UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  
  FORM
10-K
  x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For
the fiscal year ended December 31, 2008
 
 OR
  o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 Commission
file number: 000-51362
 
 ALSIUS
CORPORATION
 (Exact
name of registrant as specified in its charter)
  Delaware
              20-2620798(State
      of incorporation)
              (I.R.S.
      Employer Identification No.)15770
      Laguna Canyon Road, Suite 150
                Irvine,
      California
              92618(Address
      of principal executive offices)
              (Zip
      code)
 Registrant's
telephone number, including area code: (949) 453-0150
 
 Securities
registered pursuant to Section 12(b) of the Act:
 
 Title of each
      class:
              Name of each exchange
      on which registered:Common
      Stock, $0.0001 Par Value Per Share
              The
      Nasdaq Capital Market
 
 Securities
registered pursuant to Section 12(g) of the Act: None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes oNo x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes oNo x
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
  Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer o
              Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes oNo x
 
 The
aggregate market value of the registrant's voting stock held by non-affiliates
of the registrant (based on the closing price as reported on the Nasdaq Capital
Market on June 30, 2008) was approximately $16.5 million. Shares of voting stock
held by each officer and director and by each shareholder affiliated with a
director have been excluded from this calculation because such persons may be
deemed to be affiliates. This determination of officer or affiliate status is
not necessarily a conclusive determination for other purposes. The number of
outstanding shares of the registrant’s Common Stock as of March 27, 2009
was 21,076,134.
 
 
  FORWARD-LOOKING
STATEMENTS
 
 In
addition to historical information, this Annual Report on Form 10-K contains
statements relating to future results of Alsius Corporation (including certain
projections and business trends) that are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are subject
to the safe harbor created by those sections. Our actual results may differ
materially from those projected as a result of certain risks and uncertainties.
These risks and uncertainties include those set forth herein and those detailed
from time to time in our other Securities and Exchange Commission
filings.  These forward-looking statements are made only as of the
date hereof, and we undertake no obligation to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise, except as otherwise required by law.
 
 
   ALSIUS
CORPORATION
 
 TABLE
OF CONTENTS
 
 PAGEPART
      IItem
      1.
              Business
              2Item
      1A.
              Risk
      Factors
              7Item
      1B.
              Unresolved
      Staff Comments
              20Item
      2.
              Properties
              20Item
      3.
              Legal
      Proceedings
              20Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              20PART
      IIItem
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              21Item
      6.
              Selected
      Financial Data
              22Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              24Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              38Item
      8.
              Financial
      Statements and Supplementary Data
              39Item
      9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
              68Item
      9A(T).
              Controls
      and Procedures
              68Item
      9B.
              Other
      Information
              68PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              69Item
      11.
              Executive
      Compensation
              74Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              86Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              87Item
      14.
              Principal
      Accountant Fees and Services
              87PART
      IVItem
      15.
              Exhibits
      and Financial Statement Schedules
              89
  
 PART
I
 
 Item
      1.
              Business
 
 General
 
 On June
21, 2007, Ithaka Acquisition Corp., a Delaware corporation
(”Ithaka”), completed its acquisition of Alsius Corporation, a privately
held California corporation (“Alsius Medical”), through a merger of a wholly
owned subsidiary with and into Alsius Medical.   Ithaka was
a publicly traded blank check company formed in 2005 to acquire an
unidentified operating business in the healthcare industry.  In the
merger, Alsius Medical became a wholly owned subsidiary of Ithaka, and
Ithaka changed its name to Alsius Corporation. As a result, Alsius
Corporation succeeded Ithaka as the reporting registrant for purposes of this
report.  Alsius Corporation is now a publicly traded Delaware holding
company operating through its wholly owned subsidiary, Alsius Medical
Corporation.  Alsius Corporation and its operating subsidiary are
referred to collectively as “Alsius,” “we,” “us,” and the
“Company”.  Alsius Corporation’s common stock trades on NASDAQ under
the symbol “ALUS”.  For accounting purposes, the merger was treated as
a reverse acquisition with Alsius Medical being the accounting acquirer.
Therefore, the Company’s historical financial statements reflect those of
Alsius Medical, the operating subsidiary.
  Alsius
Medical was incorporated in December 1991, and recapitalized and reorganized its
operations and business in November 1998 to focus on intravascular temperature
management. In June 2001, Alsius opened a branch office, Alsius Service Center,
in Wateringen, The Netherlands, to provide field support for its products in
Europe.
  Alsius is
a commercial-stage medical device company that develops, manufactures and sells
proprietary, innovative products to precisely control patient temperature in
hospital critical care settings. Controlling body temperature, through cooling
and warming, is standard of care for patients in critical condition and those
undergoing a variety of surgical procedures. As has been well documented,
temperature management improves outcomes and reduces complications in patients
being treated for a range of conditions such as cardiac arrest, stroke and head
trauma, as well as during cardiothoracic surgery.
  We market
a comprehensive suite of catheter-based intravascular temperature management
products that, based on management’s experience and knowledge of the industry
and discussions with physicians, address an unmet clinical need for effective,
accurate, easy-to-use and cost-effective control of body temperature in critical
care patients. Our products consist of the CoolGard and Thermogard systems and
five families of single-use catheters—Cool Line, Icy, Fortius, Quattro, and
Solex. The CoolGard and Thermogard systems are computer-controlled temperature
regulation systems that circulate cool or warm saline in a closed-loop circuit
through balloons that surround our catheters.  Our catheters are
inserted into a major vein through a patient’s neck or groin and achieve rapid
and precise temperature management through contact with the patient’s blood
flow. A key feature of our catheters is their ability to function as central
venous catheters, which are routinely used in the treatment of critically ill
patients to administer drugs and fluids, draw blood and monitor blood pressure.
Unlike conventional external temperature management products, such as cooling
and warming blankets and ice packs, our intravascular products cool and warm the
patient from the inside out, which we believe more effectively manages body
temperature and allows caregivers easier access to administer patient
care.
  We
operate in one reportable business segment through our operating subsidiary,
Alsius Medical. See Note 12 to the Notes to Consolidated Financial
Statements — Segment Reporting, for a summary of revenues by customer
location for the years ended December 31, 2008, 2007 and 2006.
  Our
principal corporate office is located at 15770 Laguna Canyon Road, Suite 150,
Irvine, CA  92618, and our main telephone number at that location is
949-453-0150.  Our common stock trades on the Nasdaq Capital Market
under the symbol ALUS.
 
 Recent
Developments
  Asset
Sale
  On
February 20, 2009, we announced that we signed an asset purchase agreement (the
“Purchase Agreement”) with Zoll Circulation, Inc. (“Zoll”), a wholly owned
subsidiary of ZOLL Medical Corporation (Nasdaq: ZOLL) whereby we will sell
substantially all our assets, including those constituting our intravascular
temperature management device business, to Zoll for a purchase price of $12.0
million in cash (the “Asset Sale”).  In connection with the Asset
Sale, Zoll placed an order with the Company to purchase approximately $3.0
million of finished product at cost.  The closing of the Asset Sale is
subject to customary closing conditions, and is expected to close as soon as
possible in the second quarter of 2009.  On February 25, 2009, we
filed a current report on Form 8-K which summarized the principal terms of the
Asset Sale and attached a copy of the Purchase Agreement in our
filing.
 
 2
 
 The
record holders of a majority of the outstanding shares of the Company’s common
stock have executed a written consent to approve the Asset Sale.  The
Asset Sale is discussed in further detail in a draft information
statement that we filed with the SEC. When the SEC review is complete, we
will mail a definitive information statement (the "Information Statement") to
our stockholders and, under applicable rules, can close the Asset Sale 20 days
after the mailing.
  Plan
of Dissolution
  On
February 19, 2009, our Board also unanimously adopted a plan providing for the
complete dissolution and liquidation of the Company (the “Plan of Dissolution”).
The holders of a majority of the outstanding shares of our common stock have
executed a written consent to adopt and approve the Plan of
Dissolution.
  Assuming,
as expected, that the Asset Sale is consummated, we will file a certificate of
dissolution with the Delaware Secretary of State to dissolve the Company as a
legal entity, complete the liquidation of its remaining assets, and satisfy (or
make provisions to satisfy) its remaining obligations.
  Pursuant
to the Plan of Dissolution, after payment or provision for all the known,
unascertained or contingent debts, obligations and liabilities of the Company
(including costs and expenses incurred and anticipated to be incurred in
connection with the Asset Sale and liquidation of the Company), payment or
distributions will be made to the holders of our common stock.  The
potential timing and amount of distributions is discussed below under
Liquidating Distributions.  In the unexpected event all distributions
have not occurred within three years of filing of the certificate of
dissolution, our remaining assets will be transferred to a liquidating trust for
the benefit of our stockholders, and a liquidation trustee will be assigned to
administer the assets, settle liabilities, and make distributions to
stockholders if and when funds are legally available for
distribution.
  Following
dissolution, we will change our name from “Alsius Corporation” to “ALUS
Liquidation Corp.” and will cease conducting normal business operations, except
as required to wind down our affairs.  We will continue our corporate
existence solely for the purpose of winding down and liquidating, including
collecting accounts receivable, selling ancillary assets that Zoll may elect not
to take, settling liabilities and making distributions to stockholders, and
otherwise completing the liquidation of the Company.  We will not be
authorized to engage in any business activities other than these, thus limiting
our exposure for business activities unrelated to the wind down and
liquidation.
  Liquidating
Distributions
  We
anticipate that an initial distribution of liquidation proceeds will be made to
our stockholders within 90 days after the closing of the Asset
Sale.  As we collect accounts receivable and pay off our outstanding
liabilities, we will distribute additional liquidation proceeds, if any, to our
stockholders as the Board or its authorized designees deem appropriate. A final
$1 million will be held in trust for one year from the closing date of the Asset
Sale to cover potential indemnity obligations to Zoll under the Purchase
Agreement for the Asset Sale.
  We
estimate that we will ultimately distribute an aggregate of $7.6 million to our
stockholders, or $0.34 per share of our common stock.  However, the
amounts to be distributed to stockholders may be less if we incur greater
liabilities than anticipated in winding down our affairs and/or if we generate
less revenue than anticipated through the closing of the Asset
Sale.  (Alternatively, it is possible that we could distribute more
than currently estimated if liabilities are less than expected and/or revenues
are greater than expected.)  A key factor in maximizing potential
distributions is the timing of the closing of the Asset Sale, which is subject
to certain risks and uncertainties.  To the extent the closing of the
Asset Sale is delayed beyond April 2009, we anticipate incurring additional
operating expenses of up to $1 million per month to operate the
Company through closing.
  Our
current estimate of cash assets and liabilities, and net available funds to
distribute to stockholders, that will be available following the sale of
substantially all of our assets to Zoll is set forth more fully herein in Item
7: Management’s Discussion and Analysis of Financial Condition and Results of
Operations," and was also discussed in the Information Statement filed with the
SEC on March 27, 2009.  Please see Item 7 for a more detailed
discussion of our anticipated available funds and the significant liabilities
which are currently difficult to predict.  You should also read the
risk factors herein regarding additional uncertainties that can reduce the
amounts available for distribution to stockholders.
 
 3
  Strategy
  Our goal
has been to be the leading worldwide provider of medical products for
temperature management in hospital critical care settings. The key elements of
our strategy include:
  ·
              Leverage our first mover
      advantage. Based on our experience in the acute care temperature
      management market, we believe we are the worldwide leader in sales of
      intravascular temperature management products which has enabled us to
      continue to set the industry standard for novel temperature management. We
      have an established sales, marketing, distribution and service
      infrastructure, which we intend to leverage to support our growth
      worldwide.
  ·
              Drive adoption. We
      drive adoption of our products by promoting awareness among leading
      hospitals and critical care practitioners, including participating in
      clinical trials, training physicians and supporting the adoption of
      temperature management treatment
guidelines.
  ·
              Increase system installations
      and catheter use. Our goal has been to increase system
      installations at target hospitals and drive catheter use among existing
      customers. We have worked to increase sales through expansion of our U.S.
      direct sales force, and through our distributors in existing markets in
      Europe, Canada and Australia, and expand into China, Japan and other Asian
      countries.
  ·
              Enhance existing products and
      develop new products. We improve the design of our current products
      and expand our pipeline of future products. We continually enhance our
      systems, software and catheters to deliver more effective and
      easier-to-use temperature management
products.
  ·
              Improve margins through scale
      and efficiency. We are focused on improving gross margins by
      lowering our raw material and manufacturing costs, and have sought to
      realize economies-of-scale as sales increase. Our intent has been to
      improve operating margins and gross margins through a combination of
      increased sales, as we penetrate worldwide markets for our products,
      implement cost reduction initiatives and absorb fixed and partially fixed
      costs through increased production
levels.
  Research and
Development
  We invest
in research and development to enhance our CoolGard and Thermogard systems and
family of catheters and develop new products, based on customer feedback and
demand. We work closely with leading critical care physicians and nurses to
better understand unmet needs and new applications in temperature management.
Product enhancements may include increased system power to achieve faster
cooling and warming, changes in catheter design to accommodate new applications
as well as refinements that lower manufacturing costs. As of December 31, 2008,
we had 21 full-time employees in the research and development
group.
  We
incurred research and development expenses of $4.2 million, $3.9 million,
and $2.9 million in 2008, 2007 and 2006, respectively.
 
 Manufacturing
  We lease
approximately 27,000 square feet of space at our Irvine, California,
headquarters. We design, manufacture and test our products at our headquarters,
which is compliant with ISO and FDA standards. Product quality, cost reduction
and inventory management are top priorities for our manufacturing
operations.  In connection with the Asset Sale to Zoll, we
intend to vacate our facility and negotiate a lease termination with our
landlord.
  We are
currently producing systems and catheters to support our sales through the
closing of the Asset Sale, and to build inventory for Zoll to sell
following the Asset Sale as agreed per the Purchase Agreement.  We
assemble the CoolGard and Thermogard systems and catheters from components and
subassemblies that we purchase from outside sources. We have flexibility with
our suppliers to adjust the number of components and subassemblies as well as
the delivery schedules. Production requirements are based on sales forecasts.
Lead times for components and subassemblies may vary significantly depending on
the size of the order, time required to fabricate and test the components or
subassemblies, specific supplier requirements and current market demand for the
components and subassemblies. We seek to reduce the potential for disruption of
supply by maintaining sufficient inventory and identifying additional suppliers,
where possible. However, we currently purchase certain of our components and
subassemblies from single source suppliers. If we lost a single-source supplier,
we would need to qualify new suppliers, or to redesign components, which could
cause delays in our manufacturing. To date, we have not experienced any
significant delays in obtaining any components or subassemblies.
 
 4
   Customers,
Marketing and Sales
  We began
selling our products in the United States in April 2004 and, as of December 31,
2008, had established a U.S. installed base of over 327 systems in 169
hospitals, of which 293 had been sold and 34 were under evaluation. We began
building our current network of independent distributors in Europe in February
2004, and as of December 31, 2008, had established a European installed base of
409 systems in 217 hospitals, of which 380 had been sold and 29 were under
evaluation. In other parts of the world as of December 31, 2008, we had an
installed base of 49 systems, of which 45 had been sold and 4 were under
evaluation.
  In 2008,
we had approximately 202 customers. We measure customers as those companies that
have placed at least one order with us in the preceding twelve-month
period.  In 2008, 2007 and 2006 our largest customer, a European
distributor, accounted for approximately 23%, 15% and 24%, respectively, of our
net sales. The loss of our largest customer would have a material adverse effect
on us. However, we believe that our relationship with our largest customer is
good.
  We
typically provide the CoolGard and Thermogard systems to potential customers for
an evaluation period, during which time we sell catheters to the hospitals for
patient treatment however, during this time the customer is not required to
purchase a minimum number of catheters. The majority of hospitals that have
evaluated our products have purchased one or more systems and a supply of
catheters.
  We market
our products worldwide to acute-care hospitals that have dedicated critical care
units which provide advanced care for cardiac arrest, brain injury,
cardiothoracic and trauma, burn and surgery patients. These are typically
university and large community hospitals that have a level one or two trauma
service designation and have a neuro-intensive care unit, medical intensive care
unit, coronary care unit or emergency room. There are over 2,000 of these
hospitals in the United States and a comparable number outside of the United
States.  Assuming a successful closing of the Asset Sale, we expect
Zoll will continue to pursue clearances that we had been pursuing.
  We have
FDA clearance to market our products in the United States for fever control in
certain neuro-intensive care patients and temperature management in cardiac and
neuro surgery patients, and are exploring ways to obtain clearance for cardiac
arrest. We have broader clearance to market our products in Europe, Canada and
Australia, including clearance for cardiac arrest, and we are in the process of
obtaining clearances to sell products in China, Japan and other Asian
countries.
  United
States
  We sell,
market and distribute our products in the United States through a direct sales
force supported by clinical application specialists. As of December 31, 2008, we
employed 15 direct sales people, a director of sales, a vice president of
worldwide sales and marketing, two regional sales managers, a corporate accounts
manager, a government-military accounts manager, an international accounts
manager, five clinical application specialists and a director of clinical
education. Our clinical application specialists are trained nurse practitioners
who assist with product service and installation, provide clinical education and
promote catheter use among customers. Our sales strategy has been to target
hospitals that are early adopters of new technologies and have large critical
care units that may purchase multiple systems.
  We are
currently continuing to sell our products in the United States until the closing
of the Asset Sale to Zoll.  Zoll has its own sales force and we expect
only a select number of our sales personnel will be hired by Zoll to sell our
products after the Asset Sale.  The balance of our sales force will
cease employment with us after the Asset Sale.
  International
  We sell
our products internationally through a network of independent distributors, each
of which has exclusive rights to sell our products in a particular country or
countries. As of December 31, 2008, we had a network of 33 distributors
covering over 42 countries. We encourage our distributors to educate customers
on the clinical efficacy, performance, ease of use, value and other advantages
of our products. We provide our international distributors with clinical
support, regional sales assistance and marketing materials. We have a European
service center in the Netherlands to provide ongoing support to our customers
and distributors. International sales accounted for 48%, 49% and 57% of total
sales in 2008, 2007 and 2006, respectively.
  Zoll has
agreed to assume our international distributor agreements in connection with the
Asset Sale, and we intend to transition these distributor arrangements to
Zoll.
  5
   Competition
  We
principally compete with companies that sell conventional temperature management
products such as cooling and warming blankets, ice packs and other external
devices. We also compete with companies that sell newer surface temperature
management products, such as Medivance, Inc., a privately held company that
sells self-regulating cooling pads. Additionally, we compete with companies that
have developed other intravascular approaches that are either
pre-commercialization or in early stages of commercialization. These companies
offer a smaller selection of catheters, which we believe have significantly less
functionality than our catheters. In particular, we are the only temperature
management company that sells catheters that can be inserted into the neck as
well as the groin and that can function as a standard central venous catheter
with multiple working ports. To compete effectively, we have to demonstrate that
our products are attractive alternatives to other devices and treatments. We
compete with other products on the basis of performance, safety, cost and ease
of use. We believe our products compete favorably on the basis of these
factors.
  Despite
what we believe are the benefits of our products, manufacturers of cooling and
warming blankets may have more established products and customer relationships
than we do, which could inhibit our market penetration efforts. We believe
potential customers may feel they need to recoup the cost of products that they
have already purchased from our competitors and therefore may choose not to
purchase our products, or may delay such purchases. Some of our current and
potential competitors may have significantly greater financial, research and
development, manufacturing and sales and marketing resources than we
have.
  In
addition, competitors that market what we believe to be less effective
solutions, such as  surface cooling and warming blankets and pads,
often do so on the basis that such devices are less invasive than our catheters,
which must be placed in a vein by a surgeon or other
specialist.  We strive to educate customers on the benefits of our
superior effectiveness at regulating patient temperature, ease of patient access
compared to surface devices, and the fact that a significant majority of
patients eligible for our catheters would already be receiving a similar
central venous catheter.
 
 Intellectual
Property and Proprietary Rights
  We have
invested considerable resources in our intellectual property strategy and rely
on a combination of patents, copyrights, trademarks and trade secret laws, as
well as confidentiality and invention assignment agreements, to protect our
innovations. As of December 31, 2008, our products were covered by 34 issued
U.S. patents. We also have U.S. patent applications pending directed to current
and future products. As of December 31, 2008, our products were covered
internationally by five issued patents. We have other foreign patent
applications pending directed to current and future products. We intend to file
for additional patents to strengthen our intellectual property rights. We
believe our patent portfolio provides a competitive advantage in our key
markets, particularly for inducing hypothermia with a catheter in specified
indications and for fever control using a central venous catheter. Our patents
covering these key markets generally expire between 2018 and 2022. Alsius,
CoolGard, Cool Line, Thermogard, Icy, Fortius, Quattro and Solex are registered
trademarks in the United States and the European Union.  In connection
with the Asset Sale, Zoll will acquire the right to our intellectual
property portfolio.
  We
require our employees, consultants and certain vendors to sign confidentiality
and invention assignment agreements. We cannot provide any assurance that
employees and consultants will abide by the confidentiality or assignability
terms of their agreements. Despite measures taken to protect our intellectual
property, unauthorized parties may copy aspects of our products or obtain and
use information that we regard as proprietary.
  Zoll
filed, but did not serve a patent infringement complaint against
us in the United States District Court Central District of California on January
29, 2009, claiming that certain of our temperature management products infringe
on two temperature management patents Zoll purchased from one of our defunct
competitors.  However, Zoll has agreed that during the pendency
of our Asset Sale to Zoll, it will not serve us or take any action to
pursue or resume the case.  If the Asset Sale is not consummated, we
would need to defend the action, which would be costly and have no guarantee of
success.
 
 Employees
 
 As of
December 31, 2008, we had approximately 103 employees. None of our employees are
covered by collective bargaining agreements. We believe our future success will
depend in large part upon our continued ability to attract, motivate, develop
and retain highly skilled and dedicated employees.  In conjunction
with our announcement to sell our assets to Zoll, on February 20, 2009, we
completed a reduction in force, whereby approximately 22 personnel were
terminated.  Approximately 71 personnel will remain through the
closing of the Asset Sale to carry on our operations, which consist primarily of
continuing U.S. sales and building additional products ordered by
Zoll.  It is our intent that all remaining personnel will cease their
employment with us at the closing of the Asset Sale.
  6
  Available
Information
 
 We
maintain an Internet website at www.alsius.com.  Our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, along with our annual report
to stockholders and other information related to our company, are available free
of charge on this site as soon as reasonably practicable after we electronically
file or furnish these reports with the SEC.  Our Internet website and
the information contained therein or connected thereto are not intended to be
incorporated into this annual report on Form 10-K.




Item
      1A.
            Risk
      Factors





Our
business, financial condition and results of operations can be impacted by a
number of risk factors, any one of which could cause our actual results to vary
materially from recent results or from our anticipated future
results.   Any of these risks could materially and adversely
affect our business, financial condition and results of operations, which in
turn could materially and adversely affect the price of our common stock or
other securities.





Risks
Related to Our Sale of Assets to Zoll




We
have entered into an Asset Purchase Agreement with Zoll, whereby substantially
all of our assets will be sold, and we will cease our operations.  If
we are not able to complete the Asset Sale, we expect that our limited financial
resources will require that we immediately raise funds or cease
operations.
  Although
we expect to complete the Asset Sale in the second quarter of 2009, it is
possible that the Asset Sale will not be consummated for various
reasons.  Conditions to closing, which must be satisfied, include
obtaining third party consents under certain contracts to transition them to
Zoll, delivering certain minimum amounts of $3 million of finished
inventory Zoll ordered from us at cost, and certain other
conditions.  If these conditions are not satisfied by June 30, 2009,
Zoll may elect not to complete the Asset Sale.  If these or other
reasons cause the Asset Sale to not be completed, then we will not have
sufficient financial resources to continue to operate independently, and we
would need to immediately raise funds or cease operations and
liquidate.  Raising capital in the current market is extremely
challenging, and if we are unable to do so, we expect that our cash resources
would be insufficient to pay off our creditors, and that our stockholders would
likely not receive any proceeds for their investment.  If we were able
to raise funds, the terms of such a financing would likely be extremely dilutive
to the ownership of our existing investors
  We
will incur significant costs in connection with the Asset Sale which may
decrease cash available for distribution to stockholders.
  We
currently expect to incur approximately $1.5 million of costs related to the
Asset Sale. These expenses include, but are not limited to, financial advisory,
legal and accounting fees and expenses, employee expenses, filing fees, printing
expenses, and other related charges. We may also incur additional unanticipated
expenses in connection with the Asset Sale. Approximately $0.65 million of the
costs related to the Asset Sale, such as legal, financial advisory and
accounting fees, will be incurred regardless of whether the Asset Sale is
completed. These expenses are estimates and if they are greater than
anticipated, that will decrease the remaining cash available for eventual
distribution to stockholders in connection with our dissolution and
liquidation.
  We
cannot be certain of the amount, if any, of the distribution to our stockholders
under the Plan of Dissolution.
  Liquidation
and dissolution may not create value to our stockholders or result in any
remaining capital for distribution to our stockholders. Our current estimate is
that there will be $7.6 million in the aggregate, or $0.34 per share of our
common stock, available for distribution over time to our stockholders. However,
we cannot be certain of the precise amount available for distribution to our
stockholders pursuant to the Plan of Dissolution.  Claims, liabilities
and expenses from operations (including, but not limited to, operating costs
such as salaries, directors’ fees, directors’ and officers’ insurance, payroll
and local taxes, legal and accounting fees and miscellaneous office expenses)
will continue to be incurred as we seek to close the Asset Sale and wind down
operations in dissolution.  If claims, liabilities and expenses are
greater than expected, that will reduce the amount available for distribution to
our stockholders.
  7
  Distribution
of assets, if any, to our stockholders could be delayed.
  Subject
to the consummation of the Asset Sale, we anticipate that an initial
distribution of liquidation proceeds, if any, will be made to our stockholders
within 90 days after the closing of the Asset Sale. As we liquidate our
remaining assets and pay off our outstanding liabilities, including our
headquarters lease, we will distribute additional liquidation proceeds, if any,
to our stockholders as the Board deems appropriate. The negotiations regarding
the termination of our headquarters lease may cause a delay to distribution of
additional liquidation proceeds. Additionally, a creditor could seek an
injunction against our making of distributions to our stockholders on the ground
that the amounts to be distributed were needed to provide for the payment of our
liabilities and expenses. Any action of this type could delay or substantially
diminish the amount available for distribution to our stockholders.
  Stockholders
may be liable to our creditors for part or all of the amount received from us if
reserves are inadequate.
  We intend
to establish a contingency reserve designed to satisfy any additional claims and
obligations that may arise. Any contingency reserve may not be adequate to cover
all of our claims and obligations. Under Delaware law, if we fail to create an
adequate contingency reserve for payment of our claims and obligations during
the three-year period after we file a certificate of dissolution with the
Secretary of State of Delaware, each stockholder could be held liable for
payment to our creditors of such stockholder’s pro rata share of amounts owed to
creditors in excess of the contingency reserve. The liability of any stockholder
would be limited to the amounts previously received from us by such stockholder
in our dissolution. Accordingly, in such event, a stockholder could be required
to return part or all of the distributions previously made to such stockholder,
and a stockholder could receive nothing from us under our Plan of Dissolution.
Moreover, if a stockholder has paid taxes on amounts previously received, a
repayment of all or a portion of such amount could result in a situation in
which a stockholder may incur a net tax cost if the repayment of the amount
previously distributed may not cause a commensurate reduction in taxes payable
in an amount equal to the amount of the taxes paid on amounts previously
distributed.
  Stockholders
will not be able to buy or sell shares of our common stock after we
dissolve.
  We intend
to discontinue trading of our stock on the Nasdaq Capital Market on, or as soon
as possible after, the date on which we file our certificate of dissolution
with the Secretary of State of the State of Delaware. This filing is expected to
occur on or about 20 days after the mailing of our Information
Statement to stockholders. After this time, there will be no further trading of
our stock on the Nasdaq Capital Market or otherwise and we will not record any
further transfers of our stock on our books except by will, intestate
succession, or operation of law. Therefore, shares of our stock will likely not
be freely transferable nor issuable upon exercise of outstanding options after
the date of filing of a certificate of dissolution with the Secretary of State
of the State of Delaware. All liquidating distributions from us after the date
of filing of our certificate of dissolution with the Secretary of State of
the State of Delaware will be made to our stockholders pro rata according to
their respective holdings of stock as of the date of filing of the certificate
of dissolution.
  We
intend to cease filing reports with the SEC.
  We are
currently obligated to comply with the applicable reporting requirements of the
Exchange Act. In order to eliminate expenses we incur to comply with these
requirements, and because our securities will no longer be traded, we intend to
cease filing with the SEC, including annual and quarterly reports under the
Exchange Act as soon as permissable under SEC rules after the filing of our
certificate of dissolution with the Secretary of State of
Delaware.




Risks
Related to Our Business





We
have not yet been able to finance our operations with the cash generated from
our business. If the Asset Sale is not consummated and we do not generate cash
sufficient to finance our operations, we will need additional financing to
continue our growth.




We have
not yet generated sufficient cash from operations to finance our business. Our
financial statements have been prepared assuming that we would continue as a
going concern. Operations to date have been financed principally through the
private placement of equity securities, debt securities convertible to equity,
and the cash we acquired in the Ithaka merger. We have not reported an operating
profit for any year since our inception.  From our inception through
December 31, 2008, we had an accumulated deficit of $116.9 million, and at
December 31, 2008 had cash and cash equivalents of $5.6 million to
finance operations. We expect to incur net losses for the foreseeable future.
These losses may be substantial and we may never achieve or maintain
profitability. These factors raise substantial doubt about our ability to
continue as a going concern, which is why we are completing the Asset
Sale.




8




Our cash
and cash equivalents on hand, and our projected cash flows, are not
sufficient to take us to cash flow positive based on our current business
plan.  If we do not close the Asset Sale and were to try to continue
operations, we will need additional debt or equity financing no later than the
second quarter of 2009.  Prior to agreeing to the Asset Sale, we were
pursuing efforts to secure such funding but were not successful. The current
market for debt and equity financing is challenging and the additional financing
that we require may not be available at all or, if available, may be on terms
unfavorable to us and our stockholders, and would substantially dilute current
ownership interests.





Our loan
with GE Capital had an outstanding balance of $3.7 million as of December 31,
2008, and requires that we make monthly principal payments of $266,667, until
the loan is repaid in full in February 2010.  Our agreements with GE
Capital provide GE Capital with a lien on all of our principal assets other than
intellectual property.  If we default on a payment due to GE Capital,
and the default is not waived, GE Capital can foreclose on our assets, including
seizing our cash and investments accounts.  If GE Capital were to
seize our cash and investments accounts or otherwise foreclose on our assets, it
would materially harm our business, and could force us to cease operations,
declare bankruptcy, or both.  We are currently in compliance with the
covenants of our debt facility.  However, if we do not close the Asset
Sale and are unsuccessful in raising additional funds and we default on a
payment to GE Capital, GE Capital could seize our remaining cash and
investments.  We cannot guarantee that we will be successful in
raising additional funds.




Recent
turmoil in the credit markets and the financial services industry may negatively
impact our business, results of operations, financial condition or
liquidity.




Recently,
the credit markets and the financial services industry have been experiencing a
period of unprecedented turmoil and upheaval characterized by the bankruptcy,
failure, collapse or sale of various financial institutions and an unprecedented
level of intervention from the United States federal government. These
conditions make it extremely difficult for our customers, our vendors and us to
accurately forecast and plan future business activities, and they could cause
U.S. and foreign businesses to slow spending on our products and services,
which would delay and lengthen sales cycles.  Furthermore, during
challenging economic times our customers may face issues gaining timely access
to sufficient credit, which could result in an impairment of their ability to
make timely payments to us.  In addition, the recent economic crisis
could also adversely impact our suppliers’ ability to provide us with materials
and components, either of which may negatively impact our business, financial
condition and results of operations.




Although
we maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments and such losses have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same loss rates that we
have in the past, especially given the current turmoil of the worldwide economy.
We cannot predict the timing, strength or duration of any economic slowdown or
subsequent economic recovery.   If the economy or markets in
which we operate do not continue at their present levels, our business,
financial condition and results of operations will likely be materially and
adversely affected. Additionally, the combination of our lengthy sales cycle
coupled with challenging macroeconomic conditions could have a combined negative
impact on the results of our operations.




The
long sales cycle for our systems may cause revenue and operating results to vary
significantly quarter to quarter and year to year.




The
decision to purchase our CoolGard and Thermogard systems and catheters often
involves a significant commitment of resources and a lengthy evaluation process.
We need to convince hospitals and critical care providers that our products are
more effective than, and provide advantages over, competing temperature
management products. Hospital purchases often involve a committee decision
requiring approval of multiple decision makers including physicians, nurses and
administrators. As a result, our sales process varies by hospital and country.
In addition, a hospital typically uses funds from its capital equipment budget
to purchase our CoolGard and Thermogard systems. Budget constraints and the need
for multiple approvals within the hospital may delay the purchase decision for
our products. This can result in a lengthy sales process, sometimes as long as
six months to a year. The long sales cycle for our system may cause our revenue
and operating results to vary significantly quarter to quarter and year to
year.  From time to time, we have experienced unit sales significantly
lower than our prior forecasts, due primarily to longer sales cycles as
customers evaluate a variety of alternative products to manage patient
temperature, in addition to our products.




9




We
depend on several large customers for our international sales, and a loss of or
decline in sales to such customers may significantly reduce our
revenue.




A
significant portion of our sales in Europe are to a few key
distributors.  In 2006, Euromed and Fuchs Medical accounted for 24%
and 4%, respectively, of our revenue. In 2007, Elan accounted for 15% of our
revenue and Euromed and Fuchs Medical each accounted for 3%, respectively, of
our revenue. In 2008, Elan accounted for 23% of our net
revenues.  From time to time, other international distributors may
also account for a large portion of our revenue. Our contract with Euromed
covered Austria and Germany. We decided to terminate our contract with Euromed
effective May 2007, in order to enter into a new contract with Elan for Austria
and Germany (which had previously acted as Euromed’s subdistributor of our
products in Germany). Our contracts with Elan and other international
distributors do not assure us significant minimum purchase volume. If a contract
with a distributor is terminated for cause or by us for convenience, the
distributor will have no obligation to purchase products from us. Our contracts
with future distributors will typically have similar terms, and will not assure
us of long-term minimum purchase volumes. The loss of, or any sudden decline in
business from, any significant distributor, likely would lead to a significant
decline in our revenue. We may not be able to retain this or other large
customers or any other significant distributor. If we were to lose any large
distributor, it may take significant time to replace the distributor and the
revenue generated by them, and we may not ultimately be able to do
so.




Our
ability to market our CoolGard and Thermogard systems and accompanying
disposable catheters in the United States is limited to fever control in
neuro-intensive care patients and temperature management in cardiac and neuro
surgery patients. If we want to expand our marketing claims to cardiac arrest or
other uses, we will need to obtain additional FDA clearances or approvals, which
may be expensive and time-consuming and may not be successful.




In the
United States, the Food and Drug Administration, or FDA, has only cleared our
CoolGard and Thermogard systems for use with our Cool Line catheter for fever
reduction, as an adjunct to other antipyretic therapy, in intubated and sedated
patients with cerebral infarction and intracerebral hemorrhage who require
access to central venous circulation. Our CoolGard and Thermogard systems used
with our Icy or Fortius catheter have been cleared in the United States only for
use in cardiac surgery patients to achieve and maintain normothermia during
surgery and in recovery and intensive care, and to induce, maintain and reverse
mild hypothermia in neuro surgery patients in surgery and in recovery and
intensive care. These clearances restrict our ability to market our products in
the United States for treatment outside these specific cleared
indications.




In 2004,
we submitted a 510(k) notification to the FDA to have our products cleared for
cardiac arrest. In March 2005, the FDA convened a meeting of the Circulatory
System Devices Panel to consider the data submitted in the 510(k) notification.
Following that meeting in 2005, we withdrew our request for cardiac arrest
clearance because the FDA stated that it would require additional safety and
efficacy data from a randomized, controlled human clinical trial. We decided not
to conduct such a trial at that time because we wanted to focus on marketing our
products for their cleared indications. Future trials may be expensive and
time-consuming, and we cannot assure you that the FDA will ultimately grant our
clearance or approval for such indications.




We
may lose significant revenue and incur significant liability if it is determined
under FDA regulations that we are promoting off-label use of our
products.




If we do
not obtain FDA clearance for cardiac arrest, or other indications, we may be at
risk for liabilities and lost revenue as a result of off label use.  A
significant portion of our current revenue is, and anticipated future revenue
increasingly will be, derived from the sale of our products to treat cardiac
arrest. We have regulatory clearances to sell our products in Europe, Canada and
in other countries outside the United States to treat cardiac arrest, but we do
not have FDA clearance to sell our products in the United States to treat
cardiac arrest. In the United States, the use of our products to treat cardiac
arrest is and will be considered off-label use unless and until we receive
regulatory clearance for use of our systems and catheters to treat cardiac
arrest patients.




