**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

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**FORM 10-Q**

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| **(Mark One)**                                     |
|----------------------------------------------------|
| **x**                                              | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                         |
| **For  the quarterly period ended March 31, 2007** |
| ** **                                         |
| **or**                                             |
|                                               |
| **o**                                              | **TRANSITION REPORT PURSUANT TO SECTION 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 bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.     YES  x    NO  o

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

Large acceleratedfiler  o    Acceleratedfiler  o    Non-acceleratedfiler  x

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

As of May 1, 2007, there were22,863,666 shares of XTENT, Inc. common stock outstanding.

 

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**XTENT,INC.**

**FORM10-Q**

**TABLE OF CONTENTS**
|                                    | ** ** | ** **                                                                                  | ** ** | **Page** |
|------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|----------|
| **Part  I: Financial Information** | ** ** | ** **                                                                                  |
|                               |       |                                                                                        |       |     |
| Item 1.                       |       | Condensed Financial Statements (unaudited):                                                 |       | 1        |
|                               |       |                                                                                        |       |     |
|                               |       | Condensed Balance Sheets                                                                    |       | 1        |
|                               |       |                                                                                        |       |     |
|                               |       | Condensed Statements of Operations                                                          |       | 2        |
|                               |       |                                                                                        |       |     |
|                               |       | Condensed Statements of Cash Flows                                                          |       | 3        |
|                               |       |                                                                                        |       |     |
|                               |       | Notes to Condensed Financial Statements                                                     |       | 4        |
|                               |       |                                                                                        |       |     |
| Item 2.                       |       | Management’s Discussion and Analysis of Financial Condition  and Results of Operations |       | 8        |
|                               |       |                                                                                        |       |     |
| Item 3.                       |       | Quantitative and Qualitative Disclosures About Market  Risk                                 |       | 13       |
|                               |       |                                                                                        |       |     |
| Item 4T.                      |       | Controls and Procedures                                                                     |       | 14       |
|                               |       |                                                                                        |       |     |
| **Part  II: Other Information**    |       |                                                                                        |
|                               |       |                                                                                        |       |     |
| Item 1.                       |       | Legal  Proceedings                                                                          |       | 15       |
|                               |       |                                                                                        |       |     |
| Item 1A.                      |       | Risk Factors                                                                                |       | 15       |
|                               |       |                                                                                        |       |     |
| Item 2.                       |       | Changes in Securities and Use of Proceeds                                                   |       | 37       |
|                               |       |                                                                                        |       |     |
| Item 3.                       |       | Defaults Upon Senior Securities                                                             |       | 37       |
|                               |       |                                                                                        |       |     |
| Item 4.                       |       | Submission of Matters to a Vote of Security Holders                                         |       | 37       |
|                               |       |                                                                                        |       |     |
| Item 5.                       |       | Other  Information                                                                          |       | 37       |
|                               |       |                                                                                        |       |     |
| Item 6.                       |       | Exhibits                                                                                    |       | 37       |
|                               |       |                                                                                        |       |     |
| Signatures                         |       | 39                                                                                          |
|                               |       |                                                                                        |       |     |
| Certifications                     |       |                                                                                        |
|                                    |            |                                                                                             |            |          |  |  |

 

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**PART I:FINANCIAL INFORMATION**

**ITEM 1. CONDENSED FINANCIALSTATEMENTS (UNAUDITED)**

**XTENT, INC.(a development stage company)CONDENSED BALANCE SHEETS**

**(unaudited;in thousands, except per share amounts)**
| ** **                                                                                                                                                                                                                                                                        | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                        | ** ** | **2007**           | ** ** | **2006 (1)**     | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                        | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                                                                                                                                   |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                        |       | $                  | 36,242     |                  | $          | 23,105 |   |
| Short-term  investments                                                                                                                                                                                                                                                           |       | 49,436             |       | —                |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                                                                        |       | 945                |       | 269                   |       |
| Total current  assets                                                                                                                                                                                                                                                             |       | 86,623             |       | 23,374                |       |
|                                                                                                                                                                                                                                                                              |       |               |       |                  |       |
| Property and  equipment, net                                                                                                                                                                                                                                                      |       | 2,798              |       | 2,634                 |       |
| Deferred IPO  related costs                                                                                                                                                                                                                                                       |       | —             |       | 990                   |       |
| Other  non-current assets                                                                                                                                                                                                                                                         |       | 123                |       | 123                   |       |
| Total assets                                                                                                                                                                                                                                                                      |       | $                  | 89,544     |                  | $          | 27,121 |   |
|                                                                                                                                                                                                                                                                              |       |               |       |                  |       |
| **LIABILITIES, REDEEMABLE  CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                                                                  | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                                                                                                                                                              |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                                                  |       | $                  | 1,804      |                  | $          | 860 |   |
| Accrued  liabilities                                                                                                                                                                                                                                                              |       | 1,782              |       | 1,448                 |       |
| Total current  liabilities                                                                                                                                                                                                                                                        |       | 3,586              |       | 2,308                 |       |
|                                                                                                                                                                                                                                                                              |       |               |       |                  |       |
| Redeemable convertible  preferred stock:                                                                                                                                                                                                                                          |       |               |       |                  |       |
| $0.001 par  value; 10,000 and 14,874 shares authorized at March 31, 2007 and December 31,  2006, respectively;  zero and 14,744  shares issued and outstanding at March 31, 2007 and December 31, 2006,  respectively (Liquidation preference: $75,899 at December 31, 2006) |       | —             |       | 75,593                |       |
|                                                                                                                                                                                                                                                                              |       |               |       |                  |       |
| Stockholders’ Equity  (Deficit):                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Common stock:  $0.001 par value; 100,000 and 26,000 authorized at March 31, 2007 and  December 31, 2006, respectively;  22,263  and 3,352 shares issued and outstanding at March 31, 2007 and December 31,  2006, respectively                                     |       | 23       |       | 3           |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                       |       | 148,557            |       | 3,956                 |       |
| Deferred stock-based  compensation                                                                                                                                                                                                                                                |       | (592               | )          | (673                  | )          |
| Other  comprehensive loss                                                                                                                                                                                                                                                         |       | (29                | )          | —                |       |
| Deficit  accumulated during development stage                                                                                                                                                                                                                                     |       | (62,001            | )          | (54,066               | )          |
| Total  stockholders’ equity (deficit)                                                                                                                                                                                                                                        |       | 85,958             |       | (50,780               | )          |
|                                                                                                                                                                                                                                                                              |       |               |       |                  |       |
| Total liabilities,  redeemable convertible preferred stock and stockholders’ equity (deficit)                                                                                                                                                                                |       | $                  | 89,544     |                  | $          | 27,121 |   |

 

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| (1)    | The condensed balance sheet at December 31, 2006 has  been derived from the audited financial statements at that |                                                                                                                  |
|--------|------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                             | date, but does not include all of the information  and footnotes required by accounting principles generally accepted |
|   |                                                                                                             | in the United States for complete financial  statements.                                                              |   |   |   |   |
|        |                                                                                                                  |                                                                                                                       |  |  |  |  |

 

The accompanying notes are an integral part of thesecondensed financial statements.

1

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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** | ** ** |
| ** **                                                                                          | ** ** | ** **                                           | ** ** | ** **         | ** ** | **(Inception) to**     | ** ** |
| ** **                                                                                          | ** ** | **Three Months Ended March 31,** | ** ** | **March 31,** | ** ** |
| ** **                                                                                          | ** ** | **2007**                                             | ** ** | **2006**           | ** ** | **2007**                    | ** ** |
| ** **                                                                                          | ** ** | **As restated**                                 | ** ** |
|                                                                                                |       |                                                 |       |               |       |                        |       |
| Operating  expenses:                                                                                |       |                                                 |       |               |       |                        |       |
| Research and development (1)                                                                        |       | $                                                    | 6,223      |               | $          | 3,274                       |       | $ | 49,749 |   |
| General and administrative (1)                                                                      |       | 2,461                                                |       | 941                |       | 14,735                      |       |
| Total operating expenses                                                                            |       | 8,684                                                |       | 4,215              |       | 64,484                      |       |
|                                                                                                |       |                                                 |       |               |       |                        |       |
| Loss from  operations                                                                               |       | (8,684                                               | )          | (4,215             | )          | (64,484                     | )          |
|                                                                                                |       |                                                 |       |               |       |                        |       |
| Other income  (expense):                                                                            |       |                                                 |       |               |       |                        |       |
| Interest income                                                                                     |       | 749                                                  |       | 108                |       | 2,483                       |       |
|                                                                                                |       |                                                 |       |               |       |                        |       |
| Net loss                                                                                            |       | (7,935                                               | )          | (4,107             | )          | (62,001                     | )          |
|                                                                                                |       |                                                 |       |               |       |                        |       |
| Deemed dividend related to beneficial conversion feature  of redeemable convertible preferred stock |       | —                                               |       | (5,678             | )          | (13,095                     | )          |
|                                                                                                |       |                                                 |       |               |       |                        |       |
| Net loss  attributable to common stockholders                                                       |       | $                                                    | (7,935     | )                  | $          | (9,785                      | )          | $ | (75,096 | ) |
|                                                                                                |       |                                                 |       |               |       |                        |       |
| Net loss per  share attributable to common stockholders - basic and diluted                         |       | $                                               | (0.55      | )                  | $     | (3.92                       | )          |   |   |
|                                                                                                |       |                                                 |       |               |       |                        |       |
| Weighted-average  common shares outstanding                                                         |       | 14,482                                               |       | 2,493              |       |                        |       |

 

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| (1) Includes the  following stock-based compensation charges: |   |   |   |   |   |   |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Research and development                                      |   | $      | 388    |   | $      | 117    |   | $ | 1,960 |   |
| General and  administrative                                   |   | $      | 420    |   | $      | 55     |   | $ | 1,485 |   |

 

The accompanying notes are an integral part of thesecondensed financial statements.

2

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** XTENT, INC.(a development stage company)CONDENSED STATEMENTS OF CASH FLOWS**

**(unaudited;in thousands)**
| ** **                                                                                   | ** ** | ** **                                           | ** ** | ** **         | ** ** | **Cumulative**              | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|
| ** **                                                                                   | ** ** | ** **                                           | ** ** | ** **         | ** ** | **Period from**        | ** ** |
| ** **                                                                                   | ** ** | ** **                                           | ** ** | ** **         | ** ** | **June 13, 2002** | ** ** |
| ** **                                                                                   | ** ** | ** **                                           | ** ** | ** **         | ** ** | **(Date of**           | ** ** |
| ** **                                                                                   | ** ** | ** **                                           | ** ** | ** **         | ** ** | **Inception) to**      | ** ** |
| ** **                                                                                   | ** ** | **Three Months Ended March 31,** | ** ** | **March 31,** | ** ** |
| ** **                                                                                   | ** ** | **2007**                                             | ** ** | **2006**           | ** ** | **2007**                    | ** ** |
| **Cash  flows from operating activities:**                                                   | ** ** | ** **                                           | ** ** | ** **         | ** ** | ** **                  | ** ** |
| Net loss                                                                                     |       | $                                                    | (7,935     | )                  | $          | (4,107                      | )          | $ | (62,001 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities:                 |       |                                                 |       |               |       |                        |       |
| Depreciation and amortization                                                                |       | 268                                                  |       | 154                |       | 1,848                       |       |
| Stock based compensation expense                                                             |       | 808                                                  |       | 172                |       | 3,445                       |       |
| Stock issued in exchange for services                                                        |       | —                                               |       | —             |       | 230                         |       |
| Amortization of securities discount                                                          |       | (93                                                  | )          | —             |       | (93                         | )          |
| Loss on disposal of property and equipment                                                   |       | —                                               |       | 9                  |       | 82                          |       |
| Prepaid expenses and other current assets                                                    |       | (447                                                 | )          | 12                 |       | (839                        | )          |
| Accrued interest receivable on securities                                                    |       | (229                                                 | )          | —             |       | (229                        | )          |
| Accounts payable                                                                             |       | 944                                                  |       | (36                | )          | 1,804                       |       |
| Accrued liabilities                                                                          |       | 475                                                  |       | 446                |       | 1,641                       |       |
| Net cash used in operating activities                                                        |       | (6,209                                               | )          | (3,350             | )          | (54,112                     | )          |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| **Cash  flows from investing activities:**                                                   | ** ** | ** **                                           | ** ** | ** **         | ** ** | ** **                  | ** ** |
| Purchase of investments                                                                      |       | (49,372                                              | )          | —             |       | (49,372                     | )          |
| Purchase of property and equipment                                                           |       | (432                                                 | )          | (251               | )          | (4,723                      | )          |
| Proceeds from sale of property and equipment                                                 |       | —                                               |       | —             |       | 18                          |       |
| Net cash used in investing activities                                                        |       | (49,804                                              | )          | (251               | )          | (54,077                     | )          |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| **Cash  flows from financing activities:**                                                   | ** ** | ** **                                           | ** ** | ** **         | ** ** | ** **                  | ** ** |
| Proceeds from initial public offering, net of  offering costs                                |       | 69,112                                               |       | —             |       | 68,237                      |       |
| Proceeds from issuance of redeemable convertible preferred  stock, net of issuance costs     |       | —                                               |       | 9,800              |       | 75,593                      |       |
| Principal payments on capital lease obligations                                              |       | —                                               |       | —             |       | (23                         | )          |
| Proceeds from issuance of common stock to founders and  exercise of stock options            |       | 38                                                   |       | 83                 |       | 624                         |       |
| Net cash provided by financing activities                                                    |       | 69,150                                               |       | 9,883              |       | 144,431                     |       |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| Net increase in  cash and cash equivalents                                                   |       | 13,137                                               |       | 6,282              |       | 36,242                      |       |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| Cash and cash  equivalents at beginning of period                                            |       | 23,105                                               |       | 6,564              |       | —                      |       |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| Cash and cash  equivalents at end of period                                                  |       | $                                                    | 36,242     |               | $          | 12,846                      |       | $ | 36,242 |   |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| **Supplemental  disclosure of noncash investing and financing activities:**                  | ** ** | ** **                                           | ** ** | ** **         | ** ** | ** **                  | ** ** |
| Deferred stock based compensation                                                            |       | $                                                    | —     |               | $          | —                      |       | $ | 1,272 |   |
| Reversal of deferred stock-based compensation                                                |       | $                                                    | (9         | )                  | $          | —                      |       | $ | (80 | ) |
| Conversion of redeemable convertible preferred stock  to common stock                        |       | $                                                    | 75,593     |               | $          | —                      |       | $ | 75,593 |   |
| Deferred initial public offering costs                                                       |       | $                                                    | 875        |               | $          | —                      |       | $ | — |   |
| Dividend related to beneficial conversion feature of  redeemable convertible preferred stock |       | $                                               | —     |               | $     | (5,678                      | )          | $  | (13,095 | ) |
| Equipment acquired under capital leases                                                      |       | $                                                    | —     |               | $          | —                      |       | $ | (23 | ) |
| Vesting of restricted common stock from early  exercises                                     |       | $                                                    | 26         |               | $          | 30                          |       | $ | 300 |   |
| Changes in net  unrealized gains (losses) on investments                                     |       | $                                                    | (29        | )                  | $          | —                      |       | $ | (29 | ) |

 

The accompanying notes are an integral part of thesecondensed financial statements.

