Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM 10-Q**

 

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**(Mark One)**

 

**x****          ****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the quarterly period ended March 31, 2009**

 

**or**

 

**o****             ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from              to              **

 

**Commission File Number 001-33282**

 

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**XTENT,INC.**

(ExactName of Registrant as Specified in Its Charter)

 

| **Delaware**                     | ** ** | **41-2047573**       |
|----------------------------------|------------|----------------------|
| (State  or Other Jurisdiction of |       | (I.R.S.  Employer    |
| Incorporation  or Organization)  |       | Identification  No.) |

 

**125 Constitution Drive**

**Menlo Park, California 94025-1118**

(Addressof principal executive offices, including Zip Code)

 

**(650) 475-9400**

(Registrant’stelephone number, including area code)

 

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Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  YES  x     NO  o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or such shorter period that the registrant wasrequired to submit and post such files).   YES  o     NO  o

 

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

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined by Rule 12b-2 of theExchange Act) Yes  o     No  x

 

As of April 30 2009,there were 23,352,904 shares of XTENT, Inc. common stock outstanding.

 

 

 

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Table of Contents

 

**XTENT, INC.**

**FORM 10-Q**

**TABLE OF CONTENTS**

 
| ** **     | ** **                                                                                  | ** ** | **Page** |
|----------------|---------------------------------------------------------------------------------------------|------------|----------|
| ** **     | **Part I:  Financial Information**                                           |       |     |
|           |                                                                                        |       |     |
| Item 1.   | Condensed Financial  Statements (unaudited):                                                |       | 3        |
|           |                                                                                        |       |     |
|           | Condensed  Balance Sheets                                                                   |       | 3        |
|           |                                                                                        |       |     |
|           | Condensed  Statements of Operations                                                         |       | 4        |
|           |                                                                                        |       |     |
|           | Condensed  Statements of Cash Flows                                                         |       | 5        |
|           |                                                                                        |       |     |
|           | Notes to Condensed Financial Statements                                                     |       | 6        |
|           |                                                                                        |       |     |
| Item 2.   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 14       |
|           |                                                                                        |       |     |
| Item 3.   | Quantitative  and Qualitative Disclosures About Market Risk                                 |       | 20       |
|           |                                                                                        |       |     |
| Item 4.   | Controls and  Procedures                                                                    |       | 21       |
|           |                                                                                        |       |     |
| ** **     | **Part II:  Other Information**                                              |       |     |
|           |                                                                                        |       |     |
| Item 1.   | Legal Proceedings                                                                           |       | 21       |
|           |                                                                                        |       |     |
| Item 1A.  | Risk Factors                                                                                |       | 21       |
|           |                                                                                        |       |     |
| Item 2.   | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 46       |
|           |                                                                                        |       |     |
| Item 3.   | Defaults Upon  Senior Securities                                                            |       | 46       |
|           |                                                                                        |       |     |
| Item 4.   | Submission of  Matters to a Vote of Security Holders                                        |       | 46       |
|           |                                                                                        |       |     |
| Item 5.   | Other Information                                                                           |       | 46       |
|           |                                                                                        |       |     |
| Item 6.   | Exhibits                                                                                    |       | 47       |
|           |                                                                                        |       |     |
| Signatures     |                                                                                        |       | 48       |
|           |                                                                                        |       |     |
| Certifications |                                                                                        |       |     |

 

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**PART I:FINANCIAL INFORMATION**

 

**ITEM 1.CONDENSED FINANCIAL STATEMENTS (UNAUDITED)**

 

**XTENT, INC.**

**(a development stage company)**

**CONDENSED BALANCE SHEETS**

**(unaudited; in thousands, except per share amounts)**

 
| ** **                                                                                                                                                                                                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                      | ** ** | **2009**           | ** ** | **2008 (1)**          | ** ** |
| **ASSETS**                                                                                                                                                                                                                      | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                                                                                 |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                       |       | $                  | 11,960     |                  | $          | 13,373 |   |
| Short-term investments                                                                                                                                                                                                          |       | —             |       | 5,752                 |       |
| Prepaid expenses and other current assets                                                                                                                                                                                       |       | 673                |       | 432                   |       |
| Total current assets                                                                                                                                                                                                            |       | 12,633             |       | 19,557                |       |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| Property and equipment, net                                                                                                                                                                                                     |       | 1,500              |       | 4,100                 |       |
| Other non-current assets                                                                                                                                                                                                        |       | 45                 |       | 338                   |       |
| Total assets                                                                                                                                                                                                                    |       | $                  | 14,178     |                  | $          | 23,995 |   |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                   |       |               |       |                  |       |
| Current liabilities:                                                                                                                                                                                                            |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                                                |       | $                  | 216        |                  | $          | 943 |   |
| Accrued liabilities                                                                                                                                                                                                             |       | 1,550              |       | 1,544                 |       |
| Total current liabilities                                                                                                                                                                                                       |       | 1,766              |       | 2,487                 |       |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| Commitments and contingencies (note 7)                                                                                                                                                                                          |       |               |       |                  |       |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                                                                      |       |               |       |                  |       |
| Common stock: $0.001 par value; 100,000  shares authorized at March 31, 2009 and December 31, 2008; 23,337  and 23,325 shares issued and outstanding at March 31, 2009 and  December 31, 2008, respectively |       | 23                 |       | 23                    |       |
| Additional paid-in capital                                                                                                                                                                                                      |       | 156,227            |       | 155,511               |       |
| Deferred stock-based compensation                                                                                                                                                                                               |       | (1                 | )          | (56                   | )          |
| Accumulated other comprehensive income                                                                                                                                                                                          |       | —             |       | 11                    |       |
| Deficit accumulated during development  stage                                                                                                                                                                                   |       | (143,837           | )          | (133,981              | )          |
| Total stockholders’ equity                                                                                                                                                                                                 |       | 12,412             |       | 21,508                |       |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                 |       | $                  | 14,178     |                  | $          | 23,995 |   |

 

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(1)  The condensed balance sheet at December 31, 2008 has been derivedfrom the audited financial statements at that date, but does not include all ofthe information and footnotes required by accounting principles generallyaccepted in the United States for complete financial statements.

 

Theaccompanying notes are an integral part of these condensed financialstatements.

 

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**XTENT, INC.**

**(a development stage company)**

**CONDENSED STATEMENTS OF OPERATIONS**

**(unaudited; in thousands, except per share amounts)**

 
| ** **                                                                                          | ** ** | ** **             | ** ** | ** **         | ** ** | **Cumulative**         | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                          | ** ** | ** **             | ** ** | ** **         | ** ** | **Period from**        | ** ** |
| ** **                                                                                          | ** ** | ** **             | ** ** | ** **         | ** ** | **June 13, 2002** | ** ** |
| ** **                                                                                          | ** ** | ** **             | ** ** | ** **         | ** ** | **(Date of**           | ** ** |
| ** **                                                                                          | ** ** | **Three Months Ended** | ** ** | **Inception) to**  | ** ** |
| ** **                                                                                          | ** ** | **March 31,**     | ** ** | **March 31,** | ** ** |
| ** **                                                                                          | ** ** | **2009**               | ** ** | **2008**           | ** ** | **2009**               | ** ** |
| ** **                                                                                          | ** ** | ** **             | ** ** | ** **         | ** ** | ** **             | ** ** |
| Operating expenses:                                                                                 |       |                   |       |               |       |                   |       |
| Research and development (1)                                                                        |       | $                      | 4,654      |               | $          | 9,421                  |       | $ | 110,238 |   |
| General and administrative (1)                                                                      |       | 2,763                  |       | 3,442              |       | 37,223                 |       |
| Loss on impairment of long-lived assets                                                             |       | 2,494                  |       | —             |       | 2,494                  |       |
| Total operating expenses                                                                            |       | 9,911                  |       | 12,863             |       | 149,955                |       |
|                                                                                                |       |                   |       |               |       |                   |       |
| Loss from operations                                                                                |       | (9,911                 | )          | (12,863            | )          | (149,955               | )          |
|                                                                                                |       |                   |       |               |       |                   |       |
| Interest and other income, net                                                                      |       | 55                     |       | 406                |       | 6,118                  |       |
|                                                                                                |       |                   |       |               |       |                   |       |
| Net loss                                                                                            |       | (9,856                 | )          | (12,457            | )          | (143,837               | )          |
|                                                                                                |       |                   |       |               |       |                   |       |
| Deemed dividend related to beneficial  conversion feature of redeemable convertible preferred stock |       | —                 |       | —             |       | (13,095                | )          |
|                                                                                                |       |                   |       |               |       |                   |       |
| Net loss attributable to common  stockholders                                                       |       | $                      | (9,856     | )                  | $          | (12,457                | )          | $ | (156,932 | ) |
|                                                                                                |       |                   |       |               |       |                   |       |
| Net loss per share attributable to common stockholders  - basic and diluted                         |       | $                      | (0.42      | )                  | $          | (0.54                  | )          |   |   |
|                                                                                                |       |                   |       |               |       |                   |       |
| Weighted-average common shares outstanding  - basic and diluted                                     |       | 23,324                 |       | 22,923             |       |                   |       |

 

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| (1) Includes the following stock-based  compensation charges: |   |   |   |   |   |   |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Research and development                                      |   | $      | 256    |   | $      | 388    |   | $ | 4,735 |   |
| General and administrative                                    |   | $      | 508    |   | $      | 650    |   | $ | 6,097 |   |

 

The accompanying notes are an integral part of these condensedfinancial statements.

 

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**XTENT, INC.**

**(a development stage company)**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(unaudited; in thousands)**

** **
| ** **                                                                                   | ** ** | **Three Months Ended March 31,** | ** ** | **Cummulative  Period from  June 13, 2002  (Date of   Inception) to  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2009**                              | ** ** | **2008**                                                                                   | ** ** | **2009** | ** ** |
|                                                                                         |       |                                  |       |                                                                                       |       |   |   |
| **Cash flows from operating activities:**                                                    |       |                                  |       |                                                                                       |       |   |   |
| Net loss                                                                                     |       | $                                     | (9,856     | )                                                                                          | $          | (12,457 | ) | $ | (143,837 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                 |       |                                  |       |                                                                                       |       |   |   |
| Depreciation and amortization                                                                |       | 347                                   |       | 321                                                                                        |       | 4,368 |   |
| Amortization of securities discount                                                          |       | (9                                    | )          | (192                                                                                       | )          | (2,080 | ) |
| Gain on sale of investments                                                                  |       | —                                |       | (26                                                                                        | )          | (6 | ) |
| Loss on disposal of property and equipment                                                   |       | —                                |       | —                                                                                     |       | 188 |   |
| Impairment of long-lived assets                                                              |       | 2,494                                 |       | —                                                                                     |       | 2,494 |   |
| Stock-based compensation expense                                                             |       | 764                                   |       | 1,038                                                                                      |       | 10,832 |   |
| Stock issued in exchange for services                                                        |       | —                                |       | —                                                                                     |       | 381 |   |
| Changes in operating assets and  liabilities:                                                |       |                                  |       |                                                                                       |       |   |   |
| Prepaid expenses and other current assets                                                    |       | 10                                    |       | (732                                                                                       | )          | (702 | ) |
| Accrued interest receivable on securities                                                    |       | 12                                    |       | 213                                                                                        |       | (16 | ) |
| Accounts payable                                                                             |       | (727                                  | )          | 80                                                                                         |       | 101 |   |
| Accrued liabilities                                                                          |       | 8                                     |       | 446                                                                                        |       | 1,664 |   |
| Net cash used in operating activities                                                        |       | (6,957                                | )          | (11,309                                                                                    | )          | (126,613 | ) |
|                                                                                         |       |                                  |       |                                                                                       |       |   |   |
| **Cash flows from investing activities:**                                                    |       |                                  |       |                                                                                       |       |   |   |
| Purchase of investments                                                                      |       | —                                |       | (5,459                                                                                     | )          | (142,322 | ) |
| Proceeds from maturities of investments                                                      |       | 5,750                                 |       | 9,925                                                                                      |       | 130,459 |   |
| Proceeds from sale of investments                                                            |       | —                                |       | 9,963                                                                                      |       | 13,949 |   |
| Purchase of property and equipment                                                           |       | (241                                  | )          | (304                                                                                       | )          | (8,547 | ) |
| Restricted cash                                                                              |       | 30                                    |       | —                                                                                     |       | — |   |
| Proceeds from sale of property and  equipment                                                |       | —                                |       | 2                                                                                          |       | 20 |   |
| Net cash provided by (used in) investing  activities                                         |       | 5,539                                 |       | 14,127                                                                                     |       | (6,441 | ) |
|                                                                                         |       |                                  |       |                                                                                       |       |   |   |
| **Cash flows from financing activities:**                                                    |       |                                  |       |                                                                                       |       |   |   |
| Proceeds from issuance of redeemable  convertible preferred stock, net of issuance costs     |       | —                                |       | —                                                                                     |       | 75,592 |   |
| Proceeds from initial public offering, net  of offering costs                                |       | —                                |       | —                                                                                     |       | 68,237 |   |
| Principal payments on capital lease  obligations                                             |       | —                                |       | —                                                                                     |       | (23 | ) |
| Proceeds from issuance of common stock and  exercise of stock options                        |       | 5                                     |       | 32                                                                                         |       | 1,208 |   |
| Net cash provided by financing activities                                                    |       | 5                                     |       | 32                                                                                         |       | 145,014 |   |
|                                                                                         |       |                                  |       |                                                                                       |       |   |   |
| Net (decrease) increase in cash and cash  equivalents                                        |       | (1,413                                | )          | 2,850                                                                                      |       | 11,960 |   |
| Cash and cash equivalents at beginning of  period                                            |       | 13,373                                |       | 13,366                                                                                     |       | — |   |
|                                                                                         |       |                                  |       |                                                                                       |       |   |   |
| Cash and cash equivalents at end of period                                                   |       | $                                     | 11,960     |                                                                                       | $          | 16,216 |   | $ | 11,960 |   |
|                                                                                         |       |                                  |       |                                                                                       |       |   |   |
| **Supplemental disclosure of noncash  investing and financing activities:**                  |       |                                  |       |                                                                                       |       |   |   |
| Deferred stock-based compensation                                                            |       | $                                     | —     |                                                                                       | $          | — |   | $ | 1,272 |   |
| Reversal of deferred stock-based  compensation                                               |       | $                                     | (22        | )                                                                                          | $          | (30 | ) | $ | (183 | ) |
| Dividend related to beneficial conversion  feature of redeemable convertible preferred stock |       | $                                     | —     |                                                                                       | $          | — |   | $ | (13,095 | ) |
| Equipment acquired under capital leases                                                      |       | $                                     | —     |                                                                                       | $          | — |   | $ | (23 | ) |
| Vesting of restricted common stock from  early exercises                                     |       | $                                     | 2          |                                                                                       | $          | 23 |   | $ | 440 |   |
| Deferred initial public offering costs                                                       |       | $                                     | —     |                                                                                       | $          | — |   | $ | 875 |   |
| Changes in net unrealized gains on  investments                                              |       | $                                     | (11        | )                                                                                          | $          | 95 |   | $ | — |   |

 

The accompanying notes are an integral part of these condensedfinancial statements.

 

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**XTENT, INC.**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

**NOTE 1 -Organization and Basis of Presentation**

 

**Organization**

 

XTENT, Inc. (the “Company”)was incorporated in the state of Delaware on June 13, 2002 (“inception”),and is focused on developing and commercializing innovative drug eluting stentsystems for the treatment of coronary artery disease. The Company is in thedevelopment stage and since inception has devoted substantially all of its timeand efforts to developing products, raising capital and recruiting personnel.

 

The Company has incurred netoperating losses each year since inception. At March 31, 2009, the Companyhad an accumulated deficit of $143.8 million. The Company has not achievedpositive cash flows from operations in any year since inception. In February 2007,the Company completed its initial public offering raising net proceeds of$68.2 million. In January 2009, the Company announced a reduction inits headcount of approximately 115 employees, or 94% of its totalworkforce.  As of March 31, 2009,the reduction was substantially complete, with six full-time employeesremaining at April 30, 2009.  Duringthe first quarter of 2009, the Company was exploring strategic alternativeswith the assistance of Piper Jaffray & Co., including, withoutlimitation, a merger, a sale of substantially all Company assets, a financing,or a sale of a portion of the Company’s assets, such as its peripheral stenttechnology, its drug eluting balloon technology, or its bioabsorbable stenttechnology.  On May 11, 2009, theCompany’s board of directors concluded that it appeared unlikely that astrategic transaction at a valuation materially in excess of the estimatedliquidation value would be achieved in the near term.  Based on these and other factors, the boardof directors concluded that a statutory dissolution and liquidation was in thebest interests of the Company and its stockholders and therefore adopted a Planof Complete Liquidation and Dissolution, or Plan of Dissolution, andrecommended approval of the Plan of Dissolution by the Company’sstockholders.  The Plan of Dissolution issubject to approval at a special meeting of the stockholders, which is expectedto be held during the second or third quarter of 2009.

 

If the Company’sstockholders approve the Plan of Dissolution, the Company will not engage inany business activities except for the purpose of preserving the value of theCompany’s assets, winding up the Company’s business and affairs, selling andliquidating all assets, including intellectual property, paying allliabilities, terminating all agreements and preparing to make distributions tostockholders, in accordance with the Plan of Dissolution.  The Company believes that the cash and cashequivalents and related interest income are sufficient to meet the anticipatedcash requirements under the Plan of Dissolution.

 

If the Company’sstockholders do not approve the Plan of Dissolution, the board of directorswill explore the alternatives then available to XTENT.  The Company believes that the existing cashand cash equivalents and related interest income are sufficient to meetanticipated cash requirements through at least December 31, 2009.

 

The Company continues toreport as a development stage company, since planned principal operations havenot commenced.  The basis of accountinghas not changed as a result of the board of director’s approval of the Plan ofDissolution as the Plan of Dissolution is subject to stockholder approval.  The Company operates in a single segment andmanagement uses one measure of financial performance and does not segment itsbusiness for internal reporting.

 

**Basis of Presentation**

 

The accompanying unaudited condensedfinancial statements have been prepared by the Company in accordance with theaccounting principles generally accepted in the United States of America forinterim financial information and pursuant to the instructions to Form 10-Qand Article 10 of Regulation S-X of the Securities and ExchangeCommission.  Accordingly, they do not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements.  In the opinion of management, all adjustments(consisting only of normal recurring adjustments) considered necessary for afair statement have been included.  The results for the three months endedMarch 31, 2009 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2009, or for any futureperiod.  These unaudited condensed financial statements and notes shouldbe read in conjunction with the audited financial statements and the notesthereto included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2008, filed with the Securities and Exchange Commissionon March 24, 2009.

 

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**NOTE 2 -Summary of Significant Accounting Policies**

 

***Cash and Cash Equivalents***

 

The Company considers allhighly liquid investments purchased with an original maturity of three monthsor less at the date of purchase to be cash equivalents. The Company depositscash with high credit quality financial institutions. Cash equivalents consistprimarily of liquid money market funds and fixed income securities withoriginal maturity dates of less than three months.

 

***Short-term Investments***

 

Short-term investments withan original maturity of more than three months and less than one year at thedate of purchase are considered to be short-term. Short-term investmentsconsist primarily of fixed income securities. The Company classifies itsinvestments as available-for-sale in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 115, *Accountingfor Certain Investments in Debt and Equity Securities* and they arerecorded at fair value. The fair value of short-term investments is based onquoted market prices. As of March 31, 2009, the Company did not have anyshort-term investments.

 

Unrealized gains and lossesare reported as accumulated other comprehensive income (loss), which is aseparate component of stockholders’ equity, until realized. Premiums (or discounts)on short-term investments are amortized (or accreted) to interest and otherincome, net over the life of the investment. Realized gains and losses onshort-term investments sold are included in interest and other income, net inthe Company’s statement of operations.

 

The Company reviews itsshort-term investments on a regular basis to evaluate whether or not anysecurity has experienced an other-than-temporary decline in fair value. If theCompany believes that an other-than-temporary decline exists in one of itsmarketable securities, it writes down these investments to the fair value andrecords the write-down within interest and other income, net in the Company’sstatement of operations.

 

***Concentration of Credit Risk***

 

The Company’s financial instrumentsthat are exposed to concentration of credit risk consist primarily of cash andcash equivalents and short-term investments. Financial instruments arecomprised primarily of money market funds, commercial paper and U.S. Governmentand agency securities rated A1 and P1 or better. The Company’s cash isprimarily deposited with one major financial institution, which at timesexceeds the amount of insurance provided by the Federal Deposit InsuranceCorporation on such deposits. The Company mitigates the concentration of creditrisk by placing percentage limits on the maximum portion of the investmentportfolio which may be invested in any one investment instrument. The Companyhas not recognized any credit losses on such instruments during any of the periodspresented and believes that it is not exposed to any significant risk on theseinstruments.

 

***Comprehensive Income (Loss)***

 

Comprehensive income (loss)is defined as the change in equity from transactions and other events andcircumstances other than those resulting from investments by owners anddistributions to owners. The Company’s unrealized gains (losses) onavailable-for-sale securities represent the only component of othercomprehensive loss that was excluded from the Company’s net loss and is reflectedas a component of stockholders’ equity.

