**EXHIBIT99**

**CAUTIONARYSTATEMENT**

*MedicalCV,Inc., or persons acting on our behalf, or outside reviewers retained by usmaking statements on our behalf, or underwriters of our securities, from timeto time, may make, in writing or orally, “forward-looking statements” asdefined under the Private Securities Litigation Reform Act of 1995. ThisCautionary Statement, when used in conjunction with an identifiedforward-looking statement, is for the purpose of qualifying for the “safeharbor” provisions of the Litigation Reform Act and is intended to be a readilyavailable written document that contains factors which could cause results todiffer materially from such forward-looking statements. These factors are inaddition to any other cautionary statements, written or oral, which may bemade, or referred to, in connection with any such forward-looking statement.*

*Thefollowing matters, among others, may have a material adverse effect on ourbusiness, financial condition, liquidity, results of operations or prospects,financial or otherwise, or on the trading price of our common stock. Referenceto this Cautionary Statement in the context of a forward-looking statement orstatements shall be deemed to be a statement that any one or more of thefollowing factors may cause actual results to differ materially from those insuch forward-looking statement or statements.*

**Risks Related to Our Business**

**We have a history of losses and noassurance of future profitability.  **We haveincurred losses in each of the last ten fiscal years. We had a net loss tocommon shareholders of $19,094,872 for the fiscal year ended April 30,2005 and a net loss to common shareholders of $4,936,131 for the fiscal yearended April 30, 2006. For the nine months ended January 31, 2007, we had anet loss to common shareholders of $9,867,824. As of January 31, 2007, we hadan accumulated deficit of $57,210,912. We expect to continue to incursubstantial losses until we are able to successfully introduce new products andgenerate substantial revenue.

We expect to continue to incur operating losses andnegative operating cash flow as we support the continued development andcommercial launch of our SOLARTM Surgical Ablation System.  We did not haveany clinical-ready SOLAR System inventory at March 1, 2007.  Once we havebuilt, qualified, and released clinical-ready SOLAR System inventory, and haveobtained 510(k) clearance, we anticipate that we will require severaladditional weeks to place the capital equipment in hospitals and trainphysicians on the use of our SOLAR System before we can complete the commerciallaunch of such product.  We do not expect to generate material sales ofthe SOLAR System until fiscal year 2008, at the earliest.  Even if webegin to generate revenue from our SOLAR System, it may be several years, ifever, before we achieve profitability and positive cash flow. If we do achieveprofitability, we cannot assure you that we would be able to sustain orincrease profitability on a quarterly or annual basis in the future. Inaddition, the report of our independent registered public accounting firm foreach of fiscal years 2005 and 2006 includes an explanatory paragraph expressingdoubt about our ability to continue as a going concern.

**We will require additional financingby the end of April 2007, which may be difficult to obtain, in order tocontinue operating.  **Given the insufficiency ofour existing capital resources, we will require additional financing tocontinue operations, to complete the planned launch of our SOLAR System, and toachieve our long-term goal of providing a surgical ablation treatment optionfor atrial fibrillation (“AF”). Because we are not generating measurable cashflow from operations, we will be required to raise additional funds throughpublic or private sales of equity securities or the incurrence of 

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indebtedness.If financing is not available to us by the end of April 2007, we will berequired to cease operating.

Our ability to fund continued operations depends onthe availability of equity and debt financing, which is affected by prevailingeconomic conditions in the medical device industry and financial, business andother factors, some of which are beyond our control. We cannot assure you thatwe will obtain financing on favorable terms or at all. If we elect to raiseadditional capital through the issuance and sale of equity securities, thesales may be at prices below the market price of our stock, and ourshareholders may suffer significant dilution. Debt financing, if available, mayinvolved significant cash payment obligations, covenants and financial ratiosthat restrict our ability to operate and grow our business, and would cause usto incur additional interest expense and financing costs.

**The U.S. regulatory pathway to ourlong-term goal may be very costly.**   Our ATRILAZESurgical Ablation System is cleared for ablating soft tissue, to includecardiac tissue. Our SOLAR Surgical Ablation System is expected to be initiallycleared for soft tissue. Obtaining FDA labeling for our SOLAR System to be usedfor the treatment of AF, which is our long-term corporate goal, would require alengthy and costly clinical trial. We cannot assure you that the system willprove to be a safe and effective treatment option or that the FDA will expandthe labeling for the specific indication of AF. If the labeling is notexpanded, our future revenue and earnings growth will be materially affected.