3

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**XTENT,INC.**

**NOTESTO 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 incurrednet operating losses each year since inception. At March 31, 2007, the Company had an accumulated deficit ofapproximately $62.0 million.  The Companyhas not achieved positive cash flows from operations for any year sinceinception.  In May and June 2006, theCompany completed a Series D redeemable convertible preferred stock financingand raised approximately $30.0 million in cash and on February 1, 2007 completedits initial public offering raising net proceeds of approximately $68.2million.  In order to continue itsoperations, the Company must achieve profitable operations, obtain additionaldebt financing or sell additional shares of its equity.  There can be no assurance that the Companywill be able to obtain additional debt or equity financing on terms acceptableto the Company, or at all.  The failureof the Company to obtain sufficient funds on acceptable terms when needed couldhave a material adverse effect on the Company’s business, results of operationsand financial condition.

Management is currentlyworking toward its objective of realizing profitability by successfullyobtaining regulatory approval of its products in the United States andEurope.  The failure of the Company toobtain approval of its products by regulatory authorities could have a materialadverse effect on the Company’s business, results of operations, future cashflows and financial condition.

**Basis of Presentation**

The accompanying unauditedcondensed financial statements have been prepared by the Company in accordancewith the accounting principles generally accepted in the United States ofAmerica for interim financial information and pursuant to the instructions toForm 10-Q and Article 10 of Regulation S-X of the Securities and ExchangeCommission.  Accordingly, they do notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  In the opinion of management, all adjustments(consisting only of normal recurring adjustments) considered necessary for afair statement have been included.  Theresults for the three month period ended March 31, 2007 are not necessarilyindicative of the results that may be expected for the year ending December 31,2007, or for any future period.  Theseunaudited condensed financial statements and notes should be read inconjunction with the audited financial statements and the notes theretoincluded in the Company’s Annual Report on Form 10-K for the year ended December31, 2006, filed with the Securities and Exchange Commission on April 2, 2007.

**NOTE 2 - Summaryof Significant Accounting Policy Update:**

***Investments***

Investments consist primarily of fixed incomesecurities. The Company classifies their investments as available-for-sale in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 115, *Accountingfor Certain Investments in Debt and Equity Securities* and they arerecorded at fair value. The fair value of investments is based on quoted marketprices. Unrealized gains and losses are reported as a separate component ofstockholders’ equity until realized. Premiums (discounts) on investments areamortized (accreted) to interest income over the life of the investment.

4

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***Comprehensive Income (Loss)***

Comprehensive income(loss) is defined as the change in equity from transactions and other eventsand circumstances other than those resulting from investments by owners anddistributions to owners. The Company’s unrealized gain (loss) on investmentsrepresents the only component of other comprehensive loss that is excluded fromthe Company’s net loss. Total comprehensive loss during the three months endedMarch 31, 2007 and 2006 consists of:
|                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                      | ** ** | **(in thousands)**                              | ** ** |
|                            |       |                                                 |       |   |   |
| Net loss                        |       | $                                                    | (7,935     | ) | $ | (4,107 | ) |
| Unrealized loss  on investments |       | (29                                                  | )          | — |   |
|                            |       |                                                 |       |   |   |
| Comprehensive  loss             |       | $                                                    | (7,964     | ) | $ | (4,107 | ) |

 

***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 securities consisting of stock options, common stock subject torepurchase and redeemable convertible preferred stock were not included in thediluted net loss per common share calculations for all periods presentedbecause the inclusion of such shares would have had an antidilutive effect. Areconciliation of the numerator and denominator used in the calculation ofbasic and diluted net loss per common share is as follows:
|                                                                                                                     | ** ** | **Three Months Ended March 31,**                  | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                          | ** ** | **2007**                                                              | ** ** | **2006** | ** ** |
| ** **                                                                                                          | ** ** | **(in thousands, except per share amounts)** | ** ** |
| ** **                                                                                                          | ** ** | ** **                                                            | ** ** | **As restated** | ** ** |
| Numerator:                                                                                                          |       |                                                                  |       |   |   |
| Net loss attributable to common stockholders                                                                        |       | $                                                                     | (7,935     | ) | $ | (9,785 | ) |
|                                                                                                                |       |                                                                  |       |   |   |
| Denominator:                                                                                                        |       |                                                                  |       |   |   |
|                                                                                                                |       |                                                                  |       |   |   |
| Weighted-average common shares outstanding                                                                          |       | 14,854                                                                |       | 3,083 |   |
| Weighted-average unvested common shares subject to  repurchase                                                      |       | (372                                                                  | )          | (590 | ) |
| Weighted-average number of common shares outstanding  used in computing basic and diluted net loss per common share |       | 14,482                                                                |       | 2,493 |   |
|                                                                                                                |       |                                                                  |       |   |   |
| Basic and diluted net  loss per common share                                                                        |       | $                                                                     | (0.55      | ) | $ | (3.92 | ) |

 

The Condensed Statement of Operations for the threemonths ended March 31, 2006 has been restated from the amounts previouslyreflected in the Company’s Registration Statement on Form S-1 to reflect arevision in the weighted-average common shares outstanding, and the related netloss per share attributable to common stockholders.  Subsequent to the filing of the RegistrationStatement on Form S-1 on August 7, 2006, and the subsequent amendments thereto,the Company discovered an error in the calculation of the weighted-averagecommon shares outstanding, related to treatment of the restricted stock fromearly exercise of stock options.  As aresult, the weighted-average shares has been adjusted from approximately 2.02million post-split shares to approximately 2.5 million shares, and the net lossper share from $4.83 per share to $3.92 per share.

5

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Thefollowing table contains selected unaudited condensed statement of operationsdata:
|                                                                          | ** ** | **Fiscal 2006 Quarter Ended March 31, 2006** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                                               | ** ** | **As Restated**                                                       | ** ** | **As Previously Reported** | ** ** |
| ** **                                                               | ** ** | **(in thousands, except per share amounts)**      | ** ** |
| Net Loss                                                                 |       | $                                                                          | (4,107     | ) | $ | (4,107 | ) |
| Net loss  attibutable to common stockholders                             |       | $                                                                          | (9,785     | ) | $ | (9,785 | ) |
| Basic and  diluted net loss per share attibutable to common stockholders |       | $                                                                     | (3.92      | ) | $  | (4.83 | ) |
| Weighted average common  shares outstanding                              |       | 2,493                                                                      |       | 2,024 |   |

 

The following redeemable convertible preferred stockand stock options 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,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                               | ** ** | **2006** | ** ** |
| ** **                                            | ** ** | **(in thousands)**                                | ** ** |
|                                                  |       |                                                   |       |   |   |
| Redeemable  convertible preferred stock               |       | —                                                 |       | 11,373 |   |
| Options to  purchase common Stock                     |       | 1,853                                                  |       | 1,047 |   |
| Common stock  subject to repurchase                   |       | 350                                                    |       | 635 |   |
| Shares issuable through  Employee Stock Purchase Plan |       | 9                                                      |       | — |   |

 

***Recent AccountingPronouncements***

In February 2007, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting StandardsNo. 159, *The fair Value Option for Financial Assetsand Financial Liabilities—including an amendment of FAS115* (“SFASNo. 159”). SFAS No. 159 allows companies to choose, at specifiedelection dates, to measure eligible financial assets and liabilities at fairvalue that are not otherwise required to be measured at fair value. Unrealizedgains and losses shall be reported on items for which the fair value option hasbeen elected in earnings at each subsequent reporting date. SFAS No. 159also establishes presentation and disclosure requirements. SFAS No. 159 iseffective for the Company in fiscal year 2008 and will be applied prospectively.The Company is currently evaluating the impact of adopting SFAS No. 159 onits financial statements.

**NOTE 3 -  Investments**

The fair value of investments as of March 31, 2007 issummarized below:
| ** **                                                | ** ** | **Amortized**           | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair**  | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|----------------|------------|----------------|------------|-----------|------------|
| ** **                                                | ** ** | **Cost**                | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Value** | ** ** |
| ** **                                                | ** ** | **(in thousands)** | ** ** |
| Commercial paper                                          |       | $                       | 11,853     |           | $          | —         |       | $         | (18        | ) | $ | 11,835 |   |
| US Government  securities (maturities less than one year) |       | 27,173                  |       | 3              |       | (6             | )          | 27,170    |       |
| Corporate bonds  (maturities less than one year)          |       | 10,439                  |       | —         |       | (8             | )          | 10,431    |       |
| Total                                                     |       | $                       | 49,465     |           | $          | 3              |       | $         | (32        | ) | $ | 49,436 |   |

 

**NOTE 4 - CommonStock**

On January 22, 2007, the Company effected a1-for-2 reverse stock split of its common stock and redeemable convertiblepreferred stock pursuant to the filing of an Amended and Restated Certificateof Incorporation. Such Amended and Restated Certificate of Incorporation alsoprovided for the automatic conversion of the then outstanding shares ofredeemable convertible preferred stock into shares of common stock. All shareand per share amounts included in the Company’s condensed financial statementshave been adjusted to reflect this reverse stock split for all periodspresented.

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On February 1, 2007, the Company sold 4,700,000shares of its common stock at a public offering price of $16.00 per share. Netcash proceeds from the initial public offering were approximately $68.2million, after deducting underwriting discounts and commissions and otheroffering costs.  In connection with theclosing of the initial public offering, all of the Company’s shares ofSeries A, B, C and D redeemable convertible preferred stock outstanding atthe time of the offering were automatically converted into 14,744,196 shares ofcommon stock.

Each share of common stock has the right to onevote.  The holders of common stock areentitled to dividends when funds are legally available and when declared by theBoard of Directors.

***Restricted commonstock***

Certain common stockoption holders have the right to exercise unvested options, subject to arepurchase right held by the Company to repurchase the stock, at the originalexercise price, in the event of voluntary or involuntary termination ofemployment of the stockholder. In accordance with Emerging Issues Task ForceIssue No. 00-23, *Issues Relatedto the Accounting for Stock Compensation* under APB 25 and FASBInterpretation No. 44, *Accounting forCertain Transactions Involving Stock Compensation*, the Companyaccounts for the cash received in consideration for the early exercised optionsas a liability. As of March 31, 2007 and December 31, 2006, there wereapproximately 350,000 and 417,000 shares of common stock, respectively, subjectto repurchase, and a related liability of $141,000 and $167,000, respectively.

**NOTE 5 - StockOption Plans**

Stock option activity for the three month period endedMarch 31, 2007 is as follows:
|                              | ** ** | ** **                                                                               | ** ** | **Options Outstanding** | ** ** |
|------------------------------|------------|------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | ** **                                                                               | ** ** | ** **                   | ** ** | **Weighted** | ** ** |
| ** **                   | ** ** | **Shares**                                                                               | ** ** | **Number**                   | ** ** | **Average** | ** ** |
| ** **                   | ** ** | **Available**                                                                            | ** ** | **of**                       | ** ** | **Exercise** | ** ** |
| ** **                   | ** ** | **for Grant**                                                                       | ** ** | **Shares**                   | ** ** | **Price** | ** ** |
| ** **                   | ** ** | **(in thousands, except weighted average exercise price)** | ** ** |
|                         |       |                                                                                     |       |                         |       |   |   |
| Balances,  December 31, 2006 |       | 132                                                                                      |       | 1,894                        |       | $ | 3.09 |   |
|                         |       |                                                                                     |       |                         |       |   |   |
| Additional shares reserved   |       | 400                                                                                      |       | —                       |       |   |   |
| Options granted              |       | (65                                                                                      | )          | 65                           |       | 15.01 |   |
| Options exercised            |       | —                                                                                   |       | (67                          | )          | 0.57 |   |
| Options forfeited/expired    |       | 39                                                                                       |       | (39                          | )          | 3.80 |   |
| Balances, March 31,  2007    |       | 506                                                                                      |       | 1,853                        |       | $ | 3.59 |   |

 

***2006Employee Stock Purchase Plan***

In August 2006, the Company adopted the 2006Employee Stock Purchase Plan (“ESPP”), which became effective upon the Company’sinitial public offering on February 1, 2007. A total of 500,000 shares ofcommon stock have been reserved for issuance. In addition, the 2006 Employee Stock Purchase Plan provides for annualincreases in the number of shares available for issuance under the Plan on thefirst day of each fiscal year, beginning with the Company’s fiscal year 2008,equal to the lesser of: 3% of the outstanding shares of the Company’s commonstock on the first day of the fiscal year; 1,000,000 shares; or such otheramount as the Company’s Board of Directors may determine.  All of the Company’s employees are eligibleto participate if they are customarily employed by the Company for at least 20hours per week and more than five months in any calendar year.  However, an employee may not be granted anoption to purchase stock if such employee, immediately after grant, owns stockpossessing 5% or more of the total combined voting power or value of allclasses of the Company’s capital stock, or whose rights to purchase stock underall of the Company’s employee stock purchase plans accrues at a rate thatexceeds $25,000 worth of stock for each calendar year.

