bonus awards, or any combination thereof. The plan administrator will consider each award grant subjectively, considering factors such as the individual performance of the recipient and the anticipated contribution of the recipient to the attainment of our long-term goals.

At such time after the offering date when the Company is subject to the requirements of Section 162(m) of the Internal Revenue Code, the maximum number of shares of our common stock that may be subject to awards granted to any one participant during any calendar year is 2,000,000 shares and the maximum amount that may be paid to a participant in cash during any calendar year with respect to one or more awards payable in cash-based performance awards is $2,000,000.

Awards under the 2008 Plan will be evidenced by a written award agreement that sets forth the terms, conditions and limitations for each award, as determined by the plan administrator.


Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x		Smaller reporting company ¨
(Do not check if a smaller reporting company)



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price (1) (2)	Amount of Registration Fee (3)
Common Stock, $0.01 par value	$86,300,000	$3,391.59


	PER SHARE	TOTAL

Public Offering Price	$	$

Underwriting Discounts and Commissions	$	$

Proceeds to AutoGenomics, Inc. (Before Expenses)	$	$


	Years ended December 31,									Three months ended March 31,
	2007			2008			2009			2009			2010
				(as restated)			(as restated)			(unaudited)
	(in thousands, except share and per share data)
Statement of operations data:
Product sales	$	1,607		$	4,791		$	5,902		$	1,217		$	751
Cost of sales		3,655			5,369			7,009			2,168			1,547

Gross profit (loss)		(2,048	)		(578	)		(1,107	)		(951	)		(796	)
Operating expenses
Research and development		2,566			3,657			3,540			914			793
General and administrative		2,423			3,773			4,692			1,018			1,629
Sales and marketing		2,685			4,762			4,419			1,143			771

Total operating expenses		7,674			12,192			12,651			3,075			3,193

Loss from operations		(9,722	)		(12,770	)		(13,758	)		(4,026	)		(3,989	)
Interest income		284			169			19			8			4
Interest expense		(1	)		(322	)		(1,772	)		(186	)		(810	)
Other income (expense), net		7			(32	)		(2,534	)		(27	)		(235	)
Change in fair value of warrant liabilities		139			(186	)		(911	)		(62	)		280

Net loss		(9,293	)		(13,141	)		(18,956	)		(4,293	)		(4,750	)
Accretion to liquidation value of convertible preferred stock		(74	)		145			—			—			—

Net loss attributable to common stockholders	$	(9,367	)	$	(12,996	)	$	(18,956	)	$	(4,293	)	$	(4,750	)

Basic and diluted net loss per share attributable to common stockholders	$	(1.40	)	$	(1.74	)	$	(2.45	)	$	(0.56	)	$	(0.61	)

Shares used to compute basic and diluted net loss per share attributable to common stockholders		6,671,063			7,489,239			7,730,282			7,721,714			7,757,223


	Actual			As of March 31, 2010
	Actual			Pro forma (1)			Pro forma as adjusted (2)
	(as restated)
	(in thousands)
Balance sheet data:
Cash and cash equivalents	$	4,109		$	4,109		$
Current assets		8,501			8,501
Total assets		12,631			12,631
Total debt (3)		19,081			19,081
Convertible preferred stock (4)		45,577			—
Total stockholders’ deficit		(64,835	)		(19,258	)


Prospectus Summary		1
Risk Factors		11
Use of Proceeds		36
Dividend Policy		37
Capitalization		38
Dilution		40
Selected Financial Data		42
Management’s Discussion and Analysis of Financial Condition and Results of Operations		44
Business		67
Management		98
Executive Compensation		104
Principal Stockholders		124
Certain Relationships and Related Persons Transactions		126
Description of Capital Stock		129
Shares Eligible for Future Sale		133
Material United States Federal Income Tax Consequences to Non-U.S. Holders		136
Underwriting		139
Legal Matters		145
Experts		145
Where You Can Find More Information		145
Index to Financial Statements		F-1


Common stock offered by us		shares
Common shares to be outstanding immediately after this offering		shares