**Initial uses of our systems may be “off label” inthe U.S.  **At present,no U.S. medical device has obtained FDA labeling for treatment of AF, includingour own systems. Thus, to the extent that our devices are used for thetreatment of cardiac arrhythmias, including AF, their use would be considered“off label” in the context of current medical device regulation. Widespreadadoption of our systems for the treatment of cardiac arrhythmias, including AF,may not be possible unless we are able to achieve such labeling in the U.S.,which would require a lengthy and costly clinical trial.

**We may be subject to fines, penaltiesor injunctions if we are determined to be promoting our products forunapproved, “off-label,” or new uses, or making false, misleading orunsubstantiated claims, which would harm our operating results and reduce thevalue of your investment.**   Our promotionalmaterials and training methods for physicians must be in compliance with FDAand other applicable regulations. FDA regulations prohibit us from promoting oradvertising our products for uses not within the scope of our clearances andfrom making unsupported safety or effectiveness claims. These determinationscan be subjective and the FDA may disagree with our promotional claims. If theFDA determines that our promotional materials or training constitutes promotionof an unapproved use, or makes false or misleading claims or claims notsupported by adequate scientific data, the agency could subject us to seriousenforcement sanctions and/or limit the promotional claims that we are permittedto make for our products. The FDA typically does not permit promotional claimsfor a device based upon physician reports and other anecdotal data. We cannotassure you, therefore, that the FDA would agree that any independentpeer-reviewed studies are scientifically adequate to support the claims we makefor our products. The FDA also may limit or prohibit claims based on comparisonof our products with other surgical cardiac tissue ablation technologies anddevices in the absence of a scientifically valid head-to-head clinical trial orother adequate supporting data. Any legal limitations on the promotional claimswe may make for our products will limit the growth rate of our sales and raisethe level of selling effort required to achieve those sales.

**Even if our SOLAR System receives FDA510(k) clearance, we cannot assure you that the system will be equal to orsuperior to other systems for the ablation of soft tissue.**  Although laser energy has been used widely in various surgical procedures, theuse is relatively novel in minimally invasive procedures to ablate cardiactissue and potentially treat AF. While our SOLAR System has demonstratedsuccess in ablating cardiac tissue in animals, we have not yet conductedstudies in a human clinical setting. Accordingly, we cannot assure you thatthis system will be clinically effective. In addition, our competitors havedeveloped alternative surgical treatments to ablate cardiac tissue and 

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potentiallytreat AF. Furthermore, our competitors may be in the process of creatingsimilar or superior treatments or procedures to our SOLAR System of which weare not aware. If our SOLAR System does not prove to be equal to or superior toother systems for the ablation of tissue, it would have a material adverseeffect on our business, financial condition, operating results andcash flows.

**Even if we obtain regulatoryclearance, we cannot assure you that our SOLAR System will gain physicianacceptance.**   A limited number of cardiovascularsurgeons and cardiologists can influence medical device selection and purchasedecisions for a large portion of the target cardiovascular surgery patientpopulation. Even if we obtain FDA 510(k) clearance for our SOLAR System,we cannot assure you that it will gain any significant degree of physicianacceptance, or that users will accept our SOLAR System as preferable toalternative products or methods for tissue ablation. Physician acceptance ofthis system depends upon a number of additional factors, many of which arebeyond our control, including:

·       Our success in obtaining a cardiac indicationfor our SOLAR System;

·       Our success in extending our labeling to thetreatment of AF;

·       The perceived safety and effectiveness of thesystem;

·       Our ability to effectively train physiciansand staff on the features, benefits and safe operation of our systems;

·       The prevalence and severity of any sideeffects, including damage to adjacent organs and structures;

·       Theacceptable procedure time associated with the use of the system;

·       Potentialadvantages over alternative treatments;

·       Thestrength of marketing and distribution support; and

·       Thirdparty coverage of reimbursement.

If our SOLAR System does not achieve an adequate levelof acceptance by physicians, patients or healthcare payers, we may not generatesignificant revenue, we may not become profitable, and we may be unable tocontinue operating.

**Our success depends on theavailability and adequacy of third party reimbursement for the relevantsurgical procedures.  **Ourability to market products successfully in the U.S. depends in part on theextent to which reimbursement for the cost of such products and relatedtreatment will be available from government health administration authorities,private health insurers, health maintenance organizations and other third partypayers.