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Offering periods are scheduled to start on the firsttrading day on or after May 15 and November 15 of each year, except for thefirst such offering period, which commenced on February 1, 2007, uponcompletion of the Company’s initial public offering, and will end on the firsttrading day on or after May 15, 2007. The 2006 Employee Stock Purchase Plan permits participants to purchasecommon stock through payroll deductions of up to 15% of their eligiblecompensation which includes a participant’s base salary, wages, overtime andshift premium, commissions, but exclusive of payments for incentivecompensation, bonuses and other compensation. A Participant may purchase a maximum of 1,250 shares during a six-monthpurchase period.

Amounts deducted andaccumulated by the participant are used to purchase shares of the Company’scommon stock at the end of each six-month purchase period.  The purchase price of the shares will be 85%of the lower of the fair market value of the Company’s common stock on thefirst trading day of each offering period or on the exercise date.  If the fair market value of the Company’scommon stock on the exercise date is less than the fair market value on thefirst trading day of the offering period, participants will be withdrawn fromthe current offering period following their purchase of shares on the purchasedate and will be automatically re-enrolled in a new offering period.  Participants may end their participation atany time during an offering period, and will be paid their accrued payrolldeductions that have not yet been used to purchase shares of common stock.  Participation ends automatically upontermination of employment with the Company. The 2006 Employee stock purchase plan will automatically terminate in2016, unless the Company terminates it sooner. Through March 31, 2007, no shares have been issued in connection withthe 2006 Employee Stock Purchase Plan.

**NOTE 8 – Income Taxes**

Effective January 1, 2007, the Company adopted theprovisions of FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes: An Interpretation of FASB StatementNo. 109* (“FIN No. 48”). As of January 1, 2007, the Company has no unrecognized tax benefit.  The adoption of FIN 48 resulted in no changeto the reserve for unrecognized tax benefits that existed at January 1, 2007,and there is no change recorded to the beginning retained earnings as a resultof the adoption of FIN 48.

The Company’s practice isto recognize interest and/or penalties related to income tax matters in incometax expense.  The Company had no accrualfor interest or penalties at March 31, 2007.

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 -Subsequent Event**

In April 2007, the Companyentered into a supply agreement with Fortimedix B.V., a company organized underthe laws of the Netherlands, under which Fortimedix agreed to manufacture anddeliver stents for use in the Company’s products.  The terms of the agreement require minimumpurchases over the next two years at contractual prices set in Euros.  The Company estimates that the total minimumobligation under this agreement will be at least $6.4 million through the endof the calendar year 2008, calculated using the Euro to dollar exchange rate asof the date the agreement was signed.

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

**Introduction**

The following discussion should be read in conjunctionwith the financial statements and the related notes included in this Form 10-Q,in our Form 10-K for the year ended December 31, 2006 and in our other filingswith the Securities and Exchange Commission (“SEC”). This Quarterly Report on Form 10-Q contains forward-lookingstatements within the meaning of the federal securities laws. These statementsinclude, but are not limited to, those concerning the following: future events, our future financial performance,business strategy, product introductions and plans and objectives of managementfor future operations, regulatory approvals and clinical timelines.Forward-looking statements are subject to risks and uncertainties that couldcause actual results and events to differ materially. For a detailed discussionof these risks 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.

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**Overview**

We are a development stage medical device companyfocused on developing and commercializing our proprietary Custom NX® drugeluting stent, or DES, Systems to treat coronary artery disease, or CAD. Sinceinception we have devoted substantially all of our resources to start-upactivities, raising capital and research and development, including productdesign, testing, manufacturing and clinical trials. We have focused ourdevelopment efforts on creating our Custom NX DES Systems, which allow aphysician to deploy single or multiple stents of customizable lengths with asingle device. Our stent systems, the Custom NX 36 and the Custom NX 60,incorporate a modular cobalt chromium stent design as well as a proprietarydelivery system. In addition, our stents have a drug coating that is made up ofBiolimus A9, an anti-inflammatory drug, and PolyLactic Acid, a biodegradablepolymer, which in combination are intended to reduce the incidence ofrestenosis, or renarrowing of the previously treated artery over time.  We have not yet received any governmentregulatory approvals necessary to commercialize any of our products.

We are developing 36mm and 60mm stent systems based onour proprietary technology platform. Our stent design is modular in that itconsists of multiple 6mm segments in which the ends of each segment interleavewith the ends of the adjacent segments, or are interdigitated. Thisinterdigitated modular stent design allows the physician to customize the stentlength and deploy the necessary stent segments in the artery in-situ. Ourdelivery system incorporates a protective sheath and a proprietary mechanism tocontrol the number of stent segments deployed. Our first two stent systems indevelopment are the 36mm Custom NX 36 and the 60mm Custom NX 60. Webelieve these two systems will enable physicians to provide a therapeuticsolution for the majority of CAD patients treated with currently marketed drugeluting stents. Our Custom NX 36 is customizable in length anddesigned to treat single or multiple lesions. Our Custom NX 60 isdesigned to give physicians a suitable length stent to treat one long lesion ormultiple smaller lesions with the use of one device, reducing the need formultiple catheter exchanges and related device costs. We believe the ability tocustomize our stent and potentially treat multiple lesions and long lesionswith one catheter may improve procedural efficacy and efficiency and lower costs.

We are conducting clinical trials to evaluate ourCustom NX 36 and Custom NX 60 stent and stent delivery systems.In May 2006, the eight month clinical data from our CUSTOM I clinicaltrial was presented at the 2006 Paris Course on Revascularization conferenceand in October 2006, six month clinical data from our CUSTOM IIclinical trial for 40 patients was presented at the 2006 TranscatheterCardiovascular Therapeutics conference. We believe the data from these clinicaltrials provided preliminary evidence of safety and efficacy and supportsfurther development of our in-situ customization approach. In 2006 we completedenrollment of our CUSTOM II clinical trial and initiated ourCUSTOM III clinical trial, both of which are designed to further evaluate thesafety and efficacy of in-situ customization with our stents, particularly inpatients with long lesions and multiple lesions. Assuming the results fromthese trials are favorable, we believe the data from our CUSTOM I, IIand III clinical trials will be sufficient to support our submission to ourdesignated Notified Body in the European Union for CE Mark. We expect to submitour application for CE Mark in late 2007. We will need premarket approval, orPMA, from the U.S. Food and Drug Administration, or FDA, before we canmarket our products in the United States, which we expect will requiredata from large clinical trials of up to 2,500 patients. To initiate theseclinical trials, we must first obtain clearance of an investigational deviceexemption, or IDE, from the FDA.

In anticipation of approval of our products, we planto increase our manufacturing capacity and personnel to enable us to producecommercial quantities of our products. We anticipate that it will take time toincrease our capacity and, as a result, expansion will be initiated prior tothe anticipated approval of our products. Prior to obtaining regulatoryapproval, we may also begin to hire sales and marketing personnel. Following CEMark approval in the European Union, we intend to commercialize ourCustom NX DES Systems in key markets in both Europe and Asia Pacific.We expect to rely on third-party distributors, with our sales and clinicalsupport, in select markets in Europe, all of Asia Pacific and the rest of theworld. Following FDA approval, we expect to market our products in theUnited States through a direct sales force.

To date, we have not generated any revenue from ourdevelopment activities and will not be able to generate revenue until one ofour products is approved, if ever. We have incurred net losses in each yearsince our inception in June 2002. Through March 31, 2007, we had anaccumulated deficit of approximately $62.0 million. We expect our losses tocontinue to increase as we expand our clinical trial 

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activitiesand initiate commercialization activities. Since inception we have financed ouroperations primarily through private placements of equity securities, and onFebruary 1, 2007 we completed the initial public offering of our commonstock which raised net proceeds of approximately $68.2 million.

In May 2004, we entered into a license agreementwith Biosensors International Group Ltd. (formerly Sun Biomedical Ltd.) andBiosensors Europe S.A. (formerly Occam International B.V.). Pursuant to theagreement, we obtained worldwide non-exclusive rights to use Biosensors’ drugcoating on our products, and agreed to pay specified minimum royalties androyalties based on net sales of our products.

**Financial Operations**

***Revenue***

To date, we have not generated any revenue from thesale of our stent systems. We do not expect to generate revenue until 2008 atthe earliest, subject to obtaining CE Mark.

***Research andDevelopment***

Our research and development expenses consistprimarily of product development, pre-clinical trials, clinical trials andregulatory expenses as well as the cost of manufacturing products for clinicaltrials. Research and development expenses include employee compensationincluding stock-based compensation, supplies and materials, consultingexpenses, license payments for acquired technology, travel and facilities. Wealso incur significant expenses to operate our clinical trials including trialdesign, clinical site reimbursement, data management and travel expenses. Fromour inception through March 31, 2007, we incurred $49.7 million inresearch and development expenses.

***General andAdministrative***

General and administrative expenses consist primarilyof compensation for executive, finance, marketing and administrative personnelincluding stock-based compensation. Other significant expenses includeprofessional fees for accounting and legal services associated with our effortsto obtain and maintain protection for intellectual property related to ourCustom NX DES Systems. From our inception through March 31, 2007, weincurred $14.7 million in general and administrative expenses.

**Results of Operations**

***Comparison of ThreeMonths Ended March 31, 2007 and 2006***

***Revenue.  ***We did not generate any revenue during the three monthsended March 31, 2007 or 2006.

***Research andDevelopment.  ***Research and developmentexpenses were $6.2 million for the three months ended March 31, 2007, comparedto $3.3 million for the three months ended March 31, 2006. The increase of $2.9million was primarily due to higher personnel expenses of $1.2 million foradditional employees hired in our research and development department,$1.3 million for prototype parts, supplies, and outside services relatedto product development for our Custom NX DES systems, $154,000 of expensesrelated to the support of our clinical research studies, and $143,000 due toincreased depreciation on equipment and facilities expenses. We expect ourresearch and development expenses to increase significantly as we continue thedevelopment of our Custom NX DES Systems and conduct additional clinicaltrials.

***General andAdministrative.  ***General and administrativeexpenses were $2.5 million for the three months ended March 31, 2007, comparedto $941,000 for the three months ended March 31, 2006. The increase of $1.5 millionwas primarily due to higher personnel expenses of $748,000 for additionalemployees hired in marketing and administration, $358,000 due to increasedspending for consulting, trade shows and marketing materials, $295,000 due toincreased legal and professional expenses related to operating as a publiccompany, and an increase of $120,000 related to insurance and otheradministrative expenses related to becoming a public company. We expect ourgeneral and administrative expenses to increase significantly due to the costsassociated with operating as a publicly traded company and the costs associatedwith the commercialization of our products.

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***InterestIncome.  ***Interest income was $749,000 for thethree months ended March 31, 2007, compared to $108,000 for the three monthsended March 31, 2006. The increase of $641,000 was due primarily to higher cashbalances as a result of our initial public offering as well as a modestincrease in interest rates.

***BeneficialConversion Feature.******  ***In January 2006, we completedthe issuance and sale of 4,684,892 shares of Series C convertiblepreferred stock at $5.42 per share, which price was determined by our board ofdirectors pursuant to negotiations with the investors in that round offinancing. In connection with our preparation of the financial statementsnecessary for our public offering, we reassessed the fair value of our commonstock for financial accounting purposes. Based on this reassessment, we determined the fair value of our commonstock in January 2006 to be $8.56 per share. When we issue equitysecurities that are convertible into common stock at a discount from the commonfair value at the commitment date, the difference between the fair value of thecommon stock and the conversion price multiplied by the number of sharesissuable upon conversion is recognized as a beneficial conversion feature. Thebeneficial conversion feature is presented as a deemed dividend to the relatedsecurity holders with an offsetting amount to additional paid in capital and willbe amortized over the period from the issue date to the first conversion date.Since the equity securities are immediately convertible into common stock bythe holder at any time, we recorded and immediately amortized a beneficialconversion charge, or deemed dividend, of approximately $5.7 million inconnection with our Series C convertible preferred stock financing inJanuary 2006.  No beneficialconversion charge has been recognized in the three month period endingMarch 31, 2007.

**Liquidity and Capital Resources**

***Sources ofLiquidity***

We are in the development stage and have incurredlosses since our inception in June 2002. As of March 31, 2007, we hadan accumulated deficit of $62.0 million. Prior to our initial public offering,we funded our operations from the private placements of our convertiblepreferred stock resulting in aggregate net proceeds of $75.6 million throughDecember 31, 2006. On February 1, 2007, we completed our initialpublic offering, raising $68.2 million in net proceeds.

As of March 31, 2007, we did not have anyoutstanding or available debt financing arrangements, we had working capital of$83.0 million, and our primary source of liquidity was $85.7 million in cashand cash equivalents and short term investments.

***Cash Flows***

***Cash Flows fromOperating Activities.  ***Net cash used inoperating activities was $6.2 million for the three months ended March 31,2007, compared to $3.4 million for the three months ended March 31, 2006. Thenet cash used in operating activities primarily reflects expenses related toproduct development and clinical trials. These expenses were offset in part by depreciation and amortization,non-cash stock-based compensation and non-cash changes in operating assets andliabilities.

***Cash Flows fromInvesting Activities.  ***Net cash used ininvesting activities during the three months ended March 31, 2007 was $49.8million compared to $251,000 for the three months ended March 31, 2006. Cashused in investing activities for the three months ended March 31, 2007 reflects$49.4 million related to purchases of investments with cash raised by ourinitial public offering in February 2007. Purchases of property and equipment were $432,000 and $251,000 in thethree months ending March 31, 2007 and 2006, respectively.