 

Total comprehensive lossduring the three months ended March 31, 2009 and 2008 consisted of:

 
| ** **                                                            | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                            | ** ** | **March 31,**     | ** ** |
| ** **                                                            | ** ** | **2009**               | ** ** | **2008** | ** ** |
| ** **                                                            | ** ** | **(in thousands)**     | ** ** |
|                                                                  |       |                   |       |   |   |
| Net loss attributable to common stockholders                          |       | $                      | (9,856     | ) | $ | (12,457 | ) |
| Change in unrealized gains (losses) on available-for-sale  securities |       | (11                    | )          | 95 |   |
|                                                                  |       |                   |       |   |   |
| Comprehensive loss                                                    |       | $                      | (9,867     | ) | $ | (12,362 | ) |

 

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***Net Loss per Common Share***

 

Basicand diluted net loss per common share is computed using the weighted-averagenumber of shares of common stock outstanding during the period. Potentiallydilutive shares consisting of stock options, common stock subject torepurchase, redeemable convertible preferred stock and shares issuable underthe Employee Stock Purchase Plan were not included in the diluted net loss percommon share calculations for all periods presented because the inclusion ofsuch shares would have had an antidilutive effect.

 

A reconciliation of thenumerator and denominator used in the calculation of basic and diluted net lossper common share is as follows:

 
| ** **                                                                                                | ** ** | **Three Months Ended March 31,**         | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2009**                                      | ** ** | **2008** | ** ** |
| ** **                                                                                                | ** ** | **(in thousands, except per share  amounts)** | ** ** |
| ** **                                                                                                | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Numerator:                                                                                                | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Net loss attributable to common  stockholders                                                             |       | $                                             | (9,856     | ) | $ | (12,457 | ) |
|                                                                                                      |       |                                          |       |   |   |
| Denominator:                                                                                              |       |                                          |       |   |   |
| Weighted-average common shares outstanding                                                                |       | 23,326                                        |       | 23,049 |   |
| Less: Weighted-average unvested common  shares subject to repurchase                                      |       | (2                                            | )          | (126 | ) |
| Weighted-average common shares outstanding used  in computing basic and diluted net loss per common share |       | 23,324                                        |       | 22,923 |   |
|                                                                                                      |       |                                          |       |   |   |
| Net loss per share attributable to common stockholders  - basic and diluted                               |       | $                                             | (0.42      | ) | $ | (0.54 | ) |

 

The following potentiallydilutive shares were excluded from the computation of diluted net loss percommon share for the periods presented because including them would have anantidilutive effect:

 
| ** **                                          | ** ** | **Three Months Ended**  | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|
| ** **                                          | ** ** | **March 31,**      | ** ** |
| ** **                                          | ** ** | **2009**                | ** ** | **2008** | ** ** |
| ** **                                          | ** ** | **(in thousands)** | ** ** |
|                                                |       |                    |       |   |   |
| Options to purchase common stock                    |       | 2,060                   |       | 2,744 |   |
| Common stock subject to repurchase                  |       | 1                       |       | 107 |   |
| Shares issuable under Employee Stock  Purchase Plan |       | —                  |       | 52 |   |

 

***Recent and Adopted Accounting Pronouncements***

 

InFebruary 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities—Including an amendment of FASB Statement No. 115*(“SFAS No. 159”). SFAS No. 159 expands the use of fair valueaccounting but does not affect existing standards which require assets orliabilities to be carried at fair value. The objective of SFAS No. 159 isto improve financial reporting by providing companies with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. Under SFAS No. 159, a company may elect to use fair value tomeasure eligible items at specified election dates and report unrealized gainsand losses on items for which the fair value option has been elected inearnings at each subsequent reporting date. Eligible items include, but are notlimited to, accounts and loans receivable, available-for-sale andheld-to-maturity securities, equity method investments, accounts payable,guarantees, issued debt and firm commitments. If elected, SFAS No. 159 iseffective for fiscal years beginning after November 15, 2007. The adoptionof SFAS 159 has not impacted the Company’s results of operations and financial conditionas the Company has not elected the fair value option for any of its eligibleitems.

 

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InApril 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, *Interim Disclosures about Fair Value of FinancialInstruments.*  This FSP amends SFAS No. 107, *Disclosures about Fair Value of Financial Instruments*,to require publicly-traded companies, as defined in APB Opinion No. 28, *Interim Financial Reporting*, to providedisclosures on the fair value of financial instruments in interim financialstatements.  Prior to the issuance of FSP FAS No. 107-1 and APBOpinion No. 28-1, the fair values of those assets and liabilities weredisclosed only once each year. With the issuance of FSP FAS No. 107-1 andAPB Opinion No. 28-1, the Company will now be required to disclose thisinformation on a quarterly basis, providing quantitative and qualitativeinformation about fair value estimates for all financial instruments notmeasured in the Condensed Consolidated Balance Sheets at fair value. FSP SFAS107-1 and APB 28-1 are effective for interim periods ending after June 15,2009.  The Company will adopt the new disclosure requirements in thesecond quarter of fiscal 2009.  The Company does not expect the adoptionto have a material impact on its condensed financial condition, results ofoperations, or cash flows.

 

On January 1, 2009, theCompany adopted SFAS No. 157-2, *Effective Date of FASBStatement No. 157*, (“FSP SFAS 157-2”), which delays theeffective date of SFAS No. 157 for all nonfinancial assets andnonfinancial liabilities, except those that are recognized or disclosed at fairvalue in the financial statements on a recurring basis to fiscal yearsbeginning November 15, 2008.  Theadoption of FSP SFAS No. 157-2 did not have a material impact on theCompany’s financial position, operating results or cash flows.

 

OnJanuary 1, 2009, the Company adopted SFAS No. 157-3, *Determining the Fair Value of a Financial Asset When the Market forThat Asset Is Not Active,* (“FSP SFAS 157-3”), which clarifies the application of Statement 157 ina market that is not active and provides an example to illustrate keyconsiderations in determining the fair value of a financial asset when themarket for that financial asset is not active. The adoption of FSP SFAS No. 157-3 did not have a materialimpact on the Company’s financial position, operating results or cash flows.

 

In April 2009, the FASBissued FSP SFAS 157-4, *Determining FairValue When the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly,*or FSP SFAS 157-4, which provides additional guidance for estimating fair valuein accordance with SFAS 157 when the volume and level of activity for the assetor liability have significantly decreased.  This FSP re-emphasizesthat regardless of market conditions the fair value measurement is an exitprice concept as defined in SFAS 157.  This FSP clarifies andincludes additional factors to consider in determining whether there has been asignificant decrease in market activity for an asset or liability and providesadditional clarification on estimating fair value when the market activity foran asset or liability has declined significantly.  The scope of thisFSP does not include assets and liabilities measured under level 1inputs.  FSP SFAS 157-4 is applied prospectively to all fair valuemeasurements where appropriate and will be effective for interim and annualperiods ending after June 15, 2009.  The Company will adopt theprovisions of FSP SFAS 157-4 effective the second quarter of fiscal 2009, anddoes not expect this to have a material impact on its condensed financialcondition, results of operations, or cash flows.

 

**NOTE 3 -Investments**

 

The Company had no shortterm investments as of March 31, 2009. At December 31, 2008, short-term investments, which are classifiedas available-for-sale, had maturities of less than one year and consisted ofthe following:

 
| ** **                            | ** ** | **Amortized**      | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair**  | ** ** |
|---------------------------------------|------------|--------------------|------------|----------------|------------|----------------|------------|-----------|------------|
| **As of March 31, 2009**         | ** ** | **Cost**           | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Value** | ** ** |
| ** **                            | ** ** | **(in thousands)** | ** ** |
|                                  |       |               |       |           |       |           |       |      |       |
| U.S. government and agency securities |       | $                  | 5,741      |           | $          | 11             |       | $         | —     |   | $ | 5,752 |   |
|                                       |            |                    |            |                |            |                |            |           |            |  |  |  |  |

 

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**NOTE 4 —Fair Value Measurements**

 

***Fair Value Measurements***

 

SFAS No. 157, *Fair Value Measurements,* defines fair value as the price thatwould be received upon the sale of an asset or paid to transfer a liability inan orderly transaction between market participants at the measurement date(exit price). SFAS No. 157 classifies the inputs used to measure fairvalue into the following hierarchy:

 

·  Level 1:     Observable inputs such as quotedprices (unadjusted) in active markets for identical assets or liabilities.

 

·  Level2:      Inputs other than quoted prices that areobservable for the asset or liability, either directly or indirectly. Theseinclude quoted prices for similar assets or liabilities in active markets andquoted prices for identical or similar assets or liabilities in markets thatare not active.

 

·  Level3:     Unobservable inputs that reflect the reportingentity’s own assumptions.

 

***Cash and Cash Equivalents***

 

The Company’s cashequivalents are classified within Level 1 or Level 2 of the fair valuehierarchy because they are valued using quoted market prices, broker or dealerquotations, or alternative pricing sources with reasonable levels of pricetransparency. The fair value hierarchy of the Company’s marketable securitiesat fair value in connection with the adoption of SFAS No. 157 consisted ofthe following as of March 31, 2009 and December 31, 2008:

 
| ** **                     | ** ** | ** **              | ** ** | **Significant Other** | ** ** | **Significant Other** | ** ** |
|--------------------------------|------------|-------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **Balance as of**       | ** ** | **Observable Inputs** | ** ** | **Observable Inputs** | ** ** |
| ** **                     | ** ** | **March 31, 2009** | ** ** | **(Level 1)**         | ** ** | **(Level 2)**         | ** ** |
| ** **                     | ** ** | **(in thousands)**      | ** ** |
|                           |       |                    |       |                  |       |                  |       |
| Money market funds (1)         |       | $                       | 8,383      |                  | $          | 8,383                 |       | $ | — |   |
| U.S. government securities (1) |       | 2,001                   |       | —                |       | 2,001                 |       |
| Commercial paper (1)           |       | 1,000                   |       | —                |       | 1,000                 |       |
| Total                          |       | $                       | 11,384     |                  | $          | 8,383                 |       | $ | 3,001 |   |

 
| ** **                            | ** ** | ** **                 | ** ** | **Significant Other** | ** ** | **Significant Other** | ** ** |
|---------------------------------------|------------|----------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **Balance as of**          | ** ** | **Observable Inputs** | ** ** | **Observable Inputs** | ** ** |
| ** **                            | ** ** | **December 31, 2008** | ** ** | **(Level 1)**         | ** ** | **(Level 2)**         | ** ** |
| ** **                            | ** ** | **(in thousands)**         | ** ** |
|                                  |       |                       |       |                  |       |                  |       |
| Money market funds (1)                |       | $                          | 11,613     |                  | $          | 11,613                |       | $ | — |   |
| U.S. Treasury Notes (1)               |       | 1,003                      |       | —                |       | 1,003                 |       |
| U.S. government and agency securities |       | 5,752                      |       | —                |       | 5,752                 |       |
| Total                                 |       | $                          | 18,368     |                  | $          | 11,613                |       | $ | 6,755 |   |

 

----

(1)  Classified as part of cashequivalents on the balance sheet

 

***Assets Measured at Fair Value on a Nonrecurring Basis***

 

Asdiscussed in Note 1, the Company terminated 94% of its workforce during thequarter ended March 31, 2009.  TheCompany evaluates the recoverability of property and equipment in accordancewith FAS 144, “*Accounting for theimpairment, or disposal, of long-lived assets*” whenever events orchanges in circumstances indicate that the carrying value of a long-lived assetmay not be recoverable.  The Company recorded a non-cash charge of $2.5million relating to the impairment of long-lived assets, which is included incontinuing operations for the quarter ended March 31, 2009.  Anestimate of fair value was based on a market approach obtained through anexternal assessment of long-lived asset values by considering the marketparticipant assumptions affecting the value to be realized through an auctionof property and equipment.  In accordance with SFAS 157-2, the $1.5million valuation of long-lived assets is assessed based on unobservableinputs, and grouped as level 3 within the fair value hierarchy.

 

**NOTE 5 -Restricted Common Stock**

 

Certain common stock optionholders have the right to exercise unvested options, subject to a repurchaseright held by the Company to repurchase the stock, at the original exercise price,in the event of voluntary or involuntary termination of employment of thestockholder. In accordance with Emerging Issues Task Force Issue No. 00-23,*Issues Related to the Accounting for StockCompensation* under APB 25 and FASB Interpretation No. 44, *Accounting for Certain Transactions*

 

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*InvolvingStock Compensation*,the Company accounts for the cash received in consideration for the earlyexercised options as a liability. As of March 31, 2009 and December 31,2008, there were approximately 1,000 and 7,000 shares of common stock,respectively, subject to repurchase, and a related liability of approximately$1,000 and $3,000, respectively.

 

**NOTE 6 -Stock Option Plans**

 

***Stock-based compensation and valuation assumptions***

 

The Company calculates thefair value of each option award on the date of grant using the Black-Scholesoption pricing model. The expected term of stock options represents theweighted-average period the stock options are expected to remain outstandingand is based on the option vesting term, contractual terms and industry peersas the Company does not have sufficient historical information to developreasonable expectations about future exercise patterns and post-vestingemployment termination behavior. Beginning in 2008, the expected term assumption was based on the Company’shistorical settlement experience. ESPP terms are for the purchase period thatbegan on November 15, 2007 and ended on May 15, 2008, and thepurchase period that began on May 15, 2008 and ended on November 17,2008.  The ESPP was suspended in January 2009,and all funds for the purchase period that began on November 17, 2008were refunded to employees.

 

The expected stock pricevolatility assumptions for the Company’s stock options and ESPP for the threemonths ended March 31, 2008 were determined by examining the historicalvolatilities for industry peers in combination with the historical volatilityof the Company since its Initial Public Offering on February 1, 2007.Volatility for three months ended March 31, 2009 was not assessed, asthere were no stock options granted or ESPP requiring measurement during theperiod.

 

The risk-free interest rateassumption at the date of grant is based on the interest rate on U.S Treasuryinstruments whose term is consistent with the expected term of the Company’sstock options and ESPP.

 

The expected dividendassumption is based on the Company’s history and expectation of dividendpayouts. In addition, forfeitures are estimated at the time of grant based onhistorical experience and revised, if necessary, in subsequent periods ifactual forfeitures differ from those estimates. Stock option activity for thethree months ended March 31, 2009 was as follows:

 
| ** **                               | ** ** | ** **                                                 | ** ** | **Options Outstanding** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------|------------|
| ** **                               | ** ** | ** **                                                 | ** ** | ** **              | ** ** | **Weighted** | ** ** |
| ** **                               | ** ** | **Shares**                                                 | ** ** | **Number**              | ** ** | **Average** | ** ** |
| ** **                               | ** ** | **Available**                                              | ** ** | **of**                  | ** ** | **Exercise** | ** ** |
| ** **                               | ** ** | **for Grant**                                              | ** ** | **Shares**              | ** ** | **Price** | ** ** |
| ** **                               | ** ** | **(in thousands, except weighted average exercise price)** | ** ** |
|                                     |       |                                                       |       |                    |       |   |   |
| **Balance as of December 31, 2008** |       | 1,364                                                      |       | 2,516                   |       | $ | 5.47 |   |
|                                     |       |                                                       |       |                    |       |   |   |
| Additional shares reserved               |       | 933                                                        |       | —                  |       | — |   |
| Options granted                          |       | —                                                     |       | —                  |       | — |   |
| Options exercised                        |       | —                                                     |       | (12                     | )          | 0.43 |   |
| Options forfeited/expired                |       | 444                                                        |       | (444                    | )          | 6.61 |   |
|                                     |       |                                                       |       |                    |       |   |   |
| **Balance as of March 31, 2009**    |       | 2,741                                                      |       | 2,060                   |       | $ | 5.25 |   |

 

***Non-Employee Stock-basedCompensation***

 

The Company accounts forequity instruments to or held by non-employees at their fair value on themeasurement date in accordance with EITF 96-18. Stock-based compensation expense related to stock options granted tonon-employees is recognized as the stock options are earned. The Companybelieves that the estimated fair value of the stock options is more readilymeasurable than the fair value of the services rendered.

 

Stock-based compensationexpense will fluctuate as the fair value of the common stock fluctuates. Inconnection with the grant of stock and stock options to non-employees, theCompany recorded stock-based compensation charges of approximately$0.8 million for the period from June 13, 2002 (inception) to March 31,2009. For the three months ended March 31, 2009 and 2008, the Companyrecorded stock-based compensation charges for non-employees of approximately$1,000 and $5,000, respectively.

 

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**NOTE 7 -Commitments and Contingencies**

 

***Operating Lease***

 

In May 2007, theCompany entered into an amendment to the lease agreement pursuant to which itleases its offices and manufacturing facilities. The lease amendment extendsthe term of the lease through May 31, 2012. In September 2008,a second amendment extended the lease termination option such that the Companymay terminate the lease for any reason on or after May 1, 2010, and thelandlord may terminate the lease on or after that date provided it has obtainedcertain redevelopment rights with respect to the leased premises.

 

As of March 31, 2009,future minimum lease payments under non-cancelable operating leases are asfollows:

 
| ** **                | ** **   | **Total**          | ** **   | **2009**     | ** **   | **2010**     | ** **   | **2011**     | ** **   | **2012**     | ** **   |
|---------------------------|--------------|--------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------|
| ** **                | ** **   | **(in thousands)** | ** **   |
| *** ***              | *** *** | *** ***       | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** |
| Minimum lease commitments | ** **   | **$**              | **1,576**    | ** **   | **$**        | **361**      | ** **   | **$**        | **493**      | ** **   | **$**        | **508** | ** ** | **$** | **214** | ** ** |
|                           |              |                    |              |              |              |              |              |              |              |              |              |  |  |  |  |  |

 

***License Agreements***

 

The Company has entered into licenseagreements with Biosensors and SurModics for proprietary materials that arecritical to the success of the Company’s products. The terms of the agreementscall for milestone payments prior to achieving sales, and quarterly royaltypayments based on the greater of specified minimums or a percentage of netsales. As of March 31, 2009 future minimum royalty payments to thesesuppliers are approximately $1.7 million. During the year ended December 31,2008 and the three months ended March 31, 2009, the Company made minimumroyalty payments of $80,000 and $20,000, respectively. Under the terms of thelicense agreement with SurModics, an additional $20,000 milestone payment ispayable to SurModics once the Company receives regulatory approval authorizingit to market its products, and this amount was accrued for the three monthsended March 31, 2009 based upon the Company’s receipt of CE Mark in March 2009.No milestone payments were made on this license agreement during the year endedDecember 31, 2008.  Minimum royaltypayments to Biosensors of $100,000 per year would begin upon achievement ofcertain milestones.

 

In July 2006,the Company entered into a license agreement with Millimed, Inc. forcertain intellectual property related to the Company’s business. Inconsideration for this license, the Company made an initial payment of $350,000in cash and issued 15,000 shares of common stock during the year ended December 31,2006. In addition, the license agreement provided for an additional payment of$200,000 upon achievement of certain milestones.  On July 24, 2008, the Company enteredinto an assignment agreement with Millimed, assigning to the Company the entireand exclusive right, title and interest in previously licensed intellectualproperty.  In consideration of thisassignment the Company issued 50,000 shares of unregistered common stock to athird party at $3.00 per share.  Pursuantto the terms of the assignment agreement, the third party paid $150,000directly to Millimed.  The $200,000milestone payment that was required under the original license agreement is nolonger required.

 

***Purchase Commitments***

 

In April 2007, theCompany entered into a supply agreement with Fortimedix B.V., under whichFortimedix B.V. agreed to manufacture and deliver stents for use in theCompany’s products. The terms of the agreement require minimum purchases overtwo years at contractual prices set in Euros. As of March 31, 2009, therewere no outstanding purchase order commitments for stents. Under the terms ofthe supply agreement, any further annual purchase commitments have been delayeduntil the Company receives approval from the FDA to begin clinical trials inthe United States.

 

In December 2007, theCompany entered into the Amended and Restated License Agreement with BiosensorsInternational Group, Ltd., under which the Company purchases the drug andpolymer components used on its stents. As of March 31, 2009, there were nooutstanding purchase commitments with Biosensors.  The Company will pay royalties to Biosensorsunder the license agreement when revenues are generated from product sales.

 

***Contingencies***

 

The Company is not currentlysubject to any material legal proceedings. The Company may from time to time,however, become a party to various legal proceedings arising in the ordinarycourse of business.

 

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***Indemnifications***

 

In the normal course ofbusiness, the Company enters into contracts and agreements that contain avariety of representations and warranties and provide for generalindemnifications. The Company’s exposure under these agreements is unknownbecause it involves claims that may be made against the Company in the future,but have not yet been made. To date, the Company has not paid any claims orbeen required to defend any action related to its indemnification obligations.However, the Company may record charges in the future as a result of theseindemnification obligations.