Payers may challenge the need for, and prices of, hightechnology medical products such as ours. Third party payers may denyreimbursement for procedures that they deem experimental or for devices used inways other than as cleared by the FDA or stated in their indications for use.With respect to our products, some private payers could deny coverage until themedical profession generally accepts devices and new procedures. The inabilityof hospitals and other providers to obtain reimbursement from third partypayers for our products would have a material adverse impact on our business,financial condition, operating results and cash flows. Healthcare reform mayalso impact sales of new products. In the U.S. reforms may include:

·       Reduction of Medicare and Medicaidreimbursements for complex procedures, such as the surgical treatment ofcardiac arrhythmias, including AF;

·       Controls on health care spending throughlimiting the growth of private health insurance premiums and Medicare andMedicaid spending; and

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·       Fundamental changes to the health caredelivery system.

**If we are unable to manage ourexpected growth, our future revenue and operating results may be adverselyaffected.**   If we receive FDA clearance for ourSOLAR System, we will need to rapidly expand our sales and marketingoperations, grow our research and development efforts, and enhance ouradministrative operations. This expansion is expected to place a significantstrain on our management and operational and financial resources. Our currentand planned personnel, systems, procedures and controls may not be adequate tosupport our anticipated growth. To commercialize our SOLAR System, to manage ourgrowth, and to fund clinical studies, we will be required to improve existingand implement new operational and financial systems, procedures and controlsand expand, train and manage our employee base. If we are unable to manage ourgrowth effectively, our business, financial condition, operating results andcash flows could be materially adversely affected.

**Our efforts to develop andcommercialize new products beyond our ATRILAZE System and accessory productsare at an early stage and are subject to a high risk of failure.**  A key element of our strategy is to develop and commercialize new products forthe treatment of AF as extensions of, or in addition to, our ATRILAZE System.We are seeking to do so through our internal research programs and we may explorestrategic collaborations for the development of new products utilizing our coretechnology. Research programs to develop and commercialize new products requiresubstantial technical, financial and human resources, whether or not anyproducts are ultimately developed. If we fail to develop and commercialize newproducts, including our SOLAR System, our business will suffer.

**We may need to fund ongoing clinicalstudies throughout the lifecycle of each of our products, providing scientificdata to regulatory agencies and cost effectiveness data to third partyhealthcare payers.**   The FDA, foreign regulatoryagencies and third party health care payers may require scientific clinicaloutcomes data and cost effectiveness data. We will need to provide this datathroughout our products’ lifecycles. Payers and governmental agencies maychange the frequency and breadth of clinical research required, potentiallysignificantly increasing our costs. Without adequate positive outcomes datathat demonstrate advantages from the use of our SOLAR System, we may notachieve any significant market penetration. We cannot assure you that ouroutcomes data will be adequate to meet present or future medical device utilityrequirements. If our outcomes data does not meet such requirements, we may beunable to sell our products or obtain third party reimbursement for the costsof our products.

**Substantial government regulationabroad may restrict our ability to sell our SOLAR System or other products.**  If we choose to market our products in foreign countries, we must also complywith laws and regulations of foreign countries in which we market suchproducts. In general, the extent and complexity of medical device regulation isincreasing worldwide. This trend may continue, and the cost and time requiredto obtain marketing clearance in any given country may increase as a result. Wecannot assure you that our products will obtain any necessary foreignclearances on a timely basis, or at all.

**Our products face competition fromthose of well established companies with greater financial and marketingresources, as well as alternative therapies or treatment options.**  Our industry is highly competitive, subject to change, and significantlyaffected by new product introductions and other activities of industryparticipants. Many of our competitors have significantly greater financial andhuman resources than we do and have established reputations with our targetcustomers, as well as worldwide distribution channels that are more establishedand developed than ours. Our primary competitors include AtriCure, Inc.,Boston Scientific Corp., CryoCath Technologies, Inc., ESTECH, Inc.,Medtronic, Inc. and St. Jude Medical, Inc. As of March 1, 2007, nocompany had received FDA labeling or clearance to market an ablation system foruse as a treatment of AF in the U.S. However, our competitors provide productsthat have been adopted by physicians for the off-label treatment of AF.

We and many of our competitors have developed surgicalablation devices that have been used to treat AF concomitant with an open-heartsurgical procedure. We and our competitors utilize different technologies asenergy sources for ablation devices, including cryothermy, radiofrequency,microwave, 

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high-intensityfocused ultrasound and laser. Each of these companies is also currently workingwith its core technology to develop devices that can be used as a stand-alone,minimally invasive AF treatment.