***Cash Flows fromFinancing Activities.  ***Net cash provided byfinancing activities for the three months ended March 31, 2007 was$69.2 million, compared with $9.9 million for the three months ended March31, 2006. Net cash provided by financing activities for the three months endedMarch 31, 2007 was primarily attributable to our initial public offering inFebruary 2007.  Net cash provided byfinancing activities for the three months ended March 31, 2006 was primarilyattributable to the issuance of convertible preferred stock.

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***Operating Capitaland Capital Expenditure Requirements***

To date, we have not commercialized any products. Wedo not anticipate generating any revenue unless and until we successfullyobtain CE Mark or FDA marketing approval for, and begin selling, our Custom NXDES Systems. We anticipate that we will continue to incur substantial netlosses for the next several years as we develop our products, conduct andcomplete clinical trials, pursue additional applications for our technologyplatform, expand our clinical development team and corporate infrastructure,and prepare for the potential commercial launch of our products.

We believe our cash and cash equivalents and shortterm investments and interest income we earn on these balances, will be sufficientto meet our anticipated cash requirements for at least the next 14 months.If our available cash and cash equivalents are insufficient to satisfy ourliquidity requirements, or if we develop additional products or pursueadditional applications for our products, we may seek to sell additional equityor debt securities or obtain a credit facility. The sale of additional equityand debt securities may result in additional dilution to our stockholders. Ifwe raise additional funds through the issuance of debt securities, thesesecurities could have rights senior to those of our common stock and couldcontain covenants that would restrict our operations. We may require additionalcapital beyond our currently forecasted amounts. For example, we will need toraise additional funds in order to build our sales force and commercialize ourproducts. Any such required additional capital may not be available onreasonable terms, if at all. If we are unable to obtain additional financing,we may be required to reduce the scope of, delay, or eliminate some or all of,our planned clinical trials, research, development and commercializationactivities, which could materially harm our business.

We anticipate spending approximately$40.0 million to complete our CUSTOM III, IV and V clinical trials.In addition, we will spend additional funds for regulatory approvals and foractivities to commercialize our Custom NX DES Systems, if approved. Thedevelopment of any new applications of our custom length stent technology andnew products will also require the expenditure of significant financialresources and take several years to complete. We expect to fund the developmentof potential products with the proceeds from our initial public offeringtogether with our existing cash and cash equivalents balances and revenue fromthe sales of our Custom NX DES Systems, if approved.

Our forecasts for the period of time through which ourfinancial resources will be adequate to support our operations and the costs tocomplete development of products are forward-looking statements and involverisks and uncertainties, and actual results could vary materially andnegatively as a result of a number of factors, including the factors discussedin the “Risk Factors” contained in Section 1A of Part II of this report.We have based these estimates on assumptions that may prove to be wrong, and wecould utilize our available capital resources sooner than we currently 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. Our future fundingrequirements will depend on many factors, including but not limited to:

·       thescope, rate of progress and cost of our clinical trials and other research anddevelopment activities;

·       thecost of filing and prosecuting patent applications and defending and enforcingour patent and other intellectual property rights;

·       thecost of defending, in litigation or otherwise, any claims that we infringethird-party patent or other intellectual property rights;

·       theterms and timing of any collaborative, licensing and other arrangements that wemay establish;

·       thecost and timing of regulatory approvals;

·       thecost and timing of establishing sales, marketing and distribution capabilities;

·       thecost of establishing clinical and commercial supplies of our products and anyproducts that we may develop;

·       theeffect of competing technological and market developments; and

·       licensingtechnologies for future development.

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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.

***ContractualObligations***

In April 2007, we entered into a supply agreement withFortimedix B.V., a company organized under the laws of the Netherlands, underwhich Fortimedix agreed to manufacture and deliver stents designed by us foruse in our Custom NX DES system.  Thesupply agreement requires that we purchase a certain minimum number of thestents during each period at contractual prices set in Euro and also requiresFortimedix to build and maintain the production capacity to meet these minimumvolume purchase requirements.  Theinitial term of the agreement ends on March 18, 2010 and will be automaticallyextended for successive one year periods unless either party terminates theagreement by giving notice at least six months prior to the initial term or anyextension period.  We estimate that ourtotal minimum obligation under this agreement will be at least $6.4 million throughthe end of the calendar year 2008.  Thisamount was calculated using the Euro to dollar exchange rate as of the date theagreement was signed. After the end of the calendar year 2008, we have nofurther obligation to purchase stents from Fortimedix unless the partiesotherwise agree in writing on or before January 31, 2008.

**Off-Balance Sheet Arrangements**

Since inception, we have not engaged in anyoff-balance sheet activities as defined in Regulation S-KItem 303(a)(4).

**Critical Accounting Policies andEstimates**

Our management’sdiscussion and analysis of our financial condition and results of operationsare based on our financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. Thepreparation of these financial statements requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the financialstatements as well as the reported revenue and expenses during the reportingperiods. We evaluate our estimates and judgments on an ongoing basis. Actualresults may differ materially from these estimates under different assumptionsor conditions.

**Recent Accounting Pronouncements**

In February 2007, the FASB issued Statement ofFinancial Accounting Standards No. 159, *Thefair Value Option for Financial Assets and Financial Liabilities—including anamendment of FAS115*, or SFAS No. 159. SFAS No. 159 allowscompanies to choose, at specified election dates, to measure eligible financialassets and liabilities at fair value that are not otherwise required to bemeasured at fair value. Unrealized gains and losses shall be reported on itemsfor which the fair value option has been elected in earnings at each subsequentreporting date. SFAS No. 159 also establishes presentation and disclosurerequirements. SFAS No. 159 is effective for us in fiscal year 2008 andwill be applied prospectively. We are currently evaluating the impact ofadopting SFAS No. 159 on our financial statements.

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

Our exposure to interest rate risk at March 31, 2007is related primarily to our investment portfolio. Our investment portfolioincludes a variety of marketable securities, including commercial paper andU.S. government securities.  Achange in prevailing interest rates may cause the fair value of our investmentsto fluctuate.  For example, if we hold asecurity that was issued with a fixed interest rate at the then-prevailing rateand the prevailing rate rises, the fair value of the principal amount of ourinvestment will probably decline.  Tominimize this risk, investments are generally held to maturity, and we balanceportfolio maturities to both meet cash flow requirements and limit possiblelong term interest rate risks.

We have entered into a supply agreement withFortimedix B.V. which requires that we purchase certain minimum volumes ofstents at contractual prices set in Euro. We estimate that our total minimum 

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obligationunder this agreement will be at least $6.4 million through the end of thecalendar year 2008, and this could increase based on foreign currency ratefluctuations.  For the purposes of theforegoing estimate, we have used the Euro to dollar exchange rate as of thedate the agreement was signed. We do not believe this presents a materialfinancial exposure, and do not plan to hedge against foreign currencyfluctuations.

**ITEM 4T. 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’srules and forms, and that such information is accumulated and communicatedto our management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

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 inRules 13a-15(e) and 15d-15(e) under the Exchange Act). Basedupon this evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective as ofMarch 31, 2007.

There were no changes in our internal control overfinancial reporting that occurred during our most recent fiscal quarter thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

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**PART II:OTHER INFORMATION**

**ITEM 1. LEGAL PROCEEDINGS**

##### None

**ITEM 1A. RISK FACTORS**

**Risks Related toOur Business**

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

We have incurred net lossessince our inception in June 2002. For the years ended December 31,2004, 2005, and 2006, we had net losses of $8.9 million,$14.0 million and $25.0 million, respectively. Through March 31,2007, we had an accumulated deficit of $62.0 million. To date, we havefinanced our operations primarily through private placements of our equitysecurities and our initial public offering, completed on February 1, 2007, andhave devoted substantially all of our resources to research and development ofour Custom NX DES Systems, which consist of the Custom NX 36 and the Custom NX60. Since we have not received a CE Mark or approval from the U.S. Foodand Drug Administration, or FDA, or any other regulatory authority for ourproducts, we are unable to market our current products and have not generatedany revenue since our inception. We expect our research and developmentexpenses to increase significantly in connection with our clinical trials andother product development activities. If we receive CE Mark or FDA approval ofour Custom NX DES Systems, we expect to incur significant sales and marketingexpenses and manufacturing expenses as we commercialize our products.Additionally, we expect that our general and administrative expenses willincrease due to the additional operational and reporting costs associated withbeing a public company. As a result, we expect to continue to incur significantand increasing operating losses for the foreseeable future. These losses willcontinue to have an adverse effect on our stockholders’ equity.

**We are whollydependent on a third party for the development of the drug coating placed onour drug eluting stents and any delay or failure by such third party tosuccessfully develop the drug coating or to submit an acceptable MAF toregulatory authorities could delay our clinical trials or prevent or delaycommercialization of our Custom NX DES Systems.**

In May 2004, weentered into a license agreement with Biosensors. Pursuant to the agreement, weobtained non-exclusive rights to use Biosensors’s drug coating on our stentplatform. The drug coating consists of Biolimus A9®, an anti-inflammatory drugthat is a derivative of rapamycin, and PolyLactic Acid, or PLA, a biodegradablepolymer used to release the drug over time. The drug coating has not beenapproved for any use in the European Union, the United States or any otherjurisdiction. In April 2005, Biosensors submitted its first module for themaster file, or MAF, for the Biolimus A9 and PLA formulation with itsdesignated Notified Body, an independent third party appointed by regulatoryauthorities to conduct the requisite conformity assessment, in conjunction withBiosensors’ application for CE Mark of its BioMatrix drug eluting stent.Biosensors does not have any prior experience in developing or manufacturingdrugs or obtaining regulatory approval for drugs or drugs used in combinationwith a medical device in any jurisdiction.

In May 2006,Biosensors publicly disclosed that it had responded to all requests foradditional information received from its designated Notified Body or therelevant drug authority; however, there can be no assurance that the NotifiedBody will accept Biosensors’ MAF in its filed form, even with the inclusion ofthe additional requested data. We have not been involved with, or had accessto, any of Biosensors’ filings with its designated Notified Body or therelevant regulatory authorities in the European Union. There is a significantchance that the designated Notified Body, after continued deliberations, mayrequest additional data or tests that could be time consuming for Biosensors toprovide. The designated Notified Body who will be reviewing our CE Markapplication will be given access to Biosensors’ MAF in connection with ourapplications for CE Mark. Biosensors will have to obtain a favorable opinionfrom the relevant drug authority on its MAF before our designated Notified Bodycan provide us with CE Mark approval. Biosensors has made no public disclosureregarding any filings it may have made with the FDA in connection with its MAFfor the drug coating. If Biosensors experiences delays or problems indeveloping a MAF that we need to reference in our application for CE Mark inthe European Union or our 

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PMA application in theUnited States, our currently planned clinical trials and the development of ourproducts may be substantially delayed and we may be required to restartclinical programs with an alternative drug coating.  In the event we experience these delays orneed to restart clinical programs our regulatory and commercializationtimelines will need to be extended and we may experience a significant declinein our stock price.

**We currently donot have, and may never have, any products available for sale and our effortsto obtain product approvals and commercialize our products may not succeed ormay result in delays for many reasons.**

Weare a development stage medical device company with a limited history ofoperations and we currently do not have any products available for sale orother sources of revenue. Our ability to generate revenue depends entirely uponthe successful clinical development, regulatory approval and commercializationof our Custom NX DES Systems. Our products under development and any otherproducts that we develop will require extensive additional clinical testing,regulatory approval and significant marketing efforts before they can be soldand generate any revenue. Our efforts to commercialize our products may notsucceed for a number of reasons including:

·       our products may notdemonstrate safety and efficacy in our clinical trials;

·       we are wholly dependent onthe efforts undertaken by the supplier of the drug coating for our products,and may be significantly impacted by any regulatory delays or barriers that oursupplier may encounter in submitting an adequate or acceptable master file, or MAF,for the drug coating to the regulatory authorities;

·       we may not be able toobtain regulatory approvals for our products, or the approved indications forour products may be narrower than we seek;

·       we may experience delays inour development program, including initiation and completion of our clinicaltrials;

·       any products that areapproved may not be accepted in the marketplace by physicians and patients;

·       physicians may not receiveadequate coverage and reimbursement for procedures using our products;

·       any rapid technologicalchange may make our technology and products obsolete;

·       we may not be able tomanufacture our Custom NX DES Systems in commercial quantities or at anacceptable cost;

·       we may not have adequatefinancial or other resources to complete the development and commercializationof our Custom NX DES Systems; and

·       we may be sued forinfringement of intellectual property rights and could be enjoined frommanufacturing or selling our products.

We cannot market ourproducts in the European Union until we receive a CE Mark or in the UnitedStates until we receive premarket approval, or PMA. The earliest we expect tobe able to commercialize our products in the European Union is in the secondhalf of 2008, if at all, and in the United States is in the first half of 2010,if at all. If we are not successful in the initiation and completion ofclinical trials for the development, approval and commercialization of ourCustom NX DES Systems for the treatment of coronary artery disease, or CAD, wemay never generate any revenue and may be forced to cease operations.

**We have notreceived, and may never receive, FDA or other regulatory approvals to marketour Custom NX DES Systems.**

In addition to thesubmission of a MAF, that is acceptable to regulatory authorities, by thesupplier for the drug coating that we use on our products, which we intend toreference in the regulatory applications for our products, we must obtainregulatory approval to market our drug eluting stents. Our Custom NX 

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DES Systems arecombination products, incorporating both a drug element and a medical device,and the combination device will be regulated as a Class III medical devicein the United States. The drug coating for our stents will be reviewed bythe FDA’s Center for Drug Evaluation and Research, or CDER, and the device willbe reviewed by the FDA’s Center for Devices and Radiological Health, or CDRH,with the overall product approved by CDRH as a medical device. We believe thatno separate approval for the drug independent of the device is required.