 

In accordance with theCompany’s amended and restated certificate of incorporation and bylaws, theCompany has indemnification obligations to its officers and directors forcertain events or occurrences, subject to certain limits, while they areserving at the Company’s request in such capacity. The Company also has enteredinto indemnification agreements with its directors and officers, pursuant towhich it has indemnification obligations to them. There have been no claims todate and the Company has a director and officer insurance policy that mayenable it to recover a portion of any amounts paid for future claims.

 

**NOTE 8****- IncomeTaxes**

 

Effective January 1,2007, the Company adopted the provisions of FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes: An Interpretationof FASB Statement No. 109* (“FIN No. 48”).  As of March 31,2009, the Company has no unrecognized tax benefit.

 

The Company’s practice is torecognize interest and/or penalties related to income tax matters in income taxexpense.  The Company had no accrual for interest or penalties at March 31,2009 or December 31, 2008.

 

The Company files U.S.Federal and California state tax returns. The Company is currently not subjectto income tax examinations and, in general, all tax years remain open due tonet operating losses.

 

**NOTE 9** -**Reduction in Force**

 

On July 10, 2008, the Company announced an initiative to reduceemployee headcount by eliminating 46 regular jobs and 26 temporarypositions.  This reduction representedapproximately 34% of the total workforce and was completed in July 2008.  The total cash payments and expenses incurredin connection with this reduction in workforce was approximately $210,000, ofwhich $170,000 was included in research and development and $40,000 wasincluded in general and administrative in the Statement of Operations.  The total expense included approximately$7,000 of non-cash expenses.  All amountswere paid during the quarter ended September 30, 2008.

 

OnJanuary 21, 2009 the Company announced an initiative to reduce employeeheadcount by 115 employees or 94% of the total workforce.  As of March 31, 2009, the reduction wassubstantially complete, and the related expense recognized for the three monthperiod ending on that date was approximately $1.0 million, of which $0.6million was included in research and development and $0.4 million was includedin general and administrative in the Statement of Operations.  A portion of these costs in the amount of$0.2 million was still payable at March 31, 2009.

 

As of March 31, 2009, the Company has six remaining employees, allof whom have retention agreements to secure their continued service through thecompletion of a strategic transaction, or in the absence thereof, to wind downand liquidate the Company.  The related expenseassociated with these agreements is being expensed over the related retentionperiods.  As of March 31, 2009, wehave recorded a liability of $0.5 million associated with these agreements. Theexpected termination dates for these employees range from April 30, 2009to July 31, 2009.

 

**NOTE 10** -**Subsequent Event**

 

On May 11, 2009, the board of directors adopted a Plan of CompleteLiquidation and Dissolution, or Plan of Dissolution, and recommended approvalof the Plan of Dissolution to the Company’s stockholders.  The Plan of Dissolution is subject toapproval by stockholders at a special meeting of stockholders which is expectedto be held in the second or third quarter of 2009. The Company expects to filea preliminary proxy statement with the United States Securities and Exchange Commissionon or about May 15, 2009 for the purpose of obtaining stockholder approvalof the Plan of Dissolution.

 

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**ITEM 2.   MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**INTRODUCTION**

 

The following discussionshould be read in conjunction with the financial statements and the relatednotes included in this Form 10-Q, in our Form 10-K for the year endedDecember 31, 2008 and in our other filings with the Securities andExchange Commission, or SEC. This Quarterly Report on Form 10-Q containsforward-looking statements within the meaning of the federal securities laws.These statements include, but are not limited to, those concerning thefollowing: future events, our future financial performance, business strategy,product introductions and plans and objectives of management for futureoperations, regulatory approvals and clinical timelines. Forward-lookingstatements are subject to risks and uncertainties that could cause actualresults and events to differ materially. For a detailed discussion of theserisks and uncertainties, see Part II, Item 1A “Risk Factors” below. Weundertake no obligation to update forward-looking statements to reflect eventsor circumstances occurring after the date of this Form 10-Q.

 

**BUSINESS OVERVIEW**

 

We are a development stagemedical device company that has focused on developing and commercializing ourproprietary Custom NX drug eluting stent, or DES, systems to treat coronaryartery disease, or CAD. Since inception we have devoted substantially all ofour resources to start-up activities, raising capital and performing researchand development, including product design, testing, manufacturing and clinicaltrials. We have focused our development efforts on creating our Custom NX DESSystems, which allow a physician to deploy single or multiple stents ofcustomizable length with a single device. We have not yet received anygovernment regulatory approvals necessary to commercialize any of our productsin the United States.

 

Over the past four years, wehave been conducting clinical trials to evaluate our Custom NX 36 and Custom NX60 stent and stent delivery systems. In October 2008, the one year datafrom our CUSTOM III clinical trial, the two year data from our CUSTOM IIclinical trial and the three year data from our CUSTOM I clinical trial werepresented at the 2008 Transcatheter Cardiovascular Therapeutics conference inWashington D.C. We believe the data from these clinical trials providespreliminary evidence of safety and efficacy and support further development ofour in-situ customization approach. In March 2009, we received CE Markapproval for our Custom NX DES Systems authorizing us to market our products inthe European Union and certain other countries that recognize CE Mark.  Even though we have received CE Mark, we do nothave adequate resources to commercialize our products in Europe.

 

We will needpremarket approval, or PMA, from the U.S. Food and Drug Administration, or FDA,before we can market our products in the United States, which we expect wouldrequire data from a large clinical trial of up to 2,100 patients. We expectedto obtain this data through our planned CUSTOM IV clinical trial, but toinitiate the CUSTOM IV trial, we would first need to obtain clearance ofan investigational device exemption, or IDE, from the FDA. We filed our IDEapplication in September 2007, and in October 2007, we receivedquestions back from the FDA. In February 2009, we resubmitted our IDEapplication, and received questions back from the FDA in April 2009. Evenif we receive IDE approval from the FDA, we do not have adequate resources toinitiate our IDE trial.

 

To date, we have notgenerated any revenue from our development activities and will not be able togenerate revenue unless we obtain additional financing to supportcommercialization of our products in the European Union. We have incurred netlosses in each year since our inception in June 2002. Through March 31,2009, we had an accumulated deficit of $143.8 million.

 

**RECENT DEVELOPMENTS**

 

In January 2009, we notified our employees that we were initiatinga headcount reduction that would impact 94% of our 122 employees.  The reduction was substantially completed in March 2009.In connection with the reduction in force and our plans to explore strategicalternatives, we entered into retention and severance agreements with nine ofour employees, including our executive officers.  Pursuant to these agreements, we have agreedto make retention payments to each of these employees, provided theiremployment is not terminated for cause prior to the date upon which we completea strategic transaction, or the employee’s expected termination date, whicheveris earlier.  Three of these employeeswere terminated on March 31, 2009, one was terminated on April 30,and the remaining five employees have expected termination dates that rangefrom June 30, 2009 to July 31, 2009.

 

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In January 2009, we engaged Piper Jaffray & Co. to helpus explore potential strategic alternatives, including, without limitation, amerger, a sale of substantially all our assets, a financing, or a sale of aportion of our assets, such as our peripheral stent technology, our drugeluting balloon technology or our bioabsorbable stent technology.  On May 11, 2009, our board of directorsconcluded that it appeared unlikely that a strategic transaction at a valuationmaterially in excess of the estimated liquidation value could be achieved inthe near term.  This conclusion was basedon the lack of success, despite concerted efforts through the fourth quarter of2008 and first quarter of 2009, to secure additional financing or identify astrategic transaction that would provide value to our stockholders or reducethe risks of our ongoing operations, including the risks associated withtechnology in a relatively early state of development, the time and cashrequirements associated with commercializing our Custom NX DES Systems, theneed for additional financing, and the highly uncertain and currentlyunfavorable financing and economic climate. Based on this and other factors,our board of directors concluded that a statutory dissolution and liquidationwas in the best interests of XTENT and its stockholders and therefore adopted aPlan of Complete Liquidation and Dissolution, or Plan of Dissolution, andrecommended approval of the Plan of Dissolution by our stockholders.

 

If our stockholders approve our Plan ofDissolution, we will file a Certificate of Dissolution with the DelawareSecretary of State.  Thereafter, we willnot engage in any business activities except for the purpose of preserving thevalue of our assets, prosecuting and defending lawsuits by or against us,winding up our business and affairs, selling and monetizing our non-cashassets, including our intellectual property, paying or otherwise settling ourliabilities, including contingent liabilities, terminating agreements andrelationships, and preparing to make distributions to our stockholders, inaccordance with the Plan of Dissolution.

 

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

We base the discussion andanalysis of our financial condition, results of operations and liquidity andcapital resources upon our unaudited condensed financial statements, which we preparein accordance with U.S. generally accepted accounting principles. In preparingthese financial statements, we must make estimates and judgments that affectthe reported amounts of assets, liabilities, and expenses. We evaluate ourestimates based on historical experience and various other assumptions webelieve are reasonable under the circumstances. Our actual results could differmaterially from these estimates under different assumptions or conditions.

 

**FINANCIAL OPERATIONS**

 

***Revenue***

 

To date, we have not generated any revenuefrom the sale of our stent systems. Revenue generation is subject to commerciallaunch of our product in Europe.  Eventhough we received CE Mark in March 2009, we do not have adequateresources to commercialize our product in the European Union.

 

***Research and Development***

 

Since inception, we have devoted asignificant amount of resources to develop our Custom NX DES Systems. From ourinception through March 31, 2009, we incurred $110.2 million inresearch and development expenses related to developing our products, includingthe clinical trials necessary to support regulatory approval.  We expect our research and developmentexpenses to decrease due to the reduction in force we substantially completedin March 2009.

 

***General and Administrative***

 

General and administrative expenses consistprimarily of compensation for executive, finance, marketing and administrativepersonnel including stock-based compensation. Other significant expensesinclude professional fees for accounting and legal services associated with ourefforts to obtain and maintain protection for intellectual property related toour Custom NX DES Systems. From our inception through March 31, 2009, weincurred $37.2 million in general and administrative expenses.  We expect our general and administrativeexpenses to decrease due to the reduction in force we substantially completedin March 2009.

 

***Loss on Impairment of Long-Lived Assets***

 

Duringthe quarter ended March 31, 2009, we terminated 94% of our workforce.  Weevaluate the recoverability of property and equipment in accordancewith FAS 144, “*Accounting for theimpairment, or disposal, of long-lived assets*” whenever events orchanges in circumstances indicate that the carrying value of a long-lived assetmay not be recoverable.

 

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We have recorded a non-cash charge of $2.5 millionrelating to the impairment of long-lived assets, which is included incontinuing operations for the quarter ended March 31, 2009.  Anestimate of fair value was based on a market approach obtained through anexternal assessment of long-lived asset values by considering the marketparticipant assumptions affecting the value to be realized through an auctionof property and equipment.  In accordance with SFAS 157-2, the $1.5million valuation of long-lived assets is assessed based on unobservableinputs, and grouped as level 3 within  the fair value hierarchy.

 

**RESULTS OF OPERATIONS**

 

**COMPARISON OF THREE MONTHS ENDED MARCH 31,2009 AND 2008**

 

***Revenue***

 

We did not generate anyrevenue during the three months ended March 31, 2009 or 2008.

 

***Research andDevelopment***

 
| ** **                        | ** ** | **Three Months Ended  March 31,** | ** ** | **Dollar** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                        | ** ** | **2009**                                         | ** ** | **2008**   | ** ** | **Change** | ** ** |
| ** **                        | ** ** | **(in thousands)**                          | ** ** | ** ** | ** ** |
|                              |       |                                             |       |       |       |   |   |
| Research and development expenses |       | $                                                | 4,654      |       | $          | 9,421 |   | $ | (4,767 | ) |
|                                   |            |                                                  |            |            |            |  |  |  |  |  |

 

The $4.8 million decrease in research and developmentexpenses for the three months ended March 31, 2009, compared to the threemonths ended March 31, 2008, was primarily attributable to:

 

·             A decrease of $3.1 million for prototypeparts, supplies, and outside services related to product development for ourCustom NX DES systems, based on the reduced operations activity related tothe reduction in force substantially completed during the three months ended March 31,2009;

 

·             A decrease of $1.5 million in personnelcosts offset by a $0.6 million increase in costs related to the reduction inforce completed in March 2009;

 

·             A decrease of $0.4 million in expensesrelated to the support of our clinical research studies in 2009 as compared tothe first quarter of 2008 due to activity in the first quarter of 2008 relatedto studies conducted to support our IDE application;

 

·             A decrease of $0.1 million in employeestock-based compensation; and

 

·             A decrease of $0.3 million in facilitiesand other miscellaneous expenses.

 

We expect our research and development expenses tocontinue to decrease as we wind up our operations in 2009.

 

***General andAdministrative***

 
| ** **                          | ** ** | **Three Months Ended  March 31,** | ** ** | **Dollar** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2009**                                         | ** ** | **2008**   | ** ** | **Change** | ** ** |
| ** **                          | ** ** | **(in thousands)**                          | ** ** | ** ** | ** ** |
|                                |       |                                             |       |       |       |   |   |
| General and administrative expenses |       | $                                                | 2,763      |       | $          | 3,442 |   | $ | (679 | ) |
|                                     |            |                                                  |            |            |            |  |  |  |  |  |

 

The $0.7 million decrease in general andadministrative expenses for the three months ended March 31, 2009,compared to the three months ended March 31, 2008, was primarilyattributable to:

 

·             A decrease of$0.6 million in personnel costs, facilities, insurance and other miscellaneousspending, offset by a$0.4 million increase in costs related to the reduction in force substantiallycompleted in March 2009;

 

·             A decrease of $0.2 million in legal andaccounting expenses;

 

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·             A decrease of $0.2 million due tospending for trade shows, travel and marketing materials; and

 

·             A decrease of $0.1 million in employeestock-based compensation expense.

 

We expect our general and administrative expenses tocontinue to decrease as we wind up our operations in 2009.

 

***Loss on Impairmentof Long-Lived Assets***

 
| ** **                              | ** ** | **Three Months Ended  March 31,** | ** ** | **Dollar** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                              | ** ** | **2009**                                         | ** ** | **2008**   | ** ** | **Change** | ** ** |
| ** **                              | ** ** | **(in thousands)**                          | ** ** | ** ** | ** ** |
|                                    |       |                                             |       |       |       |   |   |
| Loss on impairment of long-lived assets |       | $                                                | 2,494      |       | $          | — |   | $ | 2,494 |   |
|                                         |            |                                                  |            |            |            |  |  |  |  |  |

 

The $2.5 million increase in loss on impairment oflong-lived assets for the three months ended March 31, 2009, compared tothe three months ended March 31, 2008, was attributable to the non-cashcharge of $2.5 million relating to the impairment of long-lived assets whichhave been determined to be impaired. The fair value of long-lived assets wasbased on a market approach obtained through an external assessment oflong-lived assets values by considering the market participant assumptions affectingthe value to be realized through an auction of property and equipment.

 

***Interest and OtherIncome, Net***

 
| ** **                     | ** ** | **Three Months Ended  March 31,** | ** ** | **Dollar** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                     | ** ** | **2009**                                         | ** ** | **2008**   | ** ** | **Change** | ** ** |
| ** **                     | ** ** | **(in thousands)**                          | ** ** | ** ** | ** ** |
|                           |       |                                             |       |       |       |   |   |
| Interest and other income, net |       | $                                                | 55         |       | $          | 406 |   | $ | (351 | ) |
|                                |            |                                                  |            |            |            |  |  |  |  |  |

 

The $0.4 million decrease in interest and otherincome, net, for the three months ended March 31, 2009, compared to thethree months ended March 31, 2008, was primarily attributable to adecrease in the levels of cash, cash equivalents and short-term investments, aswell as lower average interest rates.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Our cash and cash equivalents, and short-terminvestments balances as of March 31, 2009 and December 31, 2008 aresummarized as follows:

 
| ** **                                                 | ** ** | **As of   March 31,  2009** | ** ** | **As of  December 31,  2008** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                 | ** ** | **(in thousands)**                    | ** ** |
| ** **                                                 | ** ** | ** **                                 | ** ** | ** **                              | ** ** |
| Cash and cash equivalents                                  |       | $                                          | 11,960     |                                    | $          | 13,373 |   |
| Short-term investments                                     |       | —                                     |       | 5,752                                   |       |
|                                                       |       |                                       |       |                                    |       |
| Total cash and cash equivalents and short-term investments |       | $                                          | 11,960     |                                    | $          | 19,125 |   |

 

***Sources of Liquidity***

 

We are in the development stage and have incurredlosses since our inception in June 2002. As of March 31, 2009, we hadan accumulated deficit of $143.8 million. Prior to our Initial Public Offeringin February 2007, we funded our operations from the private placements ofour convertible preferred stock resulting in aggregate net proceeds of $75.6million through December 31, 2006. Upon completion of the reduction inforce in April 2009, our cash requirements were greatly reduced. On May 11,2009, our board of directors concluded that a statutory dissolution andliquidation was the preferred strategy and therefore adopted a Plan of CompleteLiquidation and Dissolution, or Plan of Dissolution, and recommended approvalof the Plan of Dissolution by our stockholders. The Plan of Dissolution issubject to approval at a special meeting of our stockholders, which is expectedto be held during the second quarter of 2009.

 

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As of March 31, 2009, we did not have anyoutstanding or available debt financing arrangements, we had working capital of$10.9 million, and our primary source of liquidity was $12.0 million in cashand cash equivalents.

 

***Cash Flows***

 

Our operating, investing and financing activities forthe three months ended March 31, 2009 and March 31, 2008 aresummarized as follows:

 
| ** **                                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                           | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| ** **                                           | ** ** | **(in thousands)**                          | ** ** |
|                                                 |       |                                             |       |   |   |
| Net cash used in operating activities                |       | $                                                | (6,957     | ) | $ | (11,309 | ) |
| Net cash provided by investing activities            |       | 5,539                                            |       | 14,127 |   |
| Net cash provided by financing activities            |       | 5                                                |       | 32 |   |
|                                                 |       |                                             |       |   |   |
| Net (decrease) increase in cash and cash equivalents |       | $                                                | (1,413     | ) | $ | 2,850 |   |

 

***OperatingActivities***

 

Net cash used in operating activities was$7.0 million for the three months ended March 31, 2009, compared to$11.3 million for the three months ended March 31, 2008. The net cash usedin operating activities for the three months ended March 31, 2009 and 2008primarily reflects expenses related to product development and clinicaltrials.  These expenses were partially offset by depreciation andamortization, amortization of securities discounts, gain on sale ofinvestments, non-cash stock-based compensation and non-cash charges inoperating assets and liabilities, including an asset impairment charge of $2.5million, based on the estimated liquidation value of long-lived assets.

 

***InvestingActivities***

 

Net cash provided by investing activities was$5.5 million for the three months ended March 31, 2009, compared to$14.1 million for the three months ended March 31, 2008. Net cash providedby investing activities for the three months ended March 31, 2009 wasattributable to the proceeds from the maturities of investments of $5.7million, which were partially offset by the purchase of property and equipmentof $0.2 million. Net cash provided by investing activities for the three monthsended March 31, 2008 was primarily attributable to the sale of investmentsof $10.0 million and the proceeds from maturities of investments of $9.9million, which were partially offset by the purchase of short-term investmentsof $5.5 million and the purchase of property and equipment of $0.3 million.

 

***FinancingActivities***

 

Net cash provided by financing activities for thethree months ended March 31, 2009 was $5,000, compared to $32,000 for thethree months ended March 31, 2008. Net cash provided by financingactivities for each of the three months ended March 31, 2009 and 2008 wasattributable to the proceeds from the exercise of stock options.

 

***Operating Capitaland Capital Expenditure Requirements***

 

To date, we have not commercialized any products. Wedo not anticipate generating any revenue unless and until we secure additionalfunding to commercialize our products in the European Union and obtain FDAmarketing approval for, and begin selling, our Custom NX DES Systems. If wewere to continue our operations, we anticipate that we would continue to incursubstantial net losses for the next several years as we develop our products,conduct and complete clinical trials, pursue additional applications for ourtechnology platform, expand our clinical development team and corporateinfrastructure, and prepare for the potential commercial launch of ourproducts. Our current cash and cash equivalents are not sufficient to meet thecash requirements of these activities.

 

In January 2009, we notified our employees that we were initiatinga headcount reduction that would impact 94% of our employees.  We substantially completed this reduction on March 31,2009 and expect to fully complete it by April 30, 2009.  With this reduction, we believe that our cashand cash equivalents and short-term investments will be sufficient to meet ouranticipated cash requirements through at least December 31, 2009.  Our board of directors approved the Plan ofDissolution on May 11, 2009 and on May 15, 2009 we filed apreliminary proxy with the SEC for the purpose of obtaining stockholder 

 

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approvalof the Plan of Dissolution.  If, on theother hand, we identify and complete a strategic transaction, substantialchanges may be made to our current operations or they may be completelydiscontinued.  For example, if we areacquired by a third party, that third party may choose to not pursue some orany of our current product development initiatives, such as our Custom NX drugeluting stent systems, our Custom NX peripheral stent technology, ourcustomizable drug eluting balloon technology or our bioabsorbable stenttechnology.