Some of our competitors, including Boston ScientificCorp., Cardima, Inc., CryoCath Technologies, Inc.,CryoCor, Inc., Johnson and Johnson, Inc., Medtronic, Inc., andSt. Jude Medical, Inc., offer catheter-based treatments. These companiessell products that are used by physicians to treat the population of patientsthat have AF, but are not candidates for open-heart surgery, which is the samegroup of patients that we believe would most benefit from our SOLAR System.Some of these catheter-based treatments already have FDA clearance or approvalfor cardiac use, including the treatment of certain arrhythmias, although nonehas approval for the treatment of AF.

Because of the large number of competitors andtreatment options in the AF market, we cannot assure you that even if wecommercially launch our SOLAR System that we will be able to competeeffectively.

**We may be unable to extend andprotect our proprietary rights which are critical to our success in developingproducts for cardiac tissue ablation and the potential treatment of AF.**  We have been issued three U.S. patents covering various methods and apparatusfor treating tissue including treatment for AF. As of March 1, 2007, we had 13pending U.S. patent applications and several international patent applicationsrelating to products we have designed for use in treating AF. We expect to seekpatent protection for additional products that we may develop in the future.Our success will depend, in part, on our ability to protect our products and tomanufacture and sell them without infringing the rights of third parties. Thevalidity and breadth of claims covered in medical technology patents involvecomplex legal and factual questions and, therefore, are highly uncertain. Inaddition, the laws of many countries may not afford protection for ourproprietary rights to the same extent as U.S. laws. We cannot assure you that:

·               Anypending patent applications or any future patent applications will result inthe issuance of patents;

·               Thescope of existing or any future patent protection will be effective to excludecompetitors or to provide competitive advantages to us;

·               Wewill be able to commercially exploit issued patents before they expire;

·               Anyof our patents will be held valid if subsequently challenged;

·               Otherswill not claim rights in, or ownership of, the patents and other proprietaryrights we hold;

·               Ourproducts and processes will not infringe, or be alleged to infringe, theproprietary rights of others; or

·               Wewill be able to protect meaningful rights in proprietary technology over whichwe do not hold patents.

Furthermore, we cannot assure you that others have notdeveloped or will not develop products that may duplicate our products ormanufacturing processes, or that others will not design around our patents.Other parties may independently develop or otherwise acquire substantiallyequivalent techniques, gain access to our proprietary technology or disclosesuch technology. In addition, whether or not we obtain additional patents,others may hold or receive patents covering components of products weindependently develop in the future.

**We may be subject to claims that weinfringe the intellectual property rights of third parties, which couldadversely affect the sale of our products and our financial condition.**  The medical device industry has been characterized by extensive litigationregarding patents and other intellectual property rights. Litigation, whichwould likely result in substantial cost to us, may be necessary to enforcepatents issued or licensed to us and/or to determine the scope and validity ofothers’ proprietary rights. 

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Ourcompetitors hold issued patents which may result in claims of infringementagainst us or other patent litigation. We also may have to participate ininterference proceedings declared by the U.S. Patent and Trademark Office,which could result in substantial cost to determine the priority of inventions.

We are aware of patents issued to our competitors andare aware that these competitors have patent applications pending. Thesepatents and applications could become the basis for infringement claims againstus. In April 2005, we received a letter from Edwards Lifesciences LLC(“Edwards”) concerning our ATRILAZE System, which is the subject of some of ourpatents. Edwards’ letter called to our attention six of its patents andrequested us to comment on how our products differ from the claimed methods andapparatus of the six specified Edwards patents. We reviewed the specifiedEdwards’ patents and discussed them with our patent counsel, and believe thatour surgical ablation systems do not infringe any of these patents. In responseto a further inquiry from Edwards in May 2006, we responded through patentcounsel outlining our position on at least one of the Edwards’ patents. WhileEdwards did not claim in its letter that our products infringe its patents, itis likely that in the future, Edwards or others will continue to inquireregarding our products and patents and possibly make intellectual propertyclaims relating to our tissue ablation devices. Subsequent to these inquiriesby Edwards, Edwards announced that it was discontinuing development and supportof its laser-based ablation system in the U.S.

Legal proceedings brought against us alleging that ourproducts infringe existing patents, whether with or without merit, could betime-consuming for our management and employees, result in costly litigation,cause product shipment delays, require us to pay damages or settlement amounts,or require us to:

·               Ceasemanufacturing and selling the product in question, which could seriously harmour business;

·               Enterinto royalty-bearing licensing agreements; or

·               Designcommercially acceptable non-infringing alternative products.

We cannot assure you that we would be able to obtainlicensing agreements, if required, on terms acceptable to us or at all, or thatwe would be able to develop commercially acceptable non-infringing alternativeproducts. Our failure to do so could have a material adverse effect upon ourbusiness, financial condition, operating results and cash flows.