10




We do not
track how physicians use our products after they are purchased, and cannot
identify what percentage of our revenues is derived from off-label use. We are
aware, however, that physicians in the United States are using our products
off-label to treat cardiac arrest, and expect this use to increase. We believe
this is due in large part to the 2006 American Heart Association recommendation
that cooling be used to treat cardiac arrest. We have received increasing
inquiries from U.S. physicians interested in using our products to treat cardiac
arrest, in addition to cleared indications. In addition, in order to gather
general market data and help us work with the FDA to design a clinical trial for
cardiac arrest, in 2006 our field personnel began to ask hospitals why they are
interested in purchasing our products. Of approximately 300 U.S. hospitals
queried, over half indicated they are interested in cooling cardiac arrest
patients, in addition to our cleared indications. We have also seen a similar
level of interest in Europe, where our products are cleared for cardiac arrest.
Based on these interest levels, we estimate it is possible that between 20% and
40% of our current U.S. revenues (or between 10% and 20% of our worldwide
revenues) could be derived from off-label use. We also estimate that over time
up to 50% of our U.S. revenues (or approximately 25% of our worldwide revenues)
could be derived from purchases of our products to treat cardiac
arrest.




Under the
Federal Food, Drug and Cosmetic Act and other laws, we are prohibited from
promoting our products for off-label uses. This means that we may not make
claims about the safety or effectiveness of our systems and catheters for the
treatment of cardiac arrest patients, and may not proactively discuss or provide
information on the use of our products for the treatment of cardiac arrest
patients, with very limited exceptions. Physicians, however, may lawfully choose
to purchase our products and use them off-label. For example, we have clearance
to sell our products to induce, maintain and reverse hypothermia in neurosurgery
patients. A physician could use the same product to induce, maintain and reverse
hypothermia in cardiac arrest patients, which would be an off-label
use.




The FDA
and other regulatory agencies actively enforce regulations prohibiting promotion
of off-label uses and the promotion of products for off-label uses. A company
that is found to have improperly promoted off-label uses may be subject to
significant liability, including civil and administrative remedies, and even
criminal sanctions. Due to these constraints, our sales and marketing efforts
focus only on cleared indications for its products. When a hospital or physician
expresses interest in potential off-label use, our field personnel (sales
representatives and clinical specialists) have been trained to limit their
discussion or training of our products only to their general attributes for
cooling and warming of the patient, and the on-label indications. Our clinical
applications specialists work in hospitals to instruct physicians and nurses on
how to use our CoolGard and Thermogard systems, and how to run the system once
our catheter has been inserted into the patient. The specialists do not,
however, select which patients receive treatment or assist in the insertion of
the catheter, both of which are done by the physician. The specialists thus do
not determine the type of treatment (i.e., on-label or off-label) for which our
products are used, and products are used in the same manner whether the patient
is receiving an on- or off-label treatment. We do, upon request, disseminate
information relating to the use of our products for off-label uses such as
cardiac arrest. The FDA Modernization Act permits companies to respond in a
non-promotional manner to unsolicited requests from doctors and hospitals for
off label-information. We respond to such requests in a manner we believe is
permitted under the FDA Modernization Act, by providing copies of and citations
to articles that discuss off-label uses.




We do not
believe any of our activities constitute promotion of off-label use. Should the
FDA determine, however, that our activities constitute promotion of off-label
use, the FDA could bring action to prevent us from distributing our products
within the United States for the off-label use, could impose fines and penalties
on us and our executives, and could prohibit us from participating in government
healthcare programs such as Medicare and Medicaid. We could be required to
substantially change our sales, promotion and educational activities. If we are
prevented from distributing our products in the United States to treat cardiac
arrest, we could lose an estimated 10% and 20% of our current revenues, and up
to 25% based on future estimates. FDA actions concerning the promotion of
off-label uses are typically expensive, disruptive and burdensome, and generate
negative publicity. As a result, such an action could affect our reputation
generally and interfere with our ability to sell our products even for approved
uses. This would have an even greater negative impact on our sales and financial
condition, and may require us to raise additional capital, which may not be
available, or, if available may be dilutive to existing
shareholders.




11




We
face uncertainty related to pricing, reimbursement and health care reform, which
could reduce our revenue. In addition, if we are found to be marketing our
products for off-label uses, we can be barred from federal and state
reimbursement programs, which could jeopardize all of our U.S.
sales.




Sales of
our products depend in part on the availability of coverage and reimbursement
from third-party payors such as government insurance programs, including
Medicare and Medicaid, private health insurers, health maintenance organizations
and other health care related organizations. Both the federal and state
governments in the United States, and foreign governments, continue to propose
and pass new legislation affecting coverage and reimbursement policies, which
are designed to contain or reduce the cost of health care. There may be future
changes that result in reductions in current coverage and reimbursement levels
for our products, and we cannot predict the scope of any future changes or the
impact that those changes would have on our operations.




Adoption
of our products by the medical community in the United States may be limited if
doctors and hospitals do not receive full reimbursement for our products.
Currently, existing procedure codes only cover reimbursement for a portion of
the cost of our products. We do not have a specific Current Procedural
Terminology, or CPT, reimbursement code for our products in the United States.
The use of our product is paid for via two mechanisms. It is expensed within
general Diagnosis Related Groups (DRG) and there is a small remuneration
provided to the physician for a central line insertion. All our catheters have
central line features. There are no disease specific billing codes that apply to
the use of our product in the off label cardiac arrest indication. Physicians
and hospitals have been using reimbursement codes related to central venous
catheters or other critical care codes for our products, which provide only
partial reimbursement.




Current
cost control initiatives may decrease coverage and payment levels for existing
and future products and, in turn, the price that we can charge for any existing
product or those that we develop or market in the future. For example, the
Medicare Modernization Act revised the Medicare payment methodology for many
drugs covered under Medicare. We cannot predict the full impact of the new
payment methodologies on our business. We are also impacted by efforts by
private third-party payors to control costs. We are unable to predict all
changes to the coverage or reimbursement methodologies that will be employed by
private or government payors. Any denial of private or government payor coverage
or inadequate reimbursement for procedures performed using our products could
harm our business and reduce our revenue.




If  we
are found by the FDA or other federal or state authorities to be marketing our
products for off-label uses, we may be temporarily or permanently barred from
participating in government sponsored healthcare programs such as Medicare and
Medicaid. We estimate that up to 25% of our current revenues may come from
Medicare and Medicaid reimbursement to our customers. However, if we are barred
from participating in such programs, hospitals may refuse to purchase our
products altogether. As a result, such a ban from participating in these
programs could jeopardize all of our U.S. sales.




The
FDA has required that we place a warning label on our Cool Line catheter and
that we collect safety data on the Cool Line. If the FDA concludes that the Cool
Line catheters pose a statistically significant safety risk, it could require
that we conduct additional clinical studies or recall the Cool Line in the
United States, which could materially impact the sales and marketability of our
Cool Line Products in the United States.




We
obtained 510(k) clearances for the current indications for which we market our
products. However, the FDA may seek to limit or revoke our clearances if safety
or effectiveness problems develop. In 2002, we completed a 296-patient
randomized, controlled clinical trial in support of our initial regulatory
submission to the FDA. Based on the trial results, in August 2003, the FDA
granted us 510(k) clearance for our CoolGard system and Cool Line catheter for
treatment of fever reduction in patients with cerebral infarction and
intracerebral hemorrhage. As a result of higher mortality rates in the clinical
trial among patients treated for fever reduction following subarachnoid
hemorrhage and primary traumatic brain injury, the FDA did not clear the Cool
Line for these two indications. In addition, the FDA required that we place a
warning label on our Cool Line catheter which states that the Cool Line is not
cleared for treatment of these two indications, and discloses the mortality data
associated with the two cleared and two non-cleared indications.




The FDA
also required that we conduct a post market surveillance, or PMS, study of
200 patients treated with our Cool Line versus 200 patients from the
same hospitals treated with conventional fever control therapies. Since the
study began, we have submitted several quarterly and annual reports to the FDA
on the progress of the PMS study. Currently, we have reported information
regarding 208 patients enrolled in the study, which we believed showed good
safety results. However, if these results or subsequent PMS safety data
ultimately cause the FDA to conclude that our Cool Line catheters pose a
statistically significant safety risk, the FDA could require that we conduct
additional clinical studies or recall the Cool Line in the United States. Either
of these potential FDA actions could materially impact the sales and
marketability of our Cool Line products in the United States.




12




We
have a limited history of commercial sales that makes it difficult to predict
future performance and could impair our ability to grow revenue or achieve or
maintain profitability.




We were
incorporated in December 1991, and recapitalized and reorganized our operations
and business in November 1998 to focus on intravascular temperature management.
We began very limited sales of earlier versions of our products in Europe in
December 2000 and began a more significant international sales launch of our
current products in February 2004, when we started building a current network of
independent distributors. We began sales in the United States in April 2004
through our own direct sales force. Consequently, we have a limited history of
commercial sales of our products, which hinders us from accurately predicting
sales and managing our inventory levels.  Our inability to forecast future
revenue or estimated life cycles of products may result in inventory-related
charges that would negatively affect our gross margins and results of
operations.




If
we are unable to achieve continued market penetration with conventional
temperature management products, we will be unable to compete
effectively.




We
principally compete with companies that sell conventional temperature management
products such as cooling and warming blankets, ice packs and other external
devices. We also compete against companies with newer surface temperature
management products, such as Medivance, Inc., a privately held company that
sells self-regulating cooling pads. Additionally, we compete with companies that
have developed other intravascular approaches that are either
pre-commercialization or in early stages of commercialization. Competition with
these companies could result in price-cutting, reduced profit margins and loss
of market share. We may also face competition from manufacturers of
pharmaceuticals and other products that have not yet been
developed.




Our
ability to compete effectively depends upon our ability to distinguish our
products and includes such factors as:




●
            product
      performance;




●
            development
      of successful distribution channels, both domestically and
      internationally;




●
            success
      and timing of new product development and
  introductions;




●
            intellectual
      property protection; and




●
            quality
      of customer support.




Cooling
and warming blankets are more widely used and less expensive than our products.
Newer surface cooling pads have been on the market for approximately the same
amount of time as our products and are currently offered at prices similar to
those offered for our products. If our potential customers have already
purchased competing products, they may feel the need to recoup the cost of those
products before they consider purchasing our products, even if they believe our
products are superior. If we are unable to achieve continued market penetration,
we will be unable to compete effectively. In addition, some of our current and
potential competitors may have significantly greater financial, research and
development, manufacturing and sales and marketing resources than we do. Our
competitors could use their greater financial resources to acquire other
companies to gain enhanced name and brand recognition and market share, as well
as new technologies or products that could effectively compete with our
products.




In
addition, competitors that market surface cooling and warming blankets and pads
often do so on the basis that such devices are less invasive than our catheters,
which must be placed in a vein by a surgeon or other specialist.  We
strive to educate customers on the benefits of our superior effectiveness at
regulating patient temperature, ease of patient access compared to surface
devices, and the fact that a significant majority of patients eligible for our
catheters would already be receiving a similar central venous
catheter.  However, in situations where a patient might not ordinarily
receive a central venous catheter, or in situations where a standard catheter
may be indicated but caregivers do not want to try our relatively newer
catheter, we may not be able to compete effectively against less invasive
temperature management products.




13




Our
products are subject to product defects, recalls or failures, which could harm
our financial results.




In
manufacturing our products, we depend on third parties to supply various
components. Many of these components require a significant degree of technical
expertise to produce. Complex medical devices, such as our CoolGard and
Thermogard systems, can experience performance problems in the field that
require corrective action. If our suppliers fail to produce components to our
specifications, or if the suppliers or we use defective materials or poor
workmanship in the manufacturing process, the reliability and performance of our
products will be compromised. We cannot assure you that our testing procedures
will adequately identify all defects in our products or that component failures,
manufacturing errors, or inadequate labeling, which could result in an unsafe
condition or injury to the operator or the patient, will not occur. If any
defects occur, we may incur warranty or repair costs, be subject to claims for
damages related to product defects, be required to recall products, or
experience manufacturing, shipping or other delays or interruptions as a result
of these defects. Any recall would divert management attention and financial
resources and could expose us to product liability or other claims, which may
not be adequately covered by insurance, and may harm our reputation with
customers. A recall involving our CoolGard or Thermogard systems could be
particularly harmful to our business and financial results, because our CoolGard
and Thermogard systems are necessary components that allow our catheters to
work.




Our
failure to maintain Nasdaq listing requirements could cause our common stock to
be delisted.




We intend
to delist and remove our stock from trading on the Nasdaq Capital Market
immediately upon the closing of the Asset Sale.  However, if the Asset
Sale is not consummated and we elect to remain publicly traded, our stock could
face the risk of being delisted.




If our
common stock closes below $1.00 for thirty consecutive trading days, as occurred
in the fourth quarter of  2008, we could be subject to Nasdaq
delisting procedures if such noncompliance is not rectified within 180 calendar
days, which would require our stock price to be $1.00 or more for at least 10
consecutive trading days.  In the event we do not re-establish
compliance within such 180 day period, we may be granted an additional 180
calendar days to re-establish compliance provided we at least satisfy the
initial listing criteria of the Nasdaq Capital Market other than the minimum bid
price requirement as of the expiration of the initial 180-day
period.




Given the
current extraordinary market conditions, NASDAQ suspended the bid price and
market value of publicly held shares requirements through Monday April 20, 2009.
On October 16, 2008 and as extended on December 18, 2008, NASDAQ filed an
immediately effective rule change with the SEC, such that companies will not be
cited for any new concerns related to bid price or market value of publicly held
shares deficiencies.  The duration of this relief is uncertain,
however, and if minimum trading pricing are reinstated, and we do not meet them,
we may be delisted from trading.




The loss
of our Nasdaq listing would likely reduce trading activity in our common stock
and make it more difficult for stockholders to sell their shares, and the threat
of such a result could have a negative or dampening effect on our trading
activity until such matter is resolved. Any decreased trading activity and added
difficulty in trading our stock could have a negative impact on our stock
price.





14




Risks
Related to Our Operations




We
are subject to risks associated with international sales that could harm our
financial condition and results of operations.




International
sales accounted for 48% and 49% of our revenue for 2008 and 2007, respectively.
If we do not consummate the Asset Sale and are able to raise funds to continue
operations, then we believe that a significant percentage of our future revenue
will continue to come from international sales. In particular, we rely on a
network of third-party distributors to market and sell our products in
non-U.S. markets. The success of our international sales depends upon a
number of factors beyond our control, including the effectiveness and skill of
our distributors and their willingness to commit resources and prioritize the
sale of our products. These parties may not have the same interests as we do in
marketing our products. If these distributors do not actively sell our products,
we may be unable to increase or maintain our current level of international
revenue. In order to grow our business and expand the territories into which we
sell our products internationally, we will need to attract additional skilled
distributors in key geographic areas. We cannot assure you that distributors
will be available on acceptable terms.




Additionally,
international sales are subject to a number of other risks,
including:




●
            reduced
      protection for intellectual property rights in some
    countries;




●
            export
      restrictions, trade regulations and foreign tax
  laws;




●
            fluctuating
      foreign currency exchange rates;




●
            foreign
      certification and regulatory
requirements;




●
            customs
      clearance and shipping
delays; and




●
            political
      and economic instability.




Additionally,
our products and manufacturing facilities are subject to review and inspection
by foreign regulatory agencies. Foreign authorities have become increasingly
stringent and we and our distributors may be subject to more rigorous regulation
in the future. Our failure or the failure of our distributors to comply with
foreign regulations may restrict our and our distributors’ ability to sell our
products internationally.




Risks
Related to Our Regulatory Environment




If
we fail to maintain U.S. Food and Drug Administration and other government
clearances for our current products and indications, or if we fail to obtain
clearances for additional products and indications, our business would be
significantly harmed.




Compliance
with FDA, state and other regulations is complex, expensive and time-consuming.
The FDA and state authorities have broad enforcement powers. Federal and state
regulations, guidance, notices and other issuances specific to medical devices
regulate, among other things:





●
            product
      design, development, manufacturing and
labeling;




●
            product
      testing, including electrical testing, transportation testing and
      sterility testing;




●
            pre-clinical
      laboratory and animal testing;




●
            clinical
      trials in humans;




●
            product
      safety, effectiveness and quality;




●
            product
      manufacturing, storage and
distribution;




15


●
            pre-market
      clearance or approval;




●
            record
      keeping and document retention
procedures;




●
            product
      advertising, sales and promotion;




●
            PMS
      and medical device reporting, including reporting of deaths, serious
      injuries or other adverse events or device
      malfunctions; and




●
            product
      corrective actions, removals and
recalls.




Our
failure to comply with any of the foregoing could result in enforcement actions
by the FDA or state agencies, which may include fines, injunctions, penalties,
recalls or seizures of our products, operating restrictions or shutdown of
production. Any noncompliance may also result in denial of our future requests
for 510(k) clearance or pre-market approval (PMA) of new products, new
intended uses or modifications to existing products and could result in the
withdrawal of previously granted 510(k) clearance or PMA. If any of these events
were to occur, we could lose customers and our product sales, business, results
of operations and financial condition would be harmed.




We
may be unable to obtain or maintain international regulatory qualifications,
clearances or approvals for our current or future products and indications,
which could harm our international business.




Sales of
our products outside the United States are subject to foreign regulatory
requirements that vary widely from country to country. In addition, exports of
medical devices from the United States are regulated by the FDA. We have
obtained a Conformité Européenne, or CE Mark, in Europe for temperature
management in patients for whom a central venous catheter is warranted. We have
obtained a regulatory license to market our products in Canada for cooling and
warming critical care patients, including for cardiac arrest. We have also
obtained regulatory clearance to market our products in Australia for cooling
and warming critical care patients, and have applied for similar clearances in
China, Japan and other Asian countries. Complying with international regulatory
requirements can be an expensive and time-consuming process and clearance or
approval is not certain. The time needed to obtain clearance or approvals, if
required by other countries, may be longer than that required for FDA clearance
or approvals, and the requirements for such clearances may be more expensive.
Foreign clearances may significantly differ from FDA requirements, and we may be
unable to obtain or maintain regulatory qualifications, clearances or approvals
in other countries. If we experience delays in receiving necessary
qualifications, clearances or approvals to market our products outside the
United States, or if we fail to receive those qualifications, clearances or
approvals, we may be unable to market our products in international
markets.




We
may be subject to production halts and penalties if we or our third-party
vendors fail to comply with FDA manufacturing regulations, which could harm our
business.




We are
required to comply with the FDA’s Quality System Regulation, or QSR, which
applies to our facility and the facilities of our third-party component
manufacturers and sterilizers. The QSR sets forth minimum standards for the
design, production, quality assurance packaging, sterilization, storage and
shipping of our products. Our products are also covered by FDA regulation that
imposes record keeping, reporting, product testing and product labeling
requirements. These requirements include affixing warning labels to our
products, as well as incorporating certain safety features in the design of our
products. The FDA enforces the QSR and performance standards through periodic
unannounced inspections. We and our third-party component manufacturers,
suppliers and sterilization providers are subject to FDA inspections at all
times. Our failure or the failure of our component manufacturers, suppliers and
sterilization providers to take satisfactory corrective action in response to an
adverse QSR inspection or failure to comply with applicable performance
standards could result in enforcement actions, including a public warning
letter, a shutdown of manufacturing operations, a recall of products, and civil
or criminal penalties.




16




Future
enhancements of our products or new products we may develop may require new
clearances or approvals or require that we cease selling such products until new
clearances or approvals are obtained, which would harm our revenue and future
profitability.




Modifications
to our CoolGard and Thermogard systems may require that we apply for additional
510(k) clearances. Any modification to a 510(k)-cleared device that would
constitute a change in its intended use, design or manufacture could require a
new 510(k) clearance or, possibly, a PMA. If the FDA requires that we submit a
new 510(k) or PMA application for the modifications, we may be required to cease
promoting or to recall the modified product until we obtain clearance or
approval. In addition, we could be subject to fines or other penalties. We may
not be able to obtain additional 510(k) clearances or PMAs for new products or
for modifications to, or additional indications for, our existing products in a
timely fashion, or at all. Delays in obtaining future clearances would adversely
affect our ability to introduce new or enhanced products in a timely manner,
which in turn would harm our revenue and future profitability.




We
will spend considerable time and money complying with federal, state and foreign
regulations in addition to FDA regulations, and, if we are unable to fully
comply with such regulations, we could face substantial penalties.




In
addition to FDA regulations, we are subject to extensive U.S. federal and
state regulations and the regulations of foreign countries in which we conduct
business. The laws and regulations that affect our business, in addition to the
Federal Food, Drug and Cosmetic Act and FDA regulations include, but are not
limited to:




●
            State
      consumer, food and drug laws, including laws regulating
      manufacturing;




●
            the
      federal anti-kickback statute, which prohibits compensation for arranging
      a good or service paid for under federal health care
    programs;




●
            Medicare
      regulations regarding reimbursement and laws prohibiting false
      reimbursement claims;




●
            federal
      and state laws protecting the privacy of patient medical information,
      including the Health Insurance Portability and Accountability
      Act;




●
            the
      Federal Trade Commission Act and similar laws regulating advertising and
      consumer protection; and




●
            regulations
      similar to the foregoing outside the United
  States.




If our
operations are found to be in violation of any health care laws or regulations,
we may be subject to civil and criminal penalties, exclusion from Medicare,
Medicaid and other government programs and curtailment of our operations. If we
are required to obtain permits or licenses under these laws, we may be subject
to additional regulation and incur significant expense. The risk of being found
in violation of these laws is increased by the fact that many of them have not
been fully or clearly interpreted by the regulatory authorities or the courts,
and their provisions are subject 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, divert our management’s
attention from the operation of our business and damage our
reputation.




We
depend upon a limited number of suppliers for the components of our products,
making us vulnerable to supply shortages and price fluctuations, which could
affect our customer demand and our revenue could decline.




Many of
the components and materials used in our products are manufactured by a limited
number of suppliers, and in some cases one supplier. Any supply interruption or
an increase in demand beyond our suppliers’ capabilities could harm our ability
to manufacture our products until a new source of supply is identified and
qualified, which could result in lower revenue. Identifying and qualifying
additional suppliers for the components used in our products, if required, may
not be accomplished quickly or at all and could involve significant costs. If
supply interruptions were to occur, our ability to meet customer demand would be
impaired and customers may decide to cancel orders or switch to competitive
products. Switching components or materials may require product redesign and new
submissions to the FDA that could significantly delay production or, if the FDA
refuses to approve the changes, stop us from manufacturing and selling our
products.




17






We
depend on key personnel to operate our business effectively, and the loss of key
personnel could harm us.




Our
success depends on the skills, experience, technical knowledge and efforts of
our officers and other key employees. Alsius does not have employment contracts
that require any of its officers or other key employees to remain with Alsius
for any period. Any of our officers and other key employees may terminate their
employment at any time. In addition, we do not maintain key person life
insurance policies covering any of our employees. The loss of any of our senior
management could disrupt our business.




If
do not consummate the Asset Sale and were to remain a publicly traded company,
then we will need to strengthen our internal controls over financial reporting
in order to ensure that we are able to report financial results accurately and
on a timely basis. If we fail to achieve and maintain effective controls and
procedures for financial reporting, we could be unable to provide timely and
accurate financial information.




Prior to
our merger with Ithaka Acquisition Corp. in June 2007, we operated as a
relatively small privately held company.  We have incurred, and
will continue to incur, substantial expenses related to improving
our internal controls over financial reporting that we will need to
strengthen so that we can meet our reporting obligations as a public company in
a timely and accurate manner. However, we cannot assure you that material
weaknesses, significant deficiencies and control deficiencies in our internal
controls over financial reporting will not be identified when we are required to
conclude on the effectiveness of our internal control over financial reporting.
We will incur substantial expenses relating to improving our internal control
over financial reporting. Our accounting and financial reporting functions may
not currently have all of the necessary resources to ensure that we will not
have significant deficiencies or material weaknesses in our system of internal
control over financial reporting. The effectiveness of our internal control over
financial reporting may in the future be limited by a variety of factors
including:





●
            faulty
      human judgment and simple errors, omissions or
  mistakes;




●
            inappropriate
      management override of policies and
  procedures; and




●
            the
      possibility that any enhancements to disclosure controls and procedures
      may still not be adequate to assure timely and accurate financial
      information.




If we fail to achieve and maintain
effective controls and procedures for financial reporting, we could be unable to
provide timely and accurate financial information.  In accordance with
Section 404 of the Sarbanes Oxley Act of 2002, we will be required to file an
auditor’s attestation report on the effectiveness of our internal control over
financial reporting when we file our annual report for our fiscal year ending on
December 31, 2009.





18




If
a natural or man-made disaster strikes our facility, we may be unable to
manufacture products for a substantial amount of time and our revenue could
decline.




We only
have one manufacturing facility, which is located in Irvine, California. We are
vulnerable to damage from natural disasters, such as earthquakes, fire, floods
and similar events. If any disaster were to occur, our ability to operate our
business could be seriously impaired. Our facility and the equipment that we use
to produce our products could require substantial lead-time to repair or
replace. In the event of a disaster, we would not have the ability to
immediately shift production to another facility or rely on third-party
manufacturers. If we were to shift production from one facility to another, we
would need FDA authorization to manufacture the product in the new facility.
This could take up to six months and we may not be able to outsource
manufacturing during that time. We currently carry business interruption
insurance with a policy limit of $5.2 million. Our insurance coverage may
not be sufficient in scope or amount to cover potential losses, and we do not
plan to purchase additional insurance to cover such losses due to the cost of
such coverage. Any significant losses that are not recoverable under our
insurance policies could seriously impair our business and financial
condition.




Risks
Related to Intellectual Property




Intellectual
property rights may not provide adequate protection for our products, which
could adversely affect our competitive position and may permit others to compete
against us more effectively.




We rely
on patent, copyright, trade secret and trademark laws and confidentiality
agreements to protect our technology and products. As of December 31, 2008, our
products were covered by 34 issued U.S. patents. We also have
U.S. patent applications pending directed to current and future products.
As of December 31, 2008, our products were covered internationally by five
issued patents. We have other foreign patent applications pending directed to
current and future products. Our patents covering our key markets generally
expire between 2018 and 2022. Our foreign patents and applications include
patents filed initially in certain countries and patents filed initially in the
United States for which it then sought foreign coverage by way of the Patent
Cooperation Treaty, or PCT. We cannot be certain which, if any, of its patents
individually or as a group will permit us to gain or maintain a competitive
advantage. Additionally, our patent applications may not issue as patents or, if
issued, may not issue in a form that will provide meaningful protection against
competitors or against competitive technologies. Furthermore, the issuance of a
patent is not conclusive as to its validity or enforceability. Any patents we
obtain may be challenged, invalidated or legally circumvented by third parties.
Consequently, competitors could market products and use manufacturing processes
that are substantially similar to, or superior to, ours. Competitors could
reverse engineer our products and attempt to replicate them, design around
our protected technologies or develop their own competitive technologies that
fall outside of our intellectual property rights. In addition, the laws of many
foreign countries will not protect our intellectual property rights to the same
extent as the laws of the United States.




We use
trademarks to protect our company name and certain of our product names. Alsius,
CoolGard, Thermogard, Cool Line, Icy, Fortius, Quattro and Solex are registered
trademarks in the United States and the European Union.  We may also
rely on common law protections from time-to-time for unregistered trademarks.
Since no registration is required in order to establish common law rights to a
trademark, it can be difficult to discover whether anyone has trademark rights
in a particular mark. If we have to change our name or the name of our products
due to infringement, we may experience a loss in goodwill associated with our
brand name, customer confusion and a loss of sales.




We also
seek to protect our intellectual property using confidentiality agreements with
our employees, consultants and certain vendors. However, we may not be able to
prevent the unauthorized disclosure or use of our technical knowledge or other
trade secrets by consultants, vendors, former employees or current employees
despite confidentiality agreements and other legal restrictions. Monitoring the
unauthorized use and disclosure of our intellectual property is difficult, and
we do not know whether the steps we have taken to protect its intellectual
property will be effective.




Zoll
filed, but did not serve, a patent infringement complaint against us claiming
that certain of our temperature management products infringe upon two
temperature management patents Zoll purchased from a defunct competitor of
ours.  Zoll has agreed that during the pendency of our Asset Sale to
Zoll, it will not serve us or take any action to pursue or resume the case.
However, if the Asset Sale were not to close and the litigation with Zoll were
to resume, we would incur significant costs to defend it and pursue
counterclaims against Zoll, and as litigation is unpredictable, there is no
assurance as to whether we would achieve a favorable outcome.  A loss
may involve the payment of damages and/or an injunction prevent us from selling
some or all of our products.




19




Our
products could infringe the intellectual property rights of others. This may
lead to costly litigation, result in payment of substantial damages or royalties
and prevent us from using technology essential to our products.




In the
medical device industry there is often extensive litigation and administrative
proceedings regarding patent infringement and intellectual property rights. We
cannot assure you that our products or methods do not infringe the patents or
other intellectual property rights of others. Intellectual property litigation,
with or without merit, is expensive and time-consuming and could divert
management’s attention. If our products and their uses are successfully
challenged, we could be required to pay substantial damages and be prohibited
from using technologies essential to our products without the permission of
their owners. We do not know whether permission to use others’ intellectual
property would be available to us on satisfactory terms, or whether we could
redesign our products to avoid infringement. We expect that any competitive
advantage we may enjoy from our technologies, such as those of our CoolGard and
Thermogard systems and catheters, may diminish over time as companies create
their own innovations. We will only be able to protect our technologies from
unauthorized use by others to the extent that we can pay to enforce our rights,
including through litigation.





Item
      1B.
            Unresolved
      Staff Comments





None.





Item
      2.
            Properties




We do not
own real property. Our principal executive office is located at 15770 Laguna
Canyon Road, Suite 150, Irvine, California 92618, where we lease
approximately 27,000 square feet under a lease that expires on
December 31, 2011 with an option to extend the lease for an additional
three-year term at market rates. We believe our existing facilities are adequate
for our current needs.  We also lease approximately 1,450 square
feet in Wateringen, the Netherlands, for our European service center. This lease
expires on May 31, 2010.




In
connection with the Asset Sale, Zoll has agreed to assume the European service
center lease.  However, Zoll is not assuming our Irvine, California,
headquarters lease.  We intend to negotiate with our
landlord to terminate our headquarters lease in connection with the Asset Sale,
which may involve paying a termination fee.  We estimate the total
remaining charges under the term of the lease to be $1.4 million (including rent
and related common area expenses) if were required to bear the entire lease
cost.





Item 3.
            Legal
      Proceedings





Zoll
filed a patent infringement complaint against us in the United States District
court Central District of California on January 29, 2009.  However,
Zoll agreed that during the pendency of our Asset Sale to Zoll, it will not
serve the Company or take any action to pursue or resume the case.  If
the Asset Sale were not to close and the litigation with Zoll were to resume, we
would incur significant costs to defend it and pursue counterclaims against
Zoll.  Our efforts to raise funding to support operations would have
to include a substantial allocation to cover the cost of
litigation.  We believe we have a strong defense position and strong
counterclaims to Zoll’s claims against us, but litigation is unpredictable and
there is no assurance as to whether we would achieve a favorable
outcome.  A loss may involve the payment of damages and/or an
injunction that prevents us from selling some or all of our
products.





Item
      4.
            Submission
      of Matters to a Vote of Security
Holders





No
matters were submitted to a vote of our stockholders during the quarter ended
December 31, 2008.





20




PART II





Item
      5.
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities




Our
units, common stock and warrants are traded on the Nasdaq Capital Market under
the symbols ALUSU, ALUS, and ALUSW, respectively. Prior to the close of our
merger with Ithaka on June 21, 2007, the units, common stock and warrants traded
on the OTCBB under the symbols ITHKU, ITHK and ITHKW,
respectively.  The following table sets forth the range of high and
low closing bid prices for the units, common stock and warrants for the periods
indicated. The over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily reflect
actual transactions.





Units
            
            
            Common
      Stock
            
            
            WarrantsHigh
            
            
            Low
            
            
            High
            
            
            Low
            
            
            High
            
            
            LowFiscal
      year ended December 31, 2008:Fourth
      quarter
            
            $
            1.10
            
            
            $
            0.29
            
            
            $
            1.04
            
            
            $
            0.31
            
            
            $
            0.06
            
            
            $
            0.01Third
      quarter
            
            
            3.00
            
            
            
            0.99
            
            
            
            2.60
            
            
            
            0.77
            
            
            
            0.20
            
            
            
            0.02Second
      quarter
            
            
            3.25
            
            
            
            0.87
            
            
            
            1.84
            
            
            
            0.65
            
            
            
            0.54
            
            
            
            0.11First
      quarter
            
            
            5.25
            
            
            
            3.25
            
            
            
            4.08
            
            
            
            1.80
            
            
            
            0.85
            
            
            
            0.26Fiscal
      year ended December 31, 2007:Fourth
      quarter
            
            $
            8.38
            
            
            $
            3.75
            
            
            $
            6.19
            
            
            $
            2.77
            
            
            $
            1.35
            
            
            $
            0.35Third
      quarter
            
            
            8.50
            
            
            
            8.49
            
            
            
            6.35
            
            
            
            6.06
            
            
            
            1.52
            
            
            
            1.20Second
      quarter
            
            
            6.40
            
            
            
            6.40
            
            
            
            5.15
            
            
            
            5.10
            
            
            
            0.70
            
            
            
            0.66First
      quarter.
            
            
            6.69
            
            
            
            6.30
            
            
            
            5.52
            
            
            
            5.40
            
            
            
            0.58
            
            
            
            0.41





At
February 27, 2009, there were approximately 35 holders of record of our common
stock.





We have
never paid cash dividends on our common stock. We currently intend to retain any
earnings for use in our business, and do not anticipate paying cash dividends in
the foreseeable future.  In addition, under the terms of the Term Loan
with Merrill Lynch Capital (now GE Capital), we are restricted from paying cash
dividends on our common stock. We are restricted from making certain
distributions, including cash dividends. We are currently in compliance with
such restrictions.




Securities
Authorized For Issuance Under Equity Compensation Plans




Set forth
in the table below is information regarding outstanding equity awards made
through equity compensation plans as of the end of the most recently completed
fiscal year.




Equity
Compensation Plan Information




Plan
      category
            Number
      of
              securities
      to be
              issued
      upon exercise of
              outstanding
      options,
              warrants
      and rights
            Weighted-
              average
      exercise
              price
      of outstanding
              options,
      warrants
              and
      rights
            Number
      of securities
              remaining
      available for
              future
      issuance under
              equity
      compensation
              plans
      (excluding securities
              reflected
      in column (a))(a)
            (b)
            (c)Equity
      compensation plans approved by security holders2006
      Equity Incentive Plan
            1,592,369
            $2.86
            1,887,521Equity
      compensation plans not approved by security holders
            N/A
            N/A
            N/ATotal
            1,592,369
            $2.86
            1,887,521





For
information regarding securities authorized for issuance under the Company’s
equity compensation plans, see Part II, Item 8, Note 7 of this
Report.




21




Item
      6.
            Selected Financial
      Data




The
following table sets forth certain financial data regarding Alsius Corporation
and should be read in conjunction with the consolidated financial statements and
notes thereto (see Item 15, “Financial Statements” and Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations”).  The income statement and balance sheet data presented below
have been derived from Alsius Corporation’s consolidated financial
statements.  The merger between Alsius Medical and Ithaka in June 2007 was
accounted for as a purchase in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 141, “Business Combinations,” resulting in a new basis of
accounting subsequent to the transaction.  The newly merged company adopted
the name Alsius Corporation and is the registrant today.




The
merger with Ithaka, a publicly traded blank check acquisition company, was
accounted for as a reverse acquisition. Under this method of accounting, Alsius
Medical, the privately held operating company purchased by Ithaka, was the
acquiring company for financial reporting purposes. In accordance with
applicable guidance, the merger was considered to be a recapitalization. 
Accordingly, it was treated as the equivalent of Alsius Medical issuing stock
for the net monetary assets of Ithaka accompanied by a recapitalization. The net
monetary assets of Ithaka, primarily cash, were stated at their fair value,
which was equivalent to the carrying value, and accordingly no goodwill or other
intangible assets were recorded.  The accumulated deficit of Alsius Medical
was carried forward to the recapitalized company. The results below reflect
those of Alsius Medical for the period before the merger closed on June 21,
2007.  After June 21, 2007, the results reflect those of Ithaka and
Alsius combined.