 

Our forecasts for the period of time through which our financialresources will be adequate to support our operations are forward-lookingstatements and involve risks and uncertainties, and actual results could varymaterially and negatively as a result of a number of factors, including thefactors discussed in the “Risk Factors” contained in Item 1A of Part Iof this report. We have based these estimates on assumptions that may prove tobe wrong, and we could utilize our available capital resources sooner than wecurrently expect.

 

Because of the numerous risks and uncertaintiesassociated with the development of medical devices, such as our Custom NX DESSystems, we are unable to estimate the exact amounts of capital outlays andoperating expenditures necessary to complete ongoing clinical trials andsuccessfully deliver a commercial product to market. If we do not dissolve andliquidate our assets, uur future funding requirements will depend on many factors,including but not limited to:

 

·                  the scope, rate of progress and cost ofour clinical trials and other research and development activities;

 

·                  the cost of filing and prosecuting patentapplications and defending and enforcing our patent and otherintellectual property rights;

 

·                  the cost of defending, in litigation orotherwise, any claims that we infringe third-party patent or otherintellectual property rights;

 

·                  the terms and timing of any collaborative,licensing and other arrangements that we may establish;

 

·                  the cost and timing of regulatory approvals;

 

·                  the cost and timing of establishing sales,marketing and distribution capabilities;

 

·                  the cost of establishing clinical and commercialsupplies of our products and any products that we may develop;

 

·                  the effect of competing technological and marketdevelopments; and

 

·                  licensing technologies for future development.

 

Future capital requirements will also depend on theextent to which we acquire or invest in businesses, products and technologies,although we currently have no commitments or agreements relating to any ofthese types of transactions.

 

***Contractual Obligations***

 

Our principal commitments as of March 31, 2009consist of obligations under operating leases and purchase obligations that weenter into through the normal course of business. See Note 7 of our Notes toCondensed Financial Statements for more detailed information.

 

***Off-Balance SheetArrangements***

 

Since inception, we havenot engaged in any off-balance sheet activities as defined inRegulation S-K Item 303(a)(4).

 

***Recent and AdoptedAccounting Pronouncements***

 

In February 2007,the FASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities—Including anamendment of FASB Statement No. 115* (“SFAS No. 159”). SFASNo. 159 expands the use of fair value accounting but does not affectexisting standards which require assets or liabilities to be carried at fairvalue. The objective of SFAS No. 159 is to improve financial reporting byproviding companies with the opportunity to mitigate volatility in reportedearnings caused by measuring related assets and liabilities differently withouthaving to apply complex 

 

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hedge accountingprovisions. Under SFAS No. 159, a company may elect to use fair value tomeasure eligible items at specified election dates and report unrealized gainsand losses on items for which the fair value option has been elected in earningsat each subsequent reporting date. Eligible items include, but are not limitedto, accounts and loans receivable, available-for-sale and held-to-maturitysecurities, equity method investments, accounts payable, guarantees, issueddebt and firm commitments. If elected, SFAS No. 159 is effective forfiscal years beginning after November 15, 2007. The adoption of SFAS 159has not impacted our results of operations and financial condition as we havenot elected the fair value option for any of our eligible items.

 

In April 2009, the FASB issued FSP SFAS 107-1 andAPB 28-1, *Interim Disclosures about FairValue of Financial Instruments.*  This FSP amends SFAS No. 107,*Disclosures about Fair Value of FinancialInstruments*, to require publicly-traded companies, as defined in APBOpinion No. 28, *Interim FinancialReporting*, to provide disclosures on the fair value of financialinstruments in interim financial statements.  Prior to the issuanceof FSP FAS No. 107-1 and APB Opinion No. 28-1, the fair values of thoseassets and liabilities were disclosed only once each year. With the issuance ofFSP FAS No. 107-1 and APB Opinion No. 28-1, we will now be requiredto disclose this information on a quarterly basis, providing quantitative andqualitative information about fair value estimates for all financialinstruments not measured in the Condensed Consolidated Balance Sheets at fairvalue. FSP SFAS 107-1 and APB 28-1 are effective for interim periods endingafter June 15, 2009.  We will adopt the new disclosure requirementsin the second quarter of fiscal 2009.  We do not expect the adoption tohave a material impact on our condensed financial condition, results ofoperations, or cash flows.

 

On January 1, 2009, the we adopted SFAS No. 157-2,*Effective Date of FASB Statement No. 157*,(“FSP SFAS 157-2”), which delays the effective date of SFAS No. 157 forall nonfinancial assets and nonfinancial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis to fiscal years beginning November 15, 2008.  The adoption of FSP SFAS No. 157-2 didnot have a material impact on our financial position, operating results or cashflows.

 

On January 1, 2009,we adopted SFAS No. 157-3, *Determining the Fair Valueof a Financial Asset When the Market for That Asset Is Not Active,* (“FSPSFAS 157-3”), which clarifies theapplication of Statement 157 in a market that is not active and provides anexample to illustrate key considerations in determining the fair value of afinancial asset when the market for that financial asset is not active.  The adoption of FSP SFAS No. 157-3did not have a material impact on our financial position, operating results orcash flows.

 

In April 2009, the FASB issued FSP SFAS 157-4, *Determining Fair Value When the Volume and Level ofActivity for the Asset or Liability Have Significantly Decreased andIdentifying Transactions That Are Not Orderly,* or FSP SFAS 157-4,which provides additional guidance for estimating fair value in accordance withSFAS 157 when the volume and level of activity for the asset or liability havesignificantly decreased.  This FSP re-emphasizes that regardless ofmarket conditions the fair value measurement is an exit price concept asdefined in SFAS 157.  This FSP clarifies and includes additionalfactors to consider in determining whether there has been a significantdecrease in market activity for an asset or liability and provides additionalclarification on estimating fair value when the market activity for an asset orliability has declined significantly.  The scope of this FSP does notinclude assets and liabilities measured under level 1 inputs.  FSPSFAS 157-4 is applied prospectively to all fair value measurements whereappropriate and will be effective for interim and annual periods ending after June 15,2009.  We will adopt the provisions of FSP SFAS 157-4 effective thesecond quarter of fiscal 2009, which we do not expect to have a material impacton our condensed financial condition, results of operations, or cash flows.

 

**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

**Interest rate risk**

 

The primary objective of our investment activities isto preserve our capital for the purpose of funding operations while at the sametime maximizing the income we receive from our investments withoutsignificantly increasing risk. To achieve these objectives, our investmentpolicy allows us to maintain a portfolio of cash equivalents and investments ina variety of marketable securities, including commercial paper, money marketfunds and U.S. government and agency securities. Our cash and cash equivalentsas of March 31, 2009 consist of liquid money market funds, U.S. governmentsecurities and commercial paper. We did not have short-term investments as of March 31,2009. Due to the short-term nature of our investments, we believe that there isno material exposure to interest rate risk.

 

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**Exchange rate risk**

 

Under our Supply Agreement with Fortimedix B.V., wehave market risk exposure to adverse changes in foreign exchange rates. Thecost of the stents we purchase from Fortimedix requires payment in euros.Fluctuations in the euro to U.S. dollar exchange rate therefore impacts thecost of our product. To date, we have not experienced any significant negativeforeign exchange transaction losses. We expect higher product costs if there isa decline in the exchange rate between the U.S. dollar and the euro. Based uponthe supply agreement, any further annual purchase commitments have been delayeduntil we receive approval from the FDA to begin clinical trials in the UnitedStates. As a policy, we do not engage in speculative or leveraged transactions,nor do we hold financial instruments for trading purposes.

 

If we expand our overseas operations, our operatingresults may become subject to more significant fluctuations based on changes inexchange rates of foreign currencies in relation to the U.S. dollar. We willperiodically analyze our exposure to currency fluctuations and may adjust ourpolicies to address any future potential exchange rate risk.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed in the reportsthat we file or submit under the Exchange Act is recorded, processed,summarized, and reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure.

 

We carried out an evaluation, under the supervisionand with the participation of our management, including our Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act). Based upon this evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of March 31, 2009.

 

**Changes in Internal Control OverFinancial Reporting**

 

No change in our internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the three months ended March 31, 2009 thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

**PART II:OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

None.

 

**ITEM 1A. RISK FACTORS**

 

On May 11, 2009 ourboard of directors approved the Plan of Dissolution and we plan to file apreliminary proxy with the SEC on or about May 15, 2009 for the purpose ofobtaining stockholder approval of the Plan of Dissolution. If our stockholders approve the Plan ofDissolution, we will pursue a revenue clearance certificate from theDepartment of Finance of the State of Delaware and, once received, file a Certificate of Dissolutionwith the State of Delaware Secretary of State. The risks described below underthe caption “Risks Related to the Plan of Dissolution” address risks we and ourstockholders face if the Plan of Dissolution is approved.

 

**RisksRelated to Our Plan of Dissolution**

 

***The amount we distribute to ourstockholders pursuant to the Plan of Dissolution may be substantially less thanthe amount we currently estimate if the amounts of our liabilities, otherobligations and expenses and claims against us are higher than we currentlyanticipate.***

*** ***

The amount of cashultimately distributed to stockholders pursuant to the Plan of Dissolutiondepends on the amount of our liabilities, obligations and expenses and claimsagainst us, and contingency reserves that we establish, during the liquidationprocess, and the amount we generate from the sale of our remaining non-cashassets and intellectual property.  Wehave attempted to estimate reasonable reserves for such 

 

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liabilities, obligations,expenses and claims against us.  However,those estimates may be inaccurate. Factors that could impact our estimates include the following:

 

·                  If any of the estimates regarding thePlan of Dissolution, including the net proceeds from the sale of our tooling and manufacturingand test equipment, furniture and supplies, and the expense of satisfyingoutstanding obligations, liabilities and claims during the liquidation processare inaccurate, the amount we distribute to our stockholders may besubstantially less than the amount we currently estimate.  Given the current macroeconomic conditions,for purposes of our estimates we have assigned no value to our drug elutingstent systems and related intellectual property.  If claims are asserted against us, includingany claims related to payments to suppliers or other vendors or claims frompatients in our clinical trials, we will have to defend or resolve such claimsbefore making distributions to our stockholders, which will reduce amountsotherwise available for distribution to our stockholders;

 

·                  We have made estimates regarding theexpense of personnel required and other operating expenses (including legal,accounting and other professional fees) necessary for us to dissolve andliquidate.  Our actual expenses couldvary significantly and depend on the timing and manner of the sale of ournon-cash assets.  If the timing differsfrom our plans, we may incur additional expenses above our current estimates,which could substantially reduce funds available for distribution to ourstockholders; and

 

·                  We have assumed that all materialcontract rights can be effectively transferred to third parties.  If we are unable to obtain any requiredconsents with the counterparties to those contracts, our ability to transfersuch rights may be impaired.

 

***We may continue to incur theexpenses of complying with public company reporting requirements, which may beeconomically burdensome.***

*** ***

Whether or not the Planof Dissolution is approved, we have an obligation to continue to comply withthe applicable reporting requirements of the Exchange Act, even thoughcompliance with such reporting requirements may be economically burdensome andof minimal value to our stockholders.  Ifthe Plan of Dissolution is approved by our stockholders, in order to curtailexpenses, we intend, on or about the Effective Date, to seek relief from theSEC to suspend our reporting obligations under the Exchange Act, and ultimatelyto terminate the registration of our common stock.  We anticipate that, if granted such relief,we would continue to file current reports on Form 8-K to disclose materialevents relating to our dissolution and liquidation along with any other reportsthat the SEC might require.  To theextent that we are unable to suspend our obligation to file periodic reportswith the SEC, we will be obligated to continue complying with the applicablereporting requirements of the Exchange Act and, as a result, will be requiredto continue to incur the expenses associated with these reporting requirements,which will reduce the cash available for distribution to our stockholders.  These expenses include, among others, thosecosts relating to:

 

·                  the preparation, review, filing anddissemination of SEC filings;

 

·                  maintenance of effective internalcontrols over financial reporting; and

 

·                  audits and reviews conducted by ourindependent registered public accountants.

 

***If the amount of our contingencyreserve is insufficient to satisfy the aggregate amount of our liabilities andother obligations, each stockholder may be liable to our creditors for theamount of liquidating distributions received by such stockholder under the Planof Dissolution, which could also have adverse tax consequences.***

*** ***

After the Effective Date,our corporate existence will continue, but we will not be able to carry on anybusiness except for the purpose of winding up our business and affairs.  Following the Effective Date, we will pay ormake reasonable provision to pay all claims and obligations, including allcontingent, conditional or unmatured contractual or statutory claims, known tous.  We also may obtain and maintaininsurance coverage or establish and set aside a reasonable amount of cash orother assets as a contingency reserve to satisfy claims against us or otherobligations.  In the event that theamount of the contingency reserve, insurance and other measures calculated toprovide for the satisfaction of liabilities and claims are insufficient tosatisfy the aggregate amount ultimately found payable in respect of ourliabilities and claims against us, each stockholder could be held liable foramounts due to creditors up to the amounts distributed to such 

 

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stockholder under thePlan of Dissolution.  In such event, astockholder could be required to return all amounts received as distributionspursuant to the Plan of Dissolution and ultimately could receive nothing underthe Plan of Dissolution.  Moreover, forU.S. federal income tax purposes, payments made by a stockholder in satisfactionof our liabilities not covered by the cash or other assets in our contingencyreserve or otherwise satisfied through insurance or other reasonable meansgenerally would produce a capital loss for such stockholder in the year theliabilities are paid.  The deductibilityof any such capital loss generally would be subject to limitations under theInternal Revenue Code of 1986, as amended, or the Code.

 

***Liquidating distributions to ourstockholders could be delayed or diminished.***

*** ***

All or a portion of anydistributions to our stockholders could be delayed, depending on many factors,including, without limitation:

 

·                  if a creditor or other third party seeksan injunction against the making of distributions to our stockholders on theground that the amounts to be distributed are needed to provide for thesatisfaction of our liabilities or other obligations;

 

·                  if we become a party to lawsuits or otherclaims asserted by or against us, including any claims or litigation arising inconnection with our decision to liquidate and dissolve, payments to suppliersor other vendors or claims from patients in our clinical trials;

 

·                  if we are unable to sell our remainingnon-cash assets or if such sales take longer than expected;

 

·                  if we are unable to resolve claims withcreditors or other third parties, or if such resolutions take longer thanexpected; or

 

·                  if the issuance of the revenue clearancecertificate required to file our certificate of dissolution with the Secretaryof State is delayed.

 

Any of the foregoingcould delay or substantially diminish the amount available for distribution toour stockholders.  In addition, under theDelaware General Corporation Law, or DGCL, claims and demands may be assertedagainst us at any time during the three years following the EffectiveDate.  Accordingly, our board ofdirectors may obtain and maintain insurance coverage or establish and set asidea reasonable amount of cash or other assets as a contingency reserve to satisfyclaims against us or other obligations that may arise during the three-yearperiod following the Effective Date.  Asa result of these factors, we may retain for distribution at a later date, someor all of the estimated amounts that we expect to distribute to stockholders.

 

***Stockholders will lose theopportunity to capitalize on potential growth opportunities from thecontinuation of our business.***

*** ***

Although our board ofdirectors believes that the Plan of Dissolution is more likely to result ingreater returns to stockholders than if we continued as a stand-alone entity orpursued other alternatives, if the Plan of Dissolution is approved,stockholders will lose the opportunity to capitalize on our business andpossible future growth opportunities that may have arisen if we had continuedour drug eluting stent business or pursued other alternatives.  It is possible that these opportunities couldprove to be more valuable than the liquidating distributions our stockholderswould receive pursuant to the Plan of Dissolution.

 

***Stockholders may not be able torecognize a loss for U.S. federal income tax purposes until they receive afinal distribution from us.***

*** ***

As a result of ourdissolution and liquidation, for U.S. federal income tax purposes, ourstockholders generally will recognize gain or loss equal to the differencebetween (i) the sum of the amount of cash and the fair market value (atthe time of distribution) of property, if any, distributed to them, and (ii) theirtax basis for their shares of our common stock. Liquidating distributions pursuant to the Plan of Dissolution may occurat various times and in more than one tax year. Any loss generally will be recognized by a stockholder only when thestockholder receives our final liquidating distribution to stockholders, andthen only if the aggregate value of all liquidating distributions with respectto a share is less than the stockholder’s tax basis for that share.  Stockholders are urged to consult their owntax advisors as to the specific tax consequences to them of our dissolution andliquidation pursuant to the Plan of Dissolution.

 

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***Recordation of transfers of ourcommon stock on our stock transfer books will be restricted as of a future datethat our board of directors will determine, and thereafter it generally will notbe possible for stockholders to change record ownership of our stock.***

*** ***

Our board of directorsmay direct that our stock transfer books be closed and recording of transfersof common stock discontinued as of the earliest of (x) the close ofbusiness on the record date fixed by our board of directors for the first orany subsequent installment of any liquidating distribution, (y) the closeof business on the date on which our remaining assets are transferred to aliquidating trust, or (z) the date on or as reasonably practicable afterthe date on which we file our certificate of dissolution under the DGCL.  We expect that our board of directors willclose our stock transfer books on or around the Effective Date.  The Effective Date will be determined followingthe receipt of a revenue clearance certificate from the Department of Financeand will be announced as soon as reasonably practicable after that time.  Thereafter, certificates representing sharesof our common stock will not be assignable or transferable on our books exceptby will, intestate succession or operation of law, and we will not issue anynew stock certificates, other than replacement certificates.  In addition, we anticipate that we willrequest that our common stock be delisted from the NASDAQ Global Market andthat trading will be suspended on the Effective Date or as soon thereafter asis practicable.

 

***Further stockholder approval may notbe required in connection with the implementation of the Plan of Dissolution,including for the sale of all or substantially all of our non-cash assets ascontemplated in the Plan of Dissolution.***

*** ***

The approval of the Planof Dissolution by our stockholders also will authorize, without furtherstockholder action, our board of directors to do and perform, or to cause ourofficers to do and perform, any and all acts and to make, execute, deliver oradopt any and all agreements, resolutions, conveyances, certificates and otherdocuments of every kind that our board of directors deems necessary,appropriate or desirable, in the absolute discretion of the board of directors,to implement the Plan of Dissolution and the transactions contemplated thereby,including, without limitation, all filings or acts required by any state orfederal law or regulation to wind up its affairs.  Accordingly, depending on the timing of astockholder vote on the Plan of Dissolution, we may dispose of our drug elutingstent systems and related intellectual property and any and all of our other remainingnon-cash assets without further stockholder approval.  As a result, our board of directors mayauthorize actions in implementing the Plan of Dissolution, including the termsand prices for the sale of our drug eluting stent systems and related intellectualproperty and our other remaining non-cash assets, with which our stockholdersmay not agree.

 

***Our board of directors may revokeimplementation of the Plan of Dissolution even if it is approved by ourstockholders.***

*** ***

Even if our stockholdersapprove the Plan of Dissolution at the special meeting of our stockholders, iffor any reason our board of directors determines that such action would be inour best interests and the best interests of our stockholders, our board ofdirectors may, in its sole discretion and without requiring further stockholderapproval, revoke the Plan of Dissolution and all action contemplatedthereunder, to the extent permitted by the DGCL.  A revocation of the Plan of Dissolution wouldresult in our stockholders not receiving any liquidating distributions pursuantto the Plan of Dissolution.

 

**RisksRelated to Our Continuing Business Operations if the Plan of Dissolution is NotApproved by Our Stockholders**

 

If our stockholders donot approve the Plan of Dissolution, our board of directors will explore what,if any, alternatives are available for our future, particularly in light of thefact that we have terminated substantially all of our employees, would needsignificant additional capital to support our U.S. pivotal clinical trial andefforts to commercialize our products in Europe, commenced the process ofwinding up our business and will continue to incur net losses for theforeseeable future. There iscurrently no active business left to operate and rehiring employees may not bepossible, or would take several months at a cost we are unable to estimate.

 

Possiblealternatives include selling all of our stock or assets, changing our businessfocus, conducting an issuer tender offer, continuing our efforts to identify amerger partner or a reverse merger partner, or seeking voluntary dissolution ata later time and with diminished assets. At this time, our board of directors has considered all of these optionsand has determined that it is in the best interests of our stockholders for us todissolve and return the cash to stockholders. The board of directors, however, retains the right to consider otheralternatives should a more attractive offer arise before or after the filing ofour Certificate of Dissolution, if the Plan of Dissolution is approved by ourstockholders.  If our stockholders do notapprove the Plan of Dissolution, we expect that our cash resources willcontinue to diminish and we would face risks related to continuing ourhistorical business described below. These risks could materially and adversely affect our business,financial condition or operating results and the value of our common stock, andyou may lose all or part of your investment. Moreover, any alternative we select may have unanticipated negativeconsequences.

 

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**Therisks below describe the risks related to our business if the Plan ofDissolution is not approved and we continue to pursue a strategy of using ourcash on hand, any cash generated from financing activities, and any cash thatmay be generated by our drug eluting stent business to support our continuedoperations while we continue to explore whether there may be opportunities torealize potential value from our remaining business assets.**

 

The risks anduncertainties described below are not the only ones facing us, and our risksand uncertainties may change if the Plan of Dissolution is not approved and wealter our business strategy. Additional considerations not presently known tous or that we currently believe are immaterial may also impair our businessoperations. If any of the following risks actually occurs, our business,financial condition or operating results could be materially and adverselyaffected, the value of our common stock could decline and our stockholders maylose all or part of their investment.