	As of March 31, 2010
	Actual			Pro forma			Pro forma as adjusted (1)
	(unaudited)
	(in thousands)

Subordinated promissory notes (2)	$	19,081		$	19,081		$
Convertible preferred stock, $0.01 par value, 30,000,000 authorized (3)		—			—
Series A Convertible Preferred Stock, $0.01 par value, 1,589,600 authorized, 1,579,227 issued and outstanding, actual, 0 issued and outstanding, pro forma		4,990			—
Series B Convertible Preferred Stock, $0.01 par value, 4,515,858 authorized, 4,302,040 issued and outstanding, actual, 0 issued and outstanding, pro forma		11,831			—
Series C Convertible Preferred Stock, $0.01 par value, 6,850,000 authorized, 6,411,089 issued and outstanding, actual, 0 issued and outstanding, pro forma		17,630			—
Series D Convertible Preferred Stock, $0.01 par value, 3,423,258 authorized, 3,423,258 issued and outstanding, actual, 0 issued and outstanding, pro forma		11,126			—
Stockholders’ equity (deficit):
Common stock, $0.01 par value, 220,000,000 authorized, 7,763,431 issued and outstanding, actual, 25,058,272 issued and outstanding, pro forma and issued and outstanding, pro forma as adjusted		78			251
Additional paid-in capital (4)		2,995			48,399
Accumulated deficit		(67,908	)		(67,908	)

Total stockholders’ equity (deficit)		(64,835	)		(19,258	)

Total capitalization	$	(177	)	$	(177	)	$


Assumed initial public offering price per share		$
Pro forma net tangible book value per share as of March 31, 2010	$
Increase in pro forma net tangible book value per share attributable to this offering	$
Pro forma net tangible book value per share after this offering		$

Dilution in pro forma net tangible book value per share to new stockholders		$


	Shares purchased		Total consideration		Average price per share
	Number	Percent	Amount	Percent	Average price per share

Existing stockholders		%	$	%	$

New stockholders in this offering		%	$	%	$


Total		100%	$	100%	$


	Nine months ended December 31, 2005 (1)			Years ended December 31,												Three months ended March 31,
	Nine months ended December 31, 2005 (1)			2006			2007			2008			2009			2009			2010
										(as restated)			(as restated)			(unaudited)
	(in thousands, except share and per share data)
Statement of operations data:
Product sales	$	311		$	500		$	1,607		$	4,791		$	5,902		$	1,217		$	751
Cost of sales		1,005			2,079			3,655			5,369			7,009			2,168			1,547

Gross profit (loss)		(694	)		(1,579	)		(2,048	)		(578	)		(1,107	)		(951	)		(796	)
Operating expenses:
Research and development		1,797			2,296			2,566			3,657			3,540			914			793
General and administrative		827			1,475			2,423			3,773			4,692			1,018			1,629
Sales and marketing		670			975			2,685			4,762			4,419			1,143			771

Total operating expenses		3,294			4,746			7,674			12,192			12,651			3,075			3,193

Loss from operations		(3,988	)		(6,325	)		(9,722	)		(12,770	)		(13,758	)		(4,026	)		(3,989	)
Interest income		67			70			284			169			19			8			4
Interest expense		—			(235	)		(1	)		(322	)		(1,772	)		(186	)		(810	)
Other income (expense), net		—			—			7			(32	)		(2,534	)		(27	)		(235	)
Change in fair value of warrant liabilities		32			77			139			(186	)		(911	)		(62	)		280

Net loss		(3,889	)		(6,413	)		(9,293	)		(13,141	)		(18,956	)		(4,293	)		(4,750	)
Accretion to liquidation value of convertible preferred stock		(448	)		(818	)		(74	)		145			—			—			—

Net loss attributable to common stockholders	$	(4,337	)	$	(7,231	)	$	(9,367	)	$	(12,996	)	$	(18,956	)	$	(4,293	)	$	(4,750	)