Fiscal Year Ended2008
      (3)
                    
                    
                    2007(3)
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004(in
      thousands, except per share amounts)Statement
      of Operations Data:Revenue
                    
                    $
                    12,461
                    
                    
                    $
                    9,114
                    
                    
                    $
                    5,979
                    
                    
                    $
                    3,223
                    
                    
                    $
                    1,641Cost
      of revenue (1)
                    
                    
                    9,089
                    
                    
                    
                    7,341
                    
                    
                    
                    6,167
                    
                    
                    
                    3,620
                    
                    
                    
                    2,011Gross
      margin (loss)
                    
                    
                    3,372
                    
                    
                    
                    1,773
                    
                    
                    
                    (188
                    )
                    
                    
                    (397
                    )
                    
                    
                    (370
                    )Operating
      expenses:Research
      and development (1)
                    
                    
                    4,234
                    
                    
                    
                    3,920
                    
                    
                    
                    2,948
                    
                    
                    
                    3,466
                    
                    
                    
                    3,331Sales
      and marketing (1)
                    
                    
                    12,373
                    
                    
                    
                    11,211
                    
                    
                    
                    6,045
                    
                    
                    
                    4,464
                    
                    
                    
                    3,309General
      and administrative (1)
                    
                    
                    4,992
                    
                    
                    
                    5,471
                    
                    
                    
                    4,352
                    
                    
                    
                    1,491
                    
                    
                    
                    1,348Total
      operating expenses
                    
                    
                    21,599
                    
                    
                    
                    20,602
                    
                    
                    
                    13,345
                    
                    
                    
                    9,421
                    
                    
                    
                    7,988Loss
      from operations
                    
                    
                    (18,227
                    )
                    
                    
                    (18,829
                    )
                    
                    
                    (13,533
                    )
                    
                    
                    (9,818
                    )
                    
                    
                    (8,358
                    )Interest
      income
                    
                    
                    247
                    
                    
                    
                    708
                    
                    
                    
                    76
                    
                    
                    
                    189
                    
                    
                    
                    98Interest
      expense
                    
                    
                    (660
                    )
                    
                    
                    (4,149
                    )
                    
                    
                    (2,064
                    )
                    
                    
                    (373
                    )
                    
                    
                    (5
                    )Other
      income (expense)
                    
                    
                    —
                    
                    
                    
                    35
                    
                    
                    
                    (2,057
                    )
                    
                    
                    (120
                    )
                    
                    
                    45Net
      loss
                    
                    $
                    (18,640
                    )
                    
                    $
                    (22,235
                    )
                    
                    $
                    (17,578
                    )
                    
                    $
                    (10,122
                    )
                    
                    $
                    (8,220
                    )Net
      loss per share – basic and diluted (2)
                    
                    $
                    (0.89
                    )
                    
                    $
                    (1.49
                    )
                    
                    $
                    (1.60
                    )
                    
                    $
                    (0.92
                    )
                    
                    $
                    (0.75
                    )Balance
      Sheet Data at Fiscal Year End:Cash
      and cash equivalents
                    
                    $
                    5,605
                    
                    
                    $
                    24,427
                    
                    
                    $
                    647
                    
                    
                    $
                    5,309
                    
                    
                    $
                    10,335Working
      capital (deficit)
                    
                    
                    7,681
                    
                    
                    
                    25,680
                    
                    
                    
                    (8,763
                    )
                    
                    
                    5,294
                    
                    
                    
                    11,784Total
      assets
                    
                    
                    17,074
                    
                    
                    
                    35,602
                    
                    
                    
                    6,240
                    
                    
                    
                    9,492
                    
                    
                    
                    14,137Long-term
      obligations
                    
                    
                    626
                    
                    
                    
                    3,717
                    
                    
                    
                    6,468
                    
                    
                    
                    3,266
                    
                    
                    
                    8Redeemable
      convertible preferred stock
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    46,643
                    
                    
                    
                    46,643
                    
                    
                    
                    46,643Shareholders’
      equity (deficit)
                    
                    
                    9,368
                    
                    
                    
                    24,012
                    
                    
                    
                    (60,355
                    )
                    
                    
                    (43,358
                    )
                    
                    
                    (33,497
                    )





(1)
            We
      adopted SFAS No. 123(R), “Share-Based Payment,” on January 1, 2006.
      As a result, stock-based compensation expense included within cost of
      revenue and operating expenses in fiscal 2008, 2007 and 2006 is based on
      the fair value of all stock options. Non-cash employee stock-based
      compensation expense included in our consolidated statements of operations
      was as follows (in thousands):





22




Fiscal
      Year Ended2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Cost
      of revenue
            
            $
            297
            
            
            $
            238
            
            
            $
            23
            
            
            $
            4
            
            
            $
            —Research
      and development
            
            
            587
            
            
            
            582
            
            
            
            48
            
            
            
            30
            
            
            
            —Sales
      and marketing
            
            
            1,176
            
            
            
            985
            
            
            
            149
            
            
            
            110
            
            
            
            —General
      and administrative
            
            
            1,489
            
            
            
            1,582
            
            
            
            354
            
            
            
            116
            
            
            
            —





(2)
            For
      the periods prior to the close of our June 2007 merger with Ithaka, the
      net loss per share- basic and diluted is computed using 10,974 shares
      outstanding.   The merger was, for financial reporting
      purposes, treated as a reverse acquisition and essentially a
      recapitalization.  Because the number of shares outstanding
      following a reverse acquisition is significantly different from the number
      of shares outstanding prior to the combination, the weighted average
      shares outstanding for purposes of presenting net loss per share on a
      comparative basis has been retroactively restated to the earliest period
      presented in order to reflect the effect of the recapitalization that
      occurs in a reverse acquisition.  In effect, the reverse acquisition
      is similar to a stock split for the accounting acquirer, and retroactively
      restating the weighted average shares outstanding is consistent with the
      accounting required by SFAS No. 128, “Earnings Per Share”, for stock
      splits, stock dividends, and reverse stock
  splits.





(3)
            The
      results of Ithaka have been included in our financial statements since
      June 21, 2007.




23




Item
      7.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations




You should read the following
discussion and analysis in conjunction with our Consolidated Financial
Statements and related Notes thereto included in Part II, Item 8 of this Report
and the Risk Factors included in Part I, Item 1A of this report, as well as
other cautionary statements and risks described elsewhere in this report
..





Overview




We are a
medical device company that develops, manufactures and sells proprietary,
innovative products to precisely control patient temperature in hospital
critical care settings. Our products consist of our CoolGard and Thermogard
temperature regulation systems, which are computer-controlled cooling and
warming units, as well as five families of single-use catheters used exclusively
with the systems—Cool Line, Icy, Fortius, Quattro and Solex. We market our
products to acute care hospitals and critical care physicians through a direct
sales force in the United States and independent distributors in international
markets. Our revenue consists primarily of sales of the CoolGard system,
single-use catheters and single use start-up kits which connect the catheter to
the system. In the first quarter of 2007, we introduced our new Thermogard
system, a computer controlled cooling and warming unit used with our catheters
that is similar to the CoolGard, but which contains additional features for use
in surgical applications.   In June 2007, we introduced our
“Hospital Monitoring Interface Accessory” (HMIA).  The HMIA
enables the caregiver to display the patient’s temperature on both the Alsius
system and the patient monitor.  The HMIA is compatible with the
majority of patient monitoring systems.  In the first quarter of 2008,
we introduced the Thermogard XP system, which is similar to the Thermogard, but
with additional power and features.




We began
selling our products in the United States in April 2004 and, as of December 31,
2008, had established a U.S. installed base of over 327 systems in 169
hospitals, of which 293 had been sold and 34 were under evaluation. Our U.S.
installed base includes 10 systems that we sold in the second quarter of 2008 to
a third party who intends to rent them to hospitals.  We began
building a current network of independent distributors in Europe in February
2004, and as of December 31, 2008, had established a European installed base of
over 409 systems in 217 hospitals, of which 380 had been sold and 29 were under
evaluation. In other parts of the world as of December 31, 2008, we had an
installed base of 49 systems, of which 45 had been sold and 4 were under
evaluation.  We generated revenues of $12.5 million in the year ended
December 31, 2008, which represents revenue growth of 37% from the year ended
December 31, 2007. We had a net loss of $18.6 million in the year ended
December 31, 2008. International sales accounted for 48% of our revenue in the
year ended December 31, 2008.




We have
FDA clearance to market our products in the United States for fever control in
certain neuro-intensive care patients and temperature management in cardiac and
neuro surgery patients. We have broader clearance to market our products in
Europe, Canada, China and Australia, including clearance for cardiac arrest, and
are in the process of obtaining clearances to sell our products in Japan and
other Asian countries. We only market our products for treatments in the
specific cleared indications; however, this does not prevent physicians from
using our products for non-cleared, or off-label, uses. As of December 31, 2008,
we employed 15 direct sales people, a director of sales, a vice president of
worldwide sales and marketing, two regional sales managers, a corporate accounts
manager, a government-military accounts manager, an international accounts
manager, five clinical application specialists and a director of clinical
education in the United States and over 33 independent international
distributors covering over 42 countries.




On
February 19, 2009, we entered into a Purchase Agreement to sell substantially
all of our assets to Zoll, as discussed elsewhere herein.  We expect
to complete the Asset Sale in the second quarter of 2009.  However, if
the Asset Sale is not consummated, our cash position would require that we
immediately raise working capital or cease operations.




24




Results of Operations





Years
Ended December 31, 2008 and 2007





Revenue. Revenue was $12.5
million for the year ended December 31, 2008, an increase of $3.4 million
or 37%, from $9.1 million for the year ended December 31, 2007. During
2008, we introduced a new product, Thermogard XP, resulting in an approximate
20% increase in average selling prices for systems.  Our revenue also
reflects an approximate 12% increase in average selling prices for disposable
units. During the year ended December 31, 2008, we sold 10,392 catheters and
9,668 start-up kits, an increase of 40% and 43%, respectively, from the 7,436
catheters and 6,750 start-up kits sold during the year ended December 31,
2007.  Sales of our CoolGard and Thermogard systems decreased from 218
in 2007 to 211 during 2008.  Our 2007 results include the sale of 23
systems in one European country, France, which has not recurred in
2008.  The sales in 2007 were purchased by our French distributor to
provide systems for two multiple-site clinical trials.  These systems
were used for the trials and subsequently sold to the hospitals in
2008.  Sales of our CoolGard and Thermogard systems accounted for 41%
and 48% of revenue and sales of catheters and start-up kits accounted for 53%
and 47% of our revenue for the year ended December 31, 2008 and 2007,
respectively.  Sales in the United States accounted for 52% of our
revenue for 2008, compared to 49% for 2007.




Cost of revenue. Cost of
revenue consists of costs of materials, products purchased from third-parties,
manufacturing personnel, freight, depreciation of property and equipment,
royalties paid to technology licensors, manufacturing overhead, warranty
expenses and inventory reserves. Royalties paid to third parties include two
worldwide licenses related to our catheters. One license covers a coating used
on our catheters and requires that we pay a royalty of between 2.0% and 3.5% on
net revenue generated by all catheters. The other license covers technology used
in our Cool Line catheter and requires that we pay a royalty of 2.5% on net
revenue generated by the Cool Line catheter.




Cost of
revenue was $9.1 million for the year ended December 31, 2008, an increase of
$1.8 million or 25%, from $7.3 million for the year ended December 31, 2007.
Cost of revenue increased primarily due to increased sales
volume.  These costs include approximately $0.4 million related to a
write-down of and a reserve on our physical inventory in the quarter ended
September 30, 2008.  As a percentage of revenue, cost of revenue
decreased from 81% of sales for 2007, to 73% of sales for
2008. The percentage decrease was primarily due to the
realization of cost reduction programs and higher average selling prices as a
result of an increase in sales to
domestic U.S. customers, to whom we sell directly,
versus international sales which are made
through distributors. Stock based compensation increased in the year
ended December 31, 2008 by $0.1 million as compared to the year ended December
31, 2007 due to the grant of stock options and restricted stock units under
our 2006 Equity Incentive Plan.




Research and development
expense. Research and development expense consists of costs related to
our regulatory and product development activities. Research and development
expense has been, and we anticipate in the future will be, highest when we are
actively engaged in human clinical trials to support new regulatory clearances.
Research and development expense was $4.2 million for the year ended December
31, 2008, an increase of $0.3 million, or 8%, from $3.9 million for
the year ended December 31, 2007. This increase is primarily attributable to
compensation related costs of $0.1 million associated with increased headcount,
$0.3 million associated with material cost to test two new catheters, partially
offset by $0.1 million in reduced regulatory costs to clear products for sale in
Japan.




Sales and marketing expense.
Sales and marketing expense consists of costs related to our direct sales force
personnel, clinical application specialists, travel, trade shows, advertising,
entertainment, and marketing materials provided to our international
distributors. Sales and marketing expense was $12.4 million for the year
ended December 31, 2008, an increase of $1.2 million, or 11%, from $11.2 million
for the year ended December 31, 2007. This increase was primarily attributable
to the growth of our direct sales force and marketing activities to support our
worldwide market expansion, resulting in increased compensation and commission
costs of $0.8 million, and increased advertising, public relations and outside
services expenses of $0.3 million. Stock based compensation increased by $0.2
million associated with our 2006 Equity Incentive Plan.




General and administrative
expense. General and administrative expense consists of costs related to
personnel, legal, accounting and other general operating expenses. General and
administrative expense was $5.0 million for the year ended December 31,
2008, a decrease of $0.5 million or 9%, from $5.5 million for the year
ended December 31, 2007. The decrease was primarily attributable to a decrease
of $0.4 million in legal and accounting fees related to our merger with Ithaka
in 2007 and of $0.1 million associated with our 2006 Equity Incentive
Plan.




Interest income. Interest
income was $0.2 million for the year ended December 31, 2008, a decrease of
$0.5 million, or 71%, from $0.7 million for the year ended December
31, 2007. This decrease was due to the lower levels of cash
invested.




25




Interest expense. Interest
expense was $0.7 million for the year ended December 31, 2008, a decrease of
$3.4 million, or 83%, from $4.1 million for the year ended December 31,
2007. Interest expense in 2008 primarily resulted from our borrowings from
Merrill Lynch Capital (now GE Capital).  In 2007, we incurred $0.2
million of interest on these borrowings, $0.2 million related to borrowings from
other finance companies, and $2.6 million related to the bridge notes, all of
which were repaid in the Ithaka merger in June 2007.




Other income (expense). Other
income (expense) was zero for the year ended December 31, 2008 as compared to
$0.04 million of other expense for the year ended December 31, 2007. This was
primarily due to the decrease in the fair value adjustments of the warrant
liabilities and embedded derivatives associated with the May 2005 secured
promissory note and the 2006 bridge notes as these items were either repaid or
converted in the Ithaka merger in June 2007.





Years
Ended December 31, 2007 and 2006




Revenue. Revenue was
$9.1 million for the year ended December 31, 2007, an increase of
$3.1 million or 52%, from $6.0 million for the year ended December 31,
2006. The increase was attributable to an increase in the sale of our catheters
and start-up kits due to our growing installed base of CoolGard and Thermogard
systems. During 2007, we sold 7,436 catheters and 6,750 start-up kits, an
increase of 32% and 42%, respectively, from the 5,613 catheters and 4,754
start-up kits sold during 2006. In addition, we increased sales of our CoolGard
and Thermogard systems from 157 in 2006 to 218 in 2007. Sales of our CoolGard
and Thermogard systems accounted for 48% and 48% of revenue and sales of
catheters and start-up kits accounted for 47% and 48% of our revenue for 2007
and 2006, respectively.  Sales in the United States accounted for 51%
of our revenue for 2007 and 43% for 2006. The increase in sales to domestic
customers, to whom we sell directly, allowed us to realize higher average
selling prices.




Cost of revenue. Cost of
revenue consists of costs of materials, products purchased from third-parties,
manufacturing personnel, freight, depreciation of property and equipment,
royalties paid to technology licensors, manufacturing overhead, warranty
expenses and inventory reserves. Royalties paid to third parties include two
worldwide licenses related to our catheters. One license covers a coating used
on our catheters and requires that we pay a royalty of between 2.0% and 3.5% on
net revenue generated by all catheters. The other license covers technology used
in our Cool Line catheter and requires that we pay a royalty of 2.5% on net
revenue generated by the Cool Line catheter.




Cost of
revenue was $7.3 million for the year ended December 31, 2007, an increase of
$1.1 million or 18%, from $6.2 million for the year ended December 31, 2006.
Cost of revenue increased primarily due to increased sales
volume. As a percentage of revenue, cost of revenue decreased from 103% of
sales in 2006 to 81% of sales in 2007. The percentage
decrease was primarily due to higher average selling prices as a
result of an increase in sales to
domestic U.S. customers, to whom we sell directly,
versus international sales which are made
through distributors. The decrease in cost of revenue was
partially offset by increased production costs due to labor and materials
costs of $0.2 million in 2007 to replace catheter components that did not
meet quality specifications and $0.5 million increase in compensation and
benefits related to the higher headcount needed to support increased
production.  Stock based compensation also increased $0.2 million
associated with our new 2006 equity incentive plan.




Research and development
expense. Research and development expense consists of costs related to
our regulatory and product development activities. Research and development
expense has been, and we anticipate in the future will be, highest when it is
actively engaged in human clinical trials to support new regulatory clearances.
Research and development expense was $3.9 million for the year ended December
31, 2007, an increase of $1.0 million, or 34%, from $2.9 million for
the year ended December 31, 2006. The increase was primarily due $0.2 million in
clinical research costs, specifically for testing and qualification process in
Japan, and increased compensation and benefits of $0.3 million related to the
higher headcount needed to support the activities.   Stock based
compensation also increased $0.5 million associated with our new 2006 equity
incentive plan.




Sales and marketing expense.
Sales and marketing expense consists of costs related to our direct sales force
personnel, clinical application specialists, travel, trade shows, advertising,
entertainment, and marketing materials provided to our international
distributors. Sales and marketing expense was $11.2 million for the year ended
December 31, 2007, an increase of $5.2 million, or 87%, from $6.0 million for
the year ended December 31, 2006. This increase was primarily attributable to
the growth of our direct sales force and marketing activities to support our
worldwide market expansion resulting in increased compensation costs of $1.7
million, increased travel costs of $0.9 million, increased advertising and
promotion expenses of $0.6 million, increased trade show and meeting expenses of
$0.4 million, increased public relations expense of $0.1 million, increased
commissions of $0.3 million corresponding to increase in sales, and increased
outside services expenses of $0.2 million.  Stock based compensation
also increased by $0.8 million associated with our new 2006 equity incentive
plan.




26




General and administrative
expense. General and administrative expense consists of costs related to
personnel, legal, accounting and other general operating expenses. General and
administrative expense was $5.5 million for the year ended December 31,
2007, an increase of $1.1 million or 25%, from $4.4 million for the year
ended December 31, 2006. The increase was primarily attributable to an increase
in stock based compensation of $1.2 million, initial NASDAQ filing fees of $0.1
million, increased board of directors compensation and higher insurance costs of
$0.2 million, and $0.1 million increase in consulting related to our
Sarbanes-Oxley compliance efforts.  These increases are partially
offset by decreased professional fees (legal, accounting and printing) of
$0.5 million as we undertook significant efforts in early 2006 related to
an initial public offering (IPO) prior to commencing the merger transaction with
Ithaka in late 2006.  The IPO costs were expensed when we withdrew our
offering.




Interest income. Interest
income was $0.7 million for the year ended December 31, 2007, an increase
of $0.6 million, or 600%, from $0.1 million for the year ended
December 31, 2006. This increase was due to the investing the cash and cash
equivalents we obtained in the merger.




Interest expense. Interest
expense was $4.0 million for the year ended December 31, 2007, an increase of
$1.9 million, or 90%, from $2.1 million for the year ended December 31,
2006. The increase in interest expense resulted from an additional $1.1 million
incurred on our convertible bridge notes issued from April 2006 through February
2007, $1.1 million incurred on promissory notes issued in February and May 2007
in connection with our loan from Merrill Lynch Capital, and $0.1 million
incurred on our borrowings from Cheyne Capital, partially offset by a decrease
in interest expense of $0.3 million related to our borrowings from Oxford
Finance which we repaid in February 2007. The interest expense on the bridge
notes included a discount associated with the warrants issued with the bridge
notes.




Other expense. Other expense
was $0.1 million for the year ended December 31, 2007, a decrease of $2.0
million, or 95%, from the $2.1 million for the year ended December 31, 2006. The
decrease is due to the changes in fair value of the warrant and embedded
derivative liabilities associated with our debt instruments.  The
underlying debt instruments were converted or repaid in 2007.




Quarterly
Financial Information (Unaudited)





The
following is a summary of the Company’s unaudited quarterly results of
operations for fiscal 2008 and 2007 (in thousands, except share
and per share data).





Fiscal
      Quarter EndedFiscal 2008
                          
                          December
      31
                          
                          
                          September
      30
                          
                          
                          June
      30
                          
                          
                          March
      31Revenues
                          
                          $
                          3,840
                          
                          
                          $
                          3,096
                          
                          
                          $
                          3,022
                          
                          
                          $
                          2,503Gross
      margin
                          
                          
                          1,301
                          
                          
                          
                          522
                          
                          
                          
                          957
                          
                          
                          
                          592Net
      loss
                          
                          
                          (3,547
                          )
                          
                          
                          (4,862
                          )
                          
                          
                          (4,734
                          )
                          
                          
                          (5,497
                          )Net
      loss per share, basic and diluted
                          
                          
                          (0.17
                          )
                          
                          
                          (0.23
                          )
                          
                          
                          (0.22
                          )
                          
                          
                          (0.27
                          )Fiscal
      Quarter EndedFiscal 2007
                          
                          December
      31
                          
                          
                          September
      30
                          
                          
                          June
      30
                          
                          
                          March
      31Revenues
                          
                          $
                          2,709
                          
                          
                          $
                          1,880
                          
                          
                          $
                          2,500
                          
                          
                          $
                          2,025Gross
      margin
                          
                          
                          754
                          
                          
                          
                          608
                          
                          
                          
                          331
                          
                          
                          
                          80Net
      loss
                          
                          
                          (5,665
                          )
                          
                          
                          (5,252
                          )
                          
                          
                          (4,959
                          )
                          
                          
                          (6,359
                          )Net
      loss per share, basic and  diluted (1)
                          
                          
                          (0.31
                          )
                          
                          
                          (0.29
                          )
                          
                          
                          (0.42
                          )
                          
                          
                          (0.58
                          )


(1)
              For
      the periods prior to the close of the June 2007 merger with Ithaka, the
      net loss per share- basic and diluted is computed using 10,974,100 shares
      outstanding.   The merger was, for financial reporting
      purposes, treated as a reverse acquisition.  Because the number
      of shares outstanding following a reverse acquisition is significantly
      different from the number of shares outstanding prior to the combination,
      the weighted average shares outstanding for purposes of presenting net
      loss per share on a comparative basis has been retroactively restated to
      the earliest period presented in order to reflect the effect of the
      recapitalization that occurs in a reverse acquisition.  In effect,
      the reverse acquisition is similar to a stock split for the accounting
      acquirer, and retroactively restating the weighted average shares
      outstanding is consistent with the accounting required by SFAS No. 128,
      “Earnings Per Share”, for stock splits, stock dividends, and reverse stock
      splits.




27




Liquidity and Capital Resources (dollars in
thousands, except share and per share data)





From our
inception, and prior to the merger with Ithaka in June 2007, we financed our
operations primarily through private sales of preferred stock, with aggregate
net proceeds of $76.5 million in cash. From April 2006 through
February 2007, we borrowed an aggregate amount of $10.6 million from
existing shareholders (the 2006 bridge notes). We issued to each lending party
unsecured convertible promissory notes bearing interest at 8% per annum. In
February 2007, we borrowed $8.0 million from Merrill Lynch Capital
(subsequently acquired by GE Capital) of which $3.0 million was used to pay
existing debt. We issued a secured promissory note to Merrill Lynch Capital
bearing interest at 6.5% over the LIBOR rate with interest only payments for the
first six months and interest and principal payments for 30 months thereafter.
In connection with this term loan, we issued a warrant having a contractual life
of ten years. We estimated the fair value of the warrant using the Black-Scholes
option pricing model. The estimated fair value of $0.2 million resulted in
a discount to the term loan. The discount will be amortized to interest expense
using the effective interest method over the life of the term loan.




In May
2007, we and Merrill Lynch Capital amended our promissory note to provide for an
additional $2.0 million of borrowing for an aggregate total of $10.0 million.
The second tranche of $2.0 million was funded on May 11, 2007 with interest
at the same rate as the original note and it was repaid upon the close of the
Ithaka merger in June 2007. In connection with the second tranche, we did not
issue any additional warrants but we did incur a fee of $0.2 million, which was
paid out of proceeds.  In June 2007, we borrowed $1.5 million in an
unsecured promissory note from a financing company, Cheyne Capital, a
shareholder of Ithaka.  The interest rate on this note was 15% and we
incurred a fee of 7.5% which was paid out of proceeds.  We repaid this
unsecured promissory note in July 2007.  We consummated our merger
with Ithaka in June 2007, and in that transaction we acquired approximately
$40.0 million of net assets (see Note 3 of the accompanying Notes to
Consolidated Financial Statements).




As of
March 31, 2009, we owed a total of $2.9 million to GE Capital.  In
connection with the closing of the Asset Sale to Zoll, we intend to repay GE
Capital in full in the amount of $3.1 million which consists of principal and
estimated accrued interest and fees through the closing.




We have
incurred significant net losses since inception and have relied on our ability
to obtain financing.  As of December 31, 2008, we had $5.6 million in
cash and cash equivalents to finance operations and satisfy our
obligations.  If the Asset Sale is consummated, we will have
sufficient capital to meet our reduced operational needs for the next twelve
months.  If the Asset Sale is terminated, unless we are able to secure
debt or equity financing, we will not have sufficient capital to meet our
operational needs for the next twelve months.




We have
incurred significant net losses since inception, and have relied on our ability
to obtain financing, which to date has been through a merger, the sale of
redeemable convertible preferred stock and the issuance of promissory notes. We
expect operating losses and negative cash flows to continue for the foreseeable
future as we incur additional costs and expenses related to continued
development of our products, and obtaining FDA approval for new indications.
These factors raise substantial doubt about our ability to continue as a going
concern. The accompanying financial statements have been prepared on a going
concern basis that contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The financial statements do not
include adjustments relating to the recoverability of recorded asset amounts or
the amounts or classification of liabilities that might be necessary should we
be unable to continue as a going concern. Our ability to meet our obligations in
the ordinary course of business is dependent upon our ability to establish
profitable operations, or to secure other sources of financing to fund
operations.





Years
Ended December 31, 2008 and 2007




As of
December 31, 2008, we had cash and cash equivalents of $5.6 million, working
capital of $7.7 million and an accumulated deficit of $116.9
million.




Cash flows used in operating
activities. Net cash used in operations was $15.1 million for the year
ended December 31, 2008 and $20.7 million for the year ended December 31, 2007.
The net cash used in each of these periods primarily reflects the net loss for
those periods, offset by non-cash charges such as depreciation and amortization,
stock-based compensation, amortization of debt discounts and the change in fair
value of warrant liabilities associated with the May 2005 and February 2007
secured promissory notes and Merrill Lynch Capital Term Loan and the change in
the fair value of the warrant liabilities and embedded derivatives associated
with our 2006 bridge notes.  Non-cash charges for depreciation and
amortization, stock-based compensation, amortization of debt discounts and debt
issuance costs and the change in fair value of warrant liabilities and embedded
derivatives totaled $4.3 million and $6.6 million for the years ended December
31, 2008 and 2007, respectively, representing a $2.3 million decrease. This
decrease was primarily comprised of a $0.2 million increase in stock-based
compensation offset by a decrease of $2.6 million of amortization of discounts
on promissory notes since we converted or repaid our debt instruments in June
2007.




Cash flows used in investing
activities. Net cash used by investing activities was $1.0 million for
the year ended December 31, 2008 and consisted of capital
expenditures.  Net cash provided by investing activities was $40.6
million for the year ended December 31, 2007 and consisted $41.5 million of net
cash received in the Ithaka merger and offset by $0.9 million of capital
expenditures. The increase in capital expenditures is primarily attributable to
the January 2008 release of our Thermogard XP system and the subsequent
placement of these systems into our evaluation equipment pool.




Cash flows from financing
activities. Net cash flows used by financing activities were $2.7 million
for the year ended December 31, 2008 compared to $3.9 million provided by
financing activities for the year ended December 31, 2007. Cash flows from
financing activities in 2008 reflects $0.5 million in net proceeds from our
warrant exchange program offset by $3.2 million in repayment of the borrowings
from Merrill Lynch.




Cash
flows provided by financing activities in the year ended December 31, 2007 were
$3.9 million and primarily represent $13.0 million in proceeds from the 2006
bridge notes and other borrowings, offset by $7.7 million in principal payments,
$0.9 million in payments to convert common stock in connection with the Ithaka
acquisition, and $0.3 million of debt issuance costs.




28




Years
Ended December 31, 2007 and 2006




As of
December 31, 2007, we had cash and cash equivalents of $24.4 million, working
capital of $25.7 million and an accumulated deficit of $98.2
million.




Cash flows used in operating
activities. Net cash used in operations was $20.7 million for the year
ended December 31, 2007 and $11.9 million for the year ended December 31, 2006.
The net cash used in each of these periods primarily reflects the net loss for
those periods, offset by non-cash charges such as depreciation and amortization,
stock-based compensation, amortization of debt discounts and the change in fair
value of warrant liabilities associated with the May 2005 and February 2007
secured promissory notes and Merrill Lynch Capital Term Loan and the change in
the fair value of the warrant liabilities and embedded derivatives associated
with our 2006 bridge notes.  Non-cash charges for depreciation and
amortization, stock-based compensation, amortization of debt discounts and the
change in fair value of warrant liabilities and embedded derivatives totaled
$6.5 million and $4.3 million for the years ended December 31, 2007 and 2006,
respectively, representing a $2.2 million increase. This increase was comprised
of a $1.4 million increase in discount amortization associated with the 2006
bridge notes, and increase in stock-based compensation of $2.8 million during
2007, offset by a decrease of $2.1 million of change in fair value of warrant
liabilities associated with our debt instruments since we converted or repaid
our debt instruments in 2007.




For the
year ended December 31, 2007, operating assets and liabilities aggregated to a
net decrease of cash of $5.0 million, representing an increased level of all
operating assets and liabilities, primarily related to building inventories by
$4.3 million to support our increased sales growth.




Cash flows used in investing
activities. Net cash provided by investing activities was $40.6 million
for the year ended December 31, 2007 and consisted of $41.5 million in
net cash received in the merger with Ithaka, offset by $0.9 million in
capital expenditures. Net cash used in investing activities was $0.3
million for the year ended December 31, 2006, and consisted of capital
expenditures.




Cash flows from financing
activities. Cash flows from financing activities were $3.9 million for
the year ended December 31, 2007 and $7.5 million for the year ended December
31, 2006. Cash flows from financing activities in 2007 reflected $1.5
million in proceeds from the 2006 Bridge Notes, $10.0 million in proceeds from
the promissory notes issued in February and May 2007 to Merrill Lynch Capital,
and $1.5 million in proceeds on the unsecured Cheyne Capital promissory note,
offset by $3.1 million for the payment in full of the 2005 promissory note with
Oxford Finance Corporation, $3.1 million in repayment of the borrowings from
Merrill Lynch and $1.5 million in full repayment of our borrowings from Cheyne
Capital.   We also paid $0.3 million in debt issuance costs on these
borrowings.  In 2007 we also spent $0.9 million to repurchase common
stock warrants we acquired in the merger.




Cash
flows from financing activities in the year ended December 31, 2006 were $7.5
million and represents $9.1 million in proceeds from the 2006 Bridge Notes,
offset by $1.5 million in principal payments on the 2005 promissory
note.




Uses
of Capital Resources




The
following table summarizes information about our material contractual
obligations as of December 31, 2008:





Contractual
      Obligations
            
            Total
            
            
            Less Than
              1
      Year
            
            
            1-3
              Years
            
            
            3-5
              Years
            
            
            More Than
              5
      Years(in
      thousands)Operating
      leases
            
            $
            1,126
            
            
            $
            378
            
            
            $
            748
            
            
            $
            —
            
            
            $
            —Long-term
      debt (excluding discount of $51)
            
            $
            3,773
            
            
            $
            3,216
            
            
            $
            557
            
            
            $
            —
            
            
            $
            —Capital
      leases
            
            $
            82
            
            
            $
            27
            
            
            $
            55
            
            
            $
            —
            
            
            $
            —




Operating leases. We lease
our facility under a noncancelable operating lease which, as amended in August
2008, expires in December 2011 with an option to extend the lease for an
additional three-year term at market rates. Under the lease, we are required to
pay for insurance, taxes, utilities and building maintenance, commonly known as
a “triple net” lease. We also lease a small space for our European service
center in Wateringen, the Netherlands, under a lease that expires on
May 31, 2010.  In November 2007, we entered into a new operating
lease commitment for an automobile, under a lease that expires in November
2011.




29





In
connection with the Asset Sale, Zoll has agreed to assume the European service
center lease.  However, Zoll is not assuming our Irvine, California,
headquarters lease.  We are currently negotiating with our landlord to
terminate our headquarters lease in connection with the Asset Sale, which may
involve paying a one-time termination fee.  We estimate the total
remaining charges under the term of the lease to be $1.4 million (including rent
and related common area expenses) if we are required to bear the
entire lease cost.




Long-term debt.  The senior secured credit facility with Merrill Lynch
Capital (now GE Capital), entered into in February 2007 and amended in May
2007,  consists of a $10.0 million term loan with an interest rate of
one month LIBOR plus 6.50%, and the outstanding balance at December 31, 2008 is
$3.7 million.   The term loan requires interest only payments for
the first six months and interest and principal payments for each month
thereafter through February 2010.  Based on the current interest rate
at December 31, 2008, we estimate that our interest payments for fiscal 2009
will be $206 and in fiscal 2010 until maturity will be $6.  As of
March 31, 2009, we owed a total of $2.9 million to GE Capital. In April 2008, we
entered into a new equipment financing agreement for $51 which requires monthly
payments through April 2011.




Capital leases.In June 2006,
we entered into a lease commitment for computer equipment over a period of 63
months for a total value of $106. In November 2006, we entered into a lease
commitment for office equipment over a period of 60 months for a total value of
$14. In April 2007, we entered into a lease commitment for machinery and
equipment over a period of 48 months for a total value of $14.




Uncertain tax liabilities.At
December 31, 2008, we had uncertain tax positions which ultimately could result
in a tax payment.




Plan
of Dissolution (dollars in thousands, except share and per share
data)




After the
consummation of the Asset Sale, we anticipate that an initial distribution of
liquidation proceeds will be made to our stockholders within
90 days.  As we liquidate our remaining assets and pay off our
outstanding liabilities, we will distribute additional liquidation proceeds, if
any, to our stockholders as the Board or its authorized designees deem
appropriate. A final $1 million will be held in trust for one year from the
closing date of the Asset Sale to cover potential indemnity obligations to Zoll
under the Purchase Agreement for the Asset Sale.  We currently
estimate that the aggregate amount ultimately distributed to our stockholders
will be approximately $7.6 million, or $0.34 per share of our common
stock.  However, the amounts to be distributed to our stockholders may
be less if we incur greater liabilities than anticipated in winding down our
affairs and/or less revenue than anticipated through the closing of the Asset
Sale.  (Alternatively, it is possible that we could distribute more
than currently estimated if liabilities are less than expected and/or revenues
are greater than expected.)  A key factor in maximizing potential
distributions is the timing of the closing of the Asset Sale, which is subject
to certain risks and uncertainties.  To the extent the closing of the
Asset Sale is delayed beyond April 2009, we anticipate incurring additional
operating expenses of up to $1 million per month to operate the
Company through closing.




The
following is a current estimate of cash assets and liabilities, and net
available funds to distribute to stockholders, that will be available following
the sale of substantially all of the Company’s assets to Zoll, such amounts
beingonly
estimatesand subject to
risks and uncertainties, such as unknown liabilities and claims, and the extent
to which accounts receivable can be collected, that may significantly vary the
amount, ultimately available to distribute to
stockholders:






AssetsProceeds of Asset
      Sale
            $12.0
      millionZoll Purchase
      Order
            $  3.0
      millionCash &
      equivalents at closing
            $  2.0
      millionCollections on
      A/R
            $  2.0
      millionTotal
      Assets
            $19.0
      millionLiabilitiesDebt to GE (secured
      lender)
            $  3.7
      millionAccounts
      Payable
            $  1.4
      millionWind down
      Liabilities
            $  6.3
      millionTotal
      Liabilities
            $11.4
      millionNet
      Available for Distribution
            $7.6
    million($0.34 per share
      based on 22,400,000 fully-diluted shares)




30




The
following highlights certain significant expenses that will be incurred in
connection with the winding down of the Company’s affairs.




Severance
Benefits




The
amount of severance benefits payable to our officers and other employees
pursuant to their employment agreements or our severance plan is $1.4 million,
plus $0.1 million of associated payroll taxes.  Pursuant to our Change
in Control Plan, Vice Presidents will receive six months' base salary and
continuation of benefits, and Director level employees will receive three
months' base salary and continuation of benefits.  Other employees are
typically given up to one month's base pay as severance.  Mr. Worthen,
our CEO, will receive twelve months' base salary and continuation of benefits
pursuant to his employment agreement.  In addition, all restricted
stock units ("RSUs") granted to current employees will vest upon the
consummation of the Asset Sale, and each holder will receive the same
distribution per share as stockholders.  The following is a summary of
the RSUs that have been granted to our executive officers:





Executive
      Officer
              # of
      RSUsWilliam
      Worthen
              425,000Suzanne
      Winter
              160,500H.
      Michael Ameli
              67,625




Lease Termination
Costs




We lease
office space for our corporate headquarters and operations in Irvine,
California, consisting of approximately 27,000 square feet.  The term of
the lease ends in December 2011.  As of December 31, 2008, our minimum
future lease payments were approximately $1.4 million (including rent and
related common area expenses).  As of June 1, 2009, the anticipated date to
vacate our facilities assuming the Asset Sale is consummated and the Plan of
Dissolution is implemented, the remaining rental expense under the lease through
the end of its term is anticipated to be approximately $1.2 million (including
rent and related common area expenses).




We intend
to negotiate to terminate the lease with our landlord.  We currently
do not know the amount of money we will be required to pay to terminate. 
We are currently trying to locate a tenant to replace us at our facility and
have the landlord release us from all future lease obligations.  In
this case, the new tenant will likely pay lower rent than we do and we will have
to pay the landlord some or all of the shortfall between our rent and that of
the new tenant in order to secure a release of our lease
obligations.  If we are unable to negotiate termination of our lease
at acceptable terms, we may seek to sublease our corporate headquarters
facility, which would require landlord consent, and may require that we remain
obligated in the event the subtenant defaults on the lease.  This may
require that we hold amounts in reserve during the lease term to cover potential
liabilities.  We do not know whether we would be successful in
identifying a subtenant and negotiating a sublease on acceptable terms, or if
successful, how long it would take to complete such a transaction.