**We depend upon single and limitedsource third-party suppliers, making us vulnerable to supply problems and pricefluctuations, which could harm our business.  **Weexpect to rely on single and limited source third-party vendors for themanufacture of many of the components used in our SOLAR System. In addition, insome cases there are relatively few alternative sources of supply for certainother components that are critical to our surgical ablation systems.

Our reliance on these outside manufacturers andsuppliers also subjects us to risks that could harm our business, including:

·               Wemay not be able to obtain adequate supply in a timely manner or on commerciallyreasonable terms;

·               Wemay have difficulty locating and qualifying alternative suppliers;

·               Switching****components may require product redesign;

·               Oursuppliers manufacture products for a range of customers, and fluctuations in demandfor the products those suppliers manufacture for others may affect theirability to deliver components to us in a timely manner; and

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·               Oursuppliers may encounter financial hardships unrelated to our demand forcomponents, which could inhibit their ability to fulfill our orders and meetour requirements.

Any interruption or delay in the supply of componentsor materials, or our inability to obtain components or materials from alternatesources at acceptable prices in a timely manner, could impair our ability tomeet the demand of our customers and cause them to cancel orders or switch tocompetitive products, and could therefore have a material adverse effect on ourbusiness, financial condition, operating results and cash flows.

**Key executives could leave ourcompany at any time, thereby adversely affecting our product development andprofitability.  **We depend heavily on the technicalknowledge and industry expertise of our management team. The development andexecution of our business plan depends upon these individuals. The departure ofkey people could materially and adversely affect our business, financialcondition, operating results and cash flows.

**We may be unable to recruit, motivateand retain qualified employees.  **Our successdepends in part upon our ability to attract, motivate and retain a sufficientnumber of qualified employees, including those who concentrate in research anddevelopment, sales, marketing and manufacturing, to keep pace with our productdevelopment schedules. Qualified individuals needed to fill these positionscould be in short supply in our market. Our inability to recruit, motivate andretain such individuals may delay the planned launch of new products, or resultin high employee turnover; either of which could have a material adverse effecton our business, financial condition, operating results and cash flows.Additionally, competition for qualified employees could require us to payhigher wages and provide additional benefits to attract sufficient employees.

**Once medical devices are cleared forsale, regulatory authorities may still limit the use of such products, preventthe sale or manufacture of such products or require a recall or withdrawal ofsuch products from the marketplace.**   Followinginitial clearance from regulatory authorities, we continue to be subject toextensive regulatory requirements. Government authorities can withdrawmarketing clearance due to our failure to comply with regulatory standards ordue to the occurrence of unforeseen problems following initial clearance.Ongoing regulatory requirements are wide-ranging and govern, among otherthings:

·       Productmanufacturing;

·       Suppliersubstitution;

·       Productchanges;

·       Processmodifications;

·       Medicaldevice reporting;

·       Productsales and distribution; and

·       Annualinspections to retain CE mark for sale of products in the European Union.

As a small company with limited resources, it ispossible that there may be failures in our quality system in regard todocumenting and reporting on product quality and patient safety issues. If theFDA or comparable foreign authorities believes we are not in compliance withapplicable laws or regulations, it can:

·       Seizeour products;

·       Requirea recall;

·       Withdrawpreviously granted market clearances;

·       Implementprocedures to stop future violations; and/or

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·       Seekcivil and criminal penalties against us.

In addition, suppliers of components of, and productsused to manufacture, our products must also comply with the FDA and foreignregulatory requirements, which often require significant resources and subjectus and our suppliers to potential regulatory inspections and stoppages. If oursuppliers do not achieve and maintain required regulatory approval, ourcommercialization efforts could be delayed, which would impair our business,financial condition, operating results and cash flows.

**Compliance with environmental lawsand regulations may be expensive. Failure to comply with environmental laws andregulations could subject us to significant liability.**  Our manufacturing operations and research and development activities involvethe use of biological materials and hazardous substances and are subject to avariety of federal, state and local environmental laws and regulations relatingto the storage, use, discharge, disposal, remediation of, and human exposureto, hazardous substances. Our research and development and manufacturingoperations may produce biological waste materials, such as animal tissues, andcertain chemical waste. These operations are permitted by regulatoryauthorities, and the resultant waste materials are disposed of in materialcompliance with environmental laws and regulations. Compliance with these lawsand regulations may be expensive and non-compliance could result in substantialliabilities. In addition, we cannot completely eliminate the risk of accidentalcontamination or injury to third parties from the use, storage, handling ordisposal of these materials. In the event of contamination or injury, we couldbe held liable for any resulting damages, and any liability could exceed anyapplicable insurance coverage we may have. In addition, our manufacturingoperations may result in the release, discharge, emission or disposal ofhazardous substances that could cause us to incur substantial liabilities,including costs for investigation and remediation. Further, our corporateheadquarters lease makes it our responsibility for any construction costsdeemed necessary or required by the landlord in connection with the relocationor removal of the private septic system and/or drain field as well as costsassociated with responding to any release of hazardous materials at theproperty.