Basic and diluted net loss per share attributable to common stockholders	$	(0.76	)	$	(1.19	)	$	(1.40	)	$	(1.74	)	$	(2.45	)	$	(0.56	)	$	(0.61	)

Shares used to compute basic and diluted net loss per share attributable to common stockholders		5,708,755			6,065,728			6,671,063			7,489,239			7,730,282			7,721,714			7,757,223


	As of December 31,															As of March 31,
	2005			2006			2007			2008			2009			2010
										(as restated)			(as restated)
	(in thousands)
Balance sheet data:
Cash and cash equivalents	$	2,361		$	5,408		$	2,615		$	2,789		$	580		$	4,109
Current assets		4,145			6,919			5,472			8,521			5,651			8,501
Total assets		4,580			7,929			6,982			13,689			9,108			12,631
Total debt (1)		—			—			—			4,700			13,306			19,081
Convertible preferred stock (2)		16,730			27,855			34,335			45,577			45,577			45,577
Total stockholders’ deficit		(15,533	)		(22,658	)		(31,176	)		(41,724	)		(60,780	)		(64,835	)


	Initial public offering (2008)		Initial public offering (2009)		April 30, 2008
	Initial public offering (2008)		Initial public offering (2009)		Merger or sale (high)		Merger or sale (low)		Dissolution/ no value to common		Private company
Estimated timing of event	12/31/2008		12/31/2009		12/31/2010		12/31/2010		4/30/2008		4/30/2008
Revenue multiple	—		—		3.6		2.5		0.5		—
Weighting	15.0	%	15.0	%	15.0	%	15.0	%	30.0-	%	10.0	%
Discount factor	0.84		0.65		0.50		0.50		1.0		1.0
Weighted average cost of capital	30.0	%	30.0	%	30.0	%	30.0	%	30.0	%	30.0	%


					July 31, 2008
	Initial public offering (2008)		Initial public offering (2009)		Merger or sale (high)		Merger or sale (low)		Dissolution/ no value to common		Private company
Estimated timing of event	12/31/2008		6/30/2009		12/31/2010		12/31/2010		7/31/2008		7/31/2008
Revenue multiple	—		—		4.0		2.5		0.5		—
Weighting	5.0	%	40.0	%	25.0	%	15.0	%	10.0	%	5.0	%
Discount factor	0.91		0.82		0.58		0.58		1.0		1.0
Weighted average cost of capital	25.0	%	25.0	%	25.0	%	25.0	%	25.0	%	25.0	%


					September 30, 2008
	Initial public offering (2008)		Initial public offering (2009)		Merger or sale (high)		Merger or sale (low)		Dissolution/ no value to common		Private company
Estimated timing of event	12/31/2008		6/30/2009		12/31/2010		12/31/2010		7/31/2008		7/31/2008
Revenue multiple	—		—		4.0		2.50		0.50		—
Weighting	5.0	%	40.0	%	25.0	%	15.0	%	10.0	%	5.0	%
Discount factor	0.91		0.82		0.58		0.58		1.0		1.0
Weighted average cost of capital	25.0	%	25.0	%	25.0	%	25.0	%	25.0	%	25.0	%


Baird		Stifel Nicolaus Weisel


	Initial public offering (2009)		Initial public offering (2010)		December 31, 2008
	Initial public offering (2009)		Initial public offering (2010)		Merger or sale (high)		Merger or sale (low)		Dissolution/ no value to common		Private company
Estimated timing of event	12/31/2009		9/30/2010		12/31/2011		12/31/2011		6/30/2009		12/31/2008
Revenue multiple	11.50		6.0		3.0		1.50		0.50		—
Weighting	17.5	%	17.5	%	20.0	%	20.0	%	20.0	%	5.0	%
Discount factor	0.80		0.68		0.51		0.51		1.0		1.0
Weighted average cost of capital	25.0	%	25.0	%	25.0	%	25.0	%	25.0	%	25.0	%