Long-term debt




The
senior secured credit facility with Merrill Lynch Capital (now GE Capital),
entered into in February 2007 and amended in May 2007,  consists of a
$10.0 million term loan with an interest rate of one month LIBOR plus 6.50%, and
the outstanding balance at December 31, 2008 is $3.7
million.   The term loan requires interest only payments for the
first six months and interest and principal payments for each month thereafter
through February 2010.  Based on the current interest rate at December
31, 2008, we estimate that our interest payments for fiscal 2009 will be $206
and in fiscal 2010 until maturity will be $6. As of our filing date, we
owed a total of $2.9 million to GE Capital.  In connection with the
closing of the Asset Sale, we intend to repay GE Capital in full in the amount
of $3.1 million which consists of principal and estimated accrued interest and
fees through the closing.  In April 2008, we entered into a new
equipment financing agreement for $51 which requires monthly payments through
April 2011.  We intend to terminate this agreement at the closing of
the Asset Sale and expect to pay a termination fee of $39.




Capital leases




In June
2006, we entered into a new lease commitment for computer equipment over a
period of 63 months for a total value of $106. In November 2006, we entered into
a new lease commitment for office equipment over a period of 60 months for a
total value of $14. In April 2007, we entered into a new lease commitment for
machinery and equipment over a period of 48 months for a total value of
$14.   We intend to terminate these leases at the closing of the
Asset Sale and expect to pay termination fees of $82.




31




Uncertain Tax
Liabilities




At
December 31, 2008, we had uncertain tax positions which ultimately could result
in a tax payment.  We have agreed to sell substantially all of our
assets to Zoll, which may result in a gain on the sale of our assets and a
required tax payment to the State of California, due to their discontinuation of
allowing NOLs to be recognized in asset sales.  If a tax payment is
owed to the State of California, it would reduce the funds available for
distribution to shareholders.





Off-Balance
Sheet Arrangements





Since
inception, we have not engaged in material off-balance sheet activities,
including the use of structured finance, special purpose entities or variable
interest entities.





Recent
Accounting Pronouncements




In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ,
which defines fair value, establishes a framework for consistently measuring
fair value under generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 does not require any new
fair value measurements, but provides guidance on how to measure fair value by
providing a fair value hierarchy used to classify the source of the
information.  In February 2008, the FASB deferred the effective date
of SFAS 157 by one year for certain nonfinancial assets and liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually) to fiscal years beginning after
November 15, 2008.




The fair
value hierarchy described by the standard is based on three levels of inputs, of
which the first two are considered observable and the last unobservable, that
may be used to measure fair value and include the following:




Level 1 –
Quoted prices in active markets for identical assets or
liabilities.




Level 2 –
Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.




Level 3 –
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.





In
accordance with SFAS 157, the following table represents the fair value
hierarchy for our financial assets (cash equivalents and investments) measured
at fair value on a recurring basis as of December 31, 2008:




Fair
      Value Measurements UsingLevel
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            TotalCash
      and cash equivalents
            
            $
            5,605
            
            
            
            —
            
            
            
            —
            
            
            $
            5,605




The
adoption of SFAS 157 related to financial assets and liabilities did not
have a material effect on our consolidated financial position, results
of operations or cash flows.  The book values of cash and cash
equivalents, accounts receivable and accounts payable approximate their
respective fair values due to the short-term nature of these instruments. We are
currently evaluating the impact, if any, that SFAS 157 may have on our future
consolidated financial statements related to nonfinancial assets and
liabilities.




Effective
September 30, 2008, we adopted Financial Staff Position No. SFAS 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
is Not Active” (FSP SFAS 157-3), which was issued on October 10, 2008. FSP SFAS
157-3 clarifies the application of SFAS No. 157 in a market that is not active
and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for the financial asset is not
active. The adoption of FSP SFAS 157-3 did not have an impact on our
consolidated financial statements.




32




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial
Liabilities — Including
an Amendment of SFAS No. 115.  SFAS No. 159
provides reporting entities an option to measure certain financial assets and
liabilities and other eligible items at fair value on an
instrument-by-instrument basis. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings at each
subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. The adoption of SFAS No. 159 did not have an impact on
our consolidated financial position, results of operations and cash
flows.




In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS
No. 141(R) requires reporting entities to record fair value estimates of
contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisition costs as incurred and
does not permit certain restructuring activities previously allowed under EITF
95-3 to be recorded as a component of purchase accounting.  In
addition, under SFAS No. 141(R), changes in an acquired entity’s deferred tax
assets and uncertain tax positions after the measurement period will impact
income tax expense. SFAS No. 141(R) is effective for fiscal periods beginning
after December 15, 2008 and should be applied prospectively for all business
acquisitions entered into after the date of adoption. We do not expect the
adoption of SFAS No. 141(R) to have an impact on our consolidated financial
position, results of operations and cash flows.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements — an amendment of ARB No. 51.
SFAS No. 160 requires (i) that noncontrolling (minority) interests be reported
as a component of shareholders’ equity, (ii) that net income attributable to the
parent and to the noncontrolling interest be separately identified in the
consolidated statement of operations, (iii) that changes in a parent’s ownership
interest while the parent retains its controlling interest be accounted for as
equity transactions, (iv) that any retained noncontrolling equity investment
upon the deconsolidation of a subsidiary by initially measured at fair value,
and (v) that sufficient disclosures are provided that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 is effective for fiscal periods beginning
after December 15, 2008. We are currently evaluating the impact the adoption of
SFAS No. 160 will have on our consolidated financial position, results of
operations and cash flows.




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133. The new standard is intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity’s financial position, financial performance, and cash flows. Entities are
required to provide enhanced disclosures about: (a) how and why an entity
uses derivative instruments; (b) how derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related
interpretations; and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. This standard is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. We are currently evaluating the impact, if any,
SFAS No. 161 will have on our consolidated financial position, results of
operations or cash flows.




In March
2007, the FASB ratified Emerging Issues Task Force Issue 06-11, Accounting for Income Tax Benefits
of Dividends on Share-Based Payment Awards, (“EITF Issue 06-11”).
Beginning January 1, 2008, we adopted EITF Issue 06-11. In accordance with
the EITF Issue, we record a credit to additional paid-in capital for tax
deductions resulting from a dividend payment on non-vested share awards we
expect to vest. The adoption of EITF Issue 06-11 did not have any impact on our
consolidated financial statements.




In June
2008, the FASB issued Financial Accounting Standards Board Staff Position EITF
03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities (“FSP 03-6-1”). The FSP provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method in accordance with SFAS 128, Earnings per Share. The FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years. Upon adoption, we are
required to retrospectively adjust our earnings per share data to conform with
the provisions in this FSP. Early application of this FSP is prohibited. We are
currently evaluating the impact that FSP 03-6-1 will have on our consolidated
financial statements.




33




Critical
Accounting Policies





Our
discussion and analysis of our financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenue and expenses, and
disclosures of contingent assets and liabilities as of the date of the financial
statements. On a periodic basis, we evaluate our estimates, including those
related to revenue recognition, accounts receivable, inventories, warranty,
stock-based compensation, warrants and embedded derivatives. We use historical
experience and other assumptions as the basis for making estimates. Actual
results could differ from those estimates under different assumptions or
conditions. We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of our
financial statements.




Revenue. We generate revenue
primarily from the sale of our CoolGard and Thermogard systems, five families of
single-use catheters and single-use start-up kits, one of which is required with
each catheter used. In the United States, we have been selling our products
through a direct sales force and are paid directly by the hospital purchasing
our products. Outside of the United States, we have been selling our products to
distributors at a discount to the list price and are paid directly by the
distributor, who then sells to the hospital. Our revenue recognition policy is
the same for both domestic customers and distributors.




We
recognize revenue in accordance with SEC Staff Accounting
Bulletin No. 104, Revenue Recognition, which
requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred and title and the risks and rewards of ownership have been transferred
to the customer or services have been rendered; (3) the price is fixed or
determinable; and (4) collectability is reasonably assured. Persuasive
evidence of an arrangement consists of a purchase order for domestic customers
and a distributor agreement with a purchase order for sales to international
distributors. Delivery has occurred and title and the risks and rewards of
ownership are transferred to the customer when the product has been shipped or
received by the customer in accordance with the terms of the related purchase
order. The price is fixed and determinable upon the receipt of a customer
purchase order, which includes a stated purchase price. The majority of our
arrangements include FOB shipping point terms. We use judgment when determining
whether collection is reasonably assured and rely on a number of factors,
including past transaction history with the customer and management evaluations
of the credit worthiness of the customer. If we determine that collection is not
reasonably assured, we would defer revenue until such time that collection is
reasonably assured.




We evaluate whether the separate deliverables in its arrangements
can be unbundled. Sales of the CoolGard and Thermogard systems domestically to
hospitals include separate deliverables consisting of the CoolGard or Thermogard
system, disposables used with the system and installation. For these sales, we
apply the residual value method in accordance with Emerging Issues Task Force
(“EITF”) No. 00-21, Revenue Arrangements with Multiple
Deliverables, which requires the allocation of the total arrangement
consideration less the fair value of the undelivered element, which consists of
installation, to the delivered elements. Through December 31, 2008, there was a
limited number of the undelivered element, resulting in a minimal amount
attributed to the undelivered element.




Explicit
return rights are not offered to customers; however, we may accept returns in
limited circumstances. We do not offer return rights for expired products to our
customers. We assess levels of inventory in the distribution channel through
regular communications with distributors by international sales and service
personnel. The amount of returns through December 31, 2008 has been minimal. A
sales return allowance has not been established because we believe returns will
be insignificant.




We enter
into equipment loan agreements with stated terms of primarily six-months with
certain customers whereby the CoolGard or Thermogard system is placed at the
customer’s site for their evaluation and use. During this time, the customer
purchases disposables. There are no stated minimum purchase requirements. We
account for these arrangements in accordance with SFAS No. 13, Accounting for Leases, and
have classified these arrangements as operating leases. The consideration for
the rental portion of the arrangement is considered to be contingent and is
recorded when earned. We currently do not charge a rental fee during the
evaluation period.  The amount of revenue attributable to the lease
element of these arrangements was less than 10% of the Company’s total revenue
for all periods presented. The CoolGard or Thermogard system is classified as
evaluation equipment on the balance sheet and is depreciated over its estimated
economic life of five years with depreciation included as a component of cost of
revenue.




During
2005, we began to offer extended warranty contracts, which are separately sold
to non-distributor customers. Revenue is recorded on a straight-line basis over
the period of the contract, which is one year.




34




Accounts receivable. We
record accounts receivable based on the invoice amount and do not charge
interest on outstanding balances. Allowances for doubtful accounts are estimated
for losses resulting from the inability of our customers to make required
payments. We analyze accounts receivable and historical bad debts, customer
credit, current economic trends and changes in customer payment trends when
evaluating the adequacy of the allowance for doubtful accounts. Account balances
are charged-off against the allowance when it is determined that the receivable
will not be recovered. Different estimates regarding the collectability of
accounts receivable may have a material impact on the timing and amount of
reported bad debt expense and on the carrying value of accounts
receivable.  Zoll will not be acquiring our accounts receivable in
connection with the Asset Sale.




Inventory. Inventory,
consisting of finished goods, work-in-progress and raw materials is stated at
the lower of cost (first-in, first-out) or market. Inventory reserves are
established when conditions indicate that the selling price could be less than
cost due to physical deterioration, usage, obsolescence, reductions in estimated
future demand and reductions in selling prices. Our catheters have an expiration
date of two years from the date of manufacture, which we have established based
on safety standards. We balance the need to maintain strategic inventory levels
with the risk of obsolescence due to changing technology and customer demand
levels. Different estimates regarding the net realizable value of inventories
could have a material impact on reported net inventory and costs of sales, and
thus could have a material impact on the financial statements as a
whole.  Zoll will be acquiring all of inventory in connection with the
Asset Sale.




Warranty reserve. We provide
a 12 month warranty from date of purchase for domestic customers and a
15 month warranty from date of purchase for distributors on our CoolGard
and Thermogard systems, which covers parts, labor and shipping costs. We also
allow our domestic customers one year from the date of purchase and our
distributors two years from the date of purchase or the expiration date,
whichever is shorter, to exchange any catheter or start-up kit that contains a
defect. Accordingly, we have established a warranty reserve for our products. We
estimate the costs that may be incurred under the warranties and record a
liability for the amount of such costs at the time the products are sold.
Factors that affect the warranty liability include the number of units sold,
historical and anticipated rates of warranty claims, and costs per claim, which
requires management to make estimates about future costs. We periodically assess
the adequacy of the recorded warranty liabilities and adjust the amounts as
necessary. Although we test our products in accordance with our quality programs
and processes, the warranty obligation is affected by product failure rates and
service delivery costs incurred in correcting a product failure. Revisions to
the originally estimated warranty liability would be required should actual
product failure rates or service costs differ from original estimates, which are
based on historical data. Differences could result in the amount of the recorded
warranty liability and cost of sales if we made different judgments or used
different estimates.  Zoll will be assuming the warranty obligations
for our business in connection with the Asset Sale.




Stock-based compensation. We
applied the principles of Accounting Principles Board (“APB”) Opinion
No. 25, Accounting for
Stock Issued to Employees prior to January 1, 2006, which requires
us to record compensation expense equal to the excess of the estimated fair
value of our common stock over the employee option’s exercise price on the grant
date, the intrinsic value, and record such compensation expense over the stock
option’s vesting period. Effective January 1, 2006, we adopted the
provisions of SFAS 123(R) using the prospective transition method. Under
the prospective transition method, only new awards, or awards that have been
modified, repurchased or cancelled after January 1, 2006, are accounted for
using the fair value method. We will continue to account for awards outstanding
as of January 1, 2006 using the accounting principles under APB
No. 25. We also issue stock options to non-employees and apply the
principles of EITF No. 96-18, Accounting for Equity Instruments
that Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services, which requires that such equity instruments
are recorded at their fair value and periodically adjusted as the stock options
vest. The fair value of our non-employee stock options is estimated using the
Black-Scholes option pricing model, which requires the use of management’s
judgment in estimating the inputs, including the expected term of the
stock-based awards, stock price volatility, and pre-vesting
forfeitures, used to determine fair value. Management’s estimate of the
fair value of our common stock impacts compensation expense recorded in the
results of operations for both employees and non-employees.




Another
variable that impacts the estimated fair value of both our employee and
nonemployee stock options granted after January 1, 2006 is the
volatility of the common stock. Prior to the completion of the merger with
Ithaka in June 2007, Alsius Medical’s common stock was not publicly
traded.  Therefore estimates were based on the volatility of comparable
public companies for stock options granted after January 1, 2006. Changes in
these estimates may impact the estimated value of the non-employee stock options
and the related compensation expense recorded in the statement of
operations.




In
determining exercise prices for stock options prior to the merger with Ithaka in
June 2007, we did not obtain contemporaneous valuations by an unrelated
valuation specialist, but instead relied on our board of directors, the members
of which we believe have extensive experience in the medical device market and a
majority of which is comprised of non-employee directors, to determine a
reasonable estimate of the then-current fair value of the common stock. Because
we did not have any outside equity financings since September 2004, and
because there had been no liquidity in our common stock, our board of directors
determined the fair value of the common stock on the date options were granted
based on several factors, including the liquidation preferences of our preferred
stock, progress against regulatory and product development milestones, our
financial condition and the likelihood of achieving a liquidity event such as an
initial public offering or a sale of the company.




35




During
the first six months of 2006, as we considered an initial public offering, we
reassessed the valuations of common stock relating to option grants during the
year ended December 31, 2005. We considered the expected value of our
common stock in a planned initial public offering, in addition to our increasing
sales, and favorable valuations of comparable publicly-traded medical device
companies. As a result, the estimated fair value of our common stock in 2005 was
greater than the exercise price of the stock options. We used a market-based
approach in determining the fair value of our common stock as of each grant
date, and also considered the following factors:




●
            successive
      quarters of increased U.S. and international sales during 2005, which, by
      the end of the first sixmonths
      of 2006 we believed evidenced its commercial
  traction;




●
            our
      progress in developing its U.S. and international sales and marketing
      infrastructure;




●
            our
      growing installed base of systems in hospitals and increasing catheter
      utilization; and




●
            increased
      receptivity of the public capital markets to early stage medical device
      initial public offerings.





During
the third quarter of 2006, as we changed our strategy from pursuing an initial
public offering of our common stock to entering into a merger transaction with
Ithaka, we reassessed the valuation model used in determining the fair value of
common stock from a market-based approach to a probability weighted approach for
a sale transaction or a recapitalization event. These new approaches included
the following factors:




●
            the
      proposed merger terms whereby eight million shares of Ithaka common stock
      would be issued asconsideration
      for the merger;




●
            the
      potential of an additional six million shares of Ithaka common stock would
      be issued as Milestone Sharesif
      certain revenue targets were achieved in fiscal
  2007-2009;




●
            the
      amount of unsecured promissory notes which would have to be satisfied in
      accordance with their termsprior
      to any consideration being issued to our shareholders;
  and




●
            the
      priority position of preferred stockholders, particularly the Series F
      preferred stockholders,to
      common stockholders.




After
consideration of the above factors, we determined that the estimated fair value
of our common stock since September 30, 2006 was minimal. We have not
granted any stock options since May 2008.




Effective
January 1, 2006, we account for stock options granted using
SFAS No. 123(R), Share-Based Payment, which
has replaced SFAS No. 123 and APB 25. Under
SFAS No. 123(R), companies are no longer able to account for
share-based compensation transactions using the intrinsic method in accordance
with APB 25, we are currently accounting for such transactions using a
fair-value method and are recognizing the expense in the statements of
operations. We adopted the provisions of SFAS 123(R) using the prospective
transition method. Under the prospective transition method, only new awards, or
awards that have been modified, repurchased or cancelled after January 1,
2006, are accounted for using the fair value method.




Warrants. We issued warrants
in 2005, 2006 and during the six months ended June 30, 2007 in connection with
certain borrowings. We applied the principles of FSP 150-5, Issuer’s Accounting under FASB
Statement No. 150 for Freestanding Warrants and Other Similar Instruments
on Shares that are Redeemable, to record the warrants as liabilities
based on their estimated value on the issuance date. The warrant is carried at
its fair value with decreases or increases in fair value at each reporting date
recorded as other income (expense). The fair value of the warrants is estimated
using the Black-Scholes pricing model, which requires the use of management’s
judgment in estimating the inputs, including the expected term of the warrant
stock and price volatility, used to determine fair value.  If actual
results differ significantly from these estimates other income (expense) and our
results of operations could be materially impacted.





36





Embedded Derivatives. In 2006
and during the three months ended March 31, 2007, we issued certain promissory
notes (the “2006 Bridge Notes”). The 2006 Bridge Notes provide for a payment
equal to 150% of the principal and accrued interest in the event there is a sale
transaction of substantially all of the assets of the Company or a change in
control in the form of the acquirer’s stock. This provision was determined to be
an embedded derivative and was valued separately from the notes. The estimated
fair value is determined using a present value analysis and management’s
estimate of the probability of a sale transaction. The embedded derivative was
recorded as a liability at its estimated fair value with decreases or increases
in fair value at each reporting date recorded as other income
(expense).  If actual results differ significantly from these
estimates other income (expense) and our results of operations could be
materially impacted.




Income Taxes. Effective
January 1, 2007, we adopted FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income
Taxes, which clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with FASB Statement No.
109, Accounting for Income
Taxes. FIN 48 provides guidance on the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosures, and transition. In
accordance with FIN 48, a tax position is a position in a previously filed tax
return or a position expected to be taken in a future tax filing that is
reflected in measuring current or deferred income tax assets and liabilities.
Tax positions are recognized only when it is more likely than not (likelihood of
greater than 50%), based on technical merits, that the position will be
sustained upon examination. Tax positions that meet the more likely than not
threshold should be measured using a probability weighted approach as the
largest amount of tax benefit that is greater than 50% likely of being realized
upon settlement. The adoption of FIN 48 did not have a material impact on our
financial position, results of operations or cash flows.




37




Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market
Risk





Substantially
all of our revenue is denominated in U.S. dollars, including sales to our
international distributors. Only a small portion of our revenue and expenses is
denominated in foreign currencies, principally the Euro. Our Euro expenditures
primarily consist of the cost of maintaining our office in the Netherlands,
including the facility and employee-related costs. A 10% increase in the value
of the U.S. dollar relative to the Euro or a 10% decrease in the relative
value of the dollar would have a negligible impact on current costs or revenue.
To date, we have not entered into any hedging contracts. Future fluctuations in
the value of the U.S. dollar may, however, affect the price competitiveness
of our products outside the United States.




We invest
our excess cash primarily in a money market fund which invests in U.S. Treasury
securities. We do not utilize derivative financial instruments, derivative
commodity instruments or other market risk-sensitive instruments, positions or
transactions to any material extent. Accordingly, we believe that, while the
instruments we hold are subject to changes in the financial standing of the
issuer of such securities, we are not subject to any material risks arising from
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices or other market changes that affect market risk sensitive
instruments. Due to the short-term nature of these investments, a 1% change in
market interest rates would not have a significant impact on the total value of
our portfolio as of December 31, 2008.





38




Item
      8.
            Financial
      Statements and Supplementary Data





ALSIUS
CORPORATION


CONSOLIDATED
BALANCE SHEETS


(in
thousands, except share data)





December
      31,
              2008
            
            
            December
      31,
              2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            5,605
            
            
            $
            24,427Accounts
      receivable, net of allowances of $21 (2008) and $44 (2007)
            
            
            2,958
            
            
            
            2,162Inventories
            
            
            5,810
            
            
            
            6,680Prepaid
      expenses
            
            
            388
            
            
            
            284Total
      current assets
            
            
            14,761
            
            
            
            33,553Property
      and equipment, net
            
            
            1,045
            
            
            
            1,034Evaluation
      equipment, net
            
            
            1,056
            
            
            
            673Other
      assets
            
            
            212
            
            
            
            342TOTAL
            
            $
            17,074
            
            
            $
            35,602LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
            
            $
            2,113
            
            
            $
            2,732Accrued
      liabilities
            
            
            1,724
            
            
            
            1,916Current
      portion of long-term debt
            
            
            3,216
            
            
            
            3,200Current
      portion of capital lease obligations
            
            
            27
            
            
            
            25Total
      current liabilities
            
            
            7,080
            
            
            
            7,873Long-term
      debt—less current portion
            
            
            506
            
            
            
            3,569Capital
      lease obligations—less current portion
            
            
            55
            
            
            
            82Other
      liabilities
            
            
            65
            
            
            
            66Commitments
      and Contingencies (Note 11)Shareholders’
      Equity :Preferred  stock,
      $0.0001 par value—1,000,000 shares authorized; no shares issued or
      outstanding
            
            
            —
            
            
            
            —Common
      stock, $0.0001 par value—75,000,000 shares authorized;
      21,076,134
              and
      18,253,500 shares issued and outstanding at December 31, 2008 and
      December 31, 2007, respectively
            
            
            2
            
            
            
            2Additional
      paid-in capital
            
            
            126,233
            
            
            
            122,237Accumulated
      deficit
            
            
            (116,867
            )
            
            
            (98,227
            )Total
      shareholders’ equity
            
            
            9,368
            
            
            
            24,012TOTAL
            
            $
            17,074
            
            
            $
            35,602





See
accompanying notes to consolidated financial statements.




39




ALSIUS
CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands, except share and per share data)





Year
      Ended December 31,2008
            
            
            2007
            
            
            2006Revenue
            
            $
            12,461
            
            
            $
            9,114
            
            
            $
            5,979Cost
      of revenue
            
            
            9,089
            
            
            
            7,341
            
            
            
            6,167Gross
      margin (loss)
            
            
            3,372
            
            
            
            1,773
            
            
            
            (188
            )Operating
      expenses:Research
      and development
            
            
            4,234
            
            
            
            3,920
            
            
            
            2,948Sales
      and marketing
            
            
            12,373
            
            
            
            11,211
            
            
            
            6,045General
      and administrative
            
            
            4,992
            
            
            
            5,471
            
            
            
            4,352Total
      operating expenses
            
            
            21,599
            
            
            
            20,602
            
            
            
            13,345Loss
      from operations
            
            
            (18,227
            )
            
            
            (18,829
            )
            
            
            (13,533
            )Interest income
            
            
            247
            
            
            
            708
            
            
            
            76Interest
      expense
            
            
            (660
            )
            
            
            (4,149
            )
            
            
            (2,064
            )Other  income
      (expense)
            
            
            —
            
            
            
            35
            
            
            
            (2,057
            )Net
      loss
            
            $
            (18,640
            )
            
            $
            (22,235
            )
            
            $
            (17,578
            )Net
      loss per share – basic and diluted
            
            $
            (0.89
            )
            
            $
            (1.49
            )
            
            $
            (1.60
            )Weighted
      average shares outstanding - basic and diluted
            
            
            20,914,180
            
            
            
            14,873,916
            
            
            
            10,974,100





See
accompanying notes to consolidated financial statements.




40




ALSIUS CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)





Year Ended December
      31,2008
                  
                  
                  2007
                  
                  
                  2006Cash
      flows from operating activitiesNet
      loss
                  
                  $
                  (18,640
                  )
                  
                  $
                  (22,235
                  )
                  
                  $
                  (17,578
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                  
                  
                  649
                  
                  
                  
                  421
                  
                  
                  
                  378Loss
      on disposal of assets
                  
                  
                  8
                  
                  
                  
                  7
                  
                  
                  
                  —Increase
      (decrease) in fair value of warrant liabilities and embedded
      derivatives
                  
                  
                  —
                  
                  
                  
                  (38
                  )
                  
                  
                  2,058Amortization
      of debt issuance costs
                  
                  
                  37
                  
                  
                  
                  62
                  
                  
                  
                  81Amortization
      of discounts on promissory notes
                  
                  
                  112
                  
                  
                  
                  2,684
                  
                  
                  
                  1,241Stock-based
      compensation
                  
                  
                  3,549
                  
                  
                  
                  3,387
                  
                  
                  
                  574Provision
      for bad debt expense
                  
                  
                  44
                  
                  
                  
                  31
                  
                  
                  
                  2Changes
      in operating assets and liabilities, net of merger:Accounts
      receivable
                  
                  
                  (840
                  )
                  
                  
                  (676
                  )
                  
                  
                  (534
                  )Inventories
                  
                  
                  870
                  
                  
                  
                  (4,312
                  )
                  
                  
                  (556
                  )Prepaid
      expenses
                  
                  
                  (104
                  )
                  
                  
                  (50
                  )
                  
                  
                  (60
                  )Other
      assets
                  
                  
                  51
                  
                  
                  
                  164
                  
                  
                  
                  (231
                  )Accounts
      payable
                  
                  
                  (621
                  )
                  
                  
                  (919
                  )
                  
                  
                  1,721Accrued
      liabilities
                  
                  
                  (193
                  )
                  
                  
                  773
                  
                  
                  
                  1,026Net
      cash used in operating activities
                  
                  
                  (15,078
                  )
                  
                  
                  (20,701
                  )
                  
                  
                  (11,878
                  )Cash
      flows from investing activitiesCash
      paid for property and equipment
                  
                  
                  (344
                  )
                  
                  
                  (650
                  )
                  
                  
                  (109
                  )Cash
      paid for evaluation equipment
                  
                  
                  (697
                  )
                  
                  
                  (259
                  )
                  
                  
                  (189
                  )Restricted
      cash
                  
                  
                  34
                  
                  
                  
                  —
                  
                  
                  
                  —Net
      cash received in merger
                  
                  
                  —
                  
                  
                  
                  41,478
                  
                  
                  
                  —Net
      cash (used in) provided by investing activities
                  
                  
                  (1,007
                  )
                  
                  
                  40,569
                  
                  
                  
                  (298
                  )Cash
      flows from financing activitiesProceeds
      from exercise of common stock options
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  7Payment
      of debt issuance costs
                  
                  
                  —
                  
                  
                  
                  (347
                  )
                  
                  
                  —Common
      stock warrant retirement
                  
                  
                  —
                  
                  
                  
                  (167
                  )
                  
                  
                  —Common
      stock warrant repurchases
                  
                  
                  —
                  
                  
                  
                  (907
                  )
                  
                  
                  —Proceeds
      from warrant retirement program, net
                  
                  
                  447
                  
                  
                  
                  —
                  
                  
                  
                  —Proceeds
      from issuance of long-term debt
                  
                  
                  51
                  
                  
                  
                  13,030
                  
                  
                  
                  9,070Principal
      payments under long-term debt
                  
                  
                  (3,210
                  )
                  
                  
                  (7,675
                  )
                  
                  
                  (1,534
                  )Principal
      payments under capital lease obligations
                  
                  
                  (25
                  )
                  
                  
                  (22
                  )
                  
                  
                  (29
                  )Net
      cash  (used in) provided by financing activities
                  
                  
                  (2,737
                  )
                  
                  
                  3,912
                  
                  
                  
                  7,514Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  (18,822
                  )
                  
                  
                  23,780
                  
                  
                  
                  (4,662
                  )Cash
      and cash equivalents at beginning of year
                  
                  
                  24,427
                  
                  
                  
                  647
                  
                  
                  
                  5,309Cash
      and cash equivalents at end of year
                  
                  $
                  5,605
                  
                  
                  $
                  24,427
                  
                  
                  $
                  647Cash
      paid during the year for:Income
      taxes
                  
                  $
                  4
                  
                  
                  $
                  85
                  
                  
                  $
                  1Interest
                  
                  $
                  545
                  
                  
                  $
                  862
                  
                  
                  $
                  426Non-cash
      transactionsUnpaid
      property and equipment included in accounts payable
                  
                  $
                  2
                  
                  
                  $
                  208
                  
                  
                  $
                  —Property
      and equipment acquired under capital lease
                  
                  $
                  —
                  
                  
                  $
                  14
                  
                  
                  $
                  124





See
accompanying notes to consolidated financial statements.




41





ALSIUS
CORPORATION


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)


(in
thousands, except share data)





Common
      StockShares
            
            
            Amount
            
            
            Additional
              Paid
      In
              Capital
            
            
            Deferred
      Stock-
              Based
              Compensation
            
            
            Accumulated
              Deficit
            
            
            TotalBalances
      as of January 1, 2006
            
            
            56,984
            
            
            $
            16,147
            
            
            $
            —
            
            
            $
            (1,091
            )
            
            $
            (58,414
            )
            
            $
            (43,358
            )Exercise
      of stock options
            
            
            21,958
            
            
            
            7
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7Compensation
      for non-employee stock options
            
            
            
            
            
            
            (47
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (47
            )Stock-based
      compensation
            
            
            
            
            
            
            323
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            323Amortization
      of stock-based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            298
            
            
            
            
            
            
            
            298Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (17,578
            )
            
            
            (17,578
            )Balances
      as of December 31, 2006
            
            
            78,942
            
            
            
            16,430
            
            
            
            —
            
            
            
            (793
            )
            
            
            (75,992
            )
            
            
            (60,355
            )Amortization
      of stock-based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            141
            
            
            
            
            
            
            
            141Stock-based
      compensation
            
            
            
            
            
            
            88
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            88Elimination
      of Alsius historical equity accounts
            
            
            (78,942
            )
            
            
            (16,518
            )
            
            
            16,518
            
            
            
            
            
            
            
            
            
            
            
            —Elimination
      of deferred stock-based compensation
            
            
            
            
            
            
            
            
            
            
            (652
            )
            
            
            652
            
            
            
            
            
            
            
            —Conversion
      of preferred stock into Merger Shares
            
            
            4,902,527
            
            
            
            1
            
            
            
            46,669
            
            
            
            
            
            
            
            
            
            
            
            46,670Conversion
      of Bridge Notes and accrued interest into Merger Shares
            
            
            3,097,473
            
            
            
            
            
            
            
            17,036
            
            
            
            
            
            
            
            
            
            
            
            17,036Equity
      effects of reverse merger
            
            
            10,974,100
            
            
            
            1
            
            
            
            44,445
            
            
            
            
            
            
            
            
            
            
            
            44,446Reclassification
      of warrant liability to equity
            
            
            
            
            
            
            
            
            
            
            215
            
            
            
            
            
            
            
            
            
            
            
            215Common
      stock warrant repurchase program
            
            
            
            
            
            
            
            
            
            
            (907
            )
            
            
            
            
            
            
            
            
            
            
            (907
            )Common
      stock warrant retirement program
            
            
            
            
            
            
            
            
            
            
            (167
            )
            
            
            
            
            
            
            
            
            
            
            (167
            )Redemption
      of redeemable common stock
            
            
            (720,600
            )
            
            
            
            
            
            
            (4,078
            )
            
            
            
            
            
            
            
            
            
            
            (4,078
            )Stock-based
      compensation (SFAS 123R)
            
            
            
            
            
            
            
            
            
            
            3,158
            
            
            
            
            
            
            
            
            
            
            
            3,158Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (22,235
            )
            
            
            (22,235
            )Balances
      as of December 31, 2007
            
            
            18,253,500
            
            
            
            2
            
            
            
            122,237
            
            
            
            —
            
            
            
            (98,227
            )
            
            
            24,012Common
      stock warrant retirement program, net of costs of $437
            
            
            2,822,634
            
            
            
            
            
            
            
            447
            
            
            
            
            
            
            
            
            
            
            
            447Stock-based
      compensation (SFAS 123R)
            
            
            
            
            
            
            
            
            
            
            3,549
            
            
            
            
            
            
            
            
            
            
            
            3,549Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (18,640
            )
            
            
            (18,640
            )Balances
      as of December 31, 2008
            
            
            21,076,134
            
            
            $
            2
            
            
            $
            126,233
            
            
            $
            —
            
            
            $
            (116,867
            )
            
            $
            9,368




See
accompanying notes to consolidated financial statements.




42


ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)




1. 
The Company and Basis of Presentation
 
 On June
21, 2007, Ithaka Acquisition Corp., a Delaware corporation (“Ithaka”), completed
its acquisition of Alsius Corporation, a privately held California corporation
(“Alsius Medical”), through a merger of a wholly owned merger subsidiary with
and into Alsius Medical.   Ithaka was a publicly traded blank
check company formed in 2005 to acquire an unidentified operating business in
the healthcare industry.  In the merger, Alsius Medical became a
wholly owned subsidiary of Ithaka, and Ithaka changed its name to Alsius
Corporation.  As a result, Alsius Corporation succeeded Ithaka as the
reporting registrant for purposes of this report.  Alsius
Corporation is now a publicly traded Delaware holding company operating
through its wholly owned subsidiary, Alsius Medical
Corporation.  Alsius Corporation and its operating subsidiary are
referred to collectively as “Alsius,” “we,” “us,” and the
“Company”.  Alsius Corporation’s common stock trades on NASDAQ under
the symbol “ALUS”.  See Note 3 for further details on the
merger.  For accounting purposes, the merger was treated as a reverse
acquisition with Alsius Medical being the accounting acquirer. Therefore, the
Company’s historical financial statements reflect those of Alsius
Medical.
  Alsius
Medical was incorporated in December 1991, and recapitalized and reorganized its
operations and business in November 1998 to focus on intravascular temperature
management. In June 2001, a branch office, Alsius Service Center, in Wateringen,
The Netherlands, was established to provide field support for its products in
Europe. Alsius Medical develops, manufactures, markets and sells, proprietary
catheter-based products for rapid cooling and temperature control of patients
with severe neuronal injury, including those who have suffered stroke, traumatic
brain injury and cardiac arrest. In August 2003, Alsius Medical received United
States Food and Drug Administration (FDA) clearance to market its CoolGard ® 3000
Thermal Regulation System (the “CoolGard system”) and Cool Line ® catheter
for use in fever control. In addition, in October 2003, Alsius Medical received
FDA clearance to market its Icy TM, Fortius
TM ,
QuattroTM and
SolexTM
catheters in combination with the CoolGard ® 3000
Thermal Regulation System for use in normothermia in cardiac surgery and
hypothermia in neuro surgery.  Alsius Medical began to market and sell
its products in the United States during the year ended
December 31, 2004.
  Going
Concern
  The
Company has incurred significant net losses since inception, and has relied on
its ability to obtain financing, which to date has been through a merger as
discussed in Note   3, the sale of redeemable convertible preferred stock
(Note 10) and the issuance of promissory notes (Note 5). Management expects
operating losses and negative cash flows to continue for the foreseeable future
as the Company incurs additional costs and expenses related to continued
development of the Company’s products, and obtaining FDA approval for new
indications. These factors, among others, raise substantial doubt about the
Company’s ability to continue as a going concern. The accompanying financial
statements have been prepared on a going concern basis that contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The financial statements do not include adjustments relating to the
recoverability of recorded asset amounts or the amounts or classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. The Company’s ability to meet its obligations in the ordinary
course of business is dependent upon its ability to establish profitable
operations, or to secure other sources of financing to fund
operations.
  If the
Asset Sale (as defined below) were not to be completed, the Company will not
have sufficient financial resources to continue to operate independently, and
would need to immediately raise funds or cease operations and
liquidate.
 