**If we are unable to successfullyaddress the material weakness in our internal controls, our ability to reportour financial results on a timely and accurate basis may be adversely affected.**  In prior periods, we did not maintain effective controls over the preparation,review, presentation and disclosure of our statement of operations.Specifically, we incorrectly reported certain expenses as part of continuingoperations rather than as part of discontinued operations in accordance withU.S. generally accepted accounting principles. This control deficiency resultedin the restatement of our financial statements for the fiscal year endedApril 30, 2005 and the three and six-month periods ended October 31,2004. Accordingly, management determined that this control deficiencyconstitutes a material weakness in our internal control over financialreporting.

A material weakness is a control deficiency or acombination of control deficiencies that results in more than a remotelikelihood that a material misstatement of the annual or interim consolidatedfinancial statements will not be prevented or detected. We have taken steps toremediate the material weakness that include a thorough review of theclassification requirements of each component line item and the individualelements that comprise each line item of the statement of operations, inaccordance with generally accepted accounting principles. Although we havetaken these steps, we cannot assure you that this or other control deficiencieswill not result in a misstatement in the future.

We have developed a plan to address this materialweakness that includes adding additional professional accounting personnel. InApril 2006, we hired a full-time controller with national publicaccounting firm experience. In June 2006, we hired a new Chief FinancialOfficer with prior public company experience, who previously led the implementationof a Sarbanes-Oxley compliance program for an accelerated filer. We willcontinue to assess the adequacy and appropriateness of our financial staff andadjust accordingly as changes in our business warrant. Although we are notcertain when the material weakness will be remediated, we will need a period oftime over which to demonstate that these controls 

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arefunctioning appropriately to conclude that we have adequately remediated it. Wemay be unable to achieve appropriate segregation of duties required foreffective internal control over financial reporting until we are able toincrease the size of our finance department beyond its present level. Wecurrently lack the resources necessary to expand such staffing.

We are currently implementing a new enterpriseresource planning system. We cannot assure you that the implementation will notresult in some short-term issues, which might delay the production of financialstatements in a timely manner, or which may cause errors and misstatements.

We cannot be certain that additional materialweaknesses in our internal control over financial reporting will not bediscovered in the future. Any failure to remediate the unremediated materialweakness described above or any future material weaknesses or to implementrequired new or improved controls, or difficulties encountered in theirimplementation, could harm our operating results, cause us to fail to meet ourreporting obligations or result in material misstatements in our financialstatements.

**We may be exposed to potential risksrelating to our internal controls over financial reporting and our ability tohave those controls attested to by our independent registered public accountingfirm.**   As directed by Section 404 of theSarbanes-Oxley Act, the SEC adopted rules requiring public companies toinclude a report of management on internal control over financial reporting intheir annual reports, including Annual Reports on Form 10-KSB, which wefile. In addition, the independent registered public accounting firm auditing apublic company’s financial statements must attest to and report on management’sassessment of the effectiveness of the company’s internal control overfinancial reporting as well as the operating effectiveness of the company’sinternal controls over financial reporting. We expect to become subject to therequirement to provide management’s report on internal control over financialreporting for the fiscal year ending April 30, 2008. We expect to becomesubject to the requirement to file an auditor’s attestation report on internalcontrol over financial reporting for the fiscal year ending April 30, 2009.

While we expect to expend significant resources indeveloping the necessary documentation and testing procedures required bySection 404 of the Sarbanes-Oxley Act, there is a risk that we will notcomply with all of the requirements imposed thereby. Accordingly, we cannotassure you that we will not receive an adverse report on our assessment of ourinternal controls over financial reporting and/or the operating effectivenessof our internal controls over financial reporting from our independentregistered public accounting firm.

In the event we fail to remediate the materialweakness described above, we identify significant deficiencies or othermaterial weaknesses in our internal controls over financial reporting that wecannot remediate in a timely manner or we receive an adverse report from ourindependent registered public accounting firm with respect to our internalcontrols over financial reporting, investors and others may lose confidence inthe reliability of our financial statements and our ability to obtain equity ordebt financing could be adversely affected.