 

**Risks Related to Our Business**

 

**We areexploring strategic alternatives such as a potential merger or a sale of someor all of our assets, and have reduced our headcount significantly.  If we are not successful in completing astrategic transaction or securing adequate funding, we may have to wind up andliquidate our business.**

 

We engaged Piper Jaffray &Co. to help us explore potential strategic alternatives such as a sale of someor all of our assets or a merger transaction. There can be no assurance that we will be able to complete such atransaction on terms acceptable to us, or at all.  We do not have sufficient cash to commercializeour product in Europe or, even if we are successful in obtaining aninvestigational device exemption, or IDE, to initiate our U.S. pivotal clinicaltrial.  If we are unsuccessful inidentifying and completing a strategic transaction or securing adequatefunding, we may not be able to continue our operations and may need to wind upour business and liquidate our assets.

 

In January 2009, wenotified our employees that we would reduce our headcount by eliminating 115 of122 positions, effective March 23, 2009. The significant reduction inheadcount may make it less likely that we will be able to complete a strategictransaction.  Certain third parties whomight otherwise consider a strategic transaction may be unwilling to do so ifthey are not able to retain certain of our employees.  Likewise, certain third parties who mightotherwise consider a strategic transaction may be unwilling to do so in lightof the fact that we have announced the approval of the Plan of Dissolution byour board of directors.

 

**Even if we are successful incompleting a strategic transaction, the nature of such a transaction mayrequire us to significantly alter or cease our current operations**.

 

Among other strategicalternatives, we are considering the sale of individual assets, such as ourCustom NXP peripheral stent technology, our bioabsorbable stent technology, ourcustomizable drug eluting balloon technology and our principal product, theCustom NX coronary stent system.  To date,our activities have primarily focused on the development of the Custom NXsystems.  If we sell our Custom NXproduct, we will need to refocus our efforts and dedicate significant resourcesto the development of one or more of our non-core products.  There can be no assurance that we will be ableto successfully develop, market and commercialize any or all of suchproducts.  If, pursuant to a strategictransaction, we sell one of our non-core products, we may not receivesufficient consideration to fund the European commercialization of our CustomNX system or the initiation of our IDE trial.

 

**Even ifwe****obtainadditional funding or complete a strategic transaction that provides adequateresources, it may be a year or more before we are able to commercialize ourproduct in Europe.**

 

We have significantlyreduced our headcount and limited our business activities.  Before we could resume the operationsrequired in order to commercialize our product, we would need to rehire asignificant number of employees or hire and train new employees that can performtheir jobs according to our specifications. There can be no assurance that we will be able to rehire our formeremployees or hire and train qualified new employees in a timely manner, or atall.  In addition, before we cancommercialize our product in Europe, we need to increase our manufacturingcapacity and validate our manufacturing process to demonstrate compliance withapplicable quality standards.  Thisvalidation would likely take six to nine months to complete.  Further, under the terms of the agreements wehave with several of our suppliers, we are required to provide regularforecasts of the components we plan to purchase from them during a particularperiod.  These suppliers are obligated tosupply us only with the number of components that we previouslyforecasted.  Therefore, oncemanufacturing operations commence, it may take several months before we haveadequate supplies of critical components required to make our products.

 

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**We needsubstantial additional funding and may be unable to raise capital in adequateamounts, or at all, which would force us to delay, reduce or eliminate our productdevelopment programs or commercialization efforts.**

 

Due to the ongoing credit crisis and generaldeterioration of the capital markets we have been unable to date to secureadditional financing.  We have engagedPiper Jaffray & Co. to help us explore strategic alternatives,including raising additional capital, however we can provide no assurance thatany strategic alternative will result in adequate, or any, capital being madeavailable to us. We need to raise substantial additional capital to:

 

· fund our operations and clinical trials;

 

· continue our research and development;

 

· scale-up our manufacturing operations;

 

· defend, in litigation or otherwise, anyclaims that we infringe third-party patent or other intellectual propertyrights;

 

· commercialize our products, if any suchproducts receive regulatory approval for commercial sale; and

 

· acquire or in-license companies,products or intellectual property.

 

After our reduction inheadcount, we believe our existing cash and cash equivalent balances andinterest we earn on these balances will be sufficient to meet our cashrequirements for the next 12 months, although our business activities will belimited until such time as further financing is obtained, if at all. Our futurefunding requirements will depend on many factors, including:

 

· the nature and timing of any strategictransaction we may complete, if any;

 

· the scope, rate of progress and cost ofour clinical trials and other research and development activities;

 

· the cost of filing and prosecutingpatent applications and defending and enforcing our patent and otherintellectual property rights;

 

· the cost of defending, in litigation orotherwise, any claims that we infringe third-party patent or other intellectualproperty rights;

 

· the terms and timing of anycollaborative, licensing and other arrangements that we may establish;

 

· the cost and timing of regulatoryapprovals;

 

· the cost and timing of establishingsales, marketing and distribution capabilities;

 

· the cost of establishing clinical andcommercial supplies of our products and any products that we may develop;

 

· the effect of competing technologicaland market developments;

 

· licensing technologies for futuredevelopment; and

 

· the extent to which we acquire or investin businesses, products and technologies, although we currently have nocommitments or agreements relating to any of these types of transactions.

 

If we raise additionalfunds by issuing equity securities, our stockholders may experiencedilution.  Debt financing, if available,may involve restrictive covenants.  Anydebt financing or additional equity that we raise may contain terms that arenot favorable to us or our stockholders, or may not be available at all.  To raise capital, we may decide to sellunregistered stock at a discount to market with or without the issuance ofwarrants. The sale of securities at a discount or the issuance of warrants mayresult in additional dilution to our existing stockholders. In connection withthis type of financing, we would likely be obligated to register such sharesfor resale at a later date. If we raise additional funds through collaborationand licensing arrangements with third parties, it may be necessary torelinquish some rights to our technologies or our products, or grant licenseson terms that are not favorable to us. If we are unable to raise adequatefunds, we may have to liquidate some or all of our assets or delay, reduce thescope of or eliminate some or all of our development programs.

 

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We require additionalcapital beyond our current cash balance. For example, we will need to raiseadditional funds in order to commercialize our products. Any such requiredadditional capital may not be available on reasonable terms, if at all. Weestimate that it would cost approximately $45.0 million to complete ourCUSTOM IV and V clinical trials. In addition, we would need to spend additionalfunds for regulatory approvals and for activities to commercialize our CustomNX DES Systems, if approved. The development of any new applications of ourcustom length stent technology and new products will also require theexpenditure of significant financial resources and take several years tocomplete.

 

If adequate funds are notavailable, we may have to delay development or commercialization of ourproducts or license to third parties the rights to commercialize products ortechnologies that we would otherwise seek to commercialize. We also may have toreduce marketing, customer support or other resources devoted to our products.Any of these factors could harm our financial condition.

 

**We are adevelopment stage company with a history of losses, and we expect to incur netlosses for the foreseeable future.**

 

We have incurred netlosses since our inception in June 2002. For the years ended December 31,2008, 2007, and 2006, we had net losses of $41.1 million,$38.8 million and $25.0 million, respectively. As of March 31,2009, we had an accumulated deficit of $143.8 million. To date, we havefinanced our operations primarily through private placements of our equitysecurities and our Initial Public Offering, completed on February 1, 2007,and have devoted substantially all of our resources to research and developmentand clinical studies related to our Custom NX DES Systems, which consist of theCustom NX 36 and the Custom NX 60.  Sincewe have only recently received CE Mark and we do not have approval from theFood and Drug Administration, or FDA, or any other regulatory authority for ourproducts, we are only authorized to market our current products in the EuropeanUnion and certain other countries that recognize CE Mark, and we have notgenerated any revenues since our inception. If we continue as an operatingbusiness, we expect our research and development expenses to increasesignificantly in connection with our clinical trials and other productdevelopment activities. If we obtain additional funding or complete a strategictransaction that provides adequate resources, we expect to incur significantsales and marketing expenses and manufacturing expenses as we commercialize ourproducts. As a result, we expect to continue to incur significant andincreasing operating losses for the foreseeable future. These losses willcontinue to have an adverse effect on our stockholders’ equity.

 

**We arewholly dependent on a third party for the development of the drug coatingplaced on our drug eluting stents and any delay or failure by such third partyto successfully develop the drug coating or to submit acceptable Drug MasterFiles, or MAFs, to regulatory authorities could delay commercialization of ourCustom NX DES Systems in the United States.**

 

In May 2004, weentered into a license agreement with Biosensors. In December 2007, weentered into an amended and restated license agreement with Biosensors whichsuperseded the prior agreement. Pursuant to the agreement, we obtainednon-exclusive rights to use Biosensors’ drug coating on our stent platform. Thedrug coating consists of Biolimus A9 ®,an anti-inflammatory drug that is a derivative of rapamycin, and PolyLacticAcid, or PLA, a biodegradable polymer used to release the drug over time. In January 2008,Biosensors announced that it had received CE Mark approval for its BioMatrixdrug eluting stent which uses the Biolimus A9 and PLA drug coating. The drugcoating has not been approved for any use in the United States or anyjurisdiction other than the European Union. In March 2009, we received CEMark approval for our Custom NX DES Systems authorizing us to market our CustomNX DES Systems in the European Union and certain other countries that recognizeCE Mark.

 

In order to obtain IDEapproval from the FDA allowing us to initiate our CUSTOM IV clinical trial inthe United States and in order to obtain the premarket approval, or PMA,allowing us to commercialize our Custom NX DES Systems in the United States, weneed Biosensors to submit acceptable MAFs related to our drug coating to the FDAon our behalf.  We believe theMAF which Biosensors has submitted to the FDA for purposes of our IDEapplication is sufficient to support an IDE approval, but we expect the FDA toconduct additional assessments of the MAF as part of our PMA review, and theymay have additional questions at that time.  Any delaysBiosensors experiences or problems it has in responding to questions the FDAmay have concerning the MAF may substantially delay the commercial launch ofour product in the United States.

 

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**Wecurrently do not have, and may never have, any products available for sale andour efforts to obtain product approvals and commercialize our products may notsucceed or may result in delays for many reasons.**

 

We are a developmentstage medical device company with a limited history of operations and wecurrently do not have any products available for sale or other sources ofrevenue. Our ability to generate revenue depends entirely upon the successfulclinical development, regulatory approval and commercialization of our CustomNX DES Systems. Our products under development and any other products that wedevelop will require extensive additional clinical testing, regulatory approvaland significant marketing efforts before they can be sold and generate anyrevenue. Our efforts to commercialize our products may not succeed for a numberof reasons including:

 

· our products may not demonstrate safetyand efficacy in our clinical trials;

 

· we are wholly dependent on the effortsundertaken by the supplier of the drug coating for our products, and may besignificantly impacted by any regulatory delays or barriers that our suppliermay encounter in submitting an adequate or acceptable MAF for the drug coatingto the regulatory authorities on our behalf;

 

· we may not be able to obtain regulatoryapprovals for our products, or the approved indications for our products may benarrower than we seek;

 

· we may experience delays in ourdevelopment program, including initiation and completion of our clinicaltrials;

 

· any products that are approved may notbe accepted in the marketplace by physicians and patients;

 

· physicians may not receive adequatecoverage and reimbursement for procedures using our products;

 

· any rapid technological change may makeour technology and products obsolete;

 

· we may not be able to manufacture ourCustom NX DES Systems in commercial quantities or at an acceptable cost;

 

· we may not have adequate financial orother resources to complete the development and commercialization of our CustomNX DES Systems; and

 

· we may be sued for infringement ofintellectual property rights and could be enjoined from manufacturing orselling our products.

 

We cannot market ourproducts in the United States until we receive PMA. If we are not successful inthe initiation and completion of clinical trials for the development, approvaland commercialization of our Custom NX DES Systems for the treatment ofcoronary artery disease, or CAD, we may never generate any revenue and may beforced to cease operations.

 

**We havenot received, and may never receive, FDA or other regulatory approvals tomarket our Custom NX DES Systems.**

 

Our Custom NX DES Systemsare combination products, incorporating both a drug element and a medicaldevice, and the combination device will be regulated as a Class IIImedical device in the United States. Information regarding the drug coating forour stents will be reviewed by the FDA’s Center for Drug Evaluation andResearch, or CDER, based on the MAF submitted by Biosensors on our behalf, andthe device will be reviewed by the FDA’s Center for Devices and RadiologicalHealth, or CDRH, with the overall product subject to approval by CDRH as amedical device. We believe that no separate approval for the drug independentof the device is required.

 

We do not currently havethe necessary regulatory approvals to market our Custom NX DES Systems or anyother products in the United States or in any foreign markets, other than theEuropean Union and certain other countries that recognize CE Mark. If we obtainthe necessary regulatory approvals and provided we obtain additional funding orcomplete a strategic transaction that provides adequate resources, we planinitially to launch our products in the European Union and later in the UnitedStates.

 

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The regulatory approvalprocess in the United States for our products involves, among other things,successfully receiving authorization from the FDA to conduct clinical trialsunder an IDE, completing pre-clinical and clinical trials, and applying for andobtaining PMA from the FDA. The PMA process requires us to demonstrate thesafety and efficacy of our products to the FDA’s satisfaction. This process isexpensive and uncertain and requires detailed and comprehensive scientific andhuman clinical data. While the FDA review process generally takes one to threeyears after filing the PMA application, our PMA application review could takemuch longer and may never result in the FDA granting PMA. The FDA could delay,limit or deny approval of our PMA application for many reasons, including:

 

· our stent systems may not be safe oreffective or may not otherwise meet the FDA’s requirements;

 

· the data from our pre-clinical studiesand clinical trials may be insufficient to support approval;

 

· the manufacturing process or facilitieswe or our suppliers use may not meet stringent regulatory requirements;

 

· the information provided by the supplierof the drug coating in the MAF it submits to the FDA on our behalf may beinadequate; and

 

· changes in FDA approval policies oradoption of new regulations may require us to provide additional data.

 

We will also have toobtain similar, and in some cases more stringent, foreign regulatory approvalin order to commercialize our products outside of the United States. Even ifapproved, our Custom NX DES Systems may not be approved for the indicationsthat are necessary or desirable for successful commercialization. We may notobtain the necessary regulatory approvals to market our products in the****United States or in foreign markets other than the EuropeanUnion and certain other countries that recognize CE Mark. Any delay in, orfailure to receive or maintain approval for our products could prevent us fromgenerating revenue or achieving profitability.

 

**Preliminarythird-party data has raised concerns that drug eluting stents may cause anincrease in late-stent thrombosis. In response to these concerns, regulatoryauthorities in the United States and Europe have issued statements anddeveloped enhanced guidelines for the approval of drug eluting stents.  As a result of these enhanced guidelines wemay experience further delays in obtaining regulatory clearances for ourproducts and, even if approved, the preliminary third-party data concerning late-stentthrombosis may significantly impair market acceptance of our products.**

 

On September 14,2006, the FDA issued a *Statement on CoronaryDrug-Eluting Stents*, which discusses clinical data presented at the March 2006American College of Cardiology Scientific Sessions in Atlanta, Georgia and atthe September 2006 European Society of Cardiology AnnualMeeting/World Congress of Cardiology Meeting in Barcelona, Spain. This datasuggested a small but significant increase in the rate of death and myocardial infarction,or heart attack, potentially due to late-stent thrombosis, in patients treatedwith drug eluting stents at 18 months to three years after stentimplantation. The FDA stated that, while these studies have raised importantquestions regarding the safety and efficacy of drug eluting stents, it is notpossible to fully characterize the mechanisms, risks and incidence rates oflate-stent thrombosis following implantation of drug eluting stents based oncurrently available data. The FDA has not issued any new position to dateregarding the safety of drug eluting stents. Although more recent studies havesuggested that the safety of drug eluting stents is comparable to that of baremetal stents, the FDA and the European regulatory agencies have issued newguidelines for the approval of drug eluting stents which require additionalclinical data and may prolong the process for obtaining regulatory approval.

 

In March 2007, theEuropean Medicines Agency proposed new guidelines for the approval of drugeluting stents. These new guidelines, which are more rigorous than the previousstandards, were finalized in May 2008 and became effective in December 2008.

 

In March 2008, theFDA published draft guidance regarding non-clinical and clinical studies fordrug eluting stents.  The draft guidance includes recommendationsregarding the following areas:

 

· Engineering testing,

 

· Biocompatibility testing,

 

· Animal studies,

 

· Chemistry and manufacturing controls,

 

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· Clinical pharmacology and drug release,

 

· Drug pharmacology, toxicology and safetydata,

 

· Clinical studies, and

 

· Post approval studies.

 

In April 2008, theFDA also conducted a public workshop on the draft guidance documents andprovided clarification on the above matters. Although the draft guidelines arecurrently considered non-binding recommendations, they have been published forpublic comment and it is expected that the FDA will conduct any applicationreview for new drug eluting stent catheter systems following the generalprinciples highlighted in the guidance.

 

Complying with the newand more rigorous standards in the United States and Europe may require us toobtain additional data or conduct further studies.  This may delay regulatory approval of ourproducts.  In addition, if in the future,new studies raise questions concerning the safety of drug eluting stents, theDES market in general may shrink and market acceptance of our products may besignificantly impaired.

 

**IfBiosensors fails to supply us with sufficient quantities of our drug coating,development and commercialization of our Custom NX DES Systems may be preventedor delayed as a result.**

 

We obtain our entiresupply of the drug coating, PLA and BA9 for our stents from Biosensors and weare unaware of any alternative source for this drug coating. Under the amendedand restated license agreement which we entered into with Biosensors in December 2007,we have the right to purchase the components of the drug coating, which are thedrug and the PLA, from Biosensors in order to perform the coating formulationourselves. We have completed the work necessary to perform the formulationourselves, but we will continue to purchase the formulated drug coating fromBiosensors until we obtain certain regulatory approvals necessary in order toperform our own formulation for commercial use outside the United States. We donot have the right to use alternate suppliers for this drug coating that weobtain from Biosensors, or the components of the drug coating which we plan topurchase from them in the future. In addition, there is no other source for thedrug coating or components and we are contractually restricted from obtainingBiolimus A9 from any other source and we have not in-licensed an alternativedrug for use in the event we are unable to obtain a sufficient supply ofBiolimus A9. Currently, Biosensors relies on a sole-source, Nippon Kayaku, athird-party Japanese pharmaceutical company, to manufacture and supply themwith Biolimus A9, which Biosensors mixes with the PLA. We have norelationship with, control over, or contact with this pharmaceutical companyand cannot contract directly with it to obtain Biolimus A9 if we areunable to obtain Biolimus A9 from Biosensors. In addition, the pharmaceuticalcompany is subject to significant legal and regulatory requirements with regardto the production of Biolimus A9, including onerous current GoodManufacturing Practices regulations, or GMP, which are strictly enforced by theFDA, and the Ministry of Health, Labor, and Welfare in Japan and any failure onthe part of the pharmaceutical company to comply with these requirements mayinterrupt Biosensors’ supply of Biolimus A9 and ultimately, our supply of thedrug coating. Biosensors has also entered into, and may continue to enter into,agreements to supply the drug coating to other licensees. Our clinical trialsand the development and commercialization of our Custom NX DES Systems could beprevented or delayed if:

 

· the supplier of our drug coating isunable or refuses to meet our demand;

 

· our license agreement with Biosensorsterminates for any reason, including insolvency; or

 

· the supplier of our drug coating doesnot meet regulatory quality requirements and other specifications, certain regulatoryapprovals need to be obtained.

 

To date, our drug coatingrequirements have been limited to small quantities that we need to conduct ourdevelopment and pre-clinical and clinical trials. If we obtain market approvalfor our products, and we are able to launch our product commercially, we wouldrequire substantially larger quantities of the drug coating or the componentsof the drug coating. Biosensors may not provide us with sufficient quantitiesof the drug coating or components and such supply may not meet our qualityrequirements or other specifications. For example, we have, in the past,experienced interruptions in the supply of adequate quantities of acceptabledrug coating.  In the event we do not receive adequate supplies ofacceptable drug coating or components, we will likely be unable to locate analternative supplier, or any alternative drug, in a timely manner or oncommercially reasonable terms, if at all. Any additional new source forBiolimus A9, the PLA or the drug coating will require the consent of Biosensorsand prior FDA approval, which will require significant time and effort toobtain and there 

 

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can be no assurance thatwe will obtain such regulatory approval. The inability to obtain sufficientquantities of the drug coating or components, or any delay in obtaining suchsupply could delay our clinical trials or affect the commercialization of ourCustom NX DES Systems, which could have a significant adverse affect on ourfuture operations.