 Recent
Developments
 
 Asset
Sale
  On
February 20, 2009, we announced that we signed an asset purchase agreement (the
“Purchase Agreement”) on February 19, 2009 with Zoll Circulation, Inc. (“Zoll”),
a wholly owned subsidiary of ZOLL Medical Corporation (Nasdaq: ZOLL), whereby we
will sell substantially all our assets, including those constituting our
intravascular temperature management device business, to Zoll for a purchase
price of $12.0 million in cash (the “Asset Sale”).  In connection with
the Asset Sale, Zoll placed an order with the Company to purchase approximately
$3 million of finished product at cost.  The closing of the Asset Sale
is subject to customary closing conditions, and is expected to close in the
second quarter of fiscal 2009.
  The
record holders of a majority of the outstanding shares of the Company’s
common stock signed a written consent to approve the Asset Sale. The Asset
Sale is discussed in further detail in a draft information statement that we
filed with the SEC. When the SEC review is complete, we will mail a definitive
information statement (the "Information Statement") to our stockholders and,
under applicable rules, can close the Asset Sale 20 days after the
mailing.
  Plan
of Dissolution
  On
February 19, 2009, our Board also unanimously adopted a plan providing for the
complete dissolution and liquidation of the Company (the “Plan of Dissolution”).
The record holders of a majority of the outstanding shares of our common
stock signed a written consent to adopt and approve the Plan of
Dissolution.
  43
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  If the
Asset Sale is consummated, we will file a certificate of dissolution with the
Delaware Secretary of State to dissolve the Company as a legal entity, complete
the liquidation of the remaining assets, and satisfy (or make provisions to
satisfy) remaining obligations.Pursuant to the Plan of Dissolution, after
payment or provision for all the known, unascertained or contingent debts,
obligations and liabilities of the Company (including costs and expenses
incurred and anticipated to be incurred in connection with the Asset Sale and
liquidation of the Company), payment or distributions will be made to the
holders of our common stock.  The potential timing and amount of
distributions is discussed below under Liquidating Distributions.  In
the unexpected event all distributions have not occurred within three years of
filing of the certificate of dissolution, our remaining assets will be
transferred to a liquidating trust for the benefit of our stockholders, and a
liquidation trustee will be assigned to administer the assets, settle
liabilities, and make distributions to stockholders if and when funds are
legally available for distribution.
  Following
dissolution, we will change our name from “Alsius Corporation” to “ALUS
Liquidation Corp.” and will cease conducting normal business operations, except
as required to wind down our affairs.  We will continue our corporate
existence solely for the purpose of winding down and liquidating, including
collecting accounts receivable, selling ancillary assets that Zoll may elect not
to take, settling liabilities and making distributions to stockholders, and
otherwise completing the liquidation of the Company.  We will not be
authorized to engage in any business activities other than these, thus limiting
our exposure for business activities unrelated to the wind down and
liquidation.
 
 As the
Purchase Agreement was signed in 2009, these financial statements do not include
adjustments that may result from this transaction relating to the classification
and amounts of liabilities or assets that might be necessary
once management begins to dissolve and liquidate the Company.
 
 Liquidating
Distributions
  We
anticipate that an initial distribution of liquidation proceeds will be made to
our stockholders within 90 days after the closing of the Asset
Sale.  As we liquidate our remaining assets and pay off our
outstanding liabilities, we will distribute additional liquidation proceeds, if
any, to our stockholders as the Board deems appropriate. A final $1 million will
be held in trust for one year from the closing date of the Asset Sale to cover
potential indemnity obligations to Zoll under the Purchase Agreement for the
Asset Sale.  The amounts to be distributed to our stockholders may be
less if we incur greater liabilities in winding down our affairs and/or
less revenue than anticipated through the closing of the Asset
Sale.  (Alternatively, it is possible that we could distribute
more if liabilities are less than expected and/or revenues are greater than
expected.)  A key factor in maximizing potential distributions is the
timing of the closing of the Asset Sale, which is subject to certain risks and
uncertainties.  To the extent the closing of the Asset Sale is delayed
beyond April 2009, we anticipate incurring additional operating expenses to
operate the Company through the closing.
  2. 
Significant Accounting Policies
 
 Principles
of Consolidation
  The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries.  All intercompany accounts and transactions
have been eliminated in consolidation.  The results of Ithaka are
included in the consolidated financial statements since the date of the merger
(June 21, 2007).
  Management
Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions. These affect the reported amounts of assets
and liabilities and disclosure of contingent assets or liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management has identified revenue, accounts receivable, inventory, warranty
reserve, stock-based compensation, warrants, embedded derivatives and income
taxes as areas where significant estimates and assumptions have been made in
preparing the financial statements. The Company also evaluates the need for the
deferred income tax valuation allowance.
 
 Fair Value of Financial
Instruments
  Financial
instruments consist of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities. These instruments approximate fair value
because of their short maturity. The carrying value of the long-term
debt is considered to approximate fair value due to its short maturity and
interest rate that approximates current rates.
  44
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  Foreign
Currency Remeasurement
  The functional currency of the
Company’s branch located in The Netherlands is the U.S. dollar. Its local
currency statements are remeasured into U.S. dollars using the current
exchange rate for monetary assets and liabilities and the historical exchange
rate for nonmonetary assets and liabilities. Revenues and expenses are
remeasured using the average exchange rate for the period, except items related
to nonmonetary assets and liabilities, which are remeasured using historical
exchange rates. All remeasurement gains and losses are included in determining
net loss and have not been significant for all periods presented.
  Cash
Equivalents
  The
Company considers all highly liquid investments that mature within 90 days
from the date of purchase to be cash equivalents. At December 31, 2008,
cash equivalents consisted of money market funds of $5,263.  At
December 31, 2007, cash equivalents consisted of money market funds of
$23,903.
 
 Concentration
of Risk
  The
Company maintains its cash accounts in a commercial bank. At December 31,
2008 and 2007, cash on deposit totaling $5,355 and $24,225, respectively, was in
excess of the federally insured limits.  Management does not believe
this concentration subjects it to any unusual financial risk beyond the normal
risk associated with commercial banking relationships.
  Customers
that account for greater than 10 percent of revenue or accounts receivable are
provided below.
  Year
      Ended December 31,2008
              
              
              2007
              
              
              2006Revenue
              
              Percent of
                Total
                Revenue
              
              
              Revenue
              
              Percent of
                Total
                Revenue
              
              
              Revenue
              
              Percent of
                Total
                RevenueCustomer A
              
              $
              —
              
              —%
              
              
              $
              308
              
              3%
              
              
              $
              1,449
              
              24%Customer B
              
              
              2,846
              
              23%
              
              
              
              1,395
              
              15%
              
              
              
              —
              
              —
  As
      of December 31,2008
              
              
              2007Receivable
                Balance
              
              Percent of
                Total
                Receivables
              
              
              Receivable
                Balance
              
              Percent of
                Total
                ReceivablesCustomer A
              
              $
              —
              
              —%
              
              
              $
              29
              
              1%Customer B
              
              
              523
              
              18%
              
              
              
              429
              
              20%
 
 Many of
the components and materials used in the Company’s products are manufactured by
a limited number of suppliers. Any supply interruption or an increase in demand
beyond the suppliers’ capabilities could have an adverse impact on the Company’s
business. There is one supplier for a key component used in the Company’s
CoolGard and Thermogard systems, and one supplier for a key component used in
the Company’s catheters.
  Accounts
Receivable
  Accounts receivable are recorded at the
invoiced amount and do not bear interest. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. The Company specifically analyzes accounts
receivable and historical bad debts, customer credit, current economic trends
and changes in customer payment trends when evaluating the adequacy of the
allowance for doubtful accounts. Account balances are charged-off against the
allowance when it is determined that the receivable will not be
recovered.
 
 45
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  The
changes in the allowance for doubtful accounts are provided below.
  Year
      Ended December 31,2008
                            
                            
                            2007
                            
                            
                            2006Beginning
      balance
                            
                            $
                            44
                            
                            
                            $
                            13
                            
                            
                            $
                            27Provision
      for bad debt
                            
                            
                            44
                            
                            
                            
                            31
                            
                            
                            
                            2Write-offs,
      net of recoveries
                            
                            
                            (67
                            )
                            
                            
                            —
                            
                            
                            
                            (16
                            )Ending
      balance
                            
                            $
                            21
                            
                            
                            $
                            44
                            
                            
                            $
                            13
  Inventories
  Inventories
are comprised of raw materials, work-in-process and finished goods, and are
stated at the lower of cost (first-in, first-out) or market. The Company records
a provision for excess and obsolete inventory based on historical usage and
future product demand. Once established, the write-downs of inventories for
excess and obsolete inventory are considered permanent adjustments to the cost
basis of the inventories.
  Long-lived
Assets
  Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company evaluates potential impairment by comparing the carrying amount of the
asset with the estimated undiscounted future cash flows associated with the use
of the asset and its eventual disposition. Should the review indicate that the
asset is not recoverable, the Company’s carrying value of the asset would be
reduced to its estimated fair value, which is measured by future discounted cash
flows. During the years ended December 31, 2008, 2007 and 2006 there have been
no such impairments.
  Property
and Equipment
  Property
and equipment, including assets under capital leases, are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
recorded on a straight-line basis over the estimated useful lives of the
respective assets as follows:
  Machinery
      and equipment
              3
      to 5 yearsComputer
      equipment
              3 yearsFurniture
      and fixtures
              5 yearsLeasehold
      improvements
              Shorter
      of the useful life of the improvements or the lease
  term
  Leasehold
improvements are amortized over the life of the remaining lease term.
Expenditures for major renewals and betterments are capitalized, while minor
replacements, maintenance and repairs, which do not extend the asset lives, are
charged to operations as incurred. Upon sale or disposition, the cost and
related accumulated depreciation and amortization are removed from the accounts
and any gain or loss is included in operations.
 
 Evaluation
Equipment
  Evaluation
equipment consists of CoolGard and Thermogard systems placed at hospitals under
the Company’s equipment loan agreements and are depreciated using the
straight-line method over their estimated economic life of five years. As of
December 31, 2008 and 2007 the cost of evaluation equipment was $1,708 and
$1,109 and accumulated depreciation was $653 and $436, respectively. For the
years ended December 31, 2008, 2007 and 2006, $314, $222 and $219, respectively,
was recorded as a component of cost of revenue for the depreciation of the
equipment.
  46
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 Stock-Based
Compensation
  Effective
January 1, 2006 the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), Share-Based Payment, which
revises SFAS No. 123, Accounting for Stock-Based
Compensation issued in 1995. Prior to the adoption of SFAS 123(R)
the Company accounted for stock-based employee compensation arrangements using
the intrinsic value method in accordance with the provisions and related
interpretations of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (“APB No. 25”). The Company adopted SFAS 123(R)
applying the “prospective transition method” under which it continues to account
for nonvested equity awards outstanding at the date of adoption of
SFAS 123(R) in the same manner as they had been accounted for prior to
adoption, that is, it would continue to apply APB No. 25 in future periods
to equity awards outstanding at the date it adopted
SFAS 123(R).
  As of
December 31, 2006 there was $255 of unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under share-based
compensation plans using the fair value method of SFAS 123(R). As of December
31, 2006, the cost was expected to be recognized over a weighted-average period
of 3.05 years, using the graded vested attribution method.   In
the merger effective on June 21, 2007 (Note 3), due to the liquidation
preferences of the Company’s redeemable convertible preferred stock and the
terms and conditions of the Company’s Bridge Notes, all outstanding stock
options of the Company were cancelled, therefore any unrecognized compensation
related to nonvested share-based compensation arrangements was
cancelled.  Compensation cost of $88 was recognized for the year ended
December 31, 2007 (for the period prior to June 21, 2007, the date of the
merger).  There were no stock option grants in the six months ended
June 30, 2007.  See Note 7 regarding stock option grants in the six
months ended December 31, 2007 and in the year ended December 31,
2008.
  Calculating
stock-based compensation expense requires the input of subjective assumptions,
including the expected term of the stock-based awards, stock price volatility,
and pre-vesting option forfeitures. The estimate of expected term of options
granted under the 2004 Plan was determined by analyzing historical data on
employees’ stock option exercises. The estimate of expected term of options
granted under the 2006 Plan was calculated using the simplified method, as
prescribed in SEC Staff Accounting Bulletin No. 110.  Prior to the
merger with Ithaka in June 2007, the Company was a private entity with no
historical data on volatility of its stock.  Therefore, the expected
volatility used was based on volatility of similar entities (referred to as
“guideline companies”) for stock options granted after January 1, 2006. In
evaluating similarity, the Company considered factors such as industry, stage of
life cycle, size, and financial leverage. The assumptions used in calculating
the fair value of stock-based awards represent the Company’s best estimates, but
these estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses different
assumptions, stock-based compensation expense could be materially different in
the future. In addition, the Company is required to estimate the expected
forfeiture rate and only recognize expense for those shares expected to vest.
The Company estimates the forfeiture rate for options granted after January 1,
2006 under the 2004 Plan based on historical experience of its stock-based
awards that are granted, exercised and cancelled. For options granted under the
2006 Plan, the forfeiture rate used was based on the estimated forfeiture rates
of the guideline companies.
  The
risk-free rate for periods within the contractual life of the option is based on
United States treasury yield for a term consistent with the expected life of the
stock option in effect at the time of grant. The Company has never declared or
paid any cash dividends and does not presently plan to pay cash dividends in the
foreseeable future. Prior to the adoption of SFAS 123(R), the Company did
not record any tax benefits resulting from the exercise of options due to
uncertainty surrounding the timing of realizing the benefits of its deferred tax
assets in future periods. The Company has elected to use the graded vesting
attribution approach to record compensation expense. Shares of common stock
issued upon exercise of stock options will be from previously unissued
shares.
 
 The
weighted-average fair value per share of the options granted was $1.33, $3.33
and $3.98 for the years ended December 31, 2008, 2007 and 2006,
respectively. The fair value of the stock options at the date of grant was
estimated using the Black-Scholes option-pricing model with the following
assumptions:
 
 Year
      Ended
                December
      31, 2008
              
              Year
      Ended
                December
      31, 2007
              
              Year
      Ended
                December
      31, 2006Dividend
      Yield
              
              
              0.00%
              
              0.00%
              
              
              0.00%Volatility
              
              
              66%
              
              67%
              
              
              61%Weighted-average
      risk-free interest rate
              
              
              3.00%
              
              4.89%
              
              
              4.82%Expected
      life
              
              6.0-6.25
      years
              
              6.0-6.25
      years
              
              5.61-5.88
      years
  47
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  The
Company accounts for equity instruments issued to nonemployees in accordance
with the provisions of Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services (“EITF 96-18”). Under EITF 96-18, stock option
awards issued to nonemployees are accounted for at fair value using the
Black-Scholes option pricing model. Management believes the fair value of the
stock options is more reliably measurable than the fair value of services
received. The fair value of each nonemployee stock award is remeasured each
period until a commitment date is reached, which is the vesting date, using the
attribution method in FASB Interpretation No. 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans. For nonemployee
awards, deferred stock-based compensation is not reflected in
shareholders’ equity until a commitment date is reached.
  SFAS 123
was replaced by SFAS 123(R); accordingly, the Company no longer follows
SFAS 123 when accounting for nonemployee stock option, but continues to
apply the principles of EITF 96-18. When specific guidance does not exist
in EITF 96-18 for nonemployee stock options, the Company follows the
principles of SFAS 123(R). There was no impact to the financial statements
for nonemployee stock options as a result of the adoption of SFAS
123(R).
  Revenue
Recognition
  The
Company sells its products domestically to customers through its direct sales
force, and internationally through distributors. Revenue is recognized in
accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition, which
requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred and title and the risks and rewards of ownership have been transferred
to the customer or services have been rendered; (3) the price is fixed or
determinable; and (4) collectibility is reasonably assured. Price
protection, stock rotation rights and sales incentive programs are not offered
to customers.
  The
Company evaluates whether the separate deliverables in its arrangements can be
unbundled. Sales of the CoolGard and Thermogard systems domestically to
hospitals include separate deliverables consisting of the product, disposables
used with the CoolGard and Thermogard system and installation. For these sales,
the Company applies the residual value method in accordance with
EITF 00-21, Revenue
Arrangements with Multiple Deliverables, which requires the allocation of
the total arrangement consideration less the fair value of the undelivered
element, which consists of installation, to the delivered elements. As
of  December 31, 2008, 2007 and 2006 there was a minimal amount
attributed to the undelivered element.
 
 Explicit
return rights are not offered to customers; however, the Company may accept
returns in limited circumstances. The amount of returns through December 31,
2008 has been minimal. A sales return allowance has not been established since
management believes returns will be insignificant.
  The
Company enters into equipment loan agreements with stated terms of primarily six
months with certain customers whereby the CoolGard or Thermogard system is
placed at the customer’s site for their evaluation and use. During this time,
the customer purchases disposables. There are no stated minimum purchase
requirements. The Company accounts for these arrangements in accordance
with SFAS No. 13, Accounting for Leases, and
has classified these arrangements as operating leases. We currently do not
charge a rental fee during the evaluation period.  The amount of
revenue attributable to the lease element of these arrangements was less than
10% of the Company’s total revenue for all periods presented. The CoolGard or
Thermogard system is classified as evaluation equipment and is depreciated over
its estimated economic life of five years with depreciation included as a
component of cost of revenue.
 
 The
Company offers extended warranty contracts, which are separately sold to
non-distributor customers. Revenue is recorded on a straight-line basis over the
period of the contract, which is generally one year.
  Product
Warranty
  The
Company provides a 12 month warranty from the date of purchase for domestic
customers and a 15 month warranty from the date of purchase for
distributors on its CoolGard and Thermogard systems, which covers parts, labor
and shipping costs. The Company will also accept returns for disposables with
defects one year from the date of purchase for domestic customers and the
shorter of two years or the expiration date of the disposables for distributors.
Warranty costs are estimated at the time of sale based on historical experience.
Estimated warranty expenses are recorded as an accrued liability, with a
corresponding provision to cost of revenue.
  48
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 Changes
in the Company’s product warranty liability were as follows:
  Year
      Ended December 31,2008
                              
                              
                              2007
                              
                              
                              2006Beginning
      balance
                              
                              $
                              107
                              
                              
                              $
                              156
                              
                              
                              $
                              202Provision
      for estimated warranty costs
                              
                              
                              48
                              
                              
                              
                              79
                              
                              
                              
                              185Warranty
      expenditures
                              
                              
                              (78
                              )
                              
                              
                              (128
                              )
                              
                              
                              (231
                              )Ending
      balance
                              
                              $
                              77
                              
                              
                              $
                              107
                              
                              
                              $
                              156
  Cost
of Revenue
 
 Cost of
revenue consists of costs of materials, products purchased from third-parties,
manufacturing personnel, freight, depreciation of property and equipment,
royalties paid to technology licensors, manufacturing overhead, warranty
expenses and inventory reserves. Royalties paid to third parties include two
worldwide licenses related to our catheters. One license covers a coating used
on our catheters and requires that we pay a royalty of between 2.0% and 3.5% on
net revenue generated by all catheters. The other license covers technology used
in our Cool Line catheter and requires that we pay a royalty of 2.5% on net
revenue generated by the Cool Line catheter.
 
 Shipping
and Handling
  Charges
to customers for shipping and handling are included as a component of revenue.
Shipping and handling costs are expensed as incurred and recorded as a component
of cost of revenue.
  Research
and Development
  Research
and development expenses consist of engineering personnel salaries and benefits,
prototype supplies, and consulting fees related to product development. Research
and development costs are expensed as incurred.
  Advertising
  Advertising
costs are expensed as incurred. Included in sales and marketing expense for the
years ended December 31, 2008, 2007 and 2006 was $266, $682, and $275,
respectively.
  Income
Taxes
  We
account for income taxes under the asset and liability method, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are determined based on
the differences between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.  The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
 
 We record
net deferred tax assets to the extent we believe these assets will more likely
than not be realized. In making such determination, we consider all available
positive and negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax planning strategies
and recent financial operations.  In the event we were to determine
that we would be able to realize our deferred income tax assets in the future in
excess of their net recorded amount, we would make an adjustment to the
valuation allowance which would reduce the provision for income
taxes.  We currently record a full valuation allowance as we do not
believe it is more likely than not that our deferred tax assets will be
realized.
 
 Effective
January 1, 2007, the Company adopted FASB Interpretation No. 48 (“FIN
48”), Accounting for
Uncertainty in Income Taxes, which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes.
FIN 48 provides guidance on the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition. In accordance with
FIN 48, a tax position is a position in a previously filed tax return or a
position expected to be taken in a future tax filing that is reflected in
measuring current or deferred income tax assets and liabilities. Tax positions
are recognized only when it is more likely than not (likelihood of greater than
50%), based on technical merits, that the position will be sustained upon
examination. Tax positions that meet the more likely than not threshold should
be measured using a probability weighted approach as the largest amount of tax
benefit that is greater than 50% likely of being realized upon settlement. The
adoption of FIN 48 did not have a material impact on the Company’s consolidated
financial position, results of operations or cash flows.
 
 49
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 Net Loss Per Share
  The
merger with Ithaka, as discussed in Note 3, for financial reporting purposes was
treated as a reverse acquisition.  Because the number of shares
outstanding following a reverse acquisition is significantly different from the
number of shares outstanding prior to the combination, the weighted average
shares outstanding for purposes of presenting net loss per share on a
comparative basis has been retroactively restated to the earliest period
presented in order to reflect the effect of the reverse acquisition.  In
effect, the reverse acquisition is similar to a stock split for the accounting
acquirer, and retroactively restating the weighted average shares outstanding is
consistent with the accounting required by SFAS No. 128, Earnings Per Share, for stock
splits, stock dividends, and reverse stock splits.
 
 Comprehensive
Loss
 
 For the
years ended December 31, 2008, 2007 and 2006, there was no difference
between the Company’s net loss and comprehensive loss.
  New
Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ,
which defines fair value, establishes a framework for consistently measuring
fair value under generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 does not require any new
fair value measurements, but provides guidance on how to measure fair value by
providing a fair value hierarchy used to classify the source of the
information.  In February 2008, the FASB deferred the effective date
of SFAS 157 by one year for certain nonfinancial assets and liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually) to fiscal years beginning after
November 15, 2008.
  The fair
value hierarchy described by the standard is based on three levels of inputs, of
which the first two are considered observable and the last unobservable, that
may be used to measure fair value and include the following:
  Level 1 –
Quoted prices in active markets for identical assets or
liabilities.
  Level 2 –
Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.
  Level 3 –
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
 
 In
accordance with SFAS 157, the following table represents the Company’s fair
value hierarchy for its financial assets (cash equivalents and investments)
measured at fair value on a recurring basis as of December 31,
2008:
  Fair
      Value Measurements UsingLevel
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              TotalCash
      and cash equivalents
              
              $
              5,605
              
              
              
              —
              
              
              
              —
              
              
              $
              5,605
  The
adoption of SFAS 157 related to financial assets and liabilities did not have a
material effect on the Company’s consolidated financial
position, results of operations or cash flows.  The book values
of cash and cash equivalents, accounts receivable and accounts payable
approximate their respective fair values due to the short-term nature of these
instruments. The Company is currently evaluating the impact, if any, that SFAS
157 may have on its future consolidated financial statements related to
nonfinancial assets and liabilities.
  50
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 Effective
September 30, 2008, the Company adopted Financial Staff Position No. SFAS 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
is Not Active” (FSP SFAS 157-3), which was issued on October 10, 2008. FSP SFAS
157-3 clarifies the application of SFAS No. 157 in a market that is not active
and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for the financial asset is not
active. The adoption of FSP SFAS 157-3 did not have an impact on the Company’s
consolidated financial statements.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial
Liabilities — Including
an Amendment of SFAS No. 115.  SFAS No. 159
provides reporting entities an option to measure certain financial assets and
liabilities and other eligible items at fair value on an
instrument-by-instrument basis. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings at each
subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. The adoption of SFAS No. 159 did not have an impact on
the Company’s consolidated financial position, results of operations and cash
flows as management did not elect the fair value option for any other financial
instruments or any other financial assets and financial
liabilities.
  In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS
No. 141(R) requires reporting entities to record fair value estimates of
contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisition costs as incurred and
does not permit certain restructuring activities previously allowed under EITF
95-3 to be recorded as a component of purchase accounting.  In
addition, under SFAS No. 141(R), changes in an acquired entity’s deferred tax
assets and uncertain tax positions after the measurement period will impact
income tax expense. SFAS No. 141(R) is effective for fiscal periods beginning
after December 15, 2008 and should be applied prospectively for all business
acquisitions entered into after the date of adoption. The Company does not
expect the adoption of SFAS No. 141(R) to have an impact on its consolidated
financial position, results of operations and cash flows.
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements — an amendment of ARB No. 51.
SFAS No. 160 requires (i) that noncontrolling (minority) interests be reported
as a component of shareholders’ equity, (ii) that net income attributable to the
parent and to the noncontrolling interest be separately identified in the
consolidated statement of operations, (iii) that changes in a parent’s ownership
interest while the parent retains its controlling interest be accounted for as
equity transactions, (iv) that any retained noncontrolling equity investment
upon the deconsolidation of a subsidiary by initially measured at fair value,
and (v) that sufficient disclosures are provided that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 is effective for fiscal periods beginning
after December 15, 2008. The Company does not currently expect the adoption of
SFAS No. 160 to have a material impact on the Company’s consolidated financial
position, results of operations and cash flows.
  In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133. The new standard is intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity’s financial position, financial performance, and cash flows. Entities are
required to provide enhanced disclosures about: (a) how and why an entity
uses derivative instruments; (b) how derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related
interpretations; and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. This standard is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. The Company does not currently expect the adoption
of SFAS No. 161 to have a material impact on the Company’s consolidated
financial position, results of operations or cash flows.
  In March
2007, the FASB ratified Emerging Issues Task Force Issue 06-11, Accounting for Income Tax Benefits
of Dividends on Share-Based Payment Awards, (“EITF Issue 06-11”).
Beginning January 1, 2008, the Company adopted EITF Issue 06-11. In
accordance with the EITF Issue, the Company records a credit to additional
paid-in capital for tax deductions resulting from a dividend payment on
non-vested share awards the Company expects to vest. The adoption of EITF Issue
06-11 did not have any impact on the Company’s consolidated financial
statements.
  In June
2008, the FASB issued Financial Accounting Standards Board Staff Position EITF
03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities (“FSP 03-6-1”). The FSP provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method in accordance with SFAS 128, Earnings per Share. The FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years. Upon adoption, the
Company is required to retrospectively adjust its earnings per share data to
conform with the provisions in this FSP. Early application of this FSP is
prohibited. The Company is currently evaluating the impact that FSP 03-6-1 will
have on its consolidated financial statements.
 
 51
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  3. 
Merger with Ithaka
 
 On June
21, 2007, Ithaka’s stockholders approved the merger of Alsius Medical with and
into Ithaka’s wholly owned merger subsidiary.  The merger
consideration consisted of 8,000,000 shares of Ithaka’s common stock (the
“Merger Shares”) in exchange for all of the issued and outstanding equity
securities of Alsius Medical. Of the 8,000,000 shares issued in
consideration, 4,902,527 shares were issued to Alsius Medical preferred stock
holders and 3,097,473 shares were issued to holders of Alsius Medical bridge
notes. In addition, Alsius Medical’s shareholders also were given the right to
receive up to 6,000,000 additional shares (the “Milestone Shares”) if the
combined company meets certain revenue targets in fiscal years 2007 through 2009
(with 750,000 Milestone Shares allocated to 2007, 1,750,000 to 2008 revenues and
3,500,000 to 2009 revenues).  In 2007 and 2008, the revenue targets
were not met and no Milestone Shares were issued. Additionally, Ithaka agreed to
fund bonuses totaling $3,000 to management, employees, two non-employee
directors and certain consultants of Alsius Medical.  The $3,000 bonus
paid by Ithaka was included as part of the merger consideration. The Company
accounted for the amount as a reduction of the net proceeds received from Ithaka
in return for the issuance of the stock. This treatment was based on the fact
that the amount was specifically negotiated by the parties as merger
consideration in the merger agreement.  There was no service
requirement in order to earn the bonus.  Due to liquidation
preferences in Alsius Medical’s Series A-F redeemable convertible preferred
stock and the terms and conditions of the unsecured convertible promissory
notes, the allocation of the Merger Shares resulted in the holders of the Bridge
Notes and Series F preferred stock receiving their pro rata share, while the
holders of the other equity instruments (Series A-E, common stock, and common
stock options) did not receive any Merger Shares. The accumulated balance
due to the Bridge Note holders was converted at an agreed price of $5.50 per
share. This resulted in the recording of additional paid-in capital of $17,036,
the amount due to the holders. The Series F redeemable convertible preferred
stock was converted at the market price of $5.66 per share at the date of the
merger. In addition, due to the underlying terms and conditions of the Series F
redeemable convertible preferred stock warrants at the time of the merger (a
qualifying sale), all Series F redeemable convertible preferred stock warrants
were cancelled, and all existing Alsius Medical equity instruments were
cancelled.
 
 Holders
of 972,100 shares of Ithaka’s common stock voted against the merger and elected
to convert their shares into a pro rata portion of Ithaka’s trust fund. This
redeemable common stock was accounted for as mezzanine equity at the time of the
merger as it was uncertain whether such amounts would ultimately be redeemed in
cash or remain as outstanding common stock.  The conversion rights
required the holder of the stock to deliver its stock certificate to the
Registrant’s transfer agent by August 15, 2007 in order to receive the
applicable cash payment. If not executed by August 15, 2007, the stockholder
forfeited its right to receive cash payment for the shares.  The
Registrant redeemed $4,078 (720,600 shares) of the redeemable common
stock.
  Additionally,
as discussed above, as part of consideration paid at the close of the merger,
Ithaka agreed to fund bonus payments to the management, employees, two
non-employee directors and certain consultants of Alsius Medical totaling
$3,000.  The merger agreement entitles these individuals to receive an
additional amount of up to $2,000 upon the achievement of the above mentioned
revenue targets in fiscal years 2007 through 2009 (which are the same revenue
targets associated with the issuance of additional Milestone Shares to former
Alsius Medical shareholders).  The revenue targets for 2007 and 2008
were not achieved and no portion of the bonus was paid for 2007 or
2008.   The $3,000 has been accounted for as part of the purchase
price.  Future payments will be expensed as earned.
 
 The
merger was accounted for under the purchase method of accounting as a reverse
acquisition, with Alsius Medical as the accounting acquirer.  As part
of the merger, Ithaka’s common stock of 10,974,100 shares, which consisted of
9,866,392 common shares and 1,107,708 units convertible into common shares, were
converted into common stock of Alsius Medical, This resulted in the recording of
additional paid-in capital of $73,732. For accounting purposes, the merger has
been treated as the equivalent of Alsius Medical issuing stock for the net
assets of Ithaka, accompanied by a recapitalization.  The net assets
of Ithaka are stated at their fair values, which are considered to approximate
historical cost, with no goodwill or other intangible assets
recorded.  The accumulated deficit of Alsius Medical is carried
forward after the merger and the operations prior to the merger are those of
Alsius Medical.  The results of operations of Ithaka are included in
the accompanying consolidated financial statements commencing June 22,
2007.
  52
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 
 The
purchase price allocation is as follows:
  Cash
      and cash equivalents
              
              $
              50,000Prepaid
      expenses
              
              
              98Accounts
      payable
              
              
              (1,082
              )Accrued
      liabilities
              
              
              (126
              )Redeemable
      common stock
              
              
              (4,078
              )Management
      bonuses
              
              
              (3,000
              )Transaction
      costs
              
              
              (1,444
              )Net
      assets acquired
              
              $
              40,368
 
 The
Milestone Shares and the additional $2,000 in management bonuses have not been
included in the above purchase price allocation.  If the revenue
targets are achieved and the Milestone Shares are issued, the fair value of the
consideration will be recorded as an additional capital adjustment.
  4.  Supplemental Financial Statement
Data
 
 Inventories
consist of the following:
  December
      31,
                2008
              
              
              December 31,
                2007Raw
      materials
              
              $
              3,646
              
              
              $
              3,775Work-in-process
              
              
              1,073
              
              
              
              1,747Finished
      goods
              
              
              1,091
              
              
              
              1,158$
              5,810
              
              
              $
              6,680
  Property
and equipment consists of the following:
 
 December
      31,
                2008
              
              
              December
      31,
                2007Machinery
      and equipment
              
              $
              1,185
              
              
              $
              1,113Computer
      equipment
              
              
              761
              
              
              
              536Furniture
      and fixtures
              
              
              182
              
              
              
              186Leasehold
      improvements
              
              
              310
              
              
              
              2702,438
              
              
              
              2,105Accumulated
      depreciation and amortization
              
              
              (1,393
              )
              
              
              (1,071
              )$
              1,045
              
              
              $
              1,034
  Depreciation
and amortization expense was $326, $191 and $140 for the years ended
December 31, 2008, 2007, and 2006, respectively. The amounts of property
and equipment under capital leases as of December 31, 2008 and 2007 were
$138 and $139 with accumulated amortization of $97 and $55,
respectively.
  53
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 
 Accrued
liabilities consist of the following:
  December
      31,
                2008
              
              
              December 31,
                2007Bonus
              
              $
              —
              
              
              $
              480Inventory
              
              
              340
              
              
              
              23Vacation
              
              
              348
              
              
              
              320Warranty
              
              
              77
              
              
              
              107Interest
              
              
              30
              
              
              
              69Professional
      services
              
              
              229
              
              
              
              453Payroll
      and related
              
              
              78
              
              
              
              42Commission
              
              
              343
              
              
              
              232Royalties
              
              
              63
              
              
              
              38Deferred
      revenue
              
              
              122
              
              
              
              60Other
              
              
              94
              
              
              
              92$
              1,724
              
              
              $
              1,916
  Other
income (expense) consists of the following:
  Year
      Ended December 31,2008
              
              
              2007
              
              
              2006Foreign
      currency
      remeasurement
              
              $
              —
              
              
              $
              (3
              )
              
              $
              —Increase
      in fair value of loan premium liabilities (Note 5)
              
              
              —
              
              
              
              (474
              )
              
              
              (2,156
              )Decrease
      (increase) in fair value of warrant liabilities
              
              
              —
              
              
              
              512
              
              
              
              99$
              —
              
              
              $
              35
              
              
              $
              (2,057
              )
 
 5. 
Long-Term Debt
 
 The
components of long-term debt were as follows:
 
 December
      31,
                2008
              
              
              December 31,
                2007Senior
      Secured Credit Facility, net of discount of $51 and $164,
      respectively
              
              $
              3,682
              
              
              $
              6,769Equipment
      Financing
              
              
              40
              
              
              
              —3,722
              
              
              
              6,769Less:
      current portion
              
              
              (3,216
              )
              
              
              (3,200
              )Long-term
      portion
              
              $
              506
              
              
              $
              3,569
  Senior
Secured Credit Facility
  On
February 22, 2007, and amended on May 11, 2007, the Company entered into a
senior secured credit facility with Merrill Lynch Capital (subsequently acquired
by GE Capital) consisting of a $10,000 term loan (the “Term Loan”) with an
interest rate of one month LIBOR plus 6.50%. Approximately $3,000 of the total
amount borrowed was used to repay in full the Company’s secured promissory note
issued in May 2005.  At December 31, 2008, $3,733 of the Term Loan was
outstanding. The Term Loan requires interest only payments for the first six
months and interest and principal payments for each month thereafter through
February 2010.
  In
connection with the issuance of the Term Loan in February 2007, the Company
issued a warrant to Merrill Lynch Capital with a contractual term of 10 years.
The $206 estimated fair value of the warrants issued in February 2007 was
recorded as a liability, resulting in a discount to the Term Loan at issuance.
The discount is being amortized to interest expense using the effective interest
method over the term of the Term Loan.
  54
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  In
connection with the close of the merger in June 2007, a measurement date for
this warrant was achieved, and the warrant issued to Merrill Lynch Capital
became exercisable into 43,716 shares of common stock at an exercise price of
$5.49 per share.   As the warrant is now exercisable into common
stock, the fair value of the warrant as of the date of the merger was $215 and
reclassified from a liability to equity.
 
 Under the
terms of the Term Loan, the Company is prohibited from making certain
distributions, including cash dividends.  The Company is currently in
compliance with such restrictions.  Additionally, the Company’s
agreements with GE Capital provides GE Capital with a lien on all of the
Company’s principal assets other than intellectual property.  If the
Company defaults on a payment to GE Capital, and the default is not waived, GE
Capital can foreclose on the Company’s assets, including seizing the Company’s
cash and investment accounts.  The Company is currently in compliance
with all such restrictions.
 
 Equipment
Financing
  In April
2008, the Company entered into an equipment financing agreement with a finance
company for $51.  The agreement requires monthly payments over 36
months.
 
 As of December 31, 2008, principal payments for long-term debt
are as follows:
 
 Year
      ending December 31,2009
              
              $
              3,2162010
              
              
              5512011
              
              
              6$
              3,773
 
 6.  Authorized
Capital Stock
 
 The
Company’s authorized capital consists of 1,000,000 shares of $0.0001 par value
preferred stock and 75,000,000 shares of $0.0001 par value common
stock.   The designations, voting and other rights and
preferences of the preferred stock may be determined from time to time by the
Board of Directors.
 