In addition to the above, in the event that ourindependent registered public accounting firm is unable to rely on our internalcontrols over financial reporting in connection with their audit of ourfinancial statements, and in the further event that they are unable to devisealternative procedures in order to satisfy themselves as to the materialaccuracy of our financial statements and related disclosures, it is possiblethat we could receive a qualified or adverse audit opinion on those financialstatements. In that event, the market for our common stock could be adverselyaffected. In addition, investors and others may lose confidence in thereliability of our financial statements and our ability to obtain equity ordebt financing could be adversely affected.

**We cannot predict the outcome oflegal proceedings and an adverse determination could negatively impact ourfinancial results.  **In March 2006, J GiordanoSecurities LLC (d/b/a J Giordano Securities Group) (“JGSG”) filed suit againstour company claiming that it is entitled to damages due to 

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analleged breach of the engagement agreement, as amended, between us and JGSG. Inparticular, JGSG originally claimed that the exercise of outstanding warrantsfor the purchase of common stock by certain JGSG-identified investors and ourpurchase of outstanding shares of 5% Series A Redeemable Convertible PreferredStock from certain JGSG-identified investors in December 2005 and January 2006entitled JGSG to damages no less than $1,431,769. In September 2006, weasserted a counterclaim against JGSG based upon JGSG’s failure to satisfactorilyperform under the engagement agreement. In November 2006, JGSG added new claimsfor additional compensation based upon the issuance of additional common stockto preferred stock holders in the alleged “follow-on transactions,” our allegedfailure to timely file a resale registration statement for JGSG, and foradditional compensation based upon our October 2006 private placement. As aresult of these new claims, JGSG amended its claim for damages to $3,346,565.Although we intend to vigorously defend ourselves against the lawsuit, anadverse resolution of this lawsuit could materially affect our ability to fundour operations.

The U.S. District Court in the District of Connecticuthas referred the matter to the National Association of Securities Dealers forbinding arbitration. Given the nature of arbitration proceedings, it isreasonably possible that we may be expected to pay certain amounts inconnection with this claim. As of January 31, 2007, we have not recorded anaccrual for this matter since the amount to be paid, if any, cannot reasonablybe estimated.

**Risks Related to Our Securities**

**Our stock price is volatile;purchasers of our common stock could sustain substantial losses.  **Thestock market in general and the market for small medical device companies inparticular have experienced extreme volatility that has often been unrelated tothe operating performance of particular companies. As a result of thisvolatility, investors may not be able to sell their common stock at or abovethe price paid for the stock. The price of our common stock will be determinedin the marketplace and may be influenced by many factors, including:

·               Physicianand patient acceptance of our products;

·               Developments,disputes or litigation concerning patents or other proprietary rights and ourability to obtain patent protection for our technologies;

·               Regulatoryrestrictions in the U.S. and foreign countries;

·               Theability to manufacture our products to commercial standards;

·               Publicconcern over our products;

·               Theloss of key personnel;

·               Additionalfuture sales of our common stock;

·               Comparisonsof our financial results with those of companies that are perceived to besimilar to us;

·               Thepricing of our products;

·               Changesin the structure of healthcare payment systems;

·               Investors’perceptions of us; and

·               Generaleconomic, industry and market conditions.

A decline in the market price of our common stockcould cause you to lose some or all of your investment and may adversely impactour ability to attract and retain employees and raise capital. In addition,shareholders may initiate securities class action lawsuits if the market priceof our stock drops significantly, which may cause us to incur substantial costsand could divert the time and attention of our management.

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**Fluctuations in our operating resultsmay result in decreases in the price of our securities.**  We expect our operating results to fluctuate significantly because of severalfactors, including the timing of FDA clearance, government policies regardingpayment for our products and the development of new technologies. Consequently,our operating results may fall below the expectations of public market analystsand investors. In that event, the price of our securities would likelydecrease.

**If there are substantial sales of ourcommon stock by existing shareholders, the price of our common stock maydecline.**   If our existing common shareholders sellsubstantial amounts of common stock in the public market, or the marketperceives that such sales may occur, the market price of our common stock couldfall. As of December 1, 2006, existing shareholders had the ability tosell 9,428,562 shares in the public market pursuant to registration statementson Form SB-2 filed with the SEC. In addition, we anticipate that we will needto raise additional capital to fund operations. If we raise additional funds byissuing equity securities, our stock price may decline and our existingshareholders may experience significant dilution. Furthermore, we may enterinto financing transactions at prices that represent a substantial discount tomarket price. A negative reaction by investors and securities analysts to anysale of our equity securities could result in a decline in the trading price ofour common stock.