 

**We relyon third parties to test the drug coating for our stents, and these thirdparties may use test methods that others may claim as their own. If we mustobtain a license to use these methods or develop new testing methods, we mayexperience delays in our ability to initiate clinical trials or to obtainregulatory approvals for our products as a result.**

 

Certain tests related tothe drug coating on our stents must be performed before the stents can be usedin clinical trials or approved for commercial sale. We have agreed withBiosensors that we will be responsible for performing some of these tests. Wehave not developed the technology or methods to perform all this testingin-house, and plan to rely on third parties to conduct some of the testing. Wehave identified certain third parties who we believe have the capability toconduct this testing using methods that do not violate the proprietary rightsof others. We can provide no assurance, however, that these testing methodswill not violate such rights. If others assert rights to these testing methods,we may need to obtain a license giving us the right to use the testing methodsor identify or develop other methods for performing the required testing. Wecannot assure you that a license will be available to us or that it will beavailable on terms that are agreeable to us. If we are unable to obtain alicense, we cannot assure you that we will be able to identify or developalternate testing methods that meet our needs without delaying our regulatorysubmissions or approvals. This may result in a delay in the release of, or aninability to release, our stents for use in U.S. clinical trials or commercialproducts and our ability to generate revenue would be adversely affected as aresult.

 

**We donot have long-term data regarding the safety and efficacy of our Custom NX DESSystems. Any long-term data that is generated may not be consistent with our limitedshort-term data, which could affect the regulatory approval of our products orthe rate at which our products are adopted.**

 

An important factor inour clinical trials, upon which the safety and efficacy of our Custom NX DESSystems may be measured, is the rate of restenosis, or the renarrowing of thetreated artery over time, and the rate of reintervention, or retreatmentfollowing the procedures using the Custom NX DES Systems. We believe thatphysicians and regulators will compare the rates of long-term restenosis andreintervention for our Custom NX DES Systems against other drug eluting or baremetal stent procedures and other alternative procedures.

 

If, in our large-scalecomparative pivotal clinical trial, we fail to demonstrate restenosis andreintervention rates, as well as other clinical trial end-points andperformance, comparable to other drug eluting and bare metal stents that havebeen approved by the FDA, our ability to successfully market our Custom NX DESSystems may be significantly limited. If the long-term rates of restenosis andreintervention do not meet regulators’ or physicians’ expectations, our CustomNX DES Systems may not receive regulatory approval or, if approved, may notbecome widely adopted and physicians may recommend that patients receivealternative drug eluting stents, such as the Cypher ® stent, the Taxus ® Express2TM stent, the Taxus Liberte stent, theEndeavor ® stent, the XienceTM V stent and the PromusTM stent, the sixdrug eluting stents currently marketed in the United States. Another importantfactor upon which the safety and efficacy of our Custom NX DES Systems will bemeasured is the incidence of late-stent thrombosis following procedures usingour drug eluting stents. Some clinical data suggests a small but significantincrease in the rate of death and heart attack associated with drug elutingstents when compared to bare metal stents, possibly due to late-stentthrombosis. The FDA convened a public meeting of its Circulatory System DevicesAdvisory Panel on December 7 and 8, 2006 with the intention of obtainingadditional information on the risks, timing and incidence rates of late-stentthrombosis. In March 2008, the FDA published draft guidance regardingnon-clinical and clinical studies for drug eluting stents See “Preliminarythird-party data has raised concerns that drug eluting stents may cause anincrease in late-stent thrombosis.” We cannot assure you that our long-termdata, once obtained, will be different than that suggested in the recentstudies regarding late-stent thrombosis.

 

Additionally, otherefficacy factors may influence a physician’s decision over what stents todeploy. Our Custom NX DES Systems’ stent segments may separate excessively atthe time of deployment in the artery or over time. Any such separation may leadto restenosis occurring between the segments or other adverse events. If theresults obtained from our clinical trials indicate that our products are not assafe or effective as other treatment options or as current short-term datawould suggest, our products may not be approved, adoption of our products maysuffer and our business would be harmed.

 

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**If ourpre-clinical studies or clinical trials do not meet safety or efficacyendpoints, or if we experience significant delays in completing these studiesor trials, our ability to commercialize our Custom NX DES Systems or otherproducts and our financial position will be impaired.**

 

Before marketing andselling our Custom NX DES Systems or any other products, we must successfullycomplete pre-clinical studies and clinical trials that demonstrate that ourproducts are safe and effective. We currently have a very limited amount ofclinical data regarding the safety and efficacy of our Custom NX DES Systems,and no published data beyond three years. The results from our limitedshort-term clinical experience for our Custom NX DES Systems do not necessarilypredict long-term clinical benefit and may not be replicated in subsequentclinical trials. Furthermore, all of our existing data has been produced instudies that involve relatively small patient groups, and the data may not bereproduced in wider patient populations. We need to conduct additionallarge-scale clinical trials to determine whether our products are safe andeffective and to support our applications for regulatory approval in the UnitedStates. We expect that one or more of these additional clinical studies will bea comparative study comparing the safety and efficacy of our stents to theXience V stent, the Promus stent, the Cypher stent, the Taxus Express2 stent,the Taxus Liberte stent or the Endeavor ® stent, the six drug eluting stents marketed inthe United States, or to other stents that may become approved for marketing inthe United States, and that these studies will involve large patientpopulations of approximately 2,100 patients implanted with our device.

 

The commencement orcompletion of any of our clinical trials may be delayed or halted for numerousreasons, including, but not limited to, the following:

 

· insufficient personnel and financialresources to conduct and fund our clinical trials;

 

· in connection with our PMA application,Biosensors fails to respond in a timely manner, if at all, to questions thatthe FDA may have concerning a MAF Biosensors submits to the FDA on our behalf;

 

· the FDA or other regulatory authoritiesdo not approve our clinical trial protocols or our clinical trials, or suspendor place a clinical trial on hold;

 

· patients do not enroll in clinicaltrials at the rate we expect;

 

· third-party clinical investigators donot conduct follow-up visits with patients or patients drop out of the clinicaltrial at rates we do not expect;

 

· patients experience adverse events,which may or may not be related to our products;

 

· patients die during a clinical trial fora variety of reasons, including the advanced stage of their disease and medicalproblems, which may or may not be related to our products;

 

· third-party clinical investigators donot perform our clinical trials on our anticipated schedule or consistent withthe clinical trial protocol, good clinical practices or other regulatoryrequirements, or other third-party organizations do not perform data collectionand analysis in a timely or accurate manner;

 

· regulatory inspections of our clinicaltrials or manufacturing facilities, which may, among other things, require usto undertake corrective action or suspend or terminate our clinical trials ifinvestigators find us or our suppliers not in compliance with regulatoryrequirements;

 

· changes in governmental regulations oradministrative actions;

 

· the interim results of our clinicaltrials are inconclusive or negative; or

 

· our clinical trial designs, althoughapproved, are inadequate to demonstrate safety and/or efficacy.

 

Before we can commenceour planned pivotal clinical trial in the United States for our Custom NX DESSystems, we must receive the FDA’s approval of our IDE application. We filed ourIDE application in September 2007, and in October 2007, we receivedquestions back from the FDA. In February 2009, we resubmitted our IDEapplication, and in April 2009, we received additional comments from theFDA. Even if wereceive IDE approval from the FDA, we will not be able to initiate our IDEtrial unless we obtain additional funding or complete a strategic transactionthat provides adequate resources.  Wecannot guarantee that such a financing or strategic transaction will beavailable on terms agreeable to us, or at all.

 

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Product development,including pre-clinical studies and clinical testing, is a long, expensive anduncertain process and is subject to delays. It may take us several years tocomplete our testing, if we complete it at all, and a clinical trial may failat any stage. Furthermore, data obtained from any clinical trial may beinadequate to support a PMA application or any foreign regulatory applications.Additionally, pre-clinical and clinical data can also be interpreted indifferent ways, which could delay, limit or prevent regulatory approval for ourproducts.

 

**Clinicaltrials necessary to support a PMA application will be expensive and willrequire the enrollment of large numbers of patients, and suitable patients maybe difficult to identify and recruit.**

 

Clinical trials necessary to support a PMA applicationfor our Custom NX DES Systems will be expensive and will require the enrollmentof large numbers of patients, and suitable patients may be difficult toidentify and recruit. The clinical trials supporting the PMA applications forthe Cypher stent, the Taxus Express2 stent and the Endeavor stent, which areapproved by the FDA and currently marketed, involved patient populations ofapproximately 1,000, 1,300 and 1,100 respectively. We expect that we will needto provide the FDA with data on approximately 2,100 patients implanted with ourdevice, with 12-month follow-up to support our PMA application. The FDA mayrequire us to submit data on a greater number of patients or a longer follow-upperiod. For example, at an FDA workshop held in April 2008, the FDArecommended 18 month follow-up on at least 50% of patients. Patient enrollmentin clinical trials and completion of patient follow-up depend on many factors,including the size of the patient population, the nature of the trial protocol,the proximity of patients to clinical sites and the eligibility criteria forthe clinical trial and patient compliance. For example, patients may bediscouraged from enrolling in our clinical trials if the trial protocolrequires them to undergo extensive post-treatment procedures or follow-up toassess the safety and efficacy of our products, or they may be persuaded toparticipate in contemporaneous clinical trials of competitive products. Inaddition, patients participating in our clinical trials may die beforecompletion of the trial or suffer adverse medical events unrelated to ourproducts. Delays in patient enrollment or failure of patients to continue toparticipate in a clinical trial may cause an increase in costs and delays orresult in the failure of the clinical trial.

 

**Physiciansmay not widely adopt our Custom NX DES Systems unless they determine, based onexperience, long-term clinical data and published peer reviewed journalarticles, that the use of our Custom NX DES System provides a safe andeffective alternative to other existing treatments for coronary artery disease,and meets other physician expectations.**

 

Physicians tend to beslow to change their medical treatment practices because of perceived liabilityrisks arising from the use of new products and the uncertainty of third-partycoverages and reimbursement. We believe that physicians will not widely adoptour Custom NX DES Systems unless they determine, based on experience, long-termclinical data and published peer reviewed journal articles, that the use of ourCustom NX DES Systems provides a safe and effective alternative to otherexisting treatments for coronary artery disease, including coronary arterybypass grafting, or CABG, balloon angioplasty, bare metal stents and other drugeluting stents, such as Johnson & Johnson’s Cypher stent and BostonScientific’s Taxus Express2 stent. In particular, the use of bare metal stentshas reportedly increased, and the use of drug eluting stents has reportedlydecreased, at certain hospitals in the United States and elsewhere as a resultof recent clinical data indicating a higher incidence rate of late stentthrombosis. We cannot predict the effect that this or other data questioningthe safety of drug eluting stents will have on the drug eluting stent market.

 

We cannot provide anyassurance that the data collected from our current and planned clinical trialswill be sufficient to demonstrate that our Custom NX DES Systems are anattractive alternative to other drug eluting stent procedures. If we fail todemonstrate safety and efficacy that is at least comparable to other drugeluting or bare metal stents that have received regulatory approval and thatare available on the market, our ability to successfully market our Custom NXDES Systems will be significantly limited. Even if the data collected fromclinical studies or clinical experience indicate positive results, eachphysician’s actual experience with our Custom NX DES Systems will vary.Clinical trials conducted with our Custom NX DES Systems have involvedprocedures performed by physicians who are technically proficient and arehigh-volume users of drug eluting stents. Consequently, both short- andlong-term results reported in these clinical trials may be significantly morefavorable than typical results of practicing physicians, which could negativelyimpact rates of adoption of our products. In addition to safety and efficacy,we believe that product characteristics such as ease of use and consistency ofperformance are also important. If we are not able to meet physicianexpectations with respect to these characteristics, market acceptance andadoption of our products may be impacted. We also believe that publishedpeer-reviewed journal articles and recommendations and support by influentialphysicians regarding our Custom NX DES Systems will be important for marketacceptance and adoption, and we cannot assure you that we will receive theserecommendations and support, or that supportive articles will be published.

 

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**Problemswith the stent to be used in the control group during our U.S. pivotal clinicaltrial could adversely affect its outcome.**

 

We expect our pivotalclinical trial in the United States to compare the performance, including safetyand efficacy, of our products against that of a currently marketed drug elutingstent, or a drug eluting stent that becomes approved for marketing in the nearfuture. Our planned pivotal clinical trial could be significantly delayed orharmed if the stent we use for the control group experiences problems. We mayuse one of the six currently marketed drug eluting stents, the Xience V stent,the Promus stent, the Cypher stent, the Taxus Express2 stent, the Taxus Libertestent or the Endeavor stent, or a drug eluting stent that becomes approved formarketing in the near future, as the control stent in our planned pivotalclinical trial. In July 2004, Boston Scientific announced the recall ofapproximately 85,000 Taxus stent systems and approximately 11,000 Express2stent systems due to characteristics in the delivery catheters that had thepotential to impede balloon deflation during a balloon angioplasty procedure.In August 2004, Boston Scientific announced that it would recall anadditional 3,000 Taxus stents. If prior to or during the enrollment andtreatment period for our planned pivotal clinical trial, there is a recall ofthe control stent or the control stent is removed from the market, our trialwould likely be substantially delayed. The FDA could also require us toredesign the clinical trial based on an alternative control stent. Anysignificant delay or redesign could impair our ability to commercialize ourCustom NX DES Systems.

 

**Ourproducts are based on a new technology, and we have only limited experience inregulatory affairs, which may affect our ability or the time required to obtainnecessary regulatory approvals, if at all.**

 

Drug eluting stents wereintroduced in the United States in 2003. To date, the FDA has approved only theTaxus Express2, the Taxus Liberte, the Cypher, the Endeavor, the Xience V andthe Promus drug eluting stents for commercial sale. Because drug eluting stentsare relatively new and long-term success measures have not been completelyvalidated, regulatory agencies, including the FDA, may take significantly moretime in evaluating product approval applications for those types of products.Treatments may exhibit a favorable measure using one metric and anunfavorable measure using another metric. Any change in the accepted metricsmay result in reconfiguration of, and delays in, our clinical trials.Furthermore, the result of recent studies suggesting a correlation between drugeluting stents and incidents of late-stent thrombosis may further delay andcomplicate the regulatory pathway for our products. Additionally, we havelimited experience in filing and prosecuting the applications necessary to gainregulatory approvals, and we have limited personnel and resources to dedicateto the filing and prosecution of these applications. As a result, we mayexperience a long regulatory process in connection with obtaining regulatoryapprovals for our products.

 

**If thethird parties on which we rely to conduct our clinical trials and to assist uswith pre-clinical development do not perform as contractually required orexpected, we may not be able to obtain regulatory approval for or commercializeour products.**

 

We do not have theability to independently conduct clinical trials for our products, and we mustrely on third parties, such as contract research organizations, medicalinstitutions, clinical investigators and contract laboratories to conduct ourclinical trials. In addition, we rely on third parties to assist with thepre-clinical development of our products. If these third parties do notsuccessfully carry out their contractual duties or regulatory obligations ormeet expected deadlines, if these third parties need to be replaced, or if thequality or accuracy of the data they obtain is compromised due to the failureto adhere to our clinical protocols or regulatory requirements or for otherreasons, our pre-clinical development activities or clinical trials may beextended, delayed, suspended or terminated, and we may not be able to obtainregulatory approval for or successfully commercialize our products on a timelybasis, if at all. Furthermore, our third-party clinical trial investigators maybe delayed in conducting our clinical trials for reasons outside of theircontrol.

 

**Even ifour products are approved by regulatory authorities, if we or our suppliersfail to comply with ongoing regulatory requirements, or if we experienceunanticipated problems with our products, these products could be subject torestrictions or withdrawal from the market.**

 

Any product for which weobtain marketing approval, along with the manufacturing processes,post-approval clinical data and promotional activities for such product, willbe subject to continual review and periodic inspections by the FDA and otherregulatory bodies. In particular we and our suppliers are required to complywith the Quality System Regulation, or QSR, for the manufacture of our CustomNX DES Systems and GMP for the manufacture of our drug coating and otherregulations, which cover the methods and documentation of the design, testing,production, control, quality assurance, labeling, packaging, storage andshipping of any product for which we obtain marketing approval. The FDAenforces the GMP and QSR through unannounced inspections. We and ourthird-party manufacturers and suppliers have not yet been inspected by the FDAand will have to successfully complete such inspections before we receiveregulatory approvals for our products. Failure by us or one of our suppliers,including the supplier of our drug coating, to comply with statutes and 

 

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regulations administeredby the FDA and other regulatory bodies, or failure to take adequate response toany observations, could result in, among other things, any of the followingenforcement actions:

 

· warning letters or untitled letters;

 

· fines and civil penalties;

 

· unanticipated expenditures;

 

· delays in approving, or refusal toapprove, our products;

 

· withdrawal or suspension of approval bythe FDA or other regulatory bodies;

 

· product recall or seizure;

 

· orders for physician notification ordevice repair, replacement or refund;

 

· interruption of production;

 

· operating restrictions;

 

· injunctions; and

 

· criminal prosecution.

 

If any of these actionswere to occur it would harm our reputation and cause our product sales andprofitability to suffer. Furthermore, our key component suppliers may notcurrently be or may not continue to be in compliance with applicable regulatoryrequirements.

 

Even if regulatoryapproval of a product is granted, the approval may be subject to limitations onthe indicated uses for which the product may be marketed. If the FDA determinesthat our promotional materials, training or other activities constitutepromotion of an unapproved use, it could request that we cease or modify ourtraining or promotional materials or subject us to regulatory enforcementactions. It is also possible that other federal, state or foreign enforcementauthorities might take action if they consider our training or otherpromotional materials to constitute promotion of an unapproved use, which couldresult in significant fines or penalties under other statutory authorities,such as laws prohibiting false claims for reimbursement.

 

Moreover, anymodification to a device that has received FDA approval that couldsignificantly affect its safety or effectiveness, or that would constitute amajor change in its intended use, design or manufacture, requires a newapproval from the FDA. If the FDA disagrees with any determination by us thatnew approval is not required, we may be required to cease marketing or torecall the modified product until we obtain approval. In addition, we couldalso be subject to significant regulatory fines or penalties.

 

In addition, we may berequired to conduct costly post-market testing and surveillance to monitor thesafety or efficacy of our products, and we will be required to report adverseevents and malfunctions related to our products. Later discovery of previouslyunknown problems with our products, including unanticipated adverse events oradverse events of unanticipated severity or frequency, manufacturing problems,or failure to comply with regulatory requirements such as QSR or GMP, mayresult in restrictions on such products or manufacturing processes, withdrawalof the products from the market, voluntary or mandatory recalls, fines,suspension of regulatory approvals, product seizures, injunctions or theimposition of civil or criminal penalties. For example, Boston Scientific hasinitiated significant recalls of its stent products due to manufacturing andother quality issues associated with the products.

 

Further, healthcare lawsand regulations may change significantly in the future. Any new healthcare lawsor regulations may adversely affect our business. A review of our business bycourts or regulatory authorities may result in a determination that couldadversely affect our operations. Also, the healthcare regulatory environmentmay change in a way that restricts our operations.

 

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**Failureto obtain regulatory approval in foreign jurisdictions will prevent us frommarketing our products abroad.**

 

Subject to theavailability of sufficient resources, we intend to market our products ininternational markets. Although we have received CE Mark authorizing us tomarket our Custom NX DES Systems in the European Union and certain othercountries that recognize CE Mark, in order to market our products in many otherforeign jurisdictions, we must obtain separate regulatory approvals, and mayneed to conduct additional clinical trials. The approval procedure varies amongcountries and can involve additional testing, and the time required to obtainapproval may differ from that required to obtain FDA approval. The foreignregulatory approval process may include all of the risks associated withobtaining FDA approval in addition to other risks. We may not obtain foreignregulatory approvals on a timely basis, if at all. Approval by the FDA does notensure approval by regulatory authorities in other countries, and approval byone foreign regulatory authority does not ensure approval by regulatoryauthorities in other foreign countries or by the FDA. We may not be able tofile for regulatory approvals and may not receive necessary approvals tocommercialize our products in any markets other than the European Union.

 

**Risks Related to Our IntellectualProperty**

 

**Thirdparties hold a large number of patents related to stents and we do not haverights to many of these patents.**

 

Intellectual propertyrights, including in particular patent rights, play a critical role in themedical device industry, and therefore in our business. We face significantrisks relating to patents, both as to our own patent position as well as topatents held by third parties. If any third-party intellectual property claimagainst us is successful, we could be prevented from commercializing our CustomNX DES Systems or other products.

 

There are numerous U.S.and foreign issued patents and pending patent applications owned by thirdparties with patent claims in areas that are the focus of our productdevelopment efforts. We are aware of patents owned by third parties, to whichwe do not have licenses, that relate to, among other things:

 

· use of rapamycin or its analogs to treatrestenosis;

 

· stent structures and materials;

 

· catheters used to deliver stents; and

 

· stent manufacturing and coatingprocesses.

 

Cordis, a subsidiary ofJohnson & Johnson, is the owner of a number of patents and patentapplications directed to the use and delivery of rapamycin or its analogs mixedin a polymer coating on a drug eluting stent for the treatment of restenosis.These include, without limitation, the “Wright” family of patents and the “Falotico”family of patents.  Wyeth owns, and has licensed to Cordis, the “Morris”family of patents which are directed to the use of rapamycin for the treatmentof restenosis, including the delivery of rapamycin from a stent impregnatedwith the drug.