 The
number of shares of common stock of the Company that have been reserved for
issuance as of December 31, 2008:
 
 Stock
      options and restricted stock units (Note 7)
              
              
              3,904,890Common
      stock warrants (Notes 5, 7 and 8)
              
              
              3,133,7147,038,604
  7.  Stock Options and
Restricted Stock Units
  1992
Plan
  The 1992
Incentive Stock Plan (the “1992 Plan”) provided for the grant of options and
stock purchase rights to purchase up to a maximum of 11,000 shares of
Alsius Medical’s common stock to employees, officers, consultants and directors.
The 1992 Plan included incentive stock options (“ISOs”), nonqualified stock
options (“NSOs”) and stock purchase rights. The right to exercise ISOs and NSOs
and stock purchase rights vested at a rate in accordance with the individual
stock option agreements, which has been immediate to four years for employees
and three to four years for non-employees. Options expire within a period of not
more than 10 years from the date of grant. ISOs granted to an employee who, at
the time the option is granted, owns stock representing more than 10% of the
voting power of all classes of stock of the Company, expire within a period of
not more than five years from the date of grant. Options expire between thirty
and ninety days after termination of employment depending on the circumstances.
The 1992 Plan ended in 2002 and no further options have been
granted.   All options outstanding under the 1992 Plan were
cancelled in the merger effective June 21, 2007.
  55
  ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  A summary
of option activity under the 1992 Plan is as follows:
 
 Shares
      Under OptionEmployee
              
              
              Non-employee
              
              
              Total
              
              
              Weighted
                Average
                Exercise Price
                Per
      ShareOutstanding
      at December 31, 2006
              
              
              5,550
              
              
              
              619
              
              
              
              6,169
              
              
              
              249Forfeited
              
              
              (1,276
              )
              
              
              (30
              )
              
              
              (1,306
              )
              
              
              50Canceled
      in the merger
              
              
              (4,274
              )
              
              
              (589
              )
              
              
              (4,863
              )
              
              
              249Outstanding
      at December 31, 2007 and 2008
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Exercisable
      at December 31, 2007 and 2008
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Vested
      and expected to vest as of December 31, 2007 and 2008
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
 
 2004
Plan
  The 2004
Stock Incentive Plan (the “2004 Plan”) provided for the grant of options and
stock purchase rights to purchase up to a maximum of 2,100,000 shares of
Alsius Medical’s common stock to employees, officers, consultants and directors.
The 2004 Plan included ISOs, NSOs and stock purchase rights. For ISOs and NSOs,
the exercise price per share shall be no less than 110% of the fair market value
per share on the date of grant for an individual who, at the time of grant, owns
stock representing more than 10% of the voting power of all classes of stock of
Alsius Medical. The right to exercise ISOs and NSOs and stock purchase rights
vests at a rate in accordance with the individual stock option agreements, which
has been immediate to four years for employees, and immediate to three years for
non-employees. Options expire within a period of not more than 10 years from the
date of grant. ISOs granted to an employee who, at the time the option is
granted, owns stock representing more than 10% of the voting power of all
classes of stock of Alsius Medical, expire within a period of not more than five
years from the date of grant. Options expire between thirty days and six months
after termination of employment depending on the circumstances. No stock
purchase rights have been granted through the merger.  All options
outstanding under the 2004 Plan were cancelled in the merger effective June 21,
2007.
 
 A summary
of option activity under the 2004 Plan is as follows:
 
 Shares
      Under OptionEmployee
              
              
              Non-employee
              
              
              Total
              
              
              Weighted
                Average
                Exercise
                Price Per
                Share
              
              
              Weighted
                Average
                Contractual
                Life
      (Years)Outstanding
      at December 31, 2006
              
              
              1,683,624
              
              
              
              164,138
              
              
              
              1,847,762
              
              
              
              0.30
              
              
              
              7.7Forfeited
              
              
              (9,877
              )
              
              
              —
              
              
              
              (9,877
              )
              
              
              0.30
              
              
              
              7.7Canceled
      in the merger
              
              
              (1,673,747
              )
              
              
              (164,138
              )
              
              
              (1,837,885
              )
              
              
              0.30
              
              
              
              7.7Outstanding
      at December 31, 2007 and 2008
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Exercisable
      at December 31, 2007 and 2008
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Vested
      and expected to vest as of December 31, 2007 and 2008
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
  56
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  2006
Plan
  In
connection with the Ithaka merger, the Company adopted the new 2006 Equity
Incentive Plan (the “2006 Plan”).  The 2006 Plan provides for the
grant of options and restricted stock units to purchase up to a maximum of
4,159,945 shares of the Company’s common stock to employees, officers,
consultants and directors.   The number of shares reserved for
issuance under the 2006 Plan will be increased on the first day of each fiscal
year from 2008 through 2016 to 3% of the fully diluted shares of common stock
outstanding on the last day of the immediately preceding fiscal year; provided,
however, that the percentage shall be reduced to 2% from and after the time when
the Company calls its warrants for redemption (Note 8).  The 2006 Plan
includes ISOs and NSOs. For ISOs and NSOs, the exercise price per share shall be
no less than 110% of the fair market value per share on the date of grant for an
individual who, at the time of grant, owns stock representing more than 10% of
the voting power of all classes of stock of the Company. The right to exercise
ISOs and NSOs vests at a rate in accordance with the individual stock option
agreements, which has been immediate to four years for employees, and immediate
to three years for non-employees. Options expire within a period of not more
than 10 years from the date of grant. ISOs granted to an employee who, at the
time the option is granted, owns stock representing more than 10% of the voting
power of all classes of stock of the Company, expire within a period of not more
than five years from the date of grant. Options expire between thirty days and
six months after termination of employment depending on the
circumstances.
 
 A summary
of option activity under the 2006 Plan is as follows:
   Shares
      Under OptionEmployee
                          
                          
                          Non-employee
                          
                          
                          Total
                          
                          
                          Weighted
                            Average
                            Exercise Price
                            Per
      Share
                          
                          
                          Weighted
                            Average
                            Contractual
                            Life
      (Years)
                          
                          
                          Aggregate
                            Intrinsic
                            ValueOutstanding
      at December 31, 2006
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          $
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Granted
                          
                          
                          2,742,550
                          
                          
                          
                          15,000
                          
                          
                          
                          2,757,550
                          
                          
                          
                          5.08Forfeited
                          
                          
                          (14,700
                          )
                          
                          
                          —
                          
                          
                          
                          (14,700
                          )
                          
                          
                          4.89Exercised
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Outstanding
      at December 31, 2007
                          
                          
                          2,727,850
                          
                          
                          
                          15,000
                          
                          
                          
                          2,742,850
                          
                          
                          
                          5.08
                          
                          
                          
                          9.51
                          
                          
                          $
                          3,786Granted
                          
                          
                          465,700
                          
                          
                          
                          —
                          
                          
                          
                          465,700
                          
                          
                          
                          1.27Exchanged
      in tender offer for RSUs
                          
                          
                          (2,037,417
                          )
                          
                          
                          (12,000
                          )
                          
                          
                          (2,049,417
                          )
                          
                          
                          5.00Forfeited
                          
                          
                          (614,739
                          )
                          
                          
                          —
                          
                          
                          
                          (614,739
                          )
                          
                          
                          5.07Exercised
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Outstanding
      at December 31, 2008
                          
                          
                          541,394
                          
                          
                          
                          3,000
                          
                          
                          
                          544,394
                          
                          
                          
                          2.86
                          
                          
                          
                          9.07
                          
                          
                          
                          1,310Exercisable
      at December 31, 2008
                          
                          
                          115,449
                          
                          
                          
                          1,063
                          
                          
                          
                          116,512
                          
                          
                          
                          5.08
                          
                          
                          
                          8.51
                          
                          
                          $
                          540Vested
      and expected to vest as of December 31, 2008
                          
                          
                          492,669
                          
                          
                          
                          3,000
                          
                          
                          
                          495,669
                          
                          
                          
                          2.86
                          
                          
                          
                          9.07
                          
                          
                          $
                          1,193
   57
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 The
following table summarizes stock options outstanding at December 31,
2008:
 
 Outstanding
              
              
              ExercisableRange
      of
                Exercise
      Prices
              
              
              Number
                of
      Shares
              
              Average
                Remaining
                Contractual
                Life
      (Years)
              
              Weighted-
                Average
                Exercise
                Price
              
              
              Number
                of
      Shares
              
              
              Weighted-
                Average
                Exercise
                Price$
              0.58
              
              
              
              12,000
              
              9.92
              
              $
              0.58
              
              
              
              —
              
              
              $
              —0.84
              
              
              
              12,000
              
              9.76
              
              
              0.84
              
              
              
              —
              
              
              
              —0.92
              
              
              
              6,500
              
              9.42
              
              
              0.92
              
              
              
              —
              
              
              
              —1.10
              
              
              
              39,900
              
              9.34
              
              
              1.10
              
              
              
              —
              
              
              
              —1.19
              
              
              
              59,300
              
              9.50
              
              
              1.19
              
              
              
              —
              
              
              
              —1.79
              
              
              
              12,000
              
              9.68
              
              
              1.79
              
              
              
              —
              
              
              
              —1.84
              
              
              
              171,200
              
              9.25
              
              
              1.84
              
              
              
              —
              
              
              
              —2.18
              
              
              
              30,000
              
              9.59
              
              
              2.18
              
              
              
              —
              
              
              
              —3.73
              
              
              
              8,925
              
              9.01
              
              
              3.73
              
              
              
              1,375
              
              
              
              3.735.10
              
              
              
              192,569
              
              8.51
              
              
              5.10
              
              
              
              115,187
              
              
              
              5.10544,394
              
              
              
              
              
              
              
              
              116,562
 
 As of
December 31, 2008 there was $2.4 million of unrecognized compensation expense
related to nonvested stock options granted under the 2006 Plan using the fair
value method of SFAS 123(R). As of December 31, 2008, the cost was expected to
be recognized over a weighted-average period of 2.7 years, using the graded
vested attribution method.
 
 Restricted
Stock Units
 
 In June
and July 2008, the Company completed a tender offer whereby holders of the then
outstanding 2,904,450 options under the 2006 Plan were offered the opportunity
to exchange options for a number of restricted stock units (“RSUs”) equal to
one-half of the number of options.  The RSUs are also part of the 2006
Plan.  An RSU provides a right to receive one common share per award
if the holder remains in service to the Company as the RSU vests.  The
purpose of the Offer was (i) to counteract the loss of share value, which caused
all outstanding options to have exercise prices in excess of the fair market
value of Company common shares and (ii) to incentivize management to continue to
strive to increase Company value for the benefit of
stockholders.  Participation in the offer was voluntary and open to
eligible employees and consultants of the Company at the time of the offer and
remain employed through the expiration date of the
offer.  Non-employee members of the Company’s board of directors were
not eligible to participate.  The offer expired on July 25,
2008.  As a result of the offer, 2,049,417 options were exchanged for
1,024,709 RSUs.  The RSUs are subject to vesting in three annual
installments with continued service to the Company, but are subject to certain
accelerated vesting if the holder leaves in the middle of a vesting year other
than for cause, and in certain circumstances upon an acquisition or similar
change in control of the Company. The grant date fair value of $1.15 per
share of the new RSUs was determined by using the closing price of the Company’s
common stock on the day immediately preceding the grant date.
  The
excess of the aggregate grant date fair value of the RSUs of $1,178 over the
fair value of the stock options canceled of $625 has been added to the
unamortized value of the canceled options of $2,410 and will be amortized over
the vesting period of the RSUs.
 
 As
of December 31, 2008, there was $0.3 million of unamortized compensation expense
related to the RSUs granted under the 2006 Plan, which is expected to be
recognized over 2.5 years, using the graded attribution method.  A
summary of the activity related to the RSUs under the 2006 Plan for the year
ended December 31, 2008 is as follows.  Of the RSUs issued and
outstanding, 6,000 are to non-employees.
 
 Number
      of
                RSUs
              
              
              Weighted
                Average
                Grant
      Date
                Fair
      ValueNonvested
      RSUs at January 1, 2008
              
              
              —
              
              
              
              —RSUs
      issued upon cancellation of options tendered- July 28,
2008
              
              
              1,024,709
              
              
              $
              1.15Other
      RSUs granted
              
              
              35,000
              
              
              
              0.84RSUs
      vested
              
              
              —RSUs
      forfeited
              
              
              (11,734
              )
              
              
              1.15Nonvested
      RSUs at December 31, 2008
              
              
              1,047,975
              
              
              $
              1.14
  58
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 The
following table summarizes RSUs outstanding at December 31, 2008:
 
 OutstandingRange
      of
                Exercise
                Prices
              
              
              Number
                Of
      Shares
              
              Average
                Remaining
                Contractual
                Life
      (Years)
              
              Weighted-
                Average
                Exercise
                Price$
              0.84
              
              
              
              35,000
              
              9.76
              
              $
              0.841.15
              
              
              
              1,012,975
              
              9.57
              
              
              1.151,047,975
 
 IPO
Option
  In
Ithaka’s initial public offering in August 2005, an option was issued to the
underwriter of the initial public offering (the “IPO Option”) to purchase
425,000 units at an exercise price of $7.50 per unit.  A unit consists
of one share of common stock and two redeemable common stock purchase
warrants.  Ithaka accounted for the fair value of the IPO Option as an
expense of its offering resulting in a charge directly to stockholders’
equity.  As of December 31, 2008, the IPO Option is outstanding and
exercisable.
 
 The IPO
Option may be exercised for cash or on a “cashless” basis, at the holder’s
option, such that the holder may use the appreciated value of the Option (the
difference between the exercise prices of the Option and the underlying warrants
and the market price of the units and underlying securities) to exercise the
option without the payment of any cash. The unit purchase option agreement
governing the IPO Option, as amended, states that the option may expire
unexercised or unredeemed and expire worthless if there is no effective
registration statement and states that in no event would Ithaka be obligated to
pay cash or otherwise “net cash settle” the Option or the Warrants underlying
the Option.  On December 19, 2007, the Registrant filed a registration
statement on Form S-3 to register the shares that may be issued upon exercise of
warrants and the registration statement is currently effective to allow the
exercise of the warrants.
 
 8.  Common Stock
Warrants
  For
accounting purposes, the Company is treated as having assumed Ithaka’s
17,698,200 then outstanding redeemable common stock purchase warrants in the
merger in June 2007. Each warrant entitles the registered holder to purchase one
share of common stock at a price of $5.00 per share, subject to adjustment as
discussed below. The warrants expire on April 17, 2009. The Registrant may
call the warrants for redemption if all of the following conditions are
met:
 
 ●
              
              in
      whole and not in part;
  ●
              
              at
      a price of $0.01 per warrant at any time after the warrants become
      exercisable;
  ●
              
              upon
      not less than 30 days’ prior written notice of redemption to each warrant
      holder; and
  ●
              
              if,
      and only if, the reported last sale price of the common stock equals or
      exceeds $8.50 per share for any20
      trading days within a 30 trading day period ending on the third business
      day prior to the notice ofredemption
      to warrant holders.
 
 The
exercise price and number of shares of common stock issuable on exercise of the
warrants may be adjusted in certain circumstances including in the event of a
stock dividend, a recapitalization, reorganization, merger or consolidation.
However, the warrants will not be adjusted for issuances of common stock at a
price below the exercise price.
  59
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  The
warrants can be exercised on a cashless basis in connection with any
redemption.  The warrant holders do not have the rights or privileges
of holders of common stock and any voting rights until they exercise their
warrants and receive shares of common stock. After the issuance of shares of
common stock upon exercise of the warrants, each holder will be entitled to one
vote for each share held of record on all matters to be voted on by
stockholders.  No warrants will be exercisable and the Registrant will not
be obligated to issue shares of common stock unless, at the time a holder seeks
to exercise such warrant, a prospectus relating to the common stock issuable
upon exercise of the warrants is current and the common stock has been
registered or qualified or deemed to be exempt under the securities laws of the
state of residence of the holder of the warrants.  On December 19,
2007, the Registrant filed a registration statement on Form S-3 to register the
shares that may be issued upon exercise of warrants and the registration
statement is currently effective to allow the exercise of the
warrants.
  IPO
Warrants
  In
Ithaka’s initial public offering in August 2005, 8,500,000 units were
sold.  In addition, in September 2005 Ithaka consummated the closing
of an additional 349,100 units, which were subject to the underwriters’
over-allotment option.  A unit consisted of one share of common stock
and two redeemable common stock purchase warrants (the “IPO
Warrants”).  Each IPO Warrant entitles the holder to purchase one
share of common stock at an exercise price of $5.00 commencing June 21, 2007 and
expiring four years from the effective date of the initial public offering. As
of December 31, 2008, 16,541,000 IPO Warrants are outstanding.
  The IPO
Warrants are redeemable, at the Company’s option, with the prior consent of the
underwriter of the IPO, at a price of $.01 per IPO Warrant upon 30 days’ notice
after the IPO Warrants become exercisable, only in the event that the last sale
price of the common stock is at least $8.50 per share for any 20 trading days
within a 30 trading day period ending on the third day prior to the date on
which notice of redemption is given. The warrant agreement governing the IPO
Warrants, as amended, states that the warrants may expire unexercised or
unredeemed and expire worthless if there is no effective registration statement
and states that in no event would the Company be obligated to pay cash or other
consideration to the holder of warrants or otherwise “net cash settle” any
warrant exercise.
 
 Warrant
Repurchase Program
 
 On August
9, 2007, the Company's board of directors authorized a warrant repurchase
program for the Company to deploy up to $3.0 million to repurchase outstanding
warrants from time to time in the open market, through block trades or
otherwise, pursuant to applicable securities laws. The Company repurchased
1,157,200 warrants for cash of $0.9 million.  The Company terminated
this program in November 2007.
  Warrant
Retirement Program
 
 In
December 2007, the Company’s board of directors authorized a new warrant
retirement program whereby the holders of any warrant could, for the period of
December 19, 2007 to January 18, 2008, exercise their warrants on amended
terms.  For each 5.5 warrants surrendered on a cashless exercise
basis, the holder could receive one share of common stock.  In
addition, the holder could also exercise one additional warrant by paying a
reduced exercise price of $3.25 per share.
 
 The
warrant retirement program was completed on January 18, 2008.  A total
of 14,301,002 warrants were retired, which consisted of 14,029,081 warrants
tendered for 2,550,713 shares of common stock, and 271,921 warrants exercised
for cash proceeds of $884. After the program, there is a remaining
balance of 2,239,998 redeemable common stock purchase warrants
outstanding.  The Company incurred $437 in direct and incremental
costs related to the warrant retirement program, and these costs have been
recorded as a reduction of additional paid-in capital.
 
 9.  Income
Taxes
 
 The
Company has a history of continuing operating losses; accordingly, no federal
income taxes have been incurred. The Company has established a valuation
allowance against its deferred tax assets due to the uncertainty surrounding the
realization of such assets. Management periodically evaluates the recoverability
of the deferred tax assets. At such time as it is determined that it is more
likely than not that deferred tax assets are realizable, the valuation allowance
will be reduced.
  60
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 
 The
reconciliation of the income tax provision computed at federal statutory rates
to income tax expense/(benefit) is as follows:
  Year Ended
      December 31 ,2008
              
              
              2007
              
              
              2006Provision
      at statutory rate
              
              
              34
              %
              
              
              34
              %
              
              
              34
              %State
      taxes, net of federal benefit
              
              
              5
              
              
              
              0
              
              
              
              4Expiring
      net operating losses and credits
              
              
              0
              
              
              
              (75
              )
              
              
              0Convertible
      debt interest
              
              
              0
              
              
              
              (5
              )
              
              
              0Stock
      options
              
              
              (5
              )
              
              
              (5
              )
              
              
              0Valuation
      allowance
              
              
              (34
              )
              
              
              51
              
              
              
              (38
              )0
              %
              
              
              0
              %
              
              
              0
              %
   The
      components of the net deferred tax asset are as
  follows:
  December 31,2008
              
              
              2007Net
      operating loss carryforwards
              
              $
              22,719
              
              
              $
              17,394Capitalized
      costs
              
              
              10,810
              
              
              
              10,514Tax
      credits
              
              
              454
              
              
              
              102Reserves
              
              
              39
              
              
              
              60Inventory
              
              
              311
              
              
              
              108Property
      and equipment
              
              
              (48
              )
              
              
              148Amortization
              
              
              1,620
              
              
              
              1,086Other
              
              
              322
              
              
              
              391Total
      deferred tax assets
              
              
              36,227
              
              
              
              29,803Valuation
      allowance
              
              
              (36,227
              )
              
              
              (29,803
              )Net
      deferred tax assets
              
              $
              —
              
              
              $
              —
  The
Company has elected to recognize interest and penalties with respect to
unrecognized tax benefits in income tax expense. The Company has identified no
uncertain tax position for which it is reasonably possible that the total amount
of unrecognized tax benefits will significantly increase or decrease within 12
months.  The total amount of unrecognized tax benefits and related
penalties and interest is not material as of December 31, 2008. The Company
does not anticipate any material change in the total amount of unrecognized tax
benefits to occur within the next twelve months.
  The
Company is subject to taxation in the U.S. and various state jurisdictions. It
will no longer be subject to U.S. federal or state examinations by tax
authorities for years before 2003.
  At
December 31, 2008, the Company had both federal and state net operating loss
(“NOL”) carryforwards of approximately $58,757 and $46,994, respectively. The
net operating loss carryforwards for federal purposes began to expire in 2007,
and the net operating loss carryforwards for state purposes began expiring in
2006. The Company has research and experimentation credit carryforward for
federal and state purposes of approximately $218 and $236,
respectively.  The research and experimentation credits begin to
expire in 2010 for federal purposes and carry forward indefinitely for state
purposes. Due to uncertainties surrounding our ability to generate future
taxable income to realize these assets, a full valuation allowance has been
established to offset the net deferred tax assets.
  The
Company has completed an analysis on whether an ownership change had occurred
with the consummation of the Ithaka merger in June 2007 or whether there have
been other relevant ownership changes since the Company’s
formation.  There may be additional such ownership changes in the
future. If the Company has experienced certain ownership change at any time
since its formation, utilization of the NOL carryforwards would be subject to an
annual limitation under Section 382 of the Internal Revenue Code of 1986,
as amended, as well as similar state provisions, which is determined by first
multiplying the value of the Company’s 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
a portion of the NOL carryforwards before utilization.  The Company
has determined that it has incurred three relevant ownership changes since its
inception, and the June 2007 merger with Ithaka has resulted in approximately
$33.2 million of federal NOL carryforwards and $24.0 million of state NOL
carryforwards that will expire unutilized as a result of the Section 382
limitations.
  61
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  10.  Net
Loss Per Share
  Basic
loss per share is based on the weighted-average number of shares of common stock
outstanding during the period. Diluted loss per share also includes the effect
of stock options, warrants and other common stock equivalents outstanding during
the period. In periods of a net loss position, basic and diluted weighted
average shares are the same.
 
 The
merger with Ithaka in June 2007 was, for financial reporting purposes, treated
as a reverse acquisition. Because the number of shares outstanding following a
reverse acquisition is significantly different from the number of shares
outstanding prior to the combination, the weighted average shares outstanding
for purposes of presenting net loss per share on a comparative basis has been
retroactively restated to the earliest period presented in order to reflect the
effect of the reverse acquisition.  In effect, the reverse acquisition
is similar to a stock split for the accounting acquirer, and retroactively
restating the weighted average shares outstanding is consistent with the
accounting required by SFAS No. 128, Earnings Per Share, for stock
splits, stock dividends, and reverse stock splits.  Accordingly,
10,974,100 shares of common stock were deemed to be outstanding at the beginning
of the earliest period presented. Basic net loss per share is computed by
dividing net loss by the weighted average number of common stock outstanding
during the reporting period. There is no dilutive effect on net loss per share
in the years presented due to the net loss position.
  Potentially
dilutive securities that have been excluded from net loss per share computations
due to the net loss position are:
  Year
      Ended December 31,2008
              
              
              2007
              
              
              2006Stock
      options
              
              
              969,394
              
              
              
              3,167,850
              
              
              
              425,000Restricted
      stock units
              
              
              1,047,975
              
              
              
              —
              
              
              
              —Common
      stock warrants
              
              
              3,133,714
              
              
              
              17,434,716
              
              
              
              18,548,2005,151,083
              
              
              
              20,602,566
              
              
              
              18,973,200
  11.  Commitments
and Contingencies
  Operating
Leases
  The
Company leases its facility under a noncancelable operating lease which, as
amended, expires in December 2011 with an option to extend the lease for an
additional three-year term at market rates. Under the lease, the Company is
required to pay for insurance, taxes, utilities and building
maintenance.
  The
Company leases its facility under a noncancelable operating lease for the Alsius
Service Center in Wateringen, The Netherlands which expires in
2010.  The Company also leases an automobile under an operating lease
which expires in 2011.
  As of
December 31, 2008, future minimum lease payments on the operating leases are as
follows:
  Year
      Ending December 31,2009
              
              $
              3792010
              
              
              3752011
              
              
              373$
              1,127
  Rent
expense for the years ended December 31, 2008, 2007 and 2006 was $458, $424 and
$383, respectively.
 
 62
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  Capital
Leases
  As of
December 31, 2008, capital lease payments are due in monthly installments
through October 2011 for a total of $82.  Future minimum payments are
$27, $30 and $25 for the years ended December 31, 2009, 2010, and 2011,
respectively.
  401(k)
Plan
  The
Company has a 401(k) plan that covers substantially all employees. Employer
contributions to the plan are at the discretion of the Board of Directors. The
Company elected to make no contributions for each year since the inception of
the plan. The Company paid administrative expenses on behalf of the plan of $3,
$3 and $3, respectively, for the years ended December 31, 2008, 2007, and
2006.
 
 Indemnifications
  Each of
the Registrant and Alsius Medical indemnifies its directors, and may indemnify
its officers and other agents, to the maximum extent permitted under the
Delaware General Corporation Law and the California Corporations Code,
respectively. The indemnities do not provide for any limitation of the maximum
potential future payments the Company could be obligated to make. As there are
currently no outstanding or threatened actions, the Company has not recorded any
liability for these indemnities in the accompanying balance sheets.
 
 Litigation
  From time
to time, the Company may be involved in litigation relating to claims arising
out of its operations in the normal course of
business. On
January 29, 2009, Zoll filed a patent infringement complaint against the Company
in the United States District court Central District of
California.  However, Zoll has agreed that during the pendency of the
Asset Sale, it will not serve the Company or take any action to pursue or resume
the case.  If the Asset Sale were not to close and the litigation with
Zoll were to resume, the Company would incur significant costs to defend it and
pursue counterclaims against Zoll.  The Company’s efforts to raise
funding to support operations would have to include a substantial allocation to
cover the cost of litigation.  Management believes that the Company
has a strong defense position and strong counterclaims to Zoll’s claims against
the Company, but litigation is unpredictable and there is no assurance as to
whether the Company would achieve a favorable outcome.  A loss may
involve the payment of damages and/or an injunction to prevent the Company from
selling some or all of its products. The ultimate outcome is uncertain at
this time, therefore no amounts have been accrued as of December 31, 2008. The
Company believes that it currently is not a party to any other legal proceedings
which, individually or in the aggregate, would have a material adverse effect on
its consolidated financial position, results of operations, or cash
flows.
 
 12. Segment
Information
 
 The
Company operates in a single reporting segment. The following enterprise wide
disclosure was prepared on a basis consistent with the preparation of the
financial statements.
  The
Company derives significant revenue from outside the United States. Revenue by
geographic area, based on the customer location, was as follows:
  Year
      Ended December 31,2008
              
              
              2007
              
              
              2006United
      States
              
              $
              6,506
              
              
              $
              4,621
              
              
              $
              2,592Austria*
              
              
              —
              
              
              
              308
              
              
              
              1,449Germany*
              
              
              2,864
              
              
              
              1,395
              
              
              
              —France
              
              
              310
              
              
              
              560
              
              
              
              321Rest
      of Europe
              
              
              2,262
              
              
              
              1,710
              
              
              
              1,565Other
              
              
              519
              
              
              
              520
              
              
              
              52$
              12,461
              
              
              $
              9,114
              
              
              $
              5,979
 
 No other
country represented more that 10 percent of total revenue.
 
 * Prior
to May 2007, sales to end users in both Germany and Austria were conducted
through a distributor in Austria, and were reflected as Austrian
sales.   Beginning in May 2007, sales in both Germany and Austria
have been conducted predominantly through a distributor in Germany, and are
reflected as German sales.
 63
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
 The
Company’s revenue by product category was as follows:
  Year
      Ended December 31,2008
              
              
              2007
              
              
              2006Disposables
              
              $
              6,631
              
              
              $
              4,254
              
              
              $
              2,893CoolGard  and
      Thermogard systems
              
              
              5,121
              
              
              
              4,393
              
              
              
              2,837Services
              
              
              709
              
              
              
              467
              
              
              
              249$
              12,461
              
              
              $
              9,114
              
              
              $
              5,979
  The Company’s long-lived assets located in
its country of domicile and internationally were as follows:
  December
      31,
                2008
              
              
              December
      31,
                2007United
      States
              
              $
              1,875
              
              
              $
              1,564International
              
              
              226
              
              
              
              143$
              2,101
              
              
              $
              1,707
  13. Related
Parties
 
 The
Company paid approximately $575, $731 and $709 in legal fees for the years ended
December 31, 2008, 2007 and 2006, respectively, to a law firm whose partner is
the corporate secretary of the Company. Included in accounts payable and accrued
expenses at December 31, 2008 and 2007 is approximately $111 and $235,
respectively, due to this law firm.
 
 The
Company paid approximately $31 and $83 in professional fees for the years ended
December 31, 2008 and 2007, respectively, to an executive recruiting firm whose
principal is the spouse of a Vice President of the Company. Included in accounts
payable and accrued expenses at December 31, 2008 and 2007 is approximately
$0 and $1 due to this executive recruiting firm.
 
 In
connection with the services rendered in the years ended December 31, 2008 and
2007, for the procurement of the Company’s directors’ and officers’ insurance
policies, the Company paid Woodruff-Sawyer & Co. a commission of $22
and $28, respectively.   Stephen R. Sawyer is a partial owner of
Woodruff-Sawyer & Co. and the brother of Ms. Hutton, one of the
Company’s directors. Ms. Hutton has no financial ownership or interest in
Woodruff-Sawyer & Co. and did not participate in the selection of
Woodruff-Sawyer & Co. as the Company’s insurance
broker.  There are no amounts included in accounts payable and accrued
expenses at December 31, 2008 or 2007 due to Woodruff-Sawyer &
Co.
 
 The
Company paid approximately $84 and $113 in legal fees for the years ended
December 31, 2008 and 2007, respectively, to a law firm whose partner is a
holder of stock options of the Company. Included in accounts payable and accrued
expenses at December 31, 2008 and 2007 is approximately $13 and $6
respectively, due to this law firm.  In 2007, the Company paid $120 to
the partner of this law firm for his participation in the Management Incentive
Plan associated with the completion of the merger transaction with
Ithaka.  In addition, the Company has a balance of $8 in accrued
expenses at December 31, 2007 representing a bonus payment due to the partner of
this law firm.
  In
January 2008, the Company completed a warrant retirement program whereby the
holders of certain warrants could, for the period from December 19, 2007 to
January 18, 2008, exercise their warrants on amended terms.  For each
5.5 warrants surrendered, the holder would receive one share of common
stock.  In addition, the holder could also exercise one additional
warrant by paying a reduced exercise price of $3.25 per share.  Two
members of the Company’s board of directors participated in the warrant
retirement program.  One member tendered 522,500 warrants in exchange
for 95,000 shares of common stock and exercised 31,250 warrants by paying a
reduced aggregate exercise price of $102.  The other member tendered
553,750 warrants in exchange for 100,682 shares of common stock.
  64
 ALSIUS
CORPORATION
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
in thousands, except share and per share data)
  14.  Subsequent
Events
 
 On
February 19, 2009, the Company and ZOLL Circulation, Inc., a Delaware
corporation (“Zoll”), entered into an Asset Purchase Agreement (the “Purchase
Agreement”) pursuant to which the Company will sell substantially all of its
assets to Zoll for a purchase price of $12.0 million in cash (the “Asset
Sale”).  The Purchase Agreement contains customary representations,
warranties and covenants of the Company including, among others, a covenant to
use commercially reasonable efforts to conduct its operations in the ordinary
course during the period between the execution of the Purchase Agreement and the
completion of the Asset Sale.  The closing of the Purchase Agreement
is subject to the satisfaction of certain conditions, including that the
representations and warranties of the parties contained in the Purchase
Agreement are true and correct in all material respects on the closing date,
that applicable consents and approvals required to be obtained by the parties
have been obtained and not withdrawn, the delivery of closing certificates from
officers of the Sellers, and the delivery by counsel to the Company of a legal
opinion satisfactory to Zoll.  The Purchase Agreement may be
terminated under certain circumstances, including by either party if the other
party is in material breach of any representation, warranty or covenant
contained in the Purchase Agreement.  In connection with such
termination, the breaching party must pay a termination fee of $1,000,000 to the
terminating party.  The Company has also agreed to indemnify Zoll with
respect to losses Zoll suffers related to or resulting from any breach of the
Company’s representations, warranties, covenants and agreements.  The
Company’s aggregate liability for such losses will in no event exceed $1,000,000
(except in the case of fraud or willful misconduct).  To qualify for
indemnification, Zoll must make a claim within twelve months after the closing
date of the Asset Sale.
 
 
  65
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To the
Board of Directors and Shareholders of
 Alsius
Corporation and Subsidiaries
 Irvine,
California
  We have
audited the accompanying consolidated balance sheets of Alsius Corporation and
subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended.  These consolidated financial statements
are the responsibility of the Company's management.  Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits. The consolidated financial statements of the Company for the
year ended December 31, 2006, before the effects of the adjustments to
retroactively apply the change in accounting discussed in Note 10 to the
consolidated financial statements, were audited by other auditors whose report,
dated March 14, 2007, expressed an unqualified opinion on those
statements.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting.  Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall
consolidated financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.
  In our
opinion, such 2008 and 2007 consolidated financial statements present fairly, in
all material respects, the financial position of Alsius Corporation and
subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
  We have
also audited the adjustments to the 2006 consolidated financial statements
to retroactively apply the change in accounting for net loss per share in 2006,
as discussed in Note 10 to the consolidated financial statements. Our
procedures included (1) comparing the amounts shown in the loss per share
disclosures for 2006 to the Company's underlying accounting analysis, (2)
comparing the previously reported shares outstanding and income statement
amounts per the Company's accounting analysis to the previously issued
consolidated financial statements, and (3) recalculating the additional shares
to give effect to the reverse acquisition and testing the mathematical accuracy
of the underlying analysis. In our opinion, such retroactive adjustments are
appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the 2006 consolidated financial
statements of the Company other than with respect to the retroactive
adjustments, and accordingly, we do not express an opinion or any other form of
assurance on the 2006 consolidated financial statements taken as a
whole.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's recurring losses from
operations raise substantial doubt about the Company’s ability to continue
as a going concern. Management’s plans concerning these matters are also
discussed in Note 1. The consolidated financial statements do not include
adjustments that might result from the outcome of this uncertainty.
 
 As
discussed in Note 1 to the consolidated financial statements, the Company signed
an Asset Purchase Agreement with Zoll Medical Corporation on February 19,
2009 for the sale of substantially all of the Company’s assets and, on
February 19, 2009, the Company's Board of Directors also unanimously
adopted a plan providing for the complete dissolution and liquidation of the
Company.
  
 /s/
DELOITTE & TOUCHE LLP
  Costa
Mesa, California
 March 31,
2009
 
 66
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
      the Board of Directors and Shareholders ofAlsius
      Corporation
  In our
opinion, the consolidated statement of operations, shareholders' equity
(deficit) and cash flows for the year ended December 31, 2006, before the
effects of the adjustments to retrospectively restate net loss per share for all
periods as a result of the merger with Ithaka Acquisition Corp. described in
Note 10, present fairly, in all material respects, the results of the operations
and cash flows of Alsius Corporation and its subsidiaries for the year ended
December 31, 2006, in conformity with accounting principles generally accepted
in the United States of America (the 2006 financial statements before the
effects of the adjustments discussed in Note 10 are not presented
herein).  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audit.  We conducted our
audit, before the effects of the adjustments described above, of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States).  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audit provides a
reasonable basis for our opinion.
  The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the financial
statements (not separately presented herein), the Company has suffered recurring
losses from operations which raises a substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to this matter are
also discussed in Note 2 (not separately presented herein). The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
  As
discussed in Note 2 to the financial statements, the Company changed the manner
in which it accounts for share-based compensation in 2006.
 
 We were
not engaged to audit, review, or apply any procedures to the adjustments to
retrospectively restate net loss per share for all periods as a result of the
merger with Ithaka Acquisition Corp. described in Note 10 and accordingly,
we do not express an opinion or any other form of assurance about whether such
adjustments are appropriate and have been properly applied.  Those
adjustments were audited by other auditors.
   /s/
      PRICEWATERHOUSE COOPERS LLP
  PricewaterhouseCoopers
      LLPOrange
      County, CaliforniaMarch 14,
      2007
  67
  Item 9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
 
 Not
applicable.
 
 Item
      9A(T).
              Controls
      and Procedures
 
 (a)           Evaluation
of disclosure controls and procedures.
 
 As
required by Rule 13a-15(b) under the Exchange Act, we have carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer ("CEO") and our Chief Financial Officer
("CFO"), of the effectiveness, as of the end of the period covered by this
report, of the design and operation of our "disclosure controls and procedures"
as defined in Rule 13a-15(e) promulgated by the SEC under the Exchange Act.
Based upon that evaluation, our CEO and our CFO concluded that our disclosure
controls and procedures, as of the end of such period, were adequate and
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.
  (b)          Evaluation
of financial reporting controls and procedures.
  Management’s
Report on Internal Control Over Financial Reporting.
  Management
is responsible for establishing and maintaining an adequate system of internal
control over financial reporting, pursuant to Rule 13a-15(c) of the
Exchange Act. This system is intended to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with GAAP.
  A
Company’s internal control over financial reporting includes policies and
procedures that: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures
of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the company’s assets that could have a material affect on
the financial statements.
 