We donot currently have the necessary regulatory approvals to market our Custom NXDES Systems or any other products in the United States or in any foreignmarket, including the European Union. If we obtain the necessary regulatoryapprovals, we plan initially to launch our products in the European Union andlater in the United States. Regulatory approval in the European Union forour products will require us to successfully obtain CE Mark from a designatedNotified Body. The regulatory approval process in the United States forour products involves, among other things, successfully receiving authorizationfrom the FDA to conduct clinical trials under an investigational deviceexemption, or IDE, completing pre-clinical and clinical trials, and applyingfor and obtaining pre-market approval, or PMA, from the FDA. The PMA processrequires us to demonstrate the safety and efficacy of our products to the FDA’ssatisfaction. This process is expensive and uncertain and requires detailed andcomprehensive scientific and human clinical data. While the FDA review processgenerally takes one to three years after filing the PMA application, our PMAapplication review could take much longer and may never result in the FDAgranting PMA. The FDA can delay, limit or deny approval of our PMA applicationfor many reasons, including:

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

·       the data from ourpre-clinical studies and clinical trials may be insufficient to supportapproval;

·       the manufacturing processor facilities we or our suppliers use may not meet stringent regulatoryrequirements;

·       the information provided bythe supplier of the drug coating in its MAF may be inadequate; and

·       changes in FDA approvalpolicies or adoption of new regulations may require us to provide additionaldata.

Wewill also have to obtain similar, and in some cases more stringent, foreignregulatory approval in order to commercialize our products outside of theUnited States. Even if approved, our Custom NX DES Systems may not be approvedfor the indications that are necessary or desirable for successful commercialization.We may not obtain the necessary regulatory approvals to market our products inthe European Union, United States or in other markets. Any delay in, or failureto receive or maintain, approval for our products could prevent us fromgenerating revenue or achieving profitability.

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**Preliminary third-partydata has raised concerns that drug eluting stents may cause an increase inlate-stent thrombosis. In the event that regulatory authorities determine thatsuch concerns are valid or otherwise require additional study and analysis, wemay experience a delay in obtaining or we may be unable to obtain regulatoryclearances for our products and, even if approved, the market acceptance of ourproducts may be significantly impaired.**

OnSeptember 14, 2006, the FDA issued a *Statementon Coronary Drug-Eluting Stents*, which discusses recent clinicaldata presented at the March 2006 American College of Cardiology ScientificSessions in Atlanta, Georgia and the September 2006 European Society ofCardiology Annual Meeting/World Congress of Cardiology Meeting in Barcelona,Spain. This data suggested a small but significant increase in the rate ofdeath and myocardial infarction, or heart attack, potentially due to late-stentthrombosis, in patients treated with drug eluting stents at 18 months tothree years after stent implantation. The FDA stated that, while these studieshave raised important questions regarding the safety and efficacy of drugeluting stents, it is not possible to fully characterize the mechanisms, risksand incidence rates of late-stent thrombosis following implantation of drugeluting stents based on currently available data. The FDA convened a publicmeeting of its Circulatory System Devices Advisory Panel on December 7 and8, 2006 with the intention of obtaining additional information on the risks,timing and incidence rates of late-stent thrombosis. The Panel made thefollowing statements in response to the FDA’s questions:

·       The Panel was in generalagreement that drug eluting stents, when used in accordance to their FDAapproved labeled indications, are associated with a clinically importantnumerical excess of late-stent thromboses (after one yearpost-implantation) compared to bare metal stents; however, the magnitude ofthis excess is uncertain and additional data is needed.

·       Based on the analysespresented by the two manufactures of currently marketed drug eluting stents inthe United States, the Panel concluded that drug eluting stents were notassociated with an increased risk of death or heart attacks compared to baremetal stents despite an apparent increase in late-stent thrombosis rates afterone year following implantation of the devices.

·       The Panel requestedlonger-term follow-up and an increased number of patients in future drug elutingstent clinical trials.

·       The Panel reached consensusthat the drug eluting stent safety concerns do not outweigh their benefitscompared to bare metal stents when used within the limits of the currentlyapproved FDA indications.

·       The Panel discusseddifferent options for modifying the labeling of drug eluting stents, and was inconsensus that labels should include a reference to the current PCI PracticeGuidelines for the duration of antiplatelet therapy following the implantationof a drug eluting stent.

ThePanel’s opinion is advisory and the FDA has not issued final conclusions orrecommendations from this meeting. We cannot assure you that any long-termdata produced in response to the Panel’s request will support its currentconclusions and the FDA may determine to alter or change its determinationregarding the safety and efficacy of drug eluting stents. Any adversedetermination by the FDA regarding the safety and efficacy of drug elutingstents would have a significant adverse impact on our business.

**If Biosensorsfails to supply us with sufficient quantities of our drug coating, developmentand commercialization of our Custom NX DES Systems may be prevented or delayedas a result.**

Weobtain our entire supply of the drug coating for our stents from Biosensors andwe are unaware of any alternative source for this drug coating. We do not havethe right to use alternate suppliers for the drug coating that we obtain fromBiosensors. In addition, there is no other source for the drug coating and we arecontractually restricted from commercializing any of our products thatincorporate a rapamycin drug or any derivative thereof or obtaining Biolimus A9from any other source and we have not in-licensed an alternative drug for usein the event we are unable to obtain a sufficient supply of Biolimus A9.Currently, Biosensors relies on a sole-source, Nippon Kayaku, a third-partyJapanese pharmaceutical company, to manufacture and supply them with BiolimusA9, which Biosensors mixes with the PLA. We have no relationship with, controlover, or contact with this pharmaceutical company and cannot contract directly 

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withit to obtain Biolimus A9 if we are unable to obtain Biolimus A9 fromBiosensors. In addition, the pharmaceutical company is subject to significantlegal and regulatory requirements with regard to the production of Biolimus A9,including onerous current Good Manufacturing Practices regulations, or GMP,which are strictly enforced by the FDA, and the Ministry of Health, Labor, andWelfare in Japan and any failure on the part of the pharmaceutical company tocomply with these requirements may interrupt Biosensors’ supply ofBiolimus A9 and ultimately, our supply of the drug coating. Biosensors hasalso entered into, and may continue to enter into, agreements to supply thedrug coating to other licensees. Our clinical trials and the development andcommercialization of our Custom NX DES Systems could be prevented or delayedif:

·       the supplier of our drugcoating is unable or refuses to meet our demand;

·       our license agreement withBiosensors terminates for any reason, including insolvency or our failure toobtain CE Mark or commercialize our products before May 2008; or

·       the supplier of our drugcoating does not meet regulatory quality requirements and other specifications.

Todate, our drug coating requirements have been limited to small quantities thatwe need to conduct our development and pre-clinical and clinical trials. If weobtain market approval for our products, we anticipate that we will requiresubstantially larger quantities of the drug coating. Biosensors may not provideus with sufficient quantities of the drug coating and such supply may not meetour quality requirements or other specifications. In the event we do notreceive adequate supply of the drug coating, we will likely be unable to locatean alternative supplier of the drug coating, or any alternative drug, in atimely manner or on commercially reasonable terms, if at all. Any additionalnew source for Biolimus A9, the PLA or the drug coating will require theconsent of Biosensors and prior FDA approval, which will require significanttime and effort to obtain and there can be no assurance that we will obtainsuch regulatory approval. The inability to obtain sufficient quantities of thedrug coating or any delay in obtaining such supply could delay our clinicaltrials or affect the commercialization of our Custom NX DES Systems, whichcould have a significant adverse affect on our future operations.

**We rely on thirdparties to test the drug coating for our stents, and these third parties mayuse test methods that others may claim as their own. If we must obtain alicense to use these methods or develop new testing methods, we may experiencedelays in our ability to initiate clinical trials or to obtain regulatoryapprovals for our products as a result.**

Certaintests related to the drug coating on our stents must be performed before thestents can be used in U.S. clinical trials or approved for commercial sale. TheCompany and Biosensors have agreed that the Company will be responsible forperforming some of these tests. We have not developed the technology or methodsto perform this testing in-house, and plan to rely on third parties to conductthe testing. We have identified certain third parties who we believe have thecapability to conduct this testing using methods that do not violate theproprietary rights of others. We can provide no assurance, however, that thesetesting methods will not violate such rights. If others assert rights to thesetesting methods, we may need to obtain a license giving us the right to use thetesting methods or identify or develop other methods for performing therequired testing. We cannot assure you that a license will be available to usor that it will be available on terms that are agreeable to us. If we areunable to obtain a license, we cannot assure you that we will be able toidentify or develop alternate testing methods that meet our needs withoutdelaying our regulatory submissions or approvals. This may result in a delay inthe release of, or an inability to release, our stents for use in U.S. clinicaltrials or commercial products and our ability to generate revenue would beadversely affected as a result.

**We do not havelong-term data regarding the safety and efficacy of our Custom NX DES Systems.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.**

Animportant factor in our clinical trials, upon which the safety and efficacy ofour Custom NX DES Systems may be measured, is the rate of restenosis, or therenarrowing of the treated artery over time, and the rate of reintervention, orretreatment following the procedures using the Custom NX DES Systems. Webelieve that physicians and regulators will compare the rates of long-termrestenosis and reintervention for our Custom NX DES Systems against other drugeluting or bare metal stent procedures and other alternative procedures.

If,in our planned large-scale comparative pivotal clinical trial, we fail todemonstrate restenosis and reintervention rates, as well as other clinicaltrial end-points and performance, comparable to other drug eluting and bare metalstents that have been approved by the FDA, our ability to successfully marketCustom NX DES Systems may be significantly limited. If the long-term rates ofrestenosis and reintervention do not meet regulators’ or physicians’expectations, our Custom NX DES Systems may not receive regulatory approval or,if approved, may not become widely adopted and physicians may recommend thatpatients receive alternative drug eluting stents, such as the Cypher® stent andthe Taxus® Express2TM stent, the two drug eluting stents currentlymarketed in the United States. Another important factor upon which the safetyand efficacy of our Custom NX DES Systems will be measured is the incidence oflate-stent thrombosis following procedures using our drug eluting stents.Recent clinical data suggests a small but significant increase in the rate ofdeath and heart attack, possibly due to late-stent thrombosis. The FDAconvened a public meeting of its Circulatory System Devices Advisory Panel onDecember 7 and 8, 2006 with the intention of obtaining additionalinformation on the risks, timing and incidence rates of late-stentthrombosis. See “—Preliminary third-party data has raised concerns thatdrug eluting stents may cause an increase in late-stent thrombosis.”

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We cannot assure you thatour long-term data, once obtained, will be different than that suggestedin the recent studies regarding late-stent thrombosis.

Additionally,other efficacy factors may influence a physician’s decision over what stents todeploy. Our Custom NX DES Systems’ stent segments may separate at the time ofdeployment in the artery or over time. Any such separation may lead torestenosis occurring between the segments or other adverse events. Anothersignificant factor that physicians and regulators will consider is acute safetydata on complications that occur with the use of our products. Two of thepatients in our CUSTOM I clinical trial experienced elevated enzyme levelsfollowing the procedure, which are technically considered to be heart attacks.In addition, one of the patients in our CUSTOM II clinical trial died as aresult of a major adverse cardiac event, or MACE, which is currently underinvestigation and could be determined to be related to the procedure involvingthe use of our Custom NX 60. If the results obtained from our clinicaltrials indicate that our products are not as safe or effective as othertreatment options or as current short-term data would suggest, our products maynot be approved, adoption of our products may suffer and our business would beharmed.

**If our pre-clinical studies or clinical trials do notmeet safety or efficacy endpoints, or if we experience significant delays incompleting these studies or trials, our ability to commercialize our Custom NXDES Systems or other products and our financial position will be impaired.**

Beforemarketing and selling our Custom NX DES Systems or any other products, we mustsuccessfully complete pre-clinical studies and clinical trials that demonstratethat our products are safe and effective. We currently have a very limitedamount of clinical data regarding the safety and efficacy of our Custom NX DESSystems, and no data beyond eight months including no data on the incidence oflate-stent thrombosis. The results from our limited short-term clinicalexperience for our Custom NX DES Systems do no necessarily predict long-termclinical benefit and may not be replicated in subsequent clinical trials.Furthermore, all of our existing data has been produced in studies that involverelatively small patient groups, and the data may not be reproduced in widerpatient populations. We plan to conduct additional large-scale clinicaltrials to determine whether our products are safe and effective and to supportour applications for regulatory approval in the European Union and 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 theCypher stent or the Taxus Express2 stent, the two drug eluting stents marketedin the United States, and that these studies will involve large patientpopulations of approximately 2,500 patients.

Thecommencement or completion of any of our clinical trials may be delayed orhalted for numerous reasons, including, but not limited to, the following:

·       Biosensors fails to submitin a timely fashion, if at all, its MAF for the drug coating with itsdesignated Notified Body in the European Union or the FDA, or such filings failto meet regulatory requirements;

·       the FDA or other regulatoryauthorities do not approve our clinical trial protocols or our clinical trials,or suspend or place a clinical trial on hold;

·       patients do not enroll inclinical trials at the rate we expect;

·       third-party clinicalinvestigators do not conduct follow-up visits with patients or patients dropout of the clinical trial at rates we do not expect;

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

·       patients die during aclinical trial for a variety of reasons, including the advanced stage of theirdisease and medical problems, which may or may not be related to our products;

·       third-party clinicalinvestigators do not perform our clinical trials on our anticipated schedule orconsistent with the clinical trial protocol, good clinical practices or otherregulatory requirements, or other third-party organizations do notperform data collection and analysis in a timely or accurate manner;

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·       regulatory inspections ofour clinical trials or manufacturing facilities, which may, among other things,require us to undertake corrective action or suspend or terminate our clinicaltrials if investigators find us or our suppliers not in compliance withregulatory requirements;

·       changes in governmentalregulations or administrative actions;

·       the interim results of ourclinical trials are inconclusive or negative; or

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

Beforewe can commence our planned pivotal clinical trial in the United States for ourCustom NX DES Systems, an IDE application must be submitted and approved by theFDA, which we currently anticipate submitting in the first half of 2007.Product development, including pre-clinical studies and clinical testing, is along, expensive and uncertain process and is subject to delays. It may take usseveral years to complete our testing, if we complete it at all, and a clinicaltrial may fail at any stage. Furthermore, data obtained from any clinical trialmay be inadequate to support a PMA application or any foreign regulatoryapplications. Additionally, pre-clinical and clinical data can also beinterpreted in different ways, which could delay, limit or prevent regulatoryapproval for our products.