 

Boston Scientific holds rights to the “Grainger”family of patents directed to methods of inhibiting smooth muscle cellproliferation, or growth, using certain compounds and to the “Kunz” family ofpatents directed to methods for maintaining vessel luminal area with a stentthat includes a cytostatic, or cell division inhibiting, agent.

 

Various patents owned bythird parties are directed to stent structures and materials. These patentsinclude a group of “Lau” patents that were owned by Guidant Corporation, asubsidiary of Boston Scientific whose stent technology has been acquired byAbbott Vascular subject to certain rights retained by Boston Scientific, whichare directed to flexible stent structures. The “Boneau” family of patents,owned by Medtronic, are directed to stents comprising multiple closed-loopelements. The “Fariabi” family of patents, formerly owned by Guidant, aredirected to stents comprising cobalt- chromium alloys. The “Israel” and “Pinchasik”families of patents, owned by Medinol, are directed to stents with meanderingstrut patterns. A patent owned by Wall is directed to a radially collapsiblemesh sleeve.

 

Other third-party patentsare directed to stent delivery catheter technology. There are also a number ofpatents that were held by Guidant Corporation directed to rapid exchangecatheters for angioplasty and stent delivery. These include, withoutlimitation, the “Yock” and “Horzewski” families of patents, directed to rapidexchange angioplasty catheters, and the “Lau” family of patents directed to rapidexchange stent catheters. Boston Scientific owns other patents directed torapid exchange angioplasty catheters, including, the “Bonzel” family ofpatents. Medtronic owns certain patents directed to guidewire handlingtechnology in stent delivery catheters, including certain patents issued toCrittenden and Kramer. A patent issued to 

 

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Fischell is directed to asheathed stent delivery catheter. Guidant Corporation also held a patent issuedto Cox, directed to a stent delivery catheter having an adjustable-lengthballoon. Certain patents owned by Boston Scientific or its subsidiaries arealso directed to stent delivery catheters having adjustable-length balloons.Certain patents owned by third parties relate to methods for coating stents.For example, the “Hossainy” family of patents that were held by GuidantCorporation are directed to methods of coating stents with a primer layer and areservoir layer.

 

While one of the Yock patents directed torapid exchange angioplasty catheters was due to expire in October 2008,Abbott has filed an application for patent extension under theHatch-Waxman Act and was recently granted an interim extension of the patentterm for a period of one year by the US Patent and Trademark Office. BeforeOctober, 2009, the US Patent and Trademark Office will determine the totallength of the extension to which Abbott may be entitled under the Hatch-WaxmanAct. This could result in an extension of the term of this patent even beyond October 2009.

 

The patents describedabove could be found to cover our technology and may materially and adverselyaffect our business. In addition, these patents are given only as examples andthere may be other patents in addition to those described above that maymaterially and adversely affect our business. Moreover, because patentapplications can take many years to issue and remain confidential for the first18 months after filing, there may be currently pending applications, unknown tous, which may later result in issued patents that pose a material risk to us.

 

**Many ofour competitors are much larger than we are, with significant resources andincentives to initiate litigation against us.**

 

Based on the prolific litigation that has occurred inthe stent industry and the fact that we may pose a competitive threat to somelarge and well-capitalized companies that own or control patents relating tostents and their use, manufacture and delivery, we believe that it is possiblethat one or more third parties will assert a patent infringement claim againstthe manufacture, use or sale of our Custom NX DES Systems based on one or moreof these patents. It is also possible that a lawsuit asserting patentinfringement and related claims will be filed against us and it is possiblethat a lawsuit may have already been filed against us of which we are notaware. A number of these patents are owned by very large and well-capitalizedcompanies that are active participants in the stent market. As the number ofcompetitors in the drug eluting stent market grows, the possibility ofinadvertent patent infringement by us or a patent infringement claim against usincreases.

 

These companies havemaintained their position in the market by, among other things, establishingintellectual property rights relating to their products and enforcing theserights aggressively against their competitors and new entrants into the market.All of the major companies in the stent and related markets, including AbbottVascular (which acquired Guidant’s stent technology), Boston Scientific,Johnson & Johnson and Medtronic, have been repeatedly involved inpatent litigation relating to stents since at least 1997.  For example, inthe past year Boston Scientific, Medtronic, and Abbott Vascular have each beensued by Johnson & Johnson and/or Wyeth for infringement of the Morris,Wright, and/or Falotico patents. The stent and related markets have experienced rapidtechnological change and obsolescence in the past, and our competitors havestrong incentives to stop or delay the introduction of new products andtechnologies. We may pose a competitive threat to many of the companies in thestent and related markets. Accordingly, many of these companies will have astrong incentive to take steps, through patent litigation or otherwise, toprevent us from commercializing our products.

 

**Anylawsuit, whether initiated by us to enforce our intellectual property rights orby a third party against us alleging infringement, may cause us to expendsignificant financial and other resources, and may divert our attention fromour business.**

 

In any infringementlawsuit, a third party could seek to enjoin, or prevent, us fromcommercializing our Custom NX DES Systems or any future products, may seekdamages from us and any such lawsuit would likely be expensive for us to defendagainst. Our involvement in intellectual property litigation could result insignificant expense. Some of our competitors, such as Boston Scientific,Johnson & Johnson, Abbott Vascular and Medtronic, have considerableresources available to them and a strong economic incentive to undertakesubstantial efforts to stop or delay us from bringing our Custom NX DES Systemsto market and achieving market acceptance. We, on the other hand, are adevelopment stage company with comparatively few resources available to us toengage in costly and protracted litigation. A court may determine that patentsheld by third parties are valid and infringed by us and we may be required to:

 

· pay damages, including up to trebledamages and the other party’s attorneys’ fees, which may be substantial;

 

· cease the development, manufacture, useand sale of products that infringe the patent rights of others, including ourCustom NX DES Systems, through a court-imposed sanction called an injunction;

 

· expend significant resources to redesignour technology so that it does not infringe others’ patent rights, or todevelop or acquire non-infringing intellectual property, which may not bepossible;

 

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· discontinue manufacturing or other processesincorporating infringing technology; or

 

· obtain licenses to the infringedintellectual property, which may not be available to us on acceptable terms, orat all.

 

Any development oracquisition of non-infringing products or technology or licenses could requirethe expenditure of substantial time and other resources and could have amaterial adverse effect on our business and financial results. If we arerequired to, but cannot, obtain a license to valid patent rights held by athird party, we would likely be prevented from commercializing the relevantproduct. We believe that it is unlikely that we would be able to obtain alicense to any necessary patent rights controlled by companies against which wewould compete directly. If we need to redesign products to avoid third-partypatents, we may suffer significant regulatory delays associated with conductingadditional studies or submitting technical, manufacturing or other informationrelated to the redesigned product and, ultimately, in obtaining regulatoryapproval.

 

While our products are inclinical trials, and prior to commercialization, we believe our activities inthe United States related to the submission of data to the FDA could fallwithin the scope of the statutory infringement exemption that covers activitiesrelated to developing information for submission to the FDA. However, thisstatutory exemption would not cover our stent manufacturing or other activitiesin the United States that support overseas clinical trials or commercial sales ifthose activities are not also reasonably related to developing information forsubmission to the FDA. Currently available drug eluting stents are manufacturedoutside of the United States, which may insulate manufacturers from adverserulings on U.S. patent infringement claims. In an adverse ruling, a court mayorder an injunction requiring a company to stop its U.S. domestic manufacturingoperations. We currently do not have any plans to manufacture our stentsoutside of the United States and any finding of patent infringement against usin the United States could result in our being enjoined from manufacturing ourproducts in the United States and could affect our ability to sell our productsin the European Union. In any event, the fact that no third party has asserteda patent infringement claim against us to date should not be taken as anindication, or provide any level of comfort, that a patent infringement claimwill not be asserted against us prior to or upon commercialization.

 

In addition, some of ouragreements, including our agreement with Biosensors for the supply of the drugcoating and our agreement with SurModics for the supply of the lubriciouscoating on our catheter require us to indemnify the other party in certaincircumstances where our products have been found to infringe a patent or otherproprietary rights of others. An indemnification claim against us may requireus to pay substantial sums to our licensor or supplier, including its attorneys’fees.

 

**If weare unable to obtain and maintain intellectual property protection covering ourproducts, others may be able to make, use or sell our products, which wouldadversely affect our revenue.**

 

Our ability to protectour products from unauthorized or infringing use by third parties dependssubstantially on our ability to obtain and maintain valid and enforceablepatents. As of December 31, 2008 we had seven issued U.S. patents, one ofwhich is under exclusive license, covering certain aspects of the technologythat we intend to commercialize and a number of other issued patents andpending patent applications in the United States and abroad. Due to evolvinglegal standards relating to the patentability, validity and enforceability ofpatents covering medical devices and pharmaceutical inventions and the scope ofclaims made under these patents, our ability to obtain and enforce patents isuncertain and involves complex legal and factual questions. Accordingly, rightsunder any of our issued patents may not provide us with commercially meaningfulprotection for our products or afford us a commercial advantage against ourcompetitors or their competitive products or processes. In addition, patentsmay not issue from any pending or future patent applications owned by orlicensed to us, and moreover, patents that have issued to us or may issue inthe future may not be valid or enforceable. Further, even if valid andenforceable, our patents may not be sufficiently broad to prevent others frommarketing products like ours, despite our patent rights.

 

The validity of ourpatent claims depends, in part, on whether prior art references exist thatdescribe or render obvious our inventions as of the filing date of our patentapplications. We may not have identified all prior art, such as U.S. andforeign patents or published applications or published scientific literature,that could adversely affect the validity of our issued patents or thepatentability of our pending patent applications. For example, patentapplications in the United States are maintained in confidence for up to18 months after their filing. In some cases, however, patent applicationsremain confidential in the United States Patent and Trademark Office, or USPTO,for the entire time prior to issuance as a U.S. patent. Patent applicationsfiled in countries outside the United States are not typically published untilat least 18 months from their first filing date. Similarly, publication ofdiscoveries in the scientific or patent literature often lags behind actualdiscoveries. Therefore, we cannot be certain that we were the first to invent,or the first to file patent applications relating to, 

 

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our stent technologies.In the event that a third party has also filed a U.S. patent applicationcovering our stents or a similar invention, we may have to participate in anadversarial proceeding, known as an interference, declared by the USPTO todetermine priority of invention in the United States. It is possible that wemay be unsuccessful in the interference, resulting in a loss of some portion orall of our position in the United States. The laws of some foreignjurisdictions do not protect intellectual property rights to the same extent asin the United States, and many companies have encountered significantdifficulties in protecting and defending such rights in foreign jurisdictions.If we encounter such difficulties or we are otherwise precluded fromeffectively protecting our intellectual property rights in foreignjurisdictions, our business prospects could be substantially harmed.

 

We may initiatelitigation to enforce our patent rights, which may prompt our adversaries insuch litigation to challenge the validity, scope or enforceability of ourpatents. If a court decides that our patents are not valid, not enforceable orof a limited scope, we will not have the right to stop others from using ourtechnology.

 

We also rely on tradesecret protection to protect our interests in proprietary know-how and forprocesses for which patents are difficult to obtain or enforce. We may not beable to protect our trade secrets adequately. In addition, we rely onnon-disclosure and confidentiality agreements with employees, consultants andother parties to protect, in part, trade secrets and other proprietarytechnology. These agreements may be breached and we may not have adequateremedies for any breach. Moreover, others may independently develop equivalentproprietary information, and third parties may otherwise gain access to ourtrade secrets and proprietary knowledge. Any disclosure of confidential datainto the public domain or to third parties could allow our competitors to learnour trade secrets and use the information in competition against us.

 

We are aware that anothermedical business that holds patents to certain stent designs has used the nameXTENT for limited purposes in the past. If it turns out that the other businesshas superior trademark rights in the name, and if the other business were tochallenge our use of the XTENT name, we would then need to convince a courtthat there is no likelihood of consumer confusion. If we were unsuccessful incourt, then we could be held liable for trademark infringement and we mightthen have to change our name as well as pay monetary damages. If we were forcedto change our name, we may suffer from a loss of brand recognition, we may berequired to retrieve product and interrupt supply, and may have to devotesubstantial resources advertising and marketing our products under a new brandname.

 

**RisksRelated to Commercialization**

 

**Themedical device industry is highly competitive and subject to rapidtechnological change. If our competitors are better able to develop and marketproducts that are safer, more effective, less costly or otherwise moreattractive than any products that we may develop, our commercial opportunitywill be reduced or eliminated.**

 

The medical deviceindustry is highly competitive and subject to rapid and profound technologicalchange. Our success depends, in part, upon our ability to maintain acompetitive position in the development of technologies and products for use inthe treatment of CAD.

 

We face competition fromestablished pharmaceutical and biotechnology companies, as well as fromacademic institutions, government agencies and private and public researchinstitutions in the United States and abroad. Most of the companies developingor marketing competing products are publicly traded or divisions ofpublicly-traded companies, and these companies enjoy several competitiveadvantages, including:

 

· greater financial and human resourcesfor product development, sales and marketing, and patent litigation;

 

· significantly greater name recognition;

 

· established relations with healthcareprofessionals, customers and third-party payors;

 

· additional lines of products, and theability to offer rebates or bundle products to offer higher discounts orincentives to gain a competitive advantage;

 

· established distribution networks; and

 

· greater experience in conductingresearch and development, manufacturing, clinical trials, obtaining regulatoryapproval for products and marketing approved products.

 

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For example,Johnson & Johnson, Boston Scientific, Medtronic and AbbottLaboratories, four companies with far greater financial and marketing resourcesthan we possess, have each developed, and are actively marketing, drug elutingstents that have been approved by the FDA. We may be unable to demonstrate thatour Custom NX DES Systems offer any advantages over Johnson & Johnson’sCypher stent, Boston Scientific’s Taxus Express2, Taxus Liberte or Promusstents, Abbott Laboratories’ Xience V stent or Medtronic’s Endeavor stent.Smaller or early-stage companies may also prove to be significant competitors,particularly through collaborative arrangements with, or mergers with oracquisitions by, large and established companies or through the development ofnovel products and technologies.

 

The industry in which weoperate has undergone, and is expected to continue to undergo, rapid andsignificant technological change, and we expect competition to intensify astechnical advances are made. Our competitors may develop and patent processesor products earlier than us, obtain regulatory approvals for competing productsmore rapidly than us, and develop more effective or less expensive products ortechnologies that render our technology or products obsolete ornon-competitive. For example, we are aware of companies that are developingvarious other less-invasive technologies for treating CAD, which could make ourstent platform obsolete. We also compete with our competitors in recruiting andretaining qualified scientific and management personnel, establishing clinicaltrial sites and patient registration for clinical trials, as well as inacquiring technologies and technology licenses complementary to our programs oradvantageous to our business. If our competitors are more successful than us inthese matters, our business may be harmed.

 

**If weare unable to establish sales and marketing capabilities or enter into andmaintain arrangements with third parties to sell and market our Custom NX DESSystems, our business may be harmed.**

 

We do not have a salesorganization and have no experience as a company in the sales, marketing anddistribution of stent systems or other medical devices. To be successful incommercializing our products we must either develop a sales and marketing infrastructureor enter into distribution arrangements with others to market and sell ourproducts. Subject to the availability of adequate resources, we plan to marketour product in Europe through independent distributors.  We have not hired any European sales peopleor entered into any third-party distribution agreements.

 

Subject to theavailability of adequate resources, after establishing our European saleschannels, if our Custom NX DES Systems are approved for commercial sale in theUnited States, we currently plan to establish our own direct U.S. sales force.If we develop our own marketing and sales capabilities, our sales force will becompeting with the experienced and well-funded marketing and sales operationsof our more established competitors. Developing a sales force is expensive andtime consuming and could delay or limit the success of any product launch. Wemay not be able to develop this capacity on a timely basis or at all. If we areunable to establish sales and marketing capabilities, we will need to contractwith third parties to market and sell our products in the United States. To theextent that we enter into arrangements with third parties to perform sales,marketing and distribution services in the United States or internationally, ourproduct revenue could be lower than if we directly marketed and sold ourproducts, or any other stent system or related device that we may develop.Furthermore, to the extent that we enter into co-promotion or other marketingand sales arrangements with other companies, any revenue received will dependon the skills and efforts of others, and we do not know whether these effortswill be successful. Some of our future distributors may market their ownproducts or distribute other companies’ products that compete with ours, andthey may have an incentive not to devote sufficient efforts to marketing ourproducts. If we are unable to establish and maintain adequate sales, marketingand distribution capabilities, independently or with others, we may not be ableto generate product revenue and may not become profitable.

 

**We havelimited device manufacturing and drug coating capabilities and manufacturingpersonnel, and if our device manufacturing and drug coating facilities or oursuppliers are unable to provide an adequate supply of products, our growthcould be limited and our business could be harmed.**

 

We currently have limitedresources, facilities and experience to commercially manufacture the devicecomponent of our products and apply the drug coating to the stents. Inaddition, pursuant to the terms of the restated license agreement withBiosensors, we plan to perform our own drug coating formulation.  Furthermore, effective March 23, 2009,we substantially completed a reduction in our headcount from 122 to 5employees, and we fully completed that reduction by April 30, 2009.  None of the remaining employees will bemanufacturing personnel.  In order toproduce our Custom NX DES Systems in the quantities that we anticipate will berequired to meet anticipated market demand, we will need to increase, orscale-up, the production process by a significant factor over our current levelof production. There are technical challenges to scaling-up manufacturingcapacity and developing commercial-scale manufacturing facilities that willrequire the investment of substantial additional funds and hiring and retainingadditional management and technical personnel who have the necessarymanufacturing experience. We may not successfully complete any requiredscale-up in a timely manner or at all. If we are unable to do so, we may not beable to produce products in sufficient quantities to meet the requirements forthe launch of the product or to meet future demand, if at all. If we developand obtain regulatory approval for our products and are unable to 

 

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manufacture a sufficientsupply of our products, our revenue, business and financial prospects would beadversely affected. In addition, if the scaled-up production process is notefficient or produces stents that do not meet quality and other standards, ourfuture gross margins may decline.

 

We currently assemble ourCustom NX DES Systems and apply the drug coating at our facilities in MenloPark, California. Under the terms of our lease agreement for these facilities,our landlord may terminate our lease at any time on or after May 1, 2010by giving us 180 days’ notice, if it has obtained certain redevelopment rightswith respect to the leased premises. Prior to the commercial launch of ourproduct, our leased premises will have to be inspected and approved by the FDA,and will likely require additional certifications by the State of CaliforniaDepartment of Health Services, or CDHS. Our facility and quality systems arealso required to pass annual audits for purposes of InternationalStandardisation Organization, or ISO, compliance. We expect to be audited inthe third quarter of 2009, but we do not believe that we have adequatepersonnel to pass the audit. We will not be able to commercialize our productuntil we successfully pass the audit. If audits and inspections of ourfacilities determine that our facility does not meet applicable standards, orif there is a disruption to our existing manufacturing facility, or if ourlandlord elects to terminate our lease on or after May 1, 2010, we willhave no other means of manufacturing our products until we are able to restorethe manufacturing capability at our facility or lease alternative manufacturingfacilities and obtain regulatory approval for these facilities. Because ourMenlo Park facilities are located in a seismic zone, we face the risk that anearthquake may damage our facilities and disrupt our operations. If we areunable to produce sufficient quantities of our products for use in our currentand planned clinical trials, if we obtain regulatory approval of our productsand are unable to produce sufficient quantities of our products to support ourplanned commercial activities or if our manufacturing process yieldssubstandard products, our development and commercialization efforts would bedelayed.

 

**If thecost of our drug coating or other components of our stent systems increasesignificantly, our business and our results of operations may be harmed.**

 

Under the terms of our license agreement withBiosensors, the price we pay for our drug coating or the components thereofonce we begin performing the formulation of the coating ourselves, may increaseas Biosensors’ cost of manufacturing and supplying the drug coating orcomponents increases. We have experienced one price increase in the past and wemay experience additional increases in the future. If we experience significantincreases in the cost of our drug coating or other key components of our stentsystems, our business and our results of operations may be harmed.

 

**Ourmanufacturing facilities and the manufacturing facilities of our suppliers mustcomply with strictly enforced regulatory requirements. If we fail to achieveregulatory approval for these manufacturing facilities, our business and ourresults of operations would be harmed.**

 

Completion of ourclinical trials and commercialization of our products require access to, or thedevelopment of, manufacturing facilities that comply with QSR and GMP. We mayestablish a manufacturing facility outside of the United States and can provideno assurance that our manufacturing facility would meet applicable foreignregulatory requirements or standards at acceptable cost, on a timely basis, orat all. In addition, the FDA must approve facilities that manufacture ourproducts for domestic commercial purposes, as well as the manufacturingprocesses and specifications for the product. Biosensors and suppliers ofcomponents of, and products used to manufacture, our products must also complywith FDA and foreign regulatory requirements, which often require significanttime, money and record-keeping and quality assurance efforts and subject us andour suppliers to potential regulatory inspections and stoppages. We,Biosensors, or our other suppliers may not satisfy these regulatoryrequirements. If we or our suppliers do not achieve required regulatoryapproval for our manufacturing operations, our commercialization efforts couldbe delayed, which would harm our business and our results of operations.