 Because
of its inherent limitations, internal control over financial
reporting determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and may not
prevent or detect all misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may
deteriorate.
 
 As
required by Rule 13a-15(c) under the Exchange Act, we have carried out an
evaluation, under the supervision and with the participation of our management,
including our CEO and our CFO, of the effectiveness, as of the end of the period
covered by this report, of the design and operation of our internal control over
financial reporting as defined in Rule 13a-15(f) promulgated by the SEC
under the Exchange Act and based on the framework set forth in Internal Controls- Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based upon that evaluation, our CEO and our CFO
concluded that our internal controls over financial reporting, as of the end of
such period, were effective.
 
 This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal controls over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only the
management’s report in this annual report.
 
 (c)          Changes
in internal controls
 
 There
were no changes in our internal controls over financial reporting during the
quarter ended December 31, 2008, that have materially affected or are reasonably
likely to materially affect our internal control over financial
reporting.
 
 Item
      9B.
              Other
      Information
 
 Not
applicable.
 68
  PART III
 
 Item
      10.
              Directors,
      Executive Officers and Corporate
Governance
 
 Executive
Officers and Directors
 
 The
following table shows information about our executive officers and
directors:
  Name
              Age
              Position(s)Paul
      Brooke
              62
              Chairman
      of the BoardWilliam
      Worthen
              48
              President
      and Chief Executive OfficerGregory
      Tibbitts
              41
              Chief
      Financial OfficerH.
      Michael Ameli
              66
              Vice
      President, ManufacturingJohn
      Riolo
              48
              Vice
      President of Regulatory, Clinical and Quality AssuranceSuzanne
      Winter
              47
              Vice
      President, Worldwide Sales and MarketingEric
      Hecht
              48
              DirectorWende
      Hutton (1)(2)
              49
              DirectorJack
      Lasersohn (1)(3)
              56
              DirectorGregory
      Waller (1)(2)
              59
              DirectorKurt
      Wheeler (2)(3)
              56
              Director
 
 (1)
              Member
      of the Audit Committee.(2)
              Member
      of the Compensation Committee.(3)
              Member
      of the Nominating and Corporate Governance
  Committee.
  Paul A. Brookehas served as Chairman of our board of directors since the acquisition of
Alsius by Ithaka Acquisition Corp. in June 2007. Mr. Brooke was Chairman and
Chief Executive Officer of Ithaka, a special purpose acquisition corporation
that he helped found in early 2005.  From the fall of 1997 to the
winter of 2006, Mr. Brooke was a venture partner of MPM Capital, a
healthcare-focused venture capital firm. From March 1983 to March 1999, he was
Global Head of Healthcare Research and Strategy at Morgan Stanley, and has been
a senior advisor to Morgan Stanley since April 2000.   Mr. Brooke
is on the board of directors of three other healthcare companies listed on the
Nasdaq stock market: HLTH Corporation, Incyte Corporation and ViroPharma,
Inc.  Mr. Brooke received a B.A., cum laude, from Columbia
College and an M.A. from Columbia University.
 
 William J.
Worthenhas been Alsius’ President and Chief Executive Officer since
March 1997 and has served as one of Alsius’ directors since 2006. From August
1992 until February 1997, he served as President and Chief Executive Officer and
a member of the board of directors of Neuro Navigational Corporation, a publicly
traded medical device company focused on minimally-invasive neuro surgery, which
was sold to Ballard Medical Products. Mr. Worthen’s prior experience
includes sales and marketing management positions at several cardiovascular
products companies, including American Hospital Supply’s Edwards Laboratories
division (now Edwards Lifesciences). Mr. Worthen earned a B.S. from
San Diego State University.
 
 Gregory J.
Tibbitts has served as Alsius’ interim Chief Financial Officer since
August 2008.  Mr. Tibbitts served as the Chief Financial Officer
of Cryocor, Inc., a medical device company focused on cardiology, from July 2004
until its acquisition by Boston Scientific Corporation in May
2008.  From April 2000 to June 2004, Mr. Tibbitts held various
positions, including Chief Financial Officer, with Elitra Pharmaceuticals Inc.,
a biotechnology company.  From December 1996 to March 2000,
Mr. Tibbitts was a senior manager in the audit department of
Ernst & Young LLP, specializing in the biotechnology, medical device
and other high technology industries. Mr. Tibbitts received a B.A. in
Business Administration from the University of San Diego and an M.B.A. in
Finance from San Diego State University, and is a Certified Public Accountant in
the State of California.
 
 John Riolo
has been Alsius’ Executive Vice President of Regulatory, Clinical and Quality
Assurance since March 2008.  Mr. Riolo has twenty-three years of
experience in regulatory affairs, quality assurance and engineering, most
recently as Vice President of Quality Assurance, from 2005 to 2008, at DexCom,
Inc., which develops glucose monitoring technologies for diabetes.
 
 H. Michael
Amelihas been Alsius’ Vice President, Manufacturing since January 2001.
>From January 1997 until December 2000, he served as a director of operations
in charge of catheter manufacturing for Medtronic Corporation, a publicly traded
diversified medical device company. Mr. Ameli earned a B.S. from California
State Polytechnic University, Pomona and an M.B.A. from California State
University, Long Beach.
 
 69
  Suzanne C. Winterhas been Alsius’ Vice President, Worldwide Sales and Marketing since
November 2004. From November 1998 until October 2004, she served as our Vice
President of Marketing and International Sales. From November 1991 until October
1998, she was a Business Unit Director for Toshiba America Medical Systems, Inc.
Ms. Winter earned a B.Sc. from St. Lawrence University in New York and an
M.B.A. from Harvard Business School.
 
 Eric M. Hechthas served as one of our directors since the acquisition of Alsius in
June 2007 by Ithaka Acquisition Corp., a special purpose acquisition corporation
he helped found with our Chairman, Paul Brooke. Since January 2003,
Dr. Hecht has served as Chief Executive Officer of Potomac Pharma, Inc., a
private specialty pharmaceutical company. From January 1997 to December 2002, he
served as a senior research analyst for Merrill Lynch and from September 1992 to
December 1996, he served as a senior research analyst for Morgan Stanley. While
at Merrill Lynch and Morgan Stanley, Dr. Hecht focused on biotechnology
companies. Dr. Hecht received a B.S. from Touro College and an M.D. from
the Albert Einstein College of Medicine.
 
 Wende S. Huttonhas served as one of Alsius’ directors since February 2000.
Ms. Hutton has been a general partner at Canaan Partners, a venture capital
firm, since April 2007. From June 2001 until March 2004, Ms. Hutton was a
general partner of Spring Ridge Partners. From January 1993 until June 2001,
Ms. Hutton was a general partner of Mayfield Fund. Ms. Hutton serves
on the boards of directors of a number of privately held medical device
companies. Ms. Hutton earned a B.A. from Stanford University and an M.B.A.
from Harvard Business School.
 
 Jack W. Lasersohnhas served as one of Alsius’ directors since March 1999.
Mr. Lasersohn has been a general partner of The Vertical Group, a venture
capital firm, since January 1988. Mr. Lasersohn serves on the board of
directors of a number of privately held medical device companies.
Mr. Lasersohn earned a B.S. from Tufts University, an M.A. from The
Fletcher School of Law and Diplomacy and a J.D. from Yale Law
School.
 
 Gregory D. Wallerhas served as one of Alsius’ directors since March 2006.  From 1993
to May 2005, Mr. Waller served as the Vice President of Finance, Chief
Financial Officer and Treasurer of Sybron Dental Specialties, Inc., a publicly
traded dental products company which was acquired in May 2006 by Danaher
Corporation. Mr. Waller serves on the board of directors, and as Chairman
of audit committee, of Endologix, Inc., Clarient, Cardiogenesis, and SenoRx,
all publicly traded medical device companies. Mr. Waller earned a B.A.
and an M.B.A. from California State University, Fullerton.
 
 Kurt C. Wheelerhas served as one of Alsius’ directors since September 2003.
Mr. Wheeler has been a managing director of Clarus Ventures, a venture
capital firm, since February 2005 and has been a general partner of MPM Capital
BioVentures Funds II and III since February 2000. Mr. Wheeler
serves on the boards of directors of Nasdaq-listed medical technology company
Somaxon Pharmaceuticals, Inc., as well as on the boards of directors of a number
of privately held medical device and biopharmaceutical companies.
Mr. Wheeler earned a B.A. from Brigham Young University and an M.B.A. from
Northwestern University.
 
 Board
Meetings
 
 Our Board
of Directors held ten meetings in 2008. All directors attended at least 75% of
the meetings of the Board of Directors held during the period for which such
directors served on our Board and of the committees on which such directors
served. It is the Company’s policy that all members of the Board of Directors
attend the Company’s Annual Meeting in person or telephonically, absent exigent
circumstances. The non-employee members of our Board of Directors are
compensated for their Board service as discussed below in the section
“Compensation of Directors.”
 
 Committees
of the Board of Directors
 
 Our Board
of Directors has established an Audit Committee, a Compensation Committee and a
Nominating and Corporate Governance Committee. The Board has determined that
each director who serves on these committees is “independent,” as that term is
defined by listing standards of The NASDAQ Stock Market and Securities and
Exchange Commission (SEC) rules.
 
 Audit
Committee
 
 The
members of the Audit Committee are Gregory Waller (Chairman), Jack Lasersohn and
Wende Hutton. The Audit Committee provides assistance to the Board of Directors
in fulfilling its legal and fiduciary obligations in matters involving our
accounting, auditing, financial reporting, internal control and legal compliance
functions by approving the services performed by our independent registered
public accounting firm and reviewing their reports regarding our accounting
practices and systems of internal accounting controls. The Audit Committee
oversees management’s implementation of the Company’s financial and accounting
policies and procedures in compliance with the Sarbanes-Oxley Act of 2002. The
Audit Committee oversees the audit efforts of our independent registered public
accounting firm and takes those actions it deems necessary to satisfy it that
the accounting firm is independent of management.
 
 70
  The Audit
Committee held three meetings in 2008. The Audit Committee charter is available
on the “Corporate Governance” section of our website at www.alsius.com. The
Board of Directors has determined that Mr. Waller, the Chairman of the
Audit Committee, is an “Audit Committee financial expert” within the meaning of
Item 407(d)(5) of Regulation S-K. See Mr. Waller’s biography
above for a discussion of his business experience.
 
 Compensation
Committee
 
 The
members of the Compensation Committee are Kurt Wheeler (Chairman), Wende Hutton
and Gregory Waller. The Compensation Committee determines our general
compensation policies and the compensation provided to our directors and
executive officers, including bonuses. The Compensation Committee does not
determine cash compensation for employees below the executive officer level, but
provides input on such compensation as requested by executive management. In
addition, the Compensation Committee reviews and determines equity-based
compensation for our directors, officers and employees, and administers our
stock incentive plans.
 
 The
Compensation Committee held one meeting in 2008. The Compensation Committee
charter is available on the “Corporate Governance” section of our website at
www.alsius.com.
 
 Nominating
and Corporate Governance Committee
 
 The
members of the Nominating and Corporate Governance Committee are Jack Lasersohn
(Chairman), and Kurt Wheeler. The Nominating and Corporate Governance Committee
makes recommendations to the Board of Directors regarding candidates for
directorships and the size and composition of the Board and its committees. In
addition, the Nominating and Corporate Governance Committee oversees our
corporate governance guidelines, is responsible for director training and
evaluation and makes recommendations to the Board concerning corporate
governance matters.
 
 The
Nominating and Corporate Governance Committee held no meetings in 2008
because the slate of directors for 2008 had been pre-agreed to in connection
with the Ithaka merger. The Nominating and Corporate Governance Committee
charter is available on the “Corporate Governance” section of our website at
www.alsius.com.
 
 Director
Nominations
 
 The Board
of Directors has as an objective that its membership be composed of experienced
and dedicated individuals with a diversity of backgrounds, perspectives and
skills. The Nominating and Corporate Governance Committee will select candidates
for director based on their character, judgment, diversity of experience,
business acumen, and ability to act on behalf of all stockholders. The
Nominating and Corporate Governance Committee believes that nominees for
director should have experience, including management or accounting and finance,
or industry and technology knowledge, that may be useful to Alsius and the
Board, highest personal and professional ethics, and the willingness and ability
to devote sufficient time to effectively carry out his or her duties as a
director. The Nominating and Corporate Governance Committee, among other things,
intends to assure that at least one member of the Board meets the criteria for
an “Audit Committee financial expert” as defined by SEC rules and that a
majority of the members of the Board meet the definition of “independent
director” under the rules of The NASDAQ Stock Market. The Nominating and
Corporate Governance Committee also believes it is appropriate for the Chief
Executive Officer to participate as a member of the Board.
 
 Our
current Board of Directors membership was determined in connection with the
acquisition of Alsius by Ithaka Acquisition Corp. in June
2007.  Following the acquisition, nominees for our Board of Directors
will be determined by the Nominating and Corporate Governance
Committee.  The Nominating and Corporate Governance Committee
identifies nominees first by determining whether the current directors whose
term will expire at the Annual Meeting are willing to continue in service. In
the event that a director does not wish to continue in service or a vacancy is
created on the Board as a result of a resignation, an increase in the size of
the Board or other event, the Committee will nominate new candidates for Board
membership. Candidates for director may be suggested by the Committee members,
by other Board members, by stockholders or by legal or other advisors to the
Company. In addition, the Committee may from time to time engage an executive
search firm to identify qualified candidates.
 
 In
addition, our Bylaws contain provisions that address the process by which a
stockholder may nominate an individual to stand for election to the Board of
Directors at our Annual Meeting. In order to nominate a candidate for director,
a stockholder must give timely notice in writing to Alsius’ Secretary and
otherwise comply with the provisions of our Bylaws. To be timely, our Bylaws
provide that we must have received the stockholder’s notice not less than
60 days nor more than 90 days prior to the scheduled date of the
meeting, provided, however, that in the event that less than 70 days notice or
prior public disclosure of the date of the Annual Meeting is given or made to
stockholders, notice by the stockholder to be timely must be received no later
than the earlier of the close of business on the 10th day following the day
on which notice of the date of the scheduled Annual Meeting was mailed or public
disclosure of the meeting date was made. Information required by the Bylaws to
be in the notice include the name and contact information for the candidate and
the person making the nomination, the class, series and number of shares of
capital stock beneficially owned by stockholder and other information about the
nominee that must be disclosed in proxy solicitations under Section 14 of
the Securities Exchange Act of 1934 and the related rules and
regulations.
 
 71
 
 Stockholder
nominations must be made in accordance with the procedures outlined in, and
include the information required by our Bylaws and must be addressed to:
Secretary, Alsius Corporation, 15770 Laguna Canyon Road, Suite 150, Irvine,
California 92618. You may obtain a copy of our Bylaws by writing to the
Secretary at this address.
 
 Stockholder
Communications with the Board of Directors
 
 If you
wish to communicate with the Board of Directors, you may send your communication
in writing to: Secretary, Alsius Corporation, 15770 Laguna Canyon Road,
Suite 150, Irvine, California 92618. You must include your name and
address in the written communication and indicate whether you are a stockholder
of Alsius. The Secretary will review any communication received from a
stockholder, and all material communications from stockholders will be forwarded
to the appropriate director or directors or committee of the Board based on the
subject matter.
 
 Code
of Ethics
 
 Our Board
of Directors has adopted a Code of Ethics that is applicable to our directors,
officers and employees. This Code of Ethics is designed to promote honest and
ethical conduct, including the ethical handling of actual or apparent conflicts
of interest between personal and professional relationships. A copy of our Code
of Ethics is available on the “Corporate Governance” section of our website at
www.alsius.com. We will post any amendments to, or waivers from, our Code of
Ethics at that location on our website.
  Section 16(a)
Beneficial Ownership Reporting Compliance
 
 Section 16(a)
of the Exchange Act requires the Company’s directors and executive officers, and
persons who beneficially own more than 10% of the common stock, to file with the
SEC initial reports of beneficial ownership (Form 3), reports of changes in
beneficial ownership of common stock and other equity securities of the Company
(Form 4) and annual reports of changes in beneficial ownership of
common stock and other equity securities of the Company not otherwise required
to be disclosed on a Form 4 (Form 5). Officers, directors and greater
than 10% stockholders of the Company are required by SEC rules to furnish to the
Company copies of all Section 16(a) reports they file. In 2008, to our
knowledge, all Section 16(a) filings for Alsius officers, directors and
greater than 10% beneficial owners were complied with for fiscal 2008, except
that each of William Worthen, H. Michael Ameli and Suzanne Winter filed one
report late relating to the exchange of options for RSUs pursuant to the
Company’s July 2008 tender offer.
 
 Report of the Audit Committee
 
 The
following report of the Audit Committee does not constitute soliciting material
and shall not be deemed filed or incorporated by reference into any other filing
by Alsius under the Securities Act of 1933 or the Securities Exchange Act of
1934.
 
 The Audit
Committee operates under a written charter adopted by the Board of Directors. A
copy of the Audit Committee charter is available on the “Corporate Governance”
section of our website at www.alsius.com. As required by the rules of The NASDAQ
Stock Market and the SEC, the Audit Committee has three members. All of the
Audit Committee members meet the independence standards established under the
rules, and at least one member qualifies as a “financial expert” as required by
the rules.
 
 The Audit
Committee assists the Board in fulfilling its responsibility to oversee
management’s implementation of Alsius’ financial reporting process. It is not
the duty of the Audit Committee to plan or conduct audits or to determine that
the financial statements are complete and accurate and are in accordance with
generally accepted accounting principles. Management is responsible for the
financial statements and the reporting process, including the system of internal
controls and disclosure controls. The independent registered public accounting
firm is responsible for expressing an opinion on the conformity of those
financial statements with accounting principles generally accepted in the United
States.
 
 In
discharging its oversight role, the Audit Committee reviewed and discussed the
audited financial statements contained in the 2008 Annual Report with Alsius’
management and independent registered public accounting firm.
 
 72
  For the
fiscal year ended December 31, 2008, the Audit Committee has met and held
discussions with management and the independent auditors. Management represented
to the Audit Committee that our consolidated financial statements were prepared
in accordance with accounting principles generally accepted in the United
States, and the Audit Committee has reviewed and discussed the audited
consolidated financial statements with management and the independent auditors.
The Audit Committee has reviewed and discussed our audited consolidated
financial statements with our management and has discussed with our independed
registered public accounting firm the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended (AICPA Professional Standards
Vol. 1.AU Section 380), as adopted by the Public Company Accounting Oversight
Board in Rule 3200T (Communication with Audit Committees).
  Our
independent auditors also provided to the Audit Committee the written
disclosures and the letter required by Public Company Accounting Oversight Board
(United States) (PCAOB) and Independence Rule 3526, “Communications with Audit
Committees Concerning Independence”, and the Audit Committee discussed
with the independent auditors that firm’s independence. The Audit Committee also
has considered whether the provision of non-audit services is compatible with
maintaining the auditors’ independence.
  Based
upon these reviews and discussions, the Audit Committee recommended to the Board
of Directors that the audited financial statements be included in Alsius’ annual
report on Form 10-K for the year ended December 31, 2008 for filing
with the Securities and Exchange Commission.
 
 Respectfully
submitted on March 31, 2009, by the members of the Audit Committee of the
Board:
 
  Gregory Waller
      (Chairman)
                Jack
      Lasersohn
                Wende
      Hutton
   73
 Item
      11.
              Executive
      Compensation
 
 Compensation
Discussion and Analysis
 
 The Compensation
Committee
 
 Committee
Members
 
 During
2008, the Compensation Committee (the “Committee”) consisted of three directors:
Kurt Wheeler (Chairman), Wende Hutton and Gregory Waller, who handled all of the
Committee’s duties and compensation determinations for 2008.  The
Board has determined that each member of the Committee is “independent” as that
term is defined under the rules of The NASDAQ Stock Market. The Committee meets
as often as necessary to perform its duties and responsibilities. The Committee
held one meeting during 2008 to set executive compensation for the year and
review prior year performance, and any other compensation matters addressed
during the year were addressed by the full board.
 
 Role
of Committee
 
 The
Committee operates under a written charter approved by the Board. A copy of the
charter is available at www.alsius.com under Corporate Governance. The
Committee’s purpose is to:
 
 ·
              Carry
      out the Board’s responsibilities related to the compensation of executive
      officers of the Company;
 ·
              Assist
      the Board in establishing appropriate incentive compensation and
      equity-based plans for the Company’s executive officers and to administer
      such plans;
 ·
              Produce
      an annual report on executive compensation for inclusion in the Company’s
      annual proxy statement; and
 ·
              Perform
      such other duties and responsibilities enumerated in and consistent with
      the Committee’s charter.
 
 Compensation Committee
Process
 
 Annual
Evaluation
 
 The
Committee meets to (i) evaluate the performance of the Company’s
executive officers; (ii) determine their annual bonuses for the prior
fiscal year; (iii) establish the performance goals and objectives for the
current fiscal year; (iv) set their base salaries for the next fiscal year;
and (v) consider and approve any grants to them of equity incentive
compensation. In establishing the performance goals and objectives for the
current fiscal year, the Committee discusses with the Chief Executive Officer
the Company’s strategic objectives and performance targets.
 
 Management’s
Role in Determining Executive Compensation
 
 The
Committee recommends the compensation for all the executive officers, including
the Named Executive Officers (as defined in the executive compensation table
below), to the full Board of Directors for approval, and the full Board then
votes to determine executive compensation. This process is used to establish
base cash and equity compensation and target bonuses for the fiscal year, and to
award bonuses, if any, after the year has been completed.  The process
may also be used during the year to make adjustments to executive compensation,
if necessary, and to establish compensation for executives who may be hired
during the year.
 
 William
Worthen, the Chief Executive Officer, plays a role in determining executive
compensation, including evaluating employee performance, establishing business
performance targets and objectives and recommending salary levels and equity
grants to the Committee. Mr. Worthen also participates in Committee
meetings, at the Committee’s request, and provides evaluations and compensation
recommendations as to senior executive officers, other than
himself.  Mr. Worthen does not participate in Committee meetings when
his own compensation is being determined.
 
 Peer
Group Surveys
 
 The
Company attempts to adhere to a methodology that provides total core
compensation to executive officers that is targeted by reference to an
applicable peer group of companies which are similar in size and stage of
development to the Company (the “peer group”). We draw upon data for comparable
companies from public disclosures for the companies in the peer group and from
reputable ongoing compensation surveys of similarly sized companies in the
medical technology industry.
  74
 Peer
group companies used most recently to determine executive compensation after the
acquisition of Alsius by Ithaka Acquisition Corp. include the
following:
  ●
              Hemosense,
      Inc.●
              Endologix,
      Inc.
 ●
              Northstar
      Neuroscience, Inc.●
              Cryocor,
      Inc.
 ●
              Restore
      Medical, Inc.●
              SenoRx,
      Inc.
 ●
              Abiomed,
      Inc.●
              AtriCure,
      Inc.
 ●
              Conceptus,
      Inc.●
              DexCom,
      Inc.
 ●
              LeMaitre
      Vascular, Inc.●
              Orthovita,
      Inc.
 ●
              Rochester
      Medical Corporation●
              Thermage,
      Inc.
 ●
              VNUS
      Medical Technologies, Inc.
  Compensation
Philosophy
 
 The
Company’s general compensation philosophy is that compensation of Alsius’
executive officers should encourage creation of stockholder value and
achievement of strategic corporate objectives. Compensation programs should be
designed to attract, retain and motivate executives critical to the Company’s
long-term growth and profitability. In support of this philosophy, the Committee
believes that:
 
 ·
              The
      total compensation package for executives should be competitive with the
      total compensation paid to executives with comparable duties in the
      Company’s peer group, taking into account relative company size,
      performance and geographic location as well as individual responsibilities
      and performance;
 ·
              Bonus
      programs and equity incentive plans should motivate the executive to
      achieve specific strategic and performance goals and objectives
      established by the Board; and
 ·
              Bonuses
      and long-term equity incentive awards serve to align the executive’s
      interests with those of the Company’s
  stockholders.
  Elements
of Executive Compensation
 
 Base
Salaries
 
 For our
Named Executive Officers, the chart below shows the breakdown between fixed pay
through the executives’ base salaries and variable performance-based pay for
2008. The Named Executive Officers are the Company’s Chief Executive Officer,
Chief Financial Officer, and the three other most highly compensated executive
officers in 2008.
  Name
              Title
              Base
      Salaries (%)
              Bonus
      (%)
              Equity
      Awards
                (%)(1)
              All
      Other
                Compensation
      (%)William
      Worthen
              President
      and Chief Executive Officer
              25%
              0%
              74%
              1%Gregory
      Tibbitts
              Chief
      Financial Officer
              100%
              0%
              0%
              0%John
      Riolo
              Vice
      President of Regulatory, Clinical and Quality Assurance
              70%
              0%
              26%
              5%H.
      Michael Ameli
              Vice
      President, Manufacturing
              56%
              0%
              40%
              5%Suzanne
      Winter
              Vice
      President, Worldwide Sales and Marketing
              35%
              0%
              55%
              10%
  (1)
              The
      value reflects the dollar amount recognized for financial statement
      reporting purposes for the fiscal year ended December 31, 2008, in
      accordance with SFAS 123(R).
  75
  In
determining base salaries, the Committee considers the executive’s scope of
responsibility, level of experience, individual performance, and past and
potential contribution to the Company’s business. To ensure that the base
salaries are competitive, the Committee also periodically reviews an independent
survey of executive compensation and compares the base salaries to those paid by
other companies for similar positions. To establish 2008 base salaries and bonus
targets, the Committee considered the results of compensation surveys that
provided compensation data for public and private peer
companies.  Base salaries are reviewed annually, and adjusted from
time to time to increase salaries to industry levels after taking into account
individual responsibilities, performance and experience.
 
 Bonuses
 
 The
Company’s bonus program is tied in part to the Company’s achievement of specific
financial performance objectives established for each fiscal
year.  Bonuses for all executives are primarily based upon the
achievement of revenue and operating profit targets, and to a lesser extent on
individual performance goals.  Bonuses are also intended to reward
individual performance during the year and are determined on a discretionary
basis.  Generally, the Committee sets the target bonus levels such
that the relative difficulty of achieving the target level is consistent from
year to year.
 
 For 2008,
while individual performance was generally strong and fourth quarter sales in
particular exceeded expectations, the Company did not have sufficient cash to
justify bonuses, and therefore no bonuses were awarded for 2008, and, for 2009,
there has been no change in base salaries or target bonuses.  As
discussed below, equity incentives were given in lieu of cash
bonuses.
 
 Equity
Incentives
 
 In
keeping with the Committee’s compensation philosophy, the Committee believes
that equity incentive awards serve to align executive’s interests with those of
the Company’s stockholders and motivate the executive to achieve the specific
strategic and performance goals and objectives established by the Board. Under
the Company’s 2006 Equity Incentive Plan (the “2006 Plan”), the Company may
grant any type of award whose value is derived from the value of the Common
Stock of the Company, including shares of Common Stock, options and
RSUs.
 
 The
Company has granted options and RSUs.  The exercise price of the stock
options granted to date has been the closing price as reported on NASDAQ of the
Common Stock on the date of grant; RSUs do not have an exercise price. To
encourage retention, the ability to exercise the option or be issued the shares
underlying the RSUs are subject to vesting restrictions. The Committee’s policy
for executives is to award options, which generally vest over four years, with
25% vesting after year one and the balance in equal monthly installments for
three years thereafter, or RSUs, which generally vest in three equal annual
installments, based on continued service to the Company.  Decisions
made by the Committee regarding the timing and size of subsequent option or RSU
grants take into consideration the Company’s and the individual’s performance,
competitive market practices, and the size and term of option grants made in
prior years.
 
 Post-Termination
and Change in Control Payments
 
 We have
an agreement with Mr. Worthen, our Chief Executive Officer, under which
Mr. Worthen is entitled to receive severance payments equal to twelve
months base salary, payable in accordance with our standard payroll practices,
continuation of his benefits and a pro-rated bonus, if Mr. Worthen’s
employment is terminated without cause or Mr. Worthen resigns for good reason
(which includes in connection with a relocation or a diminution in duties). In
addition, as with all senior executives, 50% of Mr. Worthen’s unvested
equity-compensation awards will become fully vested immediately upon an
acquisition or similar change in control, and the balance will become fully
vested if following a change in control Mr. Worthen is terminated without cause
of resigned for good reason. Had a change in control occurred on
December 31, 2008 and Mr. Worthen been terminated, he would have
received severance payments totaling $300,000 (his 2008 base salary) and the
value of the accelerated vesting of his RSUs, calculated in accordance with
Section 4999 of the Internal Revenue Code would have totaled
$168,750.  As Mr. Worthen’s salary changes, his potential
severance payment will also change.
 
 In
February 2008, the Board adopted the Alsius Corporation Change in Control
Severance Plan (the “Change in Control Plan”).  The Change in Control
Plan provides certain management employees with compensation and benefits in the
event of termination of employment following a change in control.  The
purpose of the Change in Control Plan is to enhance our ability to attract and
retain qualified personnel.  The Board adopted the Change in Control
Plan after assessing benefits offered at comparable peer group
companies.  The Change in Control Plan will remain in effect for three
years and will automatically renew for successive one-year terms if not
terminated by the Board.
 
 76
  Under the
Change in Control Plan and related documents, Messrs. Ameli and Riolo and Ms.
Winter are entitled to receive severance payments equal to six months base
salary and continuation of benefits in the event we undergo a change in control
and the executive’s employment is terminated without cause.  Executive
officers are also entitled to plan benefits in the event they resign for good
reason following a change in control, which includes events such as a
resignation due to a material diminution in compensation or duties, among other
things.  In order to be eligible to receive benefits, Change in
Control Plan participants must sign a release of claims and abide by certain
other post-employment restrictions.  Payments under the Change in
Control Plan will be made in installments, and may be delayed in certain cases
in order to comply with Internal Revenue Code Section 409A and related tax
provisions.
 
 Additional
Benefits
 
 Executive
officers are also entitled to reimbursement for all reasonable and documented
business expenses, paid vacation in accordance with the Company’s vacation
policy for employees generally, participation in all plans provided to employees
in general, a life insurance policy, and a disability policy in the maximum
insurable amount.
 
 Compensation Decisions for
2008 and
2009
 
 In
setting base compensation and bonus for 2008 and 2009, the Compensation
Committee continued to apply the compensation philosophy described above in
determining the compensation of executive officers.  All compensation
decisions for executive officers for 2008 and 2009, were approved by the full
Board of Directors, after first being reviewed and recommended by the
Compensation Committee.
 
 2008
Base Salary
 
 For 2008,
the Committee adjusted the base salary for Mr. Worthen to $300,000,
compared to $273,000 in 2007.
 
 In
determining Mr. Worthen’s 2008 compensation and the compensation of the
other executive officers, the Committee considered the following:
 
 ●
              Company
      performance:  The 52% increase in the Company’s revenue
      in 2007, and the specific performance goals and objectives for the Company
      in 2007 established by the Board, in particular the goal of completing the
      merger with Ithaka Acquisition
Corp.
 
 ●
              Allocation between cash and
      non-cash component:  Allocating compensation between cash
      and equity in a manner that provided cash compensation in line with peer
      group companies and appropriate for the Company’s location, while
      providing a significant potential in equity value in keeping with the peer
      group and to attempt to align management’s incentives with
      stockholders.
 
 ●
              Internal pay
      equity:  The relationship between each element of
      Mr. Worthen’s compensation, on the one hand, and the compensation of
      each of the Company’s other executive officers, on the other
      hand.
 
 ●
              Peer
      group:  The results of the peer group survey of medical
      technology companies, with respect to the cash and equity
      components.
 
 For 2008,
the Committee adjusted the base salary for the other executive officers as
follows: H. Michael Ameli, Vice President, Manufacturing, to $183,198 from
$176,152 in 2007; and Suzanne Winter, Vice President, Worldwide Sales, to
$208,000 from $200,000 in 2007.  Mr. Tibbitts joined the Company in
August 2008 as a consultant, who received per diem compensation of $1,250, and
Mr. Riolo joined the Company in March 2008, who received a base salary of
$235,000 during 2008.
 
 2008
Bonus
 
 For 2008, the Committee and the Board
agreed, that while individual performance was generally strong and fourth
quarter sales in particular exceeded expectations, the Company did not have
sufficient cash to justify bonuses, and therefore the Company did not award
bonuses for 2008.
  2008
Equity Awards
 
 For 2008,
the Compensation Committee did not recommend, and the full Board did not
approve, any equity based compensation for executive
officers.
  77
  The
Management Incentive Plan
 
 In
connection with the Ithaka acquisition, the boards of Ithaka and Alsius mutually
agreed to a bonus plan, known as the Management Incentive Plan or MIP, under
which a total of $3 million was paid at the closing in June 2007 to Alsius
employees and certain consultants and non-employee members of Alsius’ board of
directors who provided valuable technical and other services to Alsius. In
addition,  $2 million was payable under the MIP over the three
fiscal years following the merger if Alsius achieves certain revenue targets in
2007, 2008 and 2009.  As the revenue targets were not obtained in 2007
or 2008, and Alsius is now to be sold to Zoll, none of the $2
million will be paid.
 
 The MIP
was established to incentivize Alsius management to complete the Ithaka merger,
which was necessary to provide capital to the Company, and to compensate
management for the fact that their Alsius stock options were out of the money,
and that management took what were viewed as below market salaries prior to
closing the Ithaka transaction because the Company’s cash resources were so
limited.
 
 The
past Management Incentive Plan payments are considered by the Compensation
Committee and the Board of Directors to be in connection with the Ithaka
transaction, and are considered to be in addition to and not a part of regular
management compensation.
 
 2008
Overall Compensation Compared to 2007
 
 Overall,
for 2008, Mr. Worthen received a 9% increase in base salary and a 43%
increase in annual target bonuses from 2007. Overall, for 2007, the other
executive officers on average received a 4% increase in base salary, a 1.4%
increase in target annual bonuses from fiscal 2007.
 
 2009
Compensation
 
 1. In the
fourth quarter of 2008, the Committee recommended, and the full Board of
Directors approved, keeping 2009 base cash compensation and target
cash bonuses the same as they were in 2008, with no increases, as the Company
did not have sufficient cash at this time to justify bonuses or pay
raises.  The base salaries and target bonuses for 2009 are as set
forth below.  Additional equity grants were made to executives at the
beginning of 2009 to help maintain motivation for the benefit of the Company and
its investors, especially at a time when the Company was working to position
itself for a financing or sale.
  ·
              Mr. Worthen’s
      2009 base salary is $300,000, with a target incentive bonus of 40% of base
      salary;
 
 ·
              Mr. Tibbitts’
      2009 receives a per diem compensation of
$1,250;
 
 ·
              Mr.
      Riolo’s 2009 base salary is $235,000, with a target incentive bonus of 30%
      of base salary;
 
 ·
              Mr. Ameli’s
      2009 base salary is $183,198, with a target incentive bonus of 30% of base
      salary; and
 
 ·
              Ms. Winter’s
      2009 base salary is $208,000, with a target incentive bonus of
      35%.
 
 Tax and Accounting
Implications
 
 Deductibility
of Compensation
 
 Under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
“Code”), a public company generally will not be entitled to a deduction for
non-performance-based compensation paid to certain executive officers to the
extent such compensation exceeds $1.0 million. Special rules apply for
“performance-based” compensation, including the approval of the performance
goals by the stockholders of the Company.
 
 We
generally intend to qualify executive compensation for deductibility without
limitation under Section 162(m) of the Code. The non-performance based
compensation paid in fiscal 2008 to any of our executive officers, as calculated
for purposes of Section 162(m) of the Code, did not exceed the
$1.0 million limit, and we do not expect that the non-performance based
compensation paid in fiscal 2008 to be paid to any of our executive officers for
fiscal 2008 will exceed the $1.0 million limit.
  78
 
 Nonqualified
Deferred Compensation
 
 On
October 22, 2004, the American Jobs Creation Act of 2004 was signed into
law, changing the tax rules applicable to nonqualified deferred compensation
arrangements. The final rules under Section 409A under the Code, which
applies to deferred compensation, were issued on April 10, 2007, and the
Company does not believe these rules will have a current impact on its
compensation arrangements.
 
 Accounting
for Stock-Based Compensation
 
 Beginning
on January 1, 2006, the Company began accounting for stock-based compensation in
accordance with the requirements of Statement of Financial Accounting
Standards 123(R).
 
 Conclusion
 
 The
Compensation Committee believes that the Company’s compensation policies support
the Committee’s compensation philosophy that compensation should encourage
creation of stockholder value and achievement of strategic corporate objectives.
The Committee believes that for fiscal 2008, the total compensation package for
each of the executive officers was competitive with the total compensation paid
to executives of other companies in the Company’s industry that are of similar
size and performance, and that the programs designed for 2009 will also be
competitive. In addition, the Committee believes that the bonus and equity
incentives help reinforce the compensation philosophy that bonus programs and
equity incentive plans should motivate the executive to achieve specific
strategic and performance goals and objectives established by the Board and
align the executive’s interests with those of the Company’s
stockholders.
 