**You may have difficulty reselling ourcommon stock.  **We cannot assure you of an activepublic market for our common stock. Selling our securities also may bedifficult because of the quantity of securities that may be bought and sold,the possibility that transactions may be delayed, and a low level of securityanalyst and news media coverage. These factors could contribute to lower pricesand larger spreads in the bid and ask prices for our securities.

**If we fail to maintain certain resaleregistration statements, we could face substantial monetary charges.**  In connection with our April 2005 private placement, ourDecember 2005 and January 2006 preferred stock purchases, and ourOctober 2006 private placement, we entered into registration rightsagreements in which we agreed to prepare and file with the SEC by certainfiling dates, registration statements to register certain shares of commonstock, which registration statements must be maintained effective throughout aperiod of up to five years. If we fail to file any registration statement by arequired filing date, or a registration statement is not declared effective bya specified effectiveness date, or after an effective date, the registrationstatement ceases to be effective and available to the holders of the securitiesthat were registered for more than a specified number of days in anyconsecutive 12 month period, then in addition to other rights which suchholders may have against us under applicable law, we are generally obligated topay as liquidated damages to such holders for each calendar month or portionthereof an amount equal to 1.5 percent of the aggregate amount invested by theinvestors until we satisfy the requirements of the registration rightsagreement. If we are required to pay such liquidated damages or other amountsto these holders, our business, financial condition, operating results and cashflows would be materially adversely affected.

**The issuance of additional equitysecurities in a future financing could trigger the anti-dilution provisions ofour outstanding warrants.**   In general, if we wereto issue additional equity securities at a per share price lower than theexercise price of our outstanding warrants, then the exercise price of suchwarrants would automatically adjust downward on either a weighted-average orfull-ratchet basis. We may be required to issue securities in a manner thatwould trigger these anti-dilution provisions in order to finance the company.Such adjustments would dilute the holdings of existing common shareholders.

**Our affiliated shareholders havesignificant control over our company, which could reduce your ability toreceive a premium for your securities through a change in control.**  As of March 1, 2007, officers and directors of our company beneficially ownedapproximately 20 percent of our outstanding common stock. As a result, they maybe able to control our company and direct our affairs, including the electionof directors and approval of significant corporate transactions. Thisconcentration of ownership could also delay, defer or prevent a change incontrol of our company, and make some transactions more difficult or impossiblewithout their support. These transactions might include proxy 

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contests,tender offers, open market purchase programs or other share purchases thatcould give our shareholders the opportunity to realize a premium over the thenprevailing market price of our securities. As a result, this concentration ofownership could depress the price of our securities.

**Our acquisition of preferred stockand related warrant exercises have resulted in a concentration ofownership.  **In December 2005 andJanuary 2006, investors who purchased preferred stock and warrants in ourApril 2005 private placement sold back their preferred stock to our companyand exercised their related warrants. The common stock issued in connectionwith such transaction represented over 85 percent of our outstandingcommon stock at the completion of the transaction. A major portion of suchsecurities were acquired by PKM Properties, LLC, an entity controlled by PaulK. Miller, one of our directors, and, with approximately 17 percent beneficialownership, one of the largest beneficial owners of our securities. Should a fewof these investors agree to vote in concert, they would control our company. Toour knowledge, these investors have not acted as a group in seeking,negotiating or making their investments in our company and consider themselvesindependent investors.

**Minnesota law and our ability toissue preferred stock could deter a take-over or acquisition of our company.**  Our articles of incorporation authorize the issuance of shares of preferredstock. Our board of directors, without any action by our shareholders, isauthorized to designate and issue preferred stock in such classes or series, asit deems appropriate and establish the rights and privileges of such shares,including liquidation and voting rights. Our ability to designate and issuepreferred stock having preferential rights over our common stock could adverselyaffect the voting power and other rights of holders of common stock. We arealso subject to the Minnesota Business Corporation Act, which includesprovisions that limit the voting rights of persons acquiring specifiedpercentages of shares of an issuing public corporation in a “control shareacquisition” and restrict “business combinations” between issuing publiccorporations and specified persons acquiring their securities. Our ability toissue preferred stock and the application of the provisions of Minnesota lawdiscussed above could impede or deter another party from making a tender offeror other proposal to acquire our company.

**We do not intend to pay cashdividends on our common stock in the foreseeable future.  **Wehave not paid dividends on our common stock and do not anticipate paying anycash dividends in the foreseeable future.

 

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