 

**Wedepend on single-source suppliers for some of the components in our Custom NXDES Systems. The loss of these suppliers could delay our clinical trials orprevent or delay commercialization of our Custom NX DES Systems.**

 

Although we haveidentified several vendors for the components of our products, some of ourcomponents are currently provided by only one vendor, or a single-sourcesupplier. In addition to our reliance on Biosensors as the only source for thesupply of our drug coating, we also depend on SurModics, which provides theslippery coating on our sheath. Our current agreement with SurModics, allowsSurModics to terminate the agreement if we do not commercialize our product by July 1,2009. We do not expect to commercialize our product by that date. We do nothave long-term contracts with some of our third-party suppliers of componentsused in the manufacture of our stent delivery catheters or the cobalt chromiumtubing and laser-precision cutting process required to produce the stentsegments included in our device. In addition, we do not have long-termcontracts with our third-party suppliers of some of the equipment and componentsthat are used in our manufacturing process and we do not carry a significantinventory of most components used in our products. Establishing 

 

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additional or replacementsuppliers for these components, and obtaining any additional regulatoryapprovals that may result from adding or replacing suppliers, will take asubstantial amount of time. We may also have difficulty obtaining similarcomponents from other suppliers that are acceptable to the FDA or foreignregulatory authorities. Furthermore, since some of these suppliers are locatedoutside of the United States, we are subject to foreign export laws and U.S. importand customs regulations, which complicate and could delay shipments to us. Someof our suppliers are also our competitors and may be reluctant to supplycomponents to us on favorable terms, if at all.

 

If we have to switch toreplacement suppliers, we will face additional regulatory delays and themanufacture and delivery of our Custom NX DES Systems would be interrupted foran extended period of time, which would delay completion of our clinical trialsor commercialization of our products. In addition, we will be required toobtain prior regulatory approval from the FDA or foreign regulatory authoritiesto use different suppliers or components that may not be as safe or aseffective. As a result, regulatory approval of our products may not be receivedon a timely basis or at all.

 

**If we donot achieve our projected development goals in the time frames we announce andexpect, the commercialization of our products may be delayed and, as a result,our stock price may decline.**

 

From time to time, we mayestimate and publicly announce the anticipated timing of the accomplishment ofvarious clinical, regulatory and other product development goals, which wesometimes refer to as milestones. These milestones could include the initiationof our pivotal U.S. clinical trial for our Custom NX DES Systems, theenrollment of patients in our clinical trials, the release of data from ourclinical trials and other clinical and regulatory events. The actual timing ofthese milestones could vary dramatically compared to our estimates, in somecases for reasons beyond our control. We cannot assure you that we will meetour projected milestones and if we do not meet these milestones as publiclyannounced, the commercialization of our products may be delayed and, as aresult, our stock price may decline.

 

**Wemay not be successful in our efforts to expand our portfolio of products anddevelop additional technologies.**

 

One element of ourstrategy is to discover, develop and commercialize a portfolio of new productsin addition to our Custom NX DES Systems. If we continue as an operatingbusiness, as our resources permit, we would plan to conduct such activitiesthrough our internal research programs and intend to explore strategiccollaborations for the development of new products utilizing our stenttechnology. Research programs to identify new disease targets, products anddelivery techniques require substantial technical, financial and humanresources, whether or not any products are ultimately identified. We maydetermine that one or more of our pre-clinical programs do not have sufficientpotential to warrant the allocation of resources. Our research programs mayinitially show promise in identifying potential products, yet fail to yieldproducts for clinical development for many reasons, including the following:

 

· the research methodology used may not besuccessful in identifying potential products;

 

· competitors may develop alternativesthat render our products obsolete;

 

· our products may not be deployed safelyor effectively;

 

· products may on further study be shownto have harmful side effects or other characteristics that indicate they areunlikely to be effective;

 

· our clinical trials may not besuccessful; and

 

· we may not receive regulatory approval.

 

**Wedepend on certain of our officers, and if we are not able to retain them orrecruit additional qualified personnel, our business will suffer.**

 

We are dependent on ourPresident and Chief Executive Officer, Gregory D. Casciaro and our VicePresident, Quality Assurance, Clinical and Regulatory Affairs, Philippe Marco,M.D. Due to the specialized knowledge both of these officers possesses withrespect to interventional cardiology and our business activities, the loss ofservice of either of these officers could delay or prevent the successfulcompletion of a fundraising event, a strategic transaction, or provided that wecan continue with our ongoing operations, our clinical trials and thecommercialization of our Custom NX DES Systems. Either of these officers mayterminate their employment without notice and without cause or good reason. Wecarry key person life insurance on Mr. Casciaro but not on Philippe Marco,M.D.  In connection with ourreduction in force and our plans to explore strategic alternatives, we enteredinto retention and severance agreements with nine of our employees, includingour executive officers.  Pursuant tothese agreements, we have agreed to make retention payments to each of theseemployees, 

 

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providedtheir employment is not terminated for cause prior to the date upon which wecomplete a strategic transaction, or the employee’s expected termination date,whichever is earlier.  The expectedtermination dates for these employees range from March 31, 2009 to July 31,2009.

 

**Risks Related to Our Industry**

 

**If wefail to obtain an adequate level of reimbursement for our products fromthird-party payors, there may be no commercially viable markets for ourproducts or the markets may be much smaller than expected.**

 

Our failure to receiveadequate reimbursement or pricing approvals in the United States orinternationally would negatively impact market acceptance of our products inthe markets in which those approvals are sought. The efficacy, safety,performance and cost-effectiveness of our products under development and of anycompeting products are some of the factors that will determine the availabilityof coverage and level of reimbursement. In the United States, a preliminarythreshold for coverage and payment of medical devices and drugs generallyincludes approvals or clearances from the FDA. In addition, there issignificant uncertainty concerning third-party coverage and reimbursement ofnewly approved medical products and drugs. Future legislation, regulation orcoverage and reimbursement policies of third-party payors may adversely affectthe demand for our products currently under development and limit our abilityto profitably sell our products. Third-party payors continually attempt tocontain or reduce healthcare costs by challenging the prices charged forhealthcare products and services, resulting in a downward pressure ofreimbursement rates generally. Under recent regulatory changes to themethodology for calculating payments for current inpatient procedures incertain hospitals, Medicare payment rates for surgical and cardiac procedureshave been decreased, including approximately 10% to 14% reductions for thoseprocedures using drug eluting stents. The reductions are beingtransitioned over a three year period that began in fiscal year 2007. In 2007, The Centers for Medicare and MedicaidServices, or CMS, which is responsible for administering the Medicare program, alsoimplemented revised reimbursement codes that better reflect the severity of thepatient’s condition in the hospital inpatient prospective payment system. If coverage and reimbursement for ourproducts is unavailable, insufficient or limited in scope or amount, or ifpricing is set at unsatisfactory levels, market acceptance of our productswould be impaired and our future revenues, if any, would be adversely affected.

 

**Legislativeor regulatory reform of the healthcare system may affect our ability to sellour products profitably.**

 

In the United States andin certain foreign jurisdictions, there have been a number of legislative andregulatory proposals to change the regulatory and healthcare systems in waysthat could impact our ability to sell our products profitably, if at all. Inthe United States in recent years, new legislation has been proposed at thefederal and state levels that would effect major changes in the healthcaresystem. In addition, new regulations and interpretations of existing healthcarestatutes and regulations are frequently adopted. Post-payment reviews of claimsalso are conducted. For example, in 2005 the Office of Inspector General of theU.S. Department of Health and Human Services, or OIG, audited certain sampleclaims paid by Medicare contracts for in-patient and out-patient claimsinvolving arterial stent implantation to determine whether Medicare paymentsfor these services were appropriate. The OIG found that 20 of 72 reviewedclaims did not meet Medicare reimbursement requirements. Findings of ongoing orwidespread inappropriate billing of arterial stents could lead to increasedscrutiny in this area, which in turn, could affect our ability to raisecapital, obtain additional collaborators and market our products. We alsoexpect to experience pricing pressures in connection with the future sale ofour products due to the trend toward managed health care, the increasinginfluence of health maintenance organizations and additional legislativeproposals. Our results of operations could be adversely affected by these andother future healthcare reforms.

 

**Weface the risk of product liability claims and may not be able to obtaininsurance.**

 

Our business exposes usto the risk of product liability claims that is inherent in the testing,manufacturing and marketing of medical devices. We may be subject to productliability claims if our stents cause, or merely appear to have caused, aninjury. Claims may be made by patients, consumers, healthcare providers, third-partystrategic collaborators or others selling our products. Although we haveproduct liability and clinical trial liability insurance that we believe isappropriate, this insurance is subject to deductibles and coverage limitations.Our current product liability insurance may not continue to be available to uson acceptable terms, if at all, and, if available, the coverages may not beadequate to protect us against any future product liability claims. Inaddition, if any of our products are approved for marketing, we may seekadditional insurance coverage. If we are unable to obtain insurance atacceptable cost or on acceptable terms with adequate coverage or otherwiseprotect against potential product liability claims, we will be exposed tosignificant liabilities, which may harm our business. A product liabilityclaim, recall or other claim with respect to uninsured liabilities or foramounts in excess of insured liabilities could have a material adverse effecton our business, financial condition and results of operations.

 

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We may be subject toclaims against us even if the apparent injury is due to the actions of others.For example, we rely on the expertise of physicians, nurses and otherassociated medical personnel to perform the medical procedure and relatedprocesses to implant our coronary stents into patients. If these medicalpersonnel are not properly trained or are negligent, the therapeutic effect ofour stents may be diminished or the patient may suffer critical injury, whichmay subject us to liability. In addition, an injury that is caused by theactivities of our suppliers, such as those who provide us with cobalt chromiumtubing for our stents, those that laser cut our stents or the supplier of ourdrug coating, may be the basis for a claim against us.  Pursuant to some of the written agreementsthat we have entered into with medical institutions and physiciansparticipating in our clinical trials, we have agreed to indemnify thoseinstitutions and physicians from and against losses that result from thirdparty claims seeking compensation for certain injuries incurred by studysubjects.  We may have to indemnifymedical institutions and physicians in connection with future clinical trials.

 

These liabilities couldprevent or interfere with our product commercialization efforts. Defending asuit, regardless of merit, could be costly, could divert management’s attentionfrom our business and might result in adverse publicity, which could result inthe withdrawal of, or inability to recruit, clinical trial patient participantsor result in reduced acceptance of our products in the market.

 

**RisksRelated to Our Operations**

 

**Ouroperations involve hazardous materials, and we must comply with environmentallaws and regulations, which can be expensive.**

 

We are subject to avariety of federal, state and local regulations relating to the use, handling,storage, disposal, and human exposure to hazardous and toxic materials. Wecould incur costs, fines, and civil and criminal sanctions, third-partyproperty damage or personal injury claims, or could be required to incursubstantial investigation or remediation costs, if we were to violate or becomeliable under environmental laws. We do not have insurance for environmentalliabilities and liability under environmental laws can be joint and several andwithout regard to comparative fault. Environmental laws could become morestringent over time, imposing greater compliance costs and increasing risks andpenalties associated with violations, which could harm our business. Compliancewith current or future environmental and safety laws and regulations couldrestrict our ability to expand our facilities, impair our research, developmentor production efforts, or require us to incur other significant expenses. Therecan be no assurance that violations of environmental laws or regulations willnot occur in the future as a result of the inability to obtain permits, humanerror, accident, equipment failure or other causes.

 

**We havelimited experience complying with public company obligations, includingrecently enacted changes in securities laws and regulations. Compliance withthese requirements will increase our costs and require additional managementresources, and we still may fail to comply.**

 

We operated as a privatecompany until February 2007 and prior to that, we were not subject to manyof the requirements applicable to public companies. Recently enacted andproposed changes in the laws and regulations affecting public companies,including the provisions of the Sarbanes-Oxley Act of 2002 and rules relatedto corporate governance and other matters subsequently adopted by the SEC andNASDAQ Global Market, will result in increased administrative costs to us andincreased legal and accounting fees. The impact of these events and heightenedcorporate governance standards could also make it more difficult for us toattract and retain qualified persons to serve on our board of directors, ourboard committees or as executive officers.

 

As directed by Section 404of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring us toinclude a report of management on our internal control over financial reportingin our annual report on Form 10-K for the year ended December 31,2008. In addition, in our annual report on Form 10-K for the year ending December 31,2009, the independent registered public accounting firm auditing our financialstatements must attest to the effectiveness of our internal control overfinancial reporting. We may be unable to comply with these requirements by theapplicable deadlines. We will be testing our internal control over financialreporting in connection with Section 404 requirements and could, as partof that documentation and testing, identify material weaknesses, significantdeficiencies or other areas requiring further attention or improvement.

 

**Weexpect that the price of our common stock will fluctuate substantially.**

 

There has been a public market for our common stockfor a limited amount of time. The market price for our common stock will beaffected by a number of factors, including:

 

· the results of our clinical trials;

 

· the timing of our regulatory approvals;

 

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· announcements related to litigation;

 

· statements made by Biosensors relatingto regulation or supply of the drug coating;

 

· the announcement of new products orservice enhancements by us or our competitors;

 

· quarterly variations in our or ourcompetitors’ results of operations;

 

· changes in earnings estimates, investors’perceptions, recommendations by securities analysts or our failure to achieveanalysts’ earning estimates;

 

· the low trading volume of our commonstock;

 

· developments in our industry, includingchanges in third-party reimbursement; and

 

· general market conditions and otherfactors unrelated to our operating performance or the operating performance ofour competitors.

 

Thesefactors may materially and adversely affect the market price of our commonstock.

 

**Ourdirectors, officers and principal stockholders have significant voting powerand may take actions that may not be in the best interests of our otherstockholders.**

 

As of March 31,2009, our officers, directors and principal stockholders each holding more than5% of our common stock collectively controlled approximately 75.6% of ouroutstanding common stock. As a result, these stockholders, if they acttogether, will be able to control the management and affairs of our company andmost matters requiring stockholder approval, including the election ofdirectors and approval of significant corporate transactions. Thisconcentration of ownership may have the effect of delaying or preventing achange in control and might adversely affect the market price of our commonstock. This concentration of ownership may not be in the best interests of ourother stockholders.

 

**Volatilityin the stock price of other companies may contribute to volatility in our stockprice.**

 

The NASDAQ Global Market,particularly in recent months, has experienced significant volatility,including with respect to medical technology, pharmaceutical, biotechnology andother life science company stocks. The volatility of medical technology,pharmaceutical, biotechnology and other life science company stocks often doesnot relate to the operating performance of the companies represented by thestock. Further, there has been particular volatility in the market price ofsecurities of early stage and development stage life science companies. Thesebroad market and industry factors may seriously harm the market price of ourcommon stock, regardless of our operating performance. In the past, followingperiods of volatility in the market price of a company’s securities, securitiesclass action litigation has often been instituted. A securities class actionsuit against us could result in substantial costs, potential liabilities and thediversion of management’s attention and resources.

 

**Anti-takeoverprovisions in our amended and restated certificate of incorporation and amendedand restated bylaws, and Delaware law, contain provisions that could discouragea takeover.**

 

Anti-takeover provisionsof our amended and restated certificate of incorporation and amended andrestated bylaws and Delaware law may have the effect of deterring or delayingattempts by our stockholders to remove or replace management, engage in proxycontests and effect changes in control. The provisions of our charter documentsinclude:

 

· a classified board so that only one ofthe three classes of directors on our board of directors is elected each year;

 

· elimination of cumulative voting in theelection of directors;

 

· procedures for advance notification ofstockholder nominations and proposals;

 

· the ability of our board of directors toamend our bylaws without stockholder approval;

 

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· a supermajority stockholder voterequirement for amending certain provisions of our amended and restatedcertificate of incorporation and our amended and restated bylaws; and

 

· the ability of our board of directors toissue up to 10,000,000 shares of preferred stock without stockholder approvalupon the terms and conditions and with the rights, privileges and preferencesas our board of directors may determine.

 

In addition, as a Delawarecorporation, we are subject to Delaware law, including Section 203 of theDelaware General Corporation Law. In general, Section 203 prohibits aDelaware corporation from engaging in any business combination with anyinterested stockholder for a period of three years following the date that thestockholder became an interested stockholder unless certain specificrequirements are met as set forth in Section 203. These provisions, aloneor together, could have the effect of deterring or delaying changes in incumbentmanagement, proxy contests or changes in control.

 

**We havenot paid dividends in the past and do not expect to pay dividends in thefuture, and any return on investment may be limited to the value of our stock.**

 

We have never paid cashdividends on our common stock and do not anticipate paying cash dividends onour common stock in the foreseeable future. The payment of dividends on ourcommon stock will depend on our earnings, financial condition and otherbusiness and economic factors affecting us at such time as our board ofdirectors may consider relevant. If we do not pay dividends, our stock may beless valuable because a return on your investment will only occur if our stockprice appreciates.

 

**ITEM 2. UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3. DEFAULTS UPON SENIORSECURITIES**

 

None.

 

**ITEM 4. SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

 

None

 

**ITEM 5. OTHER INFORMATION**

 

None.

 

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**ITEM 6. EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                           |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2(1)              |       | Amended  and Restated Certificate of Incorporation.                                                                                                                                                                                                                       |
| 3.4(1)              |       | Amended  and Restated Bylaws.                                                                                                                                                                                                                                             |
| 4.1(1)              |       | Specimen  Common Stock certificate of the Registrant.                                                                                                                                                                                                                     |
| 10.1(1)             |       | Form of  Indemnification Agreement for directors and executive officers.                                                                                                                                                                                             |
| 10.2(1)             |       | 2002  Stock Plan and form of stock option agreements used thereunder.                                                                                                                                                                                                     |
| 10.3(1)             |       | 2006  Equity Incentive Plan and form of stock option agreement used thereunder.                                                                                                                                                                                           |
| 10.4(1)             |       | 2006  Employee Stock Purchase Plan.                                                                                                                                                                                                                                       |
| 10.5(1)             |       | Amended  and Restated Investor Rights Agreement dated May 5, 2006 by and among  the Registrant and certain stockholders.                                                                                                                                             |
| 10.6(1)             |       | Business  Park Lease dated September 15, 2003, as amended November 22, 2005,  by and between the Registrant and 125 Constitution Associates, L.P.  for office space located at 125 Constitution Drive, Menlo Park,  California, 94025-1118. |
| 10.8(1)†       |       | Master  License Agreement dated December 30, 2002, as amended June 30,  2006, by and between the Registrant and SurModics, Inc.                                                                                                                            |
| 10.9(1)             |       | License  Agreement dated July 10, 2006 by and between the Registrant and Millimed  A/S.                                                                                                                                                                              |
| 10.10(2)†      |       | Supply  Agreement dated April 2, 2007 by and between Registrant and Fortimedix  B.V.                                                                                                                                                                                 |
| 10.11(3)            |       | Second  Amendment to Lease dated May 17, 2007 by and between the Registrant and  125 Constitution Associates, L.P.                                                                                                                                                   |
| 10.12(4)†      |       | Amended  and Restated License Agreement dated December 3, 2007 by and between  Registrant, Biosensors International Group, Ltd. and Biosensors  Europe S.A.                                                                                                |
| 10.13(5)            |       | Amended  2006 Equity Incentive Plan and form of stock option agreement used  thereunder.                                                                                                                                                                                  |
| 31.1                |       | 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.                                                                                                            |

 

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(1)          Incorporated by reference from ourRegistration Statement on Form S-1 (Registration No. 333-136371), whichwas declared effective on January 31, 2007.

 

(2)          Incorporated by reference from ourQuarterly Report on Form 10-Q for the quarter ended March 31, 2007,filed May 14, 2007.

 

(3)          Incorporated by reference from ourQuarterly Report on Form 10-Q for the quarter ended June 30, 2007,filed August 13, 2007.

 

(4)          Incorporated by reference from our AnnualReport on Form 10-K for the year ended December 31, 2007, filed March 17,2008.

 

(5)          Incorporated by referencefrom our Quarterly Report on Form 10-Q for the quarter ended September 30,2008, filed on November 12, 2008.

 

†                  Portions of the exhibit have been omittedpursuant to a request for confidential treatment. The confidential portionshave been filed with the SEC.

 

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** **

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
| ** **                         | **XTENT, Inc.** |
|------------------------------------|----------------------|
|                               |                 |   |   |
|                               |                 |   |   |
| Date:  May 15, 2009 | By:                  | /s/ GREGORY D.  CASCIARO |
| ** **                         | ** **           | **GREGORY  D. CASCIARO** |
| ** **                         | ** **           | **President  and Chief Executive Officer** |
| ** **                         | ** **           | **(Principal  Executive Officer)** |
|                               |                 |   |
|                               |                 |   |
| Date:  May 15, 2009 | By:                  | /s/ TIMOTHY D.  KAHLENBERG |
| ** **                         | ** **           | **TIMOTHY  D. KAHLENBERG** |
| ** **                         | ** **           | **Chief  Financial Officer** |
| ** **                         | ** **           | **(Principal  Accounting and Financial Officer)** |

 

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