 Executive Compensation Data and Related Matters
 
 SUMMARY
COMPENSATION TABLE
 
 The table
below summarizes the total compensation earned by each of the Named Executive
Officers for the fiscal year ended December 31, 2008.
 
 Name
      and Principal Position
              Year
              Salary
      ($)
              Non-equity
      Incentive Plan
                Compensation ($)
              Stock
                Awards ($)
              Option
                Awards
      ($)
              Change
      in
                Pension
      Value
                and
                Nonqualified
      Deferred Compensation Earnings ($)
              All
      Other Compensation
                ($)
                (1)
              Total
      ($)William
      Worthen,
                Chief
      Executive Officer and President
              2008
              $300,000
              $0
              $83,747
              $824,833
              ―
              $12,221
              $1,220,801Gregory
      Tibbitts,
                Chief
      Financial Officer
              2008
              $1,250
      (2)
              $0
              ―
              ―
              ―
              ―
              $1,250
      (2)John
      Riolo,
                VicePresident
      of Regulatory, Clinical, and Quality Assurance
              2008
              $235,000
              $0
              ―
              $86,902
              ―
              $15,662
              $337,564H.
      Michael Ameli,
                Vice
      President, Manufacturing
              2008
              $183,198
              $0
              $12,088
              $119,051
              ―
              $13,799
              $328,136Suzanne
      Winter,
                Vice
      President, Worldwide Sales and Marketing
              2008
              $208,000
              $37,100
              $30,261
              $298,040
              ―
              $19,405
              $592,806
  79
 
 (1)
              Certain
      of the Company’s executive officers receive personal benefits in addition
      to salary and cash bonuses, including, but not limited to, automobile
      allowances, life insurance payable at the direction of the employee,
      contributions under the Company’s retirement plans, and group health
      insurance. The amount shown in column (h) for “All Other
      Compensation” consists of the
following:
  Name
              Health
      Insurance
              Life
      & Disability
                Insurance
              TotalWilliam
      Worthen
              $10,501
              $1,719
              $12,221Gregory
      Tibbitts
              $0
              $0
              $0John
      Riolo
              $14,276
              $1,386
              $15,662H.
      Michael Ameli
              $12,616
              $1,183
              $13,779Suzanne
      Winter
              $17,716
              $1,689
              $19,405
  (2)
                Mr.
      Tibbitts, as a consultant, receives a per diem compensation equal to
      $1,250.
  GRANTS
OF PLAN-BASED AWARDS
  The
following table sets forth certain information with respect to grants of awards
to the Named Executive Officers under our non-equity and equity incentive plans
during fiscal 2008.
 
 Estimated
      Future Payouts Under
                        Non-Equity
      Incentive Plan Awards
                        
                        
                        
                        Target
                      All
      Other
                        Stock
      Awards:
                        Number
      of
                        Shares
      of Stock
                      All
      Other
                        Option
                        Awards:
                        Number
      of
                        Securities
      Underlying
                      Exercise
      or
                        Base
      Price of Option
                      
                      Grant
      Date
                        Fair
      Value of Stock and
                        OptionName
                      Threshold
      ($)
                      ($)(1)
                      Maximum
      ($)
                      or
      Units (#)
                      Options
      (#)
                      Awards
      ($/Sh)
                      Grant
      Date
                      AwardsWilliam
      Worthen
                      —
                      $120,000
                      —
                      375,000
      (2)
                      —
                      $
                      —
                      7/28/08
                      $1.15Gregory
      Tibbitts
                      —
                      —
                      —
                      —
                      —
                      
                      —
                      —
                      —John
      Riolo
                      —
                      70,500
                      —
                      —
                      168,600
                      
                      1.84
                      4/1/08
                      $1.84H.
      Michael Ameli
                      —
                      54,959
                      —
                      54,125
      (2)
                      
                      
                      —
                      7/28/08
                      $1.15Suzanne
      Winter
                      —
                      72,800
                      —
                      135,500
      (2)
                      —
                      
                      —
                      7/28/08
                      $1.15
  (1)
                The
      amounts in this column reflect the full bonus potential established for
      each executive for 2008, and the estimated payout upon achievement of the
      performance goals and objectives established by the Board. No bonuses were
      made to executive officers for 2008.(2)
                Messrs.
      Worthen and Ameli and Ms. Winter were issued the number of RSUs listed
      above in connection with the Company’s tender offer in July 2008, whereby
      each individual received one RSU for every 2 options
    tendered.
  80
 
 Narrative to Summary Compensation
Table and Plan-Based Awards Table
 
 Employment
Agreements
 
 William
Worthen, entered into an employment agreement, dated as of January 1, 2008, with
Alsius. Mr. Worthen’s employment agreement provides for him to be employed
as chief executive officer of both Alsius and Alsius Medical upon consummation
of the Ithaka merger and will provide for an annual salary of $300,000, with
increases as may be determined by the Board of Directors.  In the
event of termination without cause by Alsius or for good reason by
Mr. Worthen, Mr. Worthen will be entitled to twelve months
continuation of salary and benefits. This amount is expected to be paid in a
lump sum to Mr. Worthen on the closing of the sale of Alsius’ assets to
Zoll.
 
 Indemnification
Agreements
 
 In
addition, the Company enters into indemnification agreements with its executive
officers that may require the Company to indemnify them against liabilities that
may arise by reason of their status or service.
 
 Employee
Benefit Plans
 
 The
Company’s stock incentive plans provide for grants of options to purchase shares
of common stock, awards of restricted stock, stock appreciation rights and stock
units. Incentive stock options are generally granted to employees. Grants of
nonstatutory stock options and other stock-based awards may be granted to
employees, non-employee directors, advisors and consultants. All grants and
awards are settled in equity and settled through the issuance of shares that
have been authorized and were previously unissued.
 
 2006
Equity Incentive Plan
 
 The 2006
Equity Incentive Plan (the “2006 Plan”) was adopted by the Company’s Board of
Directors in July 2006 and following stockholder approval, became effective upon
the consummation of the merger. The 2006 Plan is administered by the Board of
Directors or the Compensation Committee and provides for the issuance of stock
options. The Board of Directors may amend or modify the 2006 Plan at any time,
with stockholder approval, as required.
 
 The 2006
Plan reserves 2,850,000 shares of Alsius common stock for issuance in accordance
with the plan’s terms. The number of shares reserved for issuance under the plan
will be increased on the first day of each of Alsius’ fiscal years from 2008
through 2016 to 3% of the number of fully diluted shares of Alsius’ common stock
outstanding on the last day of the immediately preceding fiscal years; provided,
however, that the percentage shall be reduced to 2% from and after the time when
Alsius calls its warrants for redemption. The purpose of the plan is to create
incentives designed to motivate our employees to significantly contribute toward
our growth and profitability, to provide Alsius executives, directors and other
employees and persons who, by their position, ability and diligence are able to
make important contributions to our growth and profitability, with an incentive
to assist us in achieving our corporate objectives, to attract and retain
executives and other employees of outstanding competence and to provide such
persons with an opportunity to acquire an equity interest in
Alsius.
 
 All
officers, directors and employees of Alsius will be eligible to be granted
awards under the 2006 Plan. An incentive stock option may be granted under the
2006 Plan only to a person who, at the time of the grant, is an employee of
Alsius or a related corporation. No allocations of shares that may be subject to
awards have been made in respect of the executive officers or any other group,
except as set forth below. All awards will be subject to the recommendations of
the Compensation Committee and approval by the Board of Directors or the
Compensation Committee.
  RSU
Exchange
 
 In June
and July 2008, the Company completed a tender offer whereby holders of the then
outstanding 2,904,450 options under the 2006 Plan were offered the opportunity
to exchange options for a number of restricted stock units (“RSUs”) equal to
one-half of the number of options.  The purpose of the offer was (i) to
counteract the loss of share value, which caused all outstanding options to have
exercise prices in excess of the fair market value of Company common shares and
(ii) to incentivize management to continue to strive to increase Company value
for the benefit of stockholders.  Participation in the offer was
voluntary and open to eligible employees and consultants of the Company at the
time of the offer and remain employed through the expiration date of the
offer.  Non-employee members of the Company’s board of directors were
not eligible to participate.  As a result of the offer, 2,049,417 options
were exchanged for 1,024,709 RSUs.  The RSUs are subject to vesting in
three annual installments with continued service to the Company, but are subject
to certain accelerated vesting if the holder leaves in the middle of a vesting
year other than for cause, and in certain circumstances upon an acquisition or
similar change in control of the Company. The grant date fair value of
$1.15 per share of the new RSUs was determined by using the closing price of the
Company’s common stock on the day immediately preceding the grant
date.
 
 Salary
and Bonus in Proportion to Total Compensation
 
 See
“Compensation Discussion and Analysis” for the breakdown between fixed pay
through the executives’ base salaries and variable performance-based pay for
fiscal 2008.
 
 81
 
 OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
 
 The
following table sets forth certain information regarding equity-based awards
held by each of the Named Executive Officers as of December 31,
2008.
  Option
      Awards (1)
              
              
              Stock
      AwardsMarket
                ValueNumber
      of
              
              
              Number
      of
              
              
              
              
              
              
              
              
              
              
              
              of
      Shares orSecurities
              
              
              Securities
              
              
              
              
              
              
              
              
              Number
      of
              
              
              Units
      ofUnderlying
              
              
              Underlying
              
              
              Option
              
              
              
              
              
              Shares
      or
              
              
              StockUnexercised
              
              
              Unexercised
              
              
              Exercise
              
              
              Option
              
              
              Units
      of Stock
              
              
              That
      HaveOptions
      (#)
              
              
              Options
      (#)
              
              
              Price
              
              
              Expiration
              
              
              That
      Have Not
              
              
              Not
      VestedName
              
              Exercisable
              
              
              Un-Exercisable
              
              
              ($)
              
              
              Date
              
              
              Vested
      (#)
              
              
              ($)
      (2)William
      Worthen
              
              
              —
              
              
              
              —
              
              
              $
              —
              
              
              
              —
              
              
              
              375,000
              
              
              $
              168,750Gregory
      Tibbitts
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —John
      Riolo
              
              
              —
              
              
              
              168,600
              
              
              
              1.84
              
              
              
              4/1/2018
              
              
              
              —
              
              
              
              —Michael
      Ameli
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              54,125
              
              
              
              24,356Suzanne
      Winter
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              135,500
              
              
              
              60,975
  (1)
              The
      options will vest and become exercisable as to 25% of the shares on the
      first anniversary of the grant date, and thereafter monthly in 36 equal
      installments based on continued service.(2)
              Calculated
      based upon the closing market price of our common stock on
      December 31, 2008.
  OPTION
EXERCISES AND STOCK VESTED
  None of
the options granted to the Named Executive Officers’ have vested, and no stock
awards have been granted to the Named Executive Officers.  As a
result, there is no table for this information.
 
 EQUITY
COMPENSATION PLAN INFORMATION
  The
following table sets forth information with respect to shares of Common Stock
that may be issued under our equity compensation plans as of December 31,
2008.
  Number
      of SecuritiesRemaining
      AvailableNumber
      of
              
              
              
              
              
              for
      Future IssuanceSecurities
      to be
              
              
              
              
              
              Under
      EquityIssued
      Upon
              
              
              Weighted-Average
              
              
              Compensation
      PlansExercise
      of
              
              
              Exercise
      Price of
              
              
              (ExcludingOutstanding
              
              
              Outstanding
              
              
              SecuritiesOptions,
      Warrants
              
              
              Options,
      Warrants
              
              
              Reflected
      in Columnand
      Rights
              
              
              and
      Rights
              
              
              (a))Plan
      Category
              
              (a)
              
              
              (b)
              
              
              (c)Equity
      Compensation Plans Approved by Security Holders
              
              
              1,592,369
              (1)
              
              $
              2.86
              
              
              
              1,887,521Equity
      Compensation Plans Not Approved by Security Holders
              
              
              None
              
              
              
              None
              
              
              
              NoneTotal
              
              
              1,592,369
              
              
              $
              2.86
              
              
              
              1,887,521
  (1)
              Shares
      issuable pursuant to outstanding options and RSUs under the 2006 Plan as
      of December 31, 2008.
  82
  NONQUALIFIED
DEFERRED COMPENSATION
 
 The table
disclosing contributions to nonqualified defined contributions and other
deferred compensation plans, each executive’s withdrawals, earnings and fiscal
year ended balances in those plans is omitted because the Company has no
nonqualified deferred compensation plans or benefits for executive officers or
other employees of the Company.
 
 POTENTIAL
PAYMENTS AND EQUITY VESTING UPON TERMINATION OR
CHANGE IN CONTROL
 
 The
potential payments and treatment of equity awards upon termination or change in
control for the Named Executive Officers are discussed below.  The
amounts discussed below under Payment Upon a Change in Control are expected to
be paid upon the closing of the sale of Alsius’ assets to Zoll in the second
quarter of 2009.
 
 Voluntary
Termination
 
 The 2006
Plan and form of option agreement generally provides that if the executive’s
service is terminated for any reason except death or “Disability” (as defined
below), then the option will expire at the earlier of the expiration date of the
options or three months after the termination date. The Company has discretion
to determine when the executive’s service terminates for all purposes of the
2006 Plan.
 
 Payment
Upon Termination With Cause
 
 As
provided above, under the 2006 Plan, any options granted will expire at the
earlier of the expiration date of the options or three months after the
termination date.
 
 Payment
Upon Termination Without Cause
 
 As
provided above, under the 2006 Plan, any options granted will expire at the
earlier of the expiration date of the options or three months after the
termination date.
 
 Payment
Upon Termination Due to Death
 
 The 2006
Plan and form of option agreement generally provide that if the executive dies,
the option will expire at the earlier of the expiration date or 18 months
after the termination date. If the executive dies, the options are exercisable
by the executive’s estate or heirs.
 
 Payment
Upon Termination Due to Disability
 
 The 2006
Plan and form of option agreement generally provides that if the executive dies
or has a Disability (as defined below), the option will expire at the earlier of
the expiration date or 12 months after the termination date. If the
executive dies, the options are exercisable by the executive’s estate or heirs.
As used in the 2006 Plan, “Disability” means that the executive is unable to
engage in any substantial gainful activity because of any medically determinable
physical or mental impairment that can be expected to result in death or that
has lasted, or can be expected to last, for a continuous period of
12 months or more.
 
 Payment
Upon a Change in Control
 
 We have
agreements with H. Michael Ameli, Suzanne Winter and John Riolo, pursuant to the
Alsius Corporation Change in Control Severance Plan, under which they are
entitled to receive severance payments equal to six months’ base salary, payable
in accordance with our standard payroll practices, in the event we undergo a
change in control and such executive’s employment is terminated without cause
within six months of the change in control.
 
 83
  As used
in the form of the Change in Control Severance Agreement, “Change in Control”
means any of the following transactions, provided, however, that the Company
shall determine under parts (iv) and (v) whether multiple transactions are
related, and its determination shall be final, binding and conclusive: (i) a
merger or consolidation in which the Company is not the surviving entity, except
for a transaction the principal purpose of which is to change the state in which
the Company is incorporated; (ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company; (iii) the complete
liquidation or dissolution of the Company; (iv) any reverse merger or series of
related transactions culminating in a reverse merger (including, but not limited
to, a tender offer followed by a reverse merger) in which the Company is the
surviving entity but (A) the shares of common stock outstanding immediately
prior to such merger are converted or exchanged by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, or (B) in
which securities possessing more than forty percent (40%) of the total combined
voting power of the Company’s outstanding securities are transferred to a person
or persons different from those who held such securities immediately prior to
such merger or the initial transaction culminating in such merger, but excluding
any such transaction or series of related transactions that the Company
determines shall not be a Change in Control; or (v) acquisition in a single or
series of related transactions by any person or related group of persons (other
than the Company or by a Company-sponsored employee benefit plan) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company’s outstanding securities but excluding any such transaction or
series of related transactions that the Company determines shall not be a Change
in Control.
  As used
in the form of the Change in Control Severance Agreement, “cause” means (i) the
executive’s dereliction of his or her duties, (ii) the executive’s material
violation of Company policy, or (iii) the executive’s conviction of, or guilty
plea to, a crime against the Company or one which reflects negatively on the
reputation of the Company.
 
 All
senior executives, including all Named Executive Officers, will have full
acceleration of vesting upon an acquisition or similar change in control of the
Company in the event such executive’s service to the Company is terminated
without cause or the executive resigns for good reason.  All
non-employee members of the Board of Directors will have full acceleration of
vesting upon an acquisition or similar change in control of the
Company.
 
 The
following table shows the potential payments upon termination or a change in
control of the Company for each of the Named Executive Officers assuming each of
the Named Executive Officer’s employment was terminated on December 31,
2008, and assuming that the change in control occurred at December 31,
2008. These disclosed amounts are estimates only and do not necessarily reflect
the actual amounts that would be paid to the Named Executive Officers, which
would only be known at the time they become eligible for such
payments.
 
 Termination
and Change in Control Benefits
  TerminationWithout
              
              
              Change
      inCause
              
              
              Control
              
              
              Death
              
              
              DisabilityName
              
              (1)
              
              
              (2)
              
              
              (3)
              
              
              (4)William
      Worthen
              
              $
              300,000
              
              
              $
              300,000
              
              
              $
              300,000
              
              
              $
              1,1736,289Gregory
      Tibbitts
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —John
      Riolo
              
              
              117,500
              
              
              
              —
              
              
              
              235,000
              
              
              
              1,1736,289Michael
      Ameli
              
              
              91,599
              
              
              
              —
              
              
              
              183,198
              
              
              
              282,645Suzanne
      Winter
              
              
              104,000
              
              
              
              —
              
              
              
              208,000
              
              
              
              1,867,957
  (1)
              Represents
      twelve months’ base salary for Mr. Worthen and six months’ base salary for
      the remaining Named Executive Officers (except for Mr. Tibbitts) if
      terminated without cause within six months of the change in control, which
      is also reflected in the change in control column.(2)
              Change
      in Control value includes twelve months of Mr. Worthen’s base salary and
      six months of the other executive’s base salary (except for Mr. Tibbitts)
      and the value of the accelerated vesting of all RSUs for the executives
      above, assuming a change in control occurs December 31,
      2008.(3)
              Represents
      the estimated present value of the proceeds payable to the executive’s
      beneficiaries upon death.(4)
              Represents
      the estimated lump sum present value of all future payments which the
      executive would be entitled to receive under the Company’s disability
      program.
  84
 Compensation Committee Interlocks and Insider
Participation
 
 The
Compensation Committee currently consists of Kurt Wheeler (Chairman), Wende
Hutton and Gregory Waller. No member of the Compensation Committee has served as
one of the Company’s officers or employees at any time. None of the executive
officers serves as a member of the Board of Directors or Compensation Committee
of any other company that has one or more executive officers serving as a member
of our Board or Compensation Committee.
  Compensation
Committee Report
 
 The Report of the Compensation
Committee of the Board of Directors shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
 
 The
Compensation Committee of the Company has reviewed and discussed the
Compensation Discussion and Analysis with management, and based on such review
and discussions, the Committee recommended to the Board that the Compensation
Discussion and Analysis be included in this Proxy Statement.
 
 Respectfully
submitted on March 31, 2009, by the members of the Compensation Committee of the
Board:
  Kurt Wheeler
      (Chairman)
                Wende
      Hutton
                Gregory
      Waller
 
 Compensation
of Directors
 
 All
of our non-employee, or outside, members of our Board of Directors receive cash
and equity compensation, based on what the Board believes to be peer group
norms.  The compensation of the outside directors was established in
connection with the acquisition of Alsius by Ithaka Acquisition Corp. in
2007.  The outside directors currently include Messrs. Brooke,
Hecht, Lasersohn, Waller, and Wheeler and Ms. Hutton.
 
 The
outside directors are reimbursed for reasonable out-of-pocket expenses incurred
in connection with attendance at Board and committee meetings. In 2008, they
also received an annual cash fee of $15,000, $1,500 for each Board meeting
attended, and $1,000 for each committee meeting attended in person or if
attended by telephonic participation, unless the duration of such committee
meeting attended by telephonic participation is less than one hour in which the
fee was $500.  In addition, in 2008, the chair of our Audit Committee
received $6,000, the chair of our Compensation Committee received $5,000 and the
chair of our Nominating and Corporate Governance Committee received
$4,000.  All cash payments to directors are made quarterly in
arrears.
 
 For 2009,
the cash compensation to our outside directors is the same as in
2008.
 
 None of
our directors received equity grants in 2008.
 
 The
following table sets forth the compensation paid to our non-employee directors
for their service in fiscal 2008.
  Fees
      Earned
              
              
              Stock
              
              
              Optionor
      Paid in
              
              
              Awards
              
              
              Awards
              
              
              TotalName
              
              Cash
      ($)
              
              
              ($)
              
              
              ($)(1)
              
              
              ($)(2)Eric
      Hecht
              
              $
              15,000
              
              
              —
              
              
              —
              
              
              $
              15,000Wende
      Hutton
              
              
              17,500
              
              
              —
              
              
              —
              
              
              
              17,500Jack
      Lasersohn
              
              
              18,500
              
              
              —
              
              
              —
              
              
              
              18,500Gregory
      Waller
              
              
              20,500
              
              
              —
              
              
              —
              
              
              
              20,500Kurt
      Wheeler
              
              
              18,000
              
              
              —
              
              
              —
              
              
              
              18,000
  85
 
 (1)
              These
      amounts reflect the dollar amount recognized for financial statement
      reporting purposes for the fiscal year ended December 31, 2008, in
      accordance with the SFAS 123(R).(2)
              All
      cash payments to directors are made quarterly in
  arrears.
 
 Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
 
 Security Ownership of Certain Beneficial Owners and
Management
 
 The
following table sets forth certain information as of March 15, 2009, as to
shares of our common stock beneficially owned by: (i) each person who is
known by us to own beneficially more than 5% of our common stock, (ii) each
of our Named Executive Officers listed in the Summary Compensation Table,
(iii) each of our directors and (iv) all our directors and executive
officers as a group. Unless otherwise stated below, the address of each
beneficial owner listed on the table is c/o Alsius Corporation, 15770
Laguna Canyon Road, Suite 150, Irvine,
California 92618.
 
 We have
determined beneficial ownership in accordance with the rules of the SEC. Except
as indicated by the footnotes below, we believe, based on the information
furnished to us, that the persons and entities named in the table below have
sole voting and investment power with respect to all shares of common stock that
they beneficially own, subject to applicable community property
laws.
 
 The
percentage of common stock beneficially owned is based on 21,076,134 shares
outstanding as of March 15, 2009. In computing the number of shares of common
stock beneficially owned by a person and the percentage ownership of that
person, we deemed outstanding shares of common stock subject to options or RSUs
held by that person that are currently exercisable or exercisable within
60 days after March 15, 2009. We did not deem these shares outstanding,
however, for the purpose of computing the percentage ownership of any other
person.
  Shares
      Beneficially OwnedName
      and Address of Beneficial Owner
              
              Number
              
              
              Percentage5%
      Stockholders:Adage
      Capital Partners, L.P. (1)
              
              
              1,200,000
              
              
              
              5.7
              %Entities
      affiliated with MPM Asset Management (2)
              
              
              2,672,568
              
              
              
              12.7
              %Entities
      affiliated with Canaan Equity Partners II LLC (3)
              
              
              1,761,351
              
              
              
              8.4
              %Directors
      and Executive Officers:Paul
      Brooke (4)
              
              
              1,270,983
              
              
              
              6.0
              %William
      Worthen
              
              
              0
              
              
              
              *H.
      Michael Ameli
              
              
              0
              
              
              
              *Suzanne
      Winter
              
              
              0
              
              
              
              *Gregory
      Tibbitts
              
              
              0
              
              
              
              *Eric
      Hecht (4)
              
              
              1,245,423
              
              
              
              5.9
              %Wende
      Hutton (4) (5)
              
              
              21,871
              
              
              
              *Jack
      Lasersohn (4) (6)
              
              
              417,765
              
              
              
              2.0
              %Gregory
      Waller (4)
              
              
              8,333
              
              
              
              *Kurt
      Wheeler (4) (7)
              
              
              2,680,901
              
              
              
              12.7
              %All
      directors and executive officers as a group
    (9 persons)
              
              
              5,645,276
              
              
              
              26.8
              %
  *
                  Less
      than 1.0%(1)
                  The
      number of shares set forth in this table is as reported in a Schedule
      13G/A filed by Adage Capital Partners, L.P. (“ACP”), Adage Capital
      Partners GP, L.L.C (“ACPGP”), Adage Capital Advisors, L.L.C. (“ACC”),
      Phillip Gross, and Robert Atchinson on February 17, 2009, under the
      Exchange Act. Adage Capital Partners, L.P. has the power to dispose of and
      the power to vote these shares beneficially owned by it, which power may
      be exercised by its general partner, ACPGP. ACA, as managing member of
      ACPGP, directs ACPGP's operations. Neither ACPGP nor ACA own directly any
      shares of the Company.  ACPGP and ACA may be deemed to own
      beneficially the shares owned by ACP. Messrs. Atchinson and Gross, as
      managing members of ACA, have shared power to vote the shares beneficially
      owned by ACP. Neither Mr. Atchinson nor Mr. Gross directly own any shares
      of the Company; however, each may be deemed to beneficially own the shares
      beneficially owned by ACP. The address for Adage Capital Partners, L.P. is
      200 Clarendon Street, 52nd Floor, Boston, MA 02116. We have no reason to
      believe that the information in the Schedule 13G/A was not complete or
      accurate or that a statement or an amendment should have been filed
      thereto and was
not.
  86
  (2)
              The
      number of shares set forth in this table is as reported in a Schedule 13D
      filed by MPM BioVentures II-QP, L.P., MPM BioVentures II, L.P., MPM Asset
      Management Investors 2000B LLC, and MPM BioVentures GmbH & Co.
      Parallel-Beteiligungs KG, MPM Asset Management II, L.P. and MPM Asset
      Management II LLC (collectively, the “MPM Entities”) on June 29, 2007. MPM
      BioVentures II-QP, L.P. beneficially owns 1,799,173 shares and has sole
      power to dispose of and the power to vote these shares, MPM BioVentures
      II, L.P. beneficially owns 198,572 shares and has sole power to dispose of
      and the power to vote these shares, MPM BioVentures GmbH & Co.
      Parallel-Beteiligungs KG beneficially owns 633,399 shares and has sole
      power to dispose of and the power to vote these shares, and MPM Asset
      Management Investors 2000B LLC beneficially owns 41,424 shares and has
      sole power to dispose of and the power to vote these shares. MPM Asset
      Management II, L.P. and MPM Asset Management II LLC are the direct and
      indirect general partners of MPM BioVentures II-QP, L.P., MPM BioVentures
      II, L.P. and MPM BioVentures GmbH & Co. Parallel-Beteiligungs KG and
      each has shared power to dispose of and the power to vote all 2,678,568
      shares beneficially owned by the MPM Entities. The address for the MPM
      Entities is 200 Clarendon Street, 52nd Floor, Boston, MA 02116. We have no
      reason to believe that the information in the Schedule 13D was not
      complete or accurate or that a statement or an amendment
      should
                  have
      been filed thereto and was
not.
 (3)
              The
      number of shares set forth in this table is as reported in a Schedule 13G
      filed by Canaan Equity II L.P. (“CE II”), Canaan Equity II L.P. (QP) (“CE
      II QP”), Canaan Equity II Entrepreneurs, LLC (“Entrepreneurs”), (iv)
      Canaan Equity Partners II LLC (“CEP II”) the general partner of CE II and
      CE II QP and the manager of Entrepreneurs, Stephen L. Green, Deepak Kamra,
      Gregory Kopchinsky, Guy M. Russo, John V. Balen, Eric A. Young, Charmers
      Landing LLC (“Charmers”), Stonehenge LLC (“Stonehenge”), and Waubeeka LLC
      (“Waubeeka”) on February 10, 2009. The sole managers of Charmers,
      Stonehenge, and Waubeeka are Messrs. Green, Kopchinsky and Russo,
      respectively. CE II is the record holder of 1,153,684 shares and has sole
      power to dispose of and the power to vote these shares, CE II QP is the
      record holder of 516,076 shares and has sole power to dispose of and the
      power to vote these shares, and Entrepreneurs is the record holder of
      91,591 shares of Common Stock and has sole power to dispose of and the
      power to vote these shares. As the general partner of CE II and CE II QP
      and the manager of Entrepreneurs, CEP II may be deemed to own beneficially
      all 1,761,351 shares held of record by the Canaan entities. As individual
      managers of CEP II, Messrs. Balen, Green, Kamra, Kopchinsky, Russo and
      Young may also be deemed to own beneficially the shares held by the Canaan
      entities. The address for Canaan entities is 285 Riverside Avenue, Suite
      250, Westport, CT 06880. We have no reason to believe that the information
      in the Schedule 13G was not complete or accurate or that a statement or an
      amendment should have been filed thereto and was
  not.(4)
              Includes
      options to purchase 8,333 shares of our common stock that are exercisable
      immediately or within 60 days of February 19,
  2009.(5)
              Ms.
      Hutton’s ownership does not include 1,761,351 shares of common stock held
      by affiliated Canaan entities as she does not have the power to dispose of
      or the power to vote these shares (although, Ms. Hutton is a general
      partner with respect to certain other Canaan
    entities).(6)
              Includes
      ownership of 409,432 shares of common stock held by affiliated Vertical
      Group funds over which Mr. Lasersohn has shared voting
      control.(7)
              Includes
      ownership of 2,672,568 shares of common stock held by affiliated MPM Funds
      over which Mr. Wheeler has shared voting
  control.
  Item
      13.
              Certain
      Relationships and Related Transaction, and Director
      Independence
 
 The Board
has adopted a written policy which requires the Audit Committee to review and
approve or ratify any transaction (a “related party transaction”) in which the
Company was, or is to be, a participant and in which any director, executive
officer, nominee for director or beneficial owner of more than 5% of the
outstanding shares of Common Stock of the Company, or any immediate family
member of any such person, has a direct or indirect material interest. The
policy requires the following:
 
 ·
              The
      Audit Committee shall review any proposed agreement or arrangement
      relating to a related party transaction or series of related party
      transactions, and any proposed amendment to any such agreement or
      arrangement;
  ·
              The
      Audit Committee shall establish standards for determining whether the
      transactions covered by such proposed agreement or arrangement are on
      terms no less favorable to the Company than could be obtained from an
      unrelated third party (“fair to the
Company”);
  ·
              Before
      the Company enters into any such proposed agreement or arrangement, and at
      least annually thereafter, the Company’s internal audit department shall
      report to the Audit Committee whether the transactions covered by such
      agreement or arrangement are fair to the Company under the standards
      established by the Audit Committee;
  ·
              The
      Audit Committee shall not pre-approve, and shall make all reasonable
      efforts (taking into account the cost thereof to the Company) to cancel or
      cause to renegotiated, any such agreement or arrangement which is not so
      determined to be fair to the
Company; and
  ·
              The
      Company will disclose any related party transactions required to be
      disclosed by the rules promulgated by the SEC in the manner so
      required.
  Item
      14.
              Principal
      Accountant Fees and Services
 
 The Audit
Committee has appointed Deloitte & Touche, LLP (“Deloitte & Touche” or
“D&T”) as our independent registered public accounting firm for the fiscal
year ending December 31, 2008. The Board has endorsed this appointment.
Deloitte & Touche audited our consolidated financial statements for our
fiscal years ended December 31, 2008 and 2007.
 
 Prior to
the Ithaka merger, Ithaka's consolidated financial statements were audited by
Goldstein Golub Kessler, LLP, and Alsius Medial's consolidated financial
statements were audited by PricewaterhouseCoopers, LLP. In connection with
the closing of the merger with Ithaka on June 21, 2007, Ithaka dismissed
Goldstein Golub Kessler LLP as its independent registered public accounting
firm.  This matter was reported on Form 8-K, filed with the SEC on
June 27, 2007.  Also, in connection with the closing of the merger
with Ithaka, Alsius Medical dismissed PricewaterhouseCoopers as its independent
registered public accounting firm, which was reported on our Post-Effective
Amendment #1 to Form S-3 filed with the SEC on October 26,
2007.  There were no disagreements between management and either of
these independent accounting firms.
 
 87
 Audit
and Non-Audit Fees
  The
following is a summary of the fees billed to us for professional services
rendered by Deloitte & Touche and PricewaterhouseCoopers for the fiscal
years ended December 31, 2008 and December 31,
2007.  Deloitte & Touche audited our 2008 and 2007 financial
statements.  Our prior auditor, PricewaterhouseCoopers, performed
certain services in 2007 related to prior periods:
 
 Fee
      Category
              
              D&T
      Fiscal
                2008
      Fees
              
              
              PWC
      Fiscal
                2008
      Fees
              
              
              D&T
      Fiscal
                2007
      Fees
              
              
              PWC
      Fiscal
                2007
      FeesAudit
      Fees(1)
              
              $
              395,512
              
              
              $
              —
              
              
              $
              367,108
              
              
              $
              65,680Audit-Related
      Fees
              
              $
              8,000
              
              
              $
              —
              
              
              $
              —
              
              
              $
              45,000Tax
      Fees(2)
              
              $
              109,779
              
              
              $
              —
              
              
              $
              55,041
              
              
              $
              —All
      Other Fees(3)
              
              $
              2,000
              
              
              $
              —
              
              
              $
              8,000
              
              
              $
              255,116Total
      Fees
              
              $
              515,291
              
              
              $
              —
              
              
              $
              430,149
              
              
              $
              365,796
  (1)
              Audit
      fees consist of aggregate fees billed for professional services rendered
      in each of the last two fiscal years for the audit of our annual financial
      statements, the review of quarterly financial statements, accounting
      consultations and other attestation services.(2)
              Professional
      services for income tax return preparation, tax advice and tax
      planning.(3)
              All
      Other Fees consist of fees for the use of Deloitte & Touche's research
      tool.
  Audit Committee Pre-Approval Policies
and Procedures
 
 It is
Alsius’ policy that all audit and non-audit services to be performed by its
independent registered public accounting firm be approved in advance by the
Audit Committee. The Audit Committee administers the Company’s engagement of
Deloitte & Touche and pre-approves all audit and permissible non-audit
services on a case-by-case basis. In approving non-audit services, the Audit
Committee considers whether the engagement could compromise the independence of
Deloitte & Touche, and whether for reasons of efficiency or convenience it
is in the best interest of the Company to engage its independent registered
public accounting firm to perform the services.
 
 Prior to
engagement, the Audit Committee pre-approves all independent registered public
accounting firm services. The fees are budgeted and the Audit Committee requires
the independent registered public accounting firm and management to report
actual fees versus the budget periodically throughout the year by category of
service. During the year, circumstances may arise when it may become necessary
to engage the independent registered public accounting firm for additional
services not contemplated in the original pre-approval categories. In those
instances, the Audit Committee requires specific pre-approval before engaging
the independent registered public accounting firm.
 
 The Audit
Committee may delegate pre-approval authority to one or more of its members. The
member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
 
 88
 
 PART
IV
 
 Item
      15.
              Exhibits
      and Financial Statement Schedules
 
 (a)  Listing
of Documents
 
 (1)
              Financial Statements.
      The Company’s Consolidated Financial Statements included in Item 8
      hereof, as required at December 31, 2008 and 2007, and for the years
      ended December 31, 2008, 2007 and 2006, consist of the
      following:
  PageConsolidated
      Balance Sheets
              39Consolidated
      Statements of Operations
              40Consolidated
      Statements of Cash Flows
              41Consolidated
      Statements of Shareholders’ Equity (Deficit)
              42
  All other
schedules have been omitted since the required information is not present in
amounts sufficient to require submission of the schedule, or because the
required information is included in the consolidated financial statements or
notes thereto.
 (2)
                Exhibits
 Exhibit
      Number23.1
              Consent
      of Current Independent Registered Public Accounting
Firm23.2
              Consent
      of Predecessor Independent Registered Public Accounting
    Firm31.1
              Certification
      of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              Certification
      of Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
              Certification of
      Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
  
 (b)
Exhibits
 
 See
subsection (a) (2) above.
 
 (c)
Financial Statement Schedules
 
 See
subsections (a) (1) above.
 
 89
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on March 31, 2009.
  ALSIUS
      CORPORATIONBy:
              /s/William J.
      WorthenWilliam
      J. Worthen
                President
      and Chief Executive Officer
 
   90
  Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed on March 31, 2009 by the following persons on behalf of
the registrant and in the capacities indicated:
 
 
 Signature
              Title/s/
      William J. Worthen
              President
      and Chief Executive OfficerWilliam
      J. Worthen
              (Principal
      Executive Officer)/s/
      Gregory J. Tibbitts
              Chief
      Financial OfficerGregory
      J. Tibbitts
              (Principal
      Financial and Accounting Officer)/s/
      Paul A. Brooke
              Chairman
      of the BoardPaul
      A. Brooke/s/
      Eric M. Hecht
              DirectorEric
      M. Hecht/s/
      Wende S. Hutton
              DirectorWende
      S. Hutton/s/
      Jack W. Lasersohn
              DirectorJack
      W. Lasersohn/s/
      Gregory D. Waller
              DirectorGregory
      D. Waller/s/
      Kurt C. Wheeler
              DirectorKurt
      C. Wheeler
 
 91
  
 EXHIBIT
INDEX
  
 Exhibits
              Description
  
 23.1
              Consent
      of Current Independent Registered Public Accounting
Firm23.2
              Consent
      of Predecessor Independent Registered Public Accounting
    Firm31.1
              Certification
      of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              Certification
      of Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
              Certification of
      Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 
 __________
 
   92