**Clinical trialsnecessary to support a PMA application will be expensive and will require theenrollment of large numbers of patients, and suitable patients may be difficultto identify and recruit.**

Clinicaltrials necessary to support a PMA application for our Custom NX DES Systemswill be expensive and will require the enrollment of large numbers of patients,and suitable patients may be difficult to identify and recruit. The clinicaltrials supporting the PMA applications for the Cypher stent and the TaxusExpress2 stent, which are approved by the FDA and currently marketed, involvedpatient populations of approximately 1,000 and 1,300, respectively. We expectthat we will provide the FDA with data on approximately 2,500 patients with 12-monthfollow-up to support our PMA application. The FDA may require us tosubmit data on a greater number of patients or a longer follow-up period.Patient enrollment in clinical trials and completion of patient follow-updepend on many factors, including the size of the patient population, thenature of the trial protocol, the proximity of patients to clinical sites andthe eligibility criteria for the clinical trial and patient compliance. Forexample, patients may be discouraged from enrolling in our clinical trials ifthe trial protocol requires them to undergo extensive post-treatment proceduresor follow-up to assess the safety and efficacy of our products, or they may bepersuaded to participate in contemporaneous clinical trials of competitiveproducts. In addition, patients participating in our clinical trials may diebefore completion of the trial or suffer adverse medical events unrelated toour products. Delays in patient enrollment or failure of patients to continueto participate in a clinical trial may cause an increase in costs and delays orresult in the failure of the clinical trial.

**Physicians may notwidely 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 Systems provides a safe andeffective alternative to other existing treatments for coronary artery disease.**

Physicianstend to be slow to change their medical treatment practices because ofperceived liability risks arising from the use of new products and theuncertainty of third-party coverages and reimbursement. We believe thatphysicians will not widely adopt our Custom NX DES Systems unless theydetermine, based on experience, long-term clinical data and published peerreviewed journal articles, that the use of our Custom NX DES Systems provides asafe and effective alternative to other existing treatments for coronary arterydisease, including coronary artery bypass grafting, or CABG, balloonangioplasty, bare metal stents and other drug eluting stents, such asJohnson & Johnson’s Cypher stent and Boston Scientific’s TaxusExpress2 stent. In particular, the use of bare metal stents has reportedlyincreased, and the use of drug eluting stents has reportedly decreased, atcertain hospitals in the United States and elsewhere as a result of recentclinical data indicating a higher incidence rate of late stent thrombosis. Wecannot predict the effect that this or other data questioning the safety ofdrug eluting stents will have on the drug eluting stent market.

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Wecannot provide any assurance that the data collected from our current andplanned clinical trials will be sufficient to demonstrate that our Custom NXDES Systems are an attractive alternative to other drug eluting stentprocedures. If we fail to demonstrate safety and efficacy that is at leastcomparable to other drug eluting or bare metal stents that have receivedregulatory approval and that are available on the market, our ability tosuccessfully market our Custom NX DES Systems will be significantly limited.Even if the data collected from clinical studies or clinical experienceindicate positive results, each physician’s actual experience with our CustomNX DES Systems will vary. Clinical trials conducted with our Custom NX DES Systemshave involved procedures performed by physicians who are technically proficientand are high-volume users of drug eluting stents. Consequently, both short-and long-term results reported in these clinical trials may be significantlymore favorable than typical results of practicing physicians, which couldnegatively impact rates of adoptions of our products. We also believe thatpublished peer-reviewed journal articles and recommendations and support byinfluential physicians regarding our Custom NX DES Systems will be importantfor market acceptance and adoption, and we cannot assure you that we willreceive these recommendations and support, or that supportive articles will bepublished.

**Problems with thestent to be used in the control group during our planned U.S. pivotal clinicaltrial could adversely affect its outcome.**

Weexpect our pivotal clinical trial in the United States to compare theperformance, including safety and efficacy, of our products against those of acurrently marketed drug eluting stent. Our planned pivotal clinical trial couldbe significantly delayed or harmed if the stent we use for the control groupexperiences problems. We may use one of the two currently marketed drug elutingstents, the Cypher stent or the Taxus Express2 stent, as the control stent inour planned pivotal clinical trial. In July 2004, Boston Scientificannounced the recall of approximately 85,000 Taxus stent systems andapproximately 11,000 Express2 stent systems due to characteristics in thedelivery catheters that had the potential to impede balloon deflation during aballoon angioplasty procedure. In August 2004, Boston Scientific announcedthat it would recall an additional 3,000 Taxus stents. If prior to or duringthe enrollment and treatment period for our planned pivotal clinical trial,there is a recall of the control stent or the control stent is removed from themarket, our trial would likely be substantially delayed. The FDA could alsorequire us to redesign the clinical trial based on an alternative controlstent. Any significant delay or redesign could impair our ability tocommercialize our Custom NX DES Systems.

**Our products arebased on a new technology, and we have only limited experience in regulatoryaffairs, which may affect our ability or the time required to obtain necessaryregulatory approvals, if at all.**

Drugeluting stents were introduced in the United States in 2003. To date, the FDAhas approved only the Taxus Express2 and the Cypher drug eluting stents forcommercial sale. Because drug eluting stents are relatively new and long-termsuccess measures have not been completely validated, regulatory agencies,including the FDA, may take significantly more time in evaluating productapproval applications for those types of products. For example, there arecurrently several methods of measuring restenosis and we do not know which ofthese metrics, or combination of these metrics, will be considered appropriateby the FDA for evaluating the clinical efficacy of stents. Treatments may exhibita favorable measure using one of these metrics and an unfavorable measure usinganother metric. Any change in the accepted metrics may result inreconfiguration of, and delays in, our clinical trials. Furthermore, the resultof recent studies suggesting a correlation between drug eluting stents andincidents of late-stent thrombosis may further delay and complicate theregulatory pathway for our products. Additionally, we have limited experiencein filing and prosecuting the applications necessary to gain regulatoryapprovals, and we have limited personnel and resources to dedicate to thefiling and prosecution of these applications. As a result, we may experience a long regulatory process in connectionwith obtaining regulatory approvals for our products.

**If the thirdparties on which we rely to conduct our clinical trials and to assist us withpre-clinical development do not perform as contractually required or expected,we may not be able to obtain regulatory approval for or commercialize ourproducts.**

We donot have the ability to independently conduct clinical trials for our products,and we must rely on third parties, such as contract research organizations,medical institutions, clinical investigators and 

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contract laboratories toconduct our clinical trials. In addition, we rely on third parties to assistwith the pre-clinical development of our products. If these third parties donot successfully carry out their contractual duties or regulatory obligationsor meet expected deadlines, if these third parties need to be replaced, or ifthe quality or accuracy of the data they obtain is compromised due to thefailure to adhere to our clinical protocols or regulatory requirements or forother reasons, our pre-clinical development activities or clinical trials maybe extended, 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 trialinvestigators may be delayed in conducting our clinical trials for reasonsoutside of their control.

**Even if ourproducts are approved by regulatory authorities, if we or our suppliers fail tocomply with ongoing regulatory requirements, or if we experience unanticipatedproblems with our products, these products could be subject to restrictions orwithdrawal from the market.**

Anyproduct for which we obtain marketing approval, along with the manufacturingprocesses, post-approval clinical data and promotional activities for such product,will be subject to continual review and periodic inspections by the FDA andother regulatory bodies. In particular we and our suppliers are required tocomply with the Quality System Regulation, or QSR, for the manufacture of ourCustom NX 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 our third-partymanufacturers and suppliers have not yet been inspected by the FDA and willhave to successfully complete such inspections before we receive regulatoryapprovals for our products. Failure by us or one of our suppliers, includingthe supplier of our drug coating, to comply with statutes and regulationsadministered by the FDA and other regulatory bodies, or failure to takeadequate response to any observations, could result in, among other things, anyof the following enforcement actions:

·       warning letters or untitledletters;

·       fines and civil penalties;

·       unanticipated expenditures;

·       delays in approving, orrefusal to approve, our products;

·       withdrawal or suspension ofapproval by the FDA or other regulatory bodies;

·       product recall or seizure;

·       orders for physiciannotification or device repair, replacement or refund;

·       interruption of production;

·       operating restrictions;

·       injunctions; and

·       criminal prosecution.

Ifany of these actions were to occur it would harm our reputation and cause ourproduct sales and profitability to suffer. Furthermore, our key componentsuppliers may not currently be or may not continue to be in compliance withapplicable regulatory requirements.

Evenif regulatory approval of a product is granted, the approval may be subject tolimitations on the indicated uses for which the product may be marketed. If theFDA determines that our promotional materials, training or other activitiesconstitute promotion of an unapproved use, it could request that we cease ormodify our training or promotional materials or subject us to regulatoryenforcement actions. It is also possible that other federal, state or foreignenforcement authorities might take action if they consider our training orother promotional materials to constitute promotion of an unapproved use, whichcould result in significant fines or penalties under other statutoryauthorities, such as laws prohibiting false claims for reimbursement.

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Moreover,any modification 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 new approvalfrom the FDA. If the FDA disagrees with any determination by us that newapproval is not required, we may be required to cease marketing or to recallthe modified product until we obtain approval. In addition, we could also besubject to significant regulatory fines or penalties.

Inaddition, we may be required to conduct costly post-market testing andsurveillance to monitor the safety or efficacy of our products, and we will berequired to report adverse events and malfunctions related to our products.Later discovery of previously unknown problems with our products, includingunanticipated adverse events or adverse events of unanticipated severity orfrequency, manufacturing problems, or failure to comply with regulatoryrequirements such as QSR or GMP, may result in restrictions on such products ormanufacturing processes, withdrawal of the products from the market, voluntaryor mandatory recalls, fines, suspension of regulatory approvals, productseizures, injunctions or the imposition of civil or criminal penalties. Forexample, Boston Scientific has initiated significant recalls of its stentproducts due to manufacturing and other quality issues associated with theproducts.

Further,healthcare laws and regulations may change significantly in the future. Any newhealthcare laws or regulations may adversely affect our business. A review ofour business by courts or regulatory authorities may result in a determinationthat could adversely affect our operations. Also, the healthcare regulatory environmentmay change in a way that restricts our operations.

**Failure to obtainregulatory approval in foreign jurisdictions will prevent us from marketing ourproducts abroad.**

Weintend to market our products in international markets. In order to market ourproducts in the European Union and many other foreign jurisdictions, we mustobtain separate regulatory approvals. 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 market.

**Risks Related toOur Intellectual Property**

**Third parties holda large number of patents related to stents and we do not have rights to manyof these patents.**

Intellectualproperty rights, including in particular patent rights, play a critical role inthe medical 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 propertyclaim against us is successful, we could be prevented from commercializing ourCustom NX DES Systems or other products.

Thereare numerous U.S. and foreign issued patents and pending patent applicationsowned by third parties with patent claims in areas that are the focus of ourproduct development efforts. We are aware of patents owned by third parties, towhich we do not have licenses, that relate to, among other things:

·       use of rapamycin or itsanalogs to treat restenosis;

·       stent structures andmaterials;

·       catheters used to deliverstents; and

·       stent manufacturing andcoating processes.

Cordis,a subsidiary of Johnson & Johnson, is the owner of a number of patentsand patent applications directed to the use and delivery of rapamycin or itsanalogs as a stand-alone therapy or as part of a drug eluting stent forthe treatment of restenosis as well as stents incorporating such materials.These include, without limitation, the “Morris” family of patents, the “Wright”family of patents and the “Falotico” family of patents.

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BostonScientific holds rights to the “Grainger” family of patents directed to methodsof inhibiting smooth muscle cell proliferation, or growth, using certain compoundsand to the “Kunz” family of patents directed to methods for maintaining vesselluminal area with a stent that includes a cytostatic, or cell divisioninhibiting, agent.

Variouspatents owned by third parties are directed to stent structures and materials.These patents include a group of “Lau” patents that were owned by GuidantCorporation, a newly acquired subsidiary of Boston Scientific whose stenttechnology has been acquired by Abbott Vascular subject to certain rightsretained by Boston Scientific, which are directed to flexible stent structures.The “Boneau” family of patents, owned by Medtronic, are directed to stentscomprising multiple closed-loop elements. The “Fariabi” family of patents,owned by Guidant, are directed to stents comprising cobalt-chromiumalloys. The “Israel” and “Pinchasik” families of patents, owned by Medinol, aredirected to stents with meandering strut patterns. A patent owned by Wall isdirected to a radially collapsible mesh sleeve.

Otherthird-party patents are directed to stent delivery catheter technology.There are also a number of patents that were held by Guidant Corporationdirected to rapid exchange catheters for angioplasty and stent delivery. Theseinclude, without limitation, the “Yock” and “Horzewski” families of patents,directed to rapid exchange angioplasty catheters, and the “Lau” family ofpatents directed to rapid exchange stent catheters. Boston Scientific ownsother patents directed to rapid exchange angioplasty catheters, including, the “Bonzel”family of patents. Medtronic owns certain patents directed to guidewirehandling technology in stent delivery catheters, including certain patentsissued to Crittenden and Kramer. A patent issued to 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-lengthballoons. Certain patents owned by third parties relate to methods for coatingstents. 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.

Thepatents described above could be found to cover our technology and maymaterially and adversely affect our business. In addition, these patents aregiven only as examples and there may be other patents in addition to thosedescribed above that may materially and adversely affect our business.Moreover, because patent applications can take many years to issue, there maybe currently pending applications, unknown to us, which may later result inissued patents that pose a material risk to us.