	Initial public offering (Early 2010)			Initial public offering (Late 2010)			December 31, 2009
	Initial public offering (Early 2010)			Initial public offering (Late 2010)			Merger or sale (High Value)			Merger or sale (Low Value)			Dissolution/ no value to common			Private company
	(dollars in thousands)
Enterprise value — exit valuation plus cash & equivalents	$	143,852		$	248,140		$	255,985		$	100,897		$	45,577		$	124,201
Discount period (time to exit)		0.5			1.0			2.0			2.0			0.5			—
Discount factor		0.89			0.80			0.64			0.64			1.0			1.0
Discounted enterprise value	$	128,665		$	198,512		$	163,830		$	64,574		$	45,570		$	124,201
Probability weightings		15.0	%		25.0	%		10.0	%		30.0	%		15.0	%		5.0	%


Grants made during quarter ended	Number of options granted	Exercise price ($ per share)	Fair market value ($ per share) (1)		Intrinsic value ($ per share)
March 31, 2007	471,000	0.50	0.50		—
June 30, 2007	116,000	0.50	0.50		—
September 30, 2007	—	0.50	0.50		—
December 31, 2007	85,000	0.50	0.50		—
March 31, 2007 (2)	89,000	0.50	1.14		0.64
June 30, 2008	—	—	—		—
September 30, 2008 (2) (4)	140,000	0.60	4.73	(3)	4.13
September 30, 2008 (2)	83,000	0.64	4.73	(3)	4.09
September 30, 2008 (2) (4)	675,205	2.75	4.73	(3)	1.98
December 31, 2008	400	0.25	4.73	(3)	4.48
December 31, 2008	99,800	0.50	4.73	(3)	4.23
December 31, 2008	300,000	0.71	4.73	(3)	4.02
June 30, 2009	770,300	2.63	2.63		—
September 30, 2009	92,000	2.63	2.63		—
December 31, 2009	32,000	2.63	2.63		—
March 31, 2010	815,700	2.74	2.74		—


	Years ended December 31,						Three months ended March 31,
	2007		2008		2009		2009		2010
	(in thousands)
Cost of sales	$	11	$	78	$	185	$	38	$	25
Research and development		15		49		251		49		59
General and administrative		95		526		714		286		347
Sales and marketing		12		201		171		38		38

	$	133	$	854	$	1,321	$	411	$	469


	Payments due by period
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
	(in thousands)
Contractual obligations:
Subordinated promissory notes (1)	$	13,992	$	3,450	$	10,542	$	—	$	—
Operating lease		11,599		682		4,179		4,849		1,889

	$	25,591	$	4,132	$	14,721	$	4,849	$	1,889


*BioFilmChip* The BioFilmChip consists of multiple layers of a three dimensional hydro-gel matrix coated on polyester film sandwiched between a plastic base and a reaction body to form the microarray. Polyester film, with length of up to 10,000 feet and width of up to 18 inches, is coated with four different layers of emulsions and then cut into sections for each BioFilmChip. Each of the emulsion layers has a unique formulation designed to address a specific function necessary for the film to act as the base of the microarray. The first layer, the surface preparation layer, smoothes the film surface. The second optical blocking layer blocks any intrinsic fluorescence, allowing us to raise the gain of the detection system and giving our system greater sensitivity. The third layer is the linking layer that allows us to attach biochemical sensors. The fourth layer is the surfactant layer that breaks the surface tension so the sample is spread evenly on the chip. The microarrays are printed with 36 to 1,024 individual features of biochemical sensors depending on the test requirement. The spotted microarrays are then packaged into a specifically designed magazine. Four of the microarray magazines can be loaded on the INFINITI Analyzer at one time.		BioFilm cross-sectional view

Microarray assembly components	Microarray	Microarray magazine


Name	Age	Position
Fareed Kureshy	67	Founder, Chairman, President and Chief Executive Officer
Thomas V. Hennessey	61	Chief Operating Officer, Chief Financial Officer, Secretary and Director
Nanibhushan Dattagupta, Ph.D.	66	Chief Scientific Officer
Shailendra Singh, Ph.D.	71	Co-Founder, Vice President, System Development
Ramanath Vairavan	62	Co-Founder, Vice President, Sales and Marketing
William H. Davidson, D.B.A.	58	Director
Laurence M. Demers, Ph.D.	72	Director
Eric S. Kentor	51	Director
Randall R. Lunn	59	Director
Thomas R. Testman	73	Director
Eugene J. Zurlo	73	Director


Name		Option awards ($) (2) (3)
William H. Davidson		35,600
Laurence M. Demers		35,600
Eric S. Kentor		35,600
Randall R. Lunn		35,600
Joseph P. Sullivan (1)		35,600
Thomas R. Testman		35,600
Eugene J. Zurlo		35,600


Name		Shares underlying options outstanding at December 31, 2009
William H. Davidson		145,000
Laurence M. Demers		65,000
Eric S. Kentor		45,000
Randall R. Lunn		70,000
Joseph P. Sullivan		60,000
Thomas R. Testman		40,000
Eugene J. Zurlo		40,000


Named Executive Officer		Base Salary as of January 1, 2009 ($)
Fareed Kureshy		350,000
Thomas V. Hennessy, Jr.		250,000
Nanibhushan Dattagupta, Ph.D.		200,000
Shailendra Singh, Ph.D.		220,000
Ramanath Vairavan		200,000


Name and principal position	Year	Salary ($)		Option awards ($) (1)		Other compensation (2) (3)	Total ($)
Fareed Kureshy	2007	300,000		—		9,932	309,932
President and Chief Executive Officer	2008	353,846		255,000		34,616	643,462
	2009	285,385		—		10,680	296,065

Thomas V. Hennessey	2007	16,667	(3)	12,200	(3)	—	28,867
Chief Operating Officer and Chief Financial Officer	2008	220,385		591,500		—	811,885
Chief Operating Officer and Chief Financial Officer	2009	203,846		65,100		—	268,946

Nanibhushan Dattagupta, Ph.D.	2007	180,000		8,200		5,012	193,212
Chief Scientific Officer	2008	203,846		86,500		6,023	296,369
	2009	159,608		130,200		6,127	295,935

Shailendra Singh, Ph.D.	2007	200,000		—		7,387	207,387
Vice President, System Development	2008	223,077		—		26,123	249,200
	2009	178,200		33,480		9,192	220,872

Ramanath Vairavan	2007	174,038		—		9,248	183,286
Senior Vice President, Sales and Marketing	2008	260,962		—		19,616	280,578
	2009	163,077		65,100		10,680	238,857


Name	Grant date	All other option awards (#) (1)	Exercise or base price of option awards ($/share)	Grant date fair value of option awards in 2009 ($) (2)
Fareed Kureshy	—	—	—	—
Thomas V. Hennessey	5/27/2009	35,000	2.63	65,100
Nanibhushan Dattagupta, Ph.D.	5/27/2009	70,000	2.63	130,200
Shailendra Singh, Ph.D.	5/27/2009	18,000	2.63	33,480
Ramanath Vairavan	5/27/2009	35,000	2.63	65,100


Name	Number of securities underlying option awards (1) (2)		Option exercise price ($)	Option expiration date
Fareed Kureshy	172,852	(5)	0.125	3/31/2013
	75,000		0.250	10/16/2013
	300,000	(3)	0.710	1/11/2018

Thomas V. Hennessey	175,000	(4)	2.750	6/13/2018
	35,000		2.630	5/27/2019

Nanibhushan Dattagupta, Ph.D.	75,000		0.500	8/16/2016
	5,000		0.500	3/21/2017
	20,000		0.500	6/1/2017
	25,000		2.750	6/13/2018
	70,000		2.630	5/27/2019

Shailendra Singh, Ph.D.	40,000		0.125	1/30/2012
	138,000	(5)	0.125	3/31/2013
	20,000		0.250	10/16/2013
	18,000		2.630	5/27/2019

Ramanath Vairavan	520,000		0.125	12/13/2010
	42,750	(5)	0.125	3/31/2013
	35,000		2.630	5/27/2019