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

Basedon the prolific litigation that has occurred in the stent industry and the factthat we may pose a competitive threat to some large and well-capitalizedcompanies that own or control patents relating to stents and their use,manufacture and delivery, we believe that it is possible that one or more thirdparties will assert a patent infringement claim against the manufacture, use orsale of our Custom NX DES Systems based on one or more of these patents. It isalso possible that a lawsuit asserting patent infringement and related claimswill be filed against us and it is possible that a lawsuit may have alreadybeen filed against us of which we are not aware. A number of these patents areowned by very large and well-capitalized companies that are active participantsin the stent market. As the number of competitors in the drug eluting stentmarket grows, the possibility of inadvertent patent infringement by us or apatent infringement claim against us increases.

Thesecompanies have maintained their position in the market by, among other things,establishing intellectual property rights relating to their products andenforcing these rights aggressively against their competitors and new entrantsinto the market. All of the major companies in the stent and related markets,including Abbott Vascular (formerly Guidant), Boston Scientific,Johnson & Johnson and Medtronic, have been repeatedly involved inpatent litigation relating to stents since at least 1997. The stent and relatedmarkets have experienced rapid technological change and obsolescence in thepast, and our competitors have strong incentives to stop or delay theintroduction of new products and technologies. We may pose a competitive threatto many of the companies in the stent and related markets. Accordingly, many ofthese companies will have a strong incentive to take steps, through patentlitigation or otherwise, to prevent us from commercializing our products.

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**Any lawsuit,whether initiated by us to enforce our intellectual property rights or by athird party against us alleging infringement, may cause us to expendsignificant financial and other resources, and may divert our attention fromour business.**

Inany infringement lawsuit, a third party could seek to enjoin, or prevent, usfrom commercializing 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 upto treble damages and the other party’s attorneys’ fees, which may besubstantial;

·       cease the development,manufacture, use and sale of products that infringe the patent rights ofothers, including our Custom NX DES Systems, through a court-imposedsanction called an injunction;

·       expend significantresources to redesign our technology so that it does not infringe others’patent rights, or to develop or acquire non-infringing intellectual property,which may not be possible;

·       discontinue manufacturingor other processes incorporating infringing technology; or

·       obtain licenses to theinfringed intellectual property, which may not be available to us on acceptableterms, or at all.

Anydevelopment or acquisition of non-infringing products or technology or licensescould require the expenditure of substantial time and other resources and couldhave a material 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.

Whileour products are in clinical trials, and prior to commercialization, we believeour activities in the United States related to the submission of data to theFDA could fall within the scope of the statutory infringement exemption thatcovers activities related to developing information for submission to the FDA.However, this statutory exemption would not cover our stent manufacturing orother activities in the United States that support overseas clinical trials orcommercial sales if those activities are not also reasonably related todeveloping information for submission to the FDA. Currently available drugeluting stents are manufactured outside of the United States, which mayinsulate manufacturers from adverse rulings on U.S. patent infringement claims.In an adverse ruling, a court may order an injunction requiring a company tostop its U.S. domestic manufacturing operations. We currently do not have anyplans to manufacture our stents outside of the United States and any finding ofpatent infringement against us in the United States could result in our beingenjoined from manufacturing our products in the United States and could affectour ability to sell our products in the European Union. In any event, the factthat no third party has asserted a patent infringement claim against us to dateshould not be taken as an indication, or provide any level of comfort, that apatent infringement claim will not be asserted against us prior to or uponcommercialization.

Inaddition, some of our agreements, including our agreement with Biosensors forthe supply of the drug coating, our agreement with SurModics for the supply ofthe lubricious coating on our catheter and our agreement with Millimed for thelicense of patents related to segmented stent designs require us to

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indemnify the other partyin certain circumstances where our products have been found to infringe apatent or other proprietary rights of others. An indemnification claim againstus may require us to pay substantial sums to our licensor or supplier, includingits attorneys’ fees.

**If we are unableto obtain and maintain intellectual property protection covering our products,others may be able to make, use or sell our products, which would adverselyaffect 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 March 31, 2007 we have four 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 patent applicationspending in the United States and abroad. Due to evolving legal standardsrelating to the patentability, validity and enforceability of patents coveringmedical devices and pharmaceutical inventions and the scope of claims madeunder these patents, our ability to obtain and enforce patents is uncertain andinvolves complex legal and factual questions. Accordingly, rights under any ofour issued patents may not provide us with commercially meaningful protectionfor our products or afford us a commercial advantage against our competitors ortheir competitive products or processes. In addition, patents may not issuefrom any pending or future patent applications owned by or licensed to us, andmoreover, patents that have issued to us or may issue in the future may not bevalid or enforceable. Further, even if valid and enforceable, our patents maynot be sufficiently broad to prevent others from marketing 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 to 18months after their filing. In some cases, however, patent applications remainconfidential in the United States Patent and Trademark Office, or USPTO, forthe entire time prior to issuance as a U.S. patent. Patent applications filedin countries outside the United States are not typically published until atleast 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, 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 significant difficultiesin protecting and defending such rights in foreign jurisdictions. If weencounter such difficulties or we are otherwise precluded from effectivelyprotecting our intellectual property rights in foreign jurisdictions, ourbusiness 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

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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.

**Risks Related toCommercialization**

**The medical deviceindustry is highly competitive and subject to rapid technological change. Ifour competitors are better able to develop and market products that are safer,more effective, less costly or otherwise more attractive than any products thatwe may develop, our commercial opportunity will 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 a competitiveposition in the development of technologies and products for use in thetreatment 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 of publicly-tradedcompanies, and these companies enjoy several competitive advantages, including:

·       greater financial and humanresources for product development, sales and marketing, and patent litigation;

·       significantly greater namerecognition;

·       established relations withhealthcare professionals, customers and third-party payors;

·       additional lines ofproducts, and the ability to offer rebates or bundle products to offer higherdiscounts or incentives to gain a competitive advantage;

·       established distributionnetworks; and

·       greater experience inconducting research and development, manufacturing, clinical trials, obtainingregulatory approval for products and marketing approved products.

For example,Johnson & Johnson and Boston Scientific, two companies with fargreater financial and marketing resources than we possess, have both developed,and are actively marketing, drug eluting stents that have been approved by theFDA. We may be unable to demonstrate that our Custom NX DES Systems offer anyadvantages over Johnson & Johnson’s Cypher stent or Boston Scientific’sTaxus Express2 stent. Other large companies, including Medtronic andAbbott Laboratories, are developing and commercializing drug eluting stents.Smaller or early-stage companies may also prove to be significantcompetitors, particularly through collaborative arrangements with, or mergerswith or acquisitions by, large and established companies or through thedevelopment of novel 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.

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**If we are unableto establish sales and marketing capabilities or enter into and maintain arrangementswith third parties to sell and market our Custom NX DES Systems, our businessmay 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 marketinginfrastructure or enter into distribution arrangements with others to marketand sell our products. We have not yet hired any European sales people orentered into any third-party distribution agreements other than withBiosensors for certain Pacific Rim countries.

After establishing ourEuropean sales channels, if our Custom NX DES Systems are approved forcommercial sale in the United States, we currently plan to establish our owndirect U.S. sales force. If we develop our own marketing and salescapabilities, our sales force will be competing with the experienced andwell-funded marketing and sales operations of our more established competitors.Developing a sales force is expensive and time consuming and could delay orlimit the success of any product launch. We may not be able to develop thiscapacity on a timely basis or at all. If we are unable to establish sales andmarketing capabilities, we will need to contract with third parties to marketand sell our products in the United States. To the extent that we enter intoarrangements with third parties to perform sales, marketing and distributionservices in the United States or internationally, our product revenue could belower than if we directly marketed and sold our products, or any other stentsystem or related device that we may develop. Furthermore, to the extent thatwe enter into co-promotion or other marketing and sales arrangements with othercompanies, any revenue received will depend on the skills and efforts ofothers, and we do not know whether these efforts will be successful. Some ofour future distributors may market their own products or distribute othercompanies’ products that compete with ours, and they may have an incentive notto devote sufficient efforts to marketing our products. If we are unable toestablish and maintain adequate sales, marketing and distribution capabilities,independently or with others, we may not be able to generate product revenueand may not become profitable.

**We have limiteddevice manufacturing and drug coating capabilities and manufacturing personnel,and if our device manufacturing and drug coating facilities or our suppliersare unable to provide an adequate supply of products, our growth could belimited 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. 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 thatwill require the investment of substantial additional funds and hiring andretaining additional 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. During a routineaudit, we discovered that our new device configuration required revisedsterilization procedures, which were successfully validated in March 2007. Inthe event that we encounter similar challenges in the future, we may experienceinterruptions in the supply of our devices and as a result may be unable tomeet demand. If we develop and obtain regulatory approval for our products andare unable to manufacture a sufficient supply of our products, our revenue,business and financial prospects would be adversely affected. In addition, ifthe scaled-up production process is not efficient or produces stents that donot meet quality and other standards, our future gross margins may decline.

We currently assemble ourCustom NX DES Systems and apply the drug coating at our facilities in MenloPark, California. The lease on our current facility expires at the end ofMay 2007, and the size of our current facility is insufficient to supportmanufacturing on a commercial scale. Prior to the commercial launch of ourproduct we will need to locate additional space, which will have to beinspected and approved by the FDA, and will likely require additionalcertifications by the State of California Department of Health Services, orCDHS, and International Standardisation Organization, or ISO. We cannot assureyou that additional manufacturing space will be available on commerciallyreasonable terms, if at all, or that we will be able to obtain the appropriateapprovals from the FDA, CDHS or ISO within the time necessary for us to

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commence commercialmanufacturing if at all. If there were a disruption to our existingmanufacturing facility, we would have no other means of manufacturing ourproducts until we were able to restore the manufacturing capability at ourfacility or develop alternative manufacturing facilities and obtainingregulatory approval for these facilities. Because our Menlo Park facilities arelocated in a seismic zone, we face the risk that an earthquake may damage ourfacilities and disrupt our operations. Finally, based on a verbal agreementwith Biosensors, we currently apply the drug coating to our stents in our MenloPark facilities. Our license agreement with Biosensors does not expresslypermit us to apply the drug coating to our stents except under certain limitedconditions and we do not have any other written agreement that would allow thisto continue to occur. If we are unable to produce sufficient quantities of ourproducts for use in our current and planned clinical trials, if we obtainregulatory approval of our products and are unable to produce sufficientquantities of our products to support our planned commercial activities or ifour manufacturing process yields substandard products, our development andcommercialization efforts would be delayed.

**Our manufacturingfacilities and the manufacturing facilities of our suppliers must comply withstrictly enforced regulatory requirements. If we fail to achieve regulatory approvalfor these manufacturing facilities, our business and our results of operationswould 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 subjectus and our 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.

**We depend onsingle-source suppliers for some of the components in our Custom NX DESSystems. The loss of these suppliers could delay our clinical trials or preventor 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. We do not have long-term contracts with ourthird-party suppliers of components used in the manufacture of our stentdelivery catheters or the cobalt chromium tubing and laser-precisioncutting process required to produce the stent segments included in our device.In addition, we do not have long-term contracts with our third-partysuppliers of some of the equipment and components that are used in ourmanufacturing process and we do not carry a significant inventory of mostcomponents used in our products. Establishing 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.import and customs regulations, which complicate and could delay shipments tous. Some of our suppliers are also our competitors and may be reluctant tosupply components 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.

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**If we do notachieve 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 our submissionfor CE Mark in the European Union, the submission to the FDA of an IDEapplication to commence our pivotal clinical trial for our Custom NX DESSystems, the enrollment of patients in our clinical trials, the release of datafrom our clinical trials and other clinical and regulatory events. The actualtiming of these milestones could vary dramatically compared to our estimates,in some cases for reasons beyond our control. We cannot assure you that we willmeet our projected milestones and if we do not meet these milestones aspublicly announced, the commercialization of our products may be delayed and,as a result, our stock price may decline.

**We may not besuccessful in our efforts to expand our portfolio of products and developadditional technologies.**

A key element of ourstrategy is to discover, develop and commercialize a portfolio of new productsin addition to our Custom NX DES Systems. We are seeking to do so through ourinternal research programs and intend to explore strategic collaborations forthe development of new products utilizing our stent technology. Researchprograms to identify new disease targets, products and delivery techniquesrequire substantial technical, financial and human resources, whether or notany products are ultimately identified. We may determine that one or more ofour pre-clinical programs do not have sufficient potential to warrant theallocation of resources, such as the potential development of our stent technologyfor the treatment of peripheral artery disease, or PAD. Our research programsmay initially show promise in identifying potential products, yet fail to yieldproducts for clinical development for many reasons, including the following:

·       the research methodologyused may not be successful in identifying potential products;

·       competitors may developalternatives that render our products obsolete;

·       our products may not bedeployed safely or effectively;

·       products may on furtherstudy be shown to have harmful side effects or other characteristics thatindicate they are unlikely to be effective;

·       our clinical trials may notbe successful; and

·       we may not receiveregulatory approval.

**We depend on ourofficers, and if we are not able to retain them or recruit additional qualifiedpersonnel, our business will suffer.**

We are highly dependenton our President and Chief Executive Officer, Gregory D. Casciaro and our otherofficers. Due to the specialized knowledge each of our officers possesses withrespect to interventional cardiology and our operations, the loss of service ofany of our officers could delay or prevent the successful completion of ourclinical trials and the commercialization of our Custom NX DES Systems. Each ofour officers may terminate their employment without notice and without cause orgood reason. We carry key person life insurance on Mr. Casciaro but not onour other officers.

Upon receiving regulatoryapproval for our products, we expect to rapidly expand our operations and growour research and development, product development and administrativeoperations. Our growth will require hiring a significant number of qualifiedclinical, scientific, commercial and administrative personnel. Accordingly,recruiting and retaining such personnel in the future will be critical to oursuccess. There is intense competition from other companies and research andacademic institutions for qualified personnel in the areas of our activities.Our offices are located in the San Francisco Bay Area, where competition forpersonnel with healthcare industry skills is intense. If we fail to identify,attract, retain and motivate these highly skilled personnel, we may be unableto continue our development and commercialization activities.

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**We will needsubstantial additional funding and may be unable to raise capital when needed,which would force us to delay, reduce or eliminate our product developmentprograms or commercialization efforts.**

We will need to raisesubstantial additional capital to:

·       fund our operations andclinical trials;

·       continue our research anddevelopment;

·       scale-up our manufacturingoperations;

·       defend, in litigation orotherwise, any claims that we infringe third-party patent or otherintellectual property rights;

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

·       acquire or in-licensecompanies, products or intellectual property.

We believe our existingcash and cash equivalent balances and interest we earn on these balances, will besufficient to meet our anticipated cash requirements for at least the next 14months. However, our future funding requirements will depend on many factors,including:

·       the scope, rate of progressand cost of our clinical trials and other research and development activities;

·       the cost of filing andprosecuting patent applications and defending and enforcing our patent andother intellectual property rights;

·       the cost of defending, inlitigation or otherwise, any claims that we infringe third-party patentor other intellectual property rights;

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

·       the cost and timing ofregulatory approvals;

·       the cost and timing ofestablishing sales, marketing and distribution capabilities;

·       the cost of establishingclinical and commercial supplies of our products and any products that we maydevelop;

·       the effect of competingtechnological and market developments;

·       licensing technologies forfuture development; and

·       the extent to which weacquire or invest in businesses, products and technologies, although wecurrently have no commitments or agreements relating to any of these types oftransactions.

If we raise additionalfunds by issuing equity securities, our stockholders may experience dilution.Debt financing, if available, may involve restrictive covenants. Any debtfinancing or additional equity that we raise may contain terms that are notfavorable to us or our stockholders. 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.

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 supports or other resources devoted to our products.Any of these factors could harm our financial condition.

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**If we are unableto manage our expected growth, we may not be able to commercialize ourproducts, including our Custom NX DES Systems.**

If we obtain CE Mark andFDA approval for our products, we intend to continue to rapidly expand ouroperations and grow our research and development, product development andadministrative operations and invest substantially in our manufacturingfacilities. This expansion has and is expected to continue to place asignificant strain on our management and operational and financial resources.In particular, the commencement of our planned pivotal clinical trial in theUnited States will consume a significant portion of management’s time and ourfinancial resources. To manage any expected growth and to commercialize ourCustom NX DES Systems, we will be required to improve existing, and implementnew, operational and financial systems, procedures and controls and expand,train and manage our growing employee base. Our current and planned personnel,systems, procedures and controls may not be adequate to support our anticipatedgrowth. If we are unable to manage our growth effectively, our business couldbe harmed.

**Risks Related toOur Industry**

**If we fail toobtain an adequate level of reimbursement for our products from third-partypayors, there may be no commercially viable markets for our products or themarkets 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 reimbursementof newly approved medical products and drugs. Future legislation, regulation orcoverage and reimbursement policies of third-party payors may adverselyaffect the demand for our products currently under development and limit ourability to profitably sell our products. Third-party payors continuallyattempt to contain or reduce healthcare costs by challenging the prices chargedfor healthcare 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 to be transitionedover the next three years, beginning in fiscal year 2007. The Centers forMedicare and Medicaid Services, or CMS, responsible for administering the Medicareprogram, also indicated it will begin to move forward with developing revisedreimbursement codes that better reflect the severity of the patient’s conditionin the hospital inpatient prospective payment system for fiscal year 2008. Ifcoverage and reimbursement for our products is unavailable, insufficient orlimited in scope or amount, or if pricing is set at unsatisfactory levels,market acceptance of our products would be impaired and our future revenues, ifany, would be adversely affected.

**Legislative orregulatory reform of the healthcare system may affect our ability to sell ourproducts 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

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experience pricingpressures in connection with the future sale of our products due to the trendtoward managed health care, the increasing influence of health maintenanceorganizations and additional legislative proposals. Our results of operationscould be adversely affected by these and other future healthcare reforms.

**We face the riskof product liability claims and may not be able to obtain insurance.**

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.

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 other associatedmedical personnel to perform the medical procedure and related processes toimplant our coronary stents into patients. If these medical personnel are notproperly trained or are negligent, the therapeutic effect of our stents may bediminished or the patient may suffer critical injury, which may subject us toliability. In addition, an injury that is caused by the activities of oursuppliers, such as those who provide us with cobalt chromium tubing for ourstents, those that laser cut our stents or the supplier of our drug coating,may be the basis for a claim against us.

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.

**Risks Related toOur Operations**

**Our operationsinvolve hazardous materials, and we must comply with environmental laws andregulations, 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. For example, we had achemical spill at our Menlo Park facility in February 2006, and althoughwe believe that we took all appropriate actions to respond to the accident and thatthere is no remaining liability, we can provide no assurance that these actionswere sufficient to prevent future chemical spills.

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**Because we haveoperated as a private company, we have no experience complying with publiccompany obligations, including recently enacted changes in securities laws andregulations. Compliance with these requirements will increase our costs andrequire additional management resources, and we still may fail to comply.**

We have operated as aprivate company, and we have not been subject to many of the requirementsapplicable to public companies. Recently enacted and proposed changes in thelaws and regulations affecting public companies, including the provisions ofthe Sarbanes-Oxley Act of 2002 and rules related to corporate governanceand other matters subsequently adopted by the SEC and NASDAQ Global Market,will result in increased administrative costs to us and increased legal andaccounting fees. The impact of these events and heightened corporate governancestandards could also make it more difficult for us to attract and retainqualified persons to serve on our board of directors, our board committees oras executive officers.

As directed bySection 404 of the Sarbanes-Oxley Act of 2002, the SEC adoptedrules requiring XTENT to include a report of management on the company’sinternal control over financial reporting in our annual reports on Form 10-K.In addition, in our 2008 report on Form 10-K, the independent registeredpublic accounting firm auditing a company’s financial statements must attest toand report on management’s assessment of the effectiveness of a company’sinternal control over financial reporting. We may be unable to comply withthese requirements by the applicable deadlines beginning with our Form 10-Kfor the period ending December 31, 2007. We will be testing our internalcontrol over financial reporting in connection with Section 404requirements and could, as part of that documentation and testing, identifymaterial weaknesses, significant deficiencies or other areas requiring furtherattention or improvement.

**Changes in, orinterpretations of, accounting rules and regulations, such as expensing ofstock options, could result in unfavorable accounting charges or require us tochange our compensation policies.**

The Financial AccountingStandards Board has adopted a new accounting pronouncement requiring therecording of expense for the fair value of stock options granted to employees.The impact of the adoption of SFAS No. 123(R) on the quarter endedMarch 31, 2007 was $632,000 and $1.4 million for the year endedDecember 31, 2006. We rely heavily on stock options to motivate currentemployees and to attract new employees. As a result of the requirement toexpense stock options, we may choose to reduce our reliance on stock options asa motivational tool. If we reduce our use of stock options, it may be moredifficult for us to attract and retain qualified employees. However, if we donot reduce our reliance on stock options, our reported net losses may increase,which may have an adverse effect on our reported results of operations.

**We expect that theprice of our common stock will fluctuate substantially.**

There has been a publicmarket for our common stock for a limited amount of time. The market price forour common stock will be affected by a number of factors, including:

·       the results of our clinicaltrials;

·       the timing of ourregulatory approvals;

·       announcements related tolitigation;

·       statements made byBiosensors relating to regulation or supply of the drug coating;

·       the announcement of newproducts or service enhancements by us or our competitors;

·       quarterly variations in ouror our competitors’ results of operations;

·       changes in earningsestimates, investors’ perceptions, recommendations by securities analysts orour failure to achieve analysts’ earning estimates;

·       developments in ourindustry, including changes in third-party reimbursement; and

·       general market conditionsand other factors unrelated to our operating performance or the operatingperformance of our competitors.

These factors maymaterially and adversely affect the market price of our common stock.

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**A sale of asubstantial number of shares of our common stock may cause the price of ourcommon stock to decline.**

If our stockholders sellsubstantial amounts of our common stock in the public market, including sharesissued upon the exercise of options, the market price of our common stock coulddecline. There will be approximately 18,163,171 shares of common stock eligiblefor sale upon the expiration of lock-up arrangements between our stockholdersand underwriters. These sales also might make it more difficult for us to sellequity or equity-related securities in the future at a time and pricethat we deem reasonable or appropriate.

**Our directors,officers and principal stockholders have significant voting power and may takeactions that may not be in the best interests of our other stockholders.**

As of May 1, 2007,our officers, directors and principal stockholders each holding more than 5% ofour common stock collectively will control approximately 68.1% 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.

**Volatility in thestock price of other companies may contribute to volatility in our stock price.**

The NASDAQ Global Market,particularly in recent years, has experienced significant volatility withrespect to medical technology, pharmaceutical, biotechnology and other lifescience company stocks. The volatility of medical technology, pharmaceutical,biotechnology and other life science company stocks often does not relate tothe operating performance of the companies represented by the stock. Further,there has been particular volatility in the market price of securities of earlystage and development stage life science companies. These broad market andindustry factors may seriously harm the market price of our common stock,regardless of our operating performance. In the past, following periods ofvolatility in the market price of a company’s securities, securities classaction litigation has often been instituted. A securities class action suitagainst 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 thatonly one of the three classes of directors on our board of directors is electedeach year;

·       elimination of cumulativevoting in the election of directors;

·       procedures for advancenotification of stockholder nominations and proposals;

·       the ability of our board ofdirectors to amend our bylaws without stockholder approval;

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

·       the ability of our board ofdirectors to issue up to 10,000,000 shares of preferred stock withoutstockholder approval upon the terms and conditions and with the rights,privileges and preferences as our board of directors may determine.

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In addition, as aDelaware corporation, we are subject to Delaware law, includingSection 203 of the Delaware General Corporation Law. In general,Section 203 prohibits a Delaware corporation from engaging in any businesscombination with any interested stockholder for a period of three years followingthe date that the stockholder became an interested stockholder unless certainspecific requirements are met as set forth in Section 203. Theseprovisions, alone or together, could have the effect of deterring or delayingchanges in incumbent management, proxy contests or changes in control.

**We have not paiddividends in the past and do not expect to pay dividends in the future, and anyreturn 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. CHANGES IN SECURITIESAND USE OF PROCEEDS**

We registered the initial public offering of ourcommon stock, par value $0.001 per share, on a Registration Statement on FormS-1, as amended, (Registration No. 333-136371), which was declaredeffective on January 31, 2007. On February 1, 2007, we completed the initialpublic offering of our common stock by selling 4.7 million shares at$16.00 per share. Net cash proceeds from the initial public offering wereapproximately $68.2 million, after deducting underwriting discounts andcommissions and other offering costs.

Of the $68.2 million in net proceeds, through March31, 2007, we have spent approximately $6.7 million including: $500,000 forsales and marketing initiatives, $4.6 million for research and developmentactivities, $1.3 million for operating and general corporate purposes and$286,000 for property and equipment in order to expand our manufacturingcapability to complete our CUSTOM III, IV and V clinical trials.

**ITEM 3. DEFAULTS UPON SENIORSECURITIES**

None.

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

None

**ITEM 5. OTHER INFORMATION**

None

**ITEM 6. EXHIBITS**
| Exhibit  Number | ** ** | **Description**                                                                 |
|-----------------|------------|---------------------------------------------------------------------------------|
| 3.2*            |       | Amended and Restated Certificate of Incorporation.                              |
| 3.4*            |       | Amended and Restated Bylaws.                                                    |
| 4.1*            |       | Specimen Common Stock certificate of the Registrant.                            |
| 10.1*           |       | Form of Indemnification Agreement for directors  and executive officers.   |
| 10.2*           |       | 2002 Stock Plan and form of stock option agreements  used thereunder.           |
| 10.3*           |       | 2006 Equity Incentive Plan and form of stock option  agreement used thereunder. |
| 10.4*           |       | 2006 Employee Stock Purchase Plan.                                              |

 

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| 10.5*       |   | Amended and Restated Investor Rights Agreement dated  May 5, 2006 by and among the Registrant and certain stockholders.                                                                                                                                   |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.6*       |   | 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. |
| 10.7†* |   | License Agreement dated May 4, 2004 as amended  February 9, 2005, by and between the Registrant, Biosensors  International Group, Ltd. (formerly Sun Biomedical, Ltd.), and  Biosensors Europe SA (an affiliate of Occam International, B.V.)   |
| 10.8†* |   | Master License Agreement dated December 30,  2002, as amended June 30, 2006, by and between the Registrant and  SurModics, Inc.                                                                                                                 |
| 10.9*       |   | License Agreement dated July 10, 2006 by and  between the Registrant and Millimed A/S.                                                                                                                                                                    |
| 10.10† |   | Supply Agreement dated April 2, 2007 by and between  Registrant and Fortimedix B.V.                                                                                                                                                                            |
| 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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*                    Incorporatedby reference from our Registration Statement on Form S-1 (RegistrationNo. 333-136371), which was declared effective on January 31, 2007.

†                     Portionsof the exhibit have been omitted pursuant to a request for confidentialtreatment. The confidential portions have 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 14,  2007 |   |   | By:         | /s/ GREGORY  D. CASCIARO                     |   |
|                |   |   |        | **GREGORY  D. CASCIARO**                          | ** ** |
|                |   |   |        | **President  and Chief Executive Officer**        | ** ** |
|                |   |   |        | **(Principal  Executive Officer)**                | ** ** |
|                |   |   |        |                                              |   |
|                |   |   |        |                                              |   |
| Date: May 14,  2007 |   |   | By:         | /s/ TIMOTHY  D. KAHLENBERG                   |   |
|                |   |   | ** **  | **TIMOTHY  D. KAHLENBERG**                        | ** ** |
|                |   |   | ** **  | **Chief  Financial Officer**                      | ** ** |
|                |   |   | ** **  | **(Principal  Accounting and Financial Officer)** | ** ** |

 

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