**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM 10-Q**

 

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**(MarkOne)**

 

| **x**                                                   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|---------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                    | ** **                                                                                               |
| **For the quarterly period ended March 31,  2008** |
| ** **                                              |
| **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.**

(Exact Name of Registrant as Specified in ItsCharter)

 

| **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**

(Address of principal executive offices,including Zip Code)

 

**(650) 475-9400**

(Registrant’s telephone number, includingarea code)

 

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Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90days.     YES  x    NO  o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the ExchangeAct. (Check one):

 

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

 

As of April 30,2008, there were 23,075,892 shares of XTENT, Inc. common stockoutstanding.

 

 

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**XTENT, INC.**

**FORM 10-Q**

**TABLE OF CONTENTS**

 
| ** **                                        | ** ** | ** **                                                                                  | **Page** |
|---------------------------------------------------|------------|---------------------------------------------------------------------------------------------|----------|
| **Part I:  Financial Information** | ** ** |
|                                              |       |                                                                                        |     |
| Item 1.                                      |       | Condensed Financial Statements (unaudited):                                                 | 3        |
|                                              |       |                                                                                        |     |
|                                              |       | Condensed Balance Sheets                                                                    | 3        |
|                                              |       |                                                                                        |     |
|                                              |       | Condensed Statements of Operations                                                          | 4        |
|                                              |       |                                                                                        |     |
|                                              |       | Condensed Statements of Cash Flows                                                          | 5        |
|                                              |       |                                                                                        |     |
|                                              |       | Notes to Condensed Financial Statements                                                     | 6        |
|                                              |       |                                                                                        |     |
| Item 2.                                      |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 13       |
|                                              |       |                                                                                        |     |
| Item 3.                                      |       | Quantitative and Qualitative Disclosures  About Market Risk                                 | 19       |
|                                              |       |                                                                                        |     |
| Item 4.                                      |       | Controls and Procedures                                                                     | 20       |
|                                              |       |                                                                                        |     |
| **Part II:  Other Information**    | ** ** |
|                                              |       |                                                                                        |     |
| Item 1.                                      |       | Legal Proceedings                                                                           | 21       |
|                                              |       |                                                                                        |     |
| Item 1A.                                     |       | Risk Factors                                                                                | 21       |
|                                              |       |                                                                                        |     |
| Item 2.                                      |       | Unregistered Sales of Equity Securities and  Use of Proceeds                                | 41       |
|                                              |       |                                                                                        |     |
| Item 3.                                      |       | Defaults Upon Senior Securities                                                             | 41       |
|                                              |       |                                                                                        |     |
| Item 4.                                      |       | Submission of Matters to a Vote of Security  Holders                                        | 41       |
|                                              |       |                                                                                        |     |
| Item 5.                                      |       | Other Information                                                                           | 41       |
|                                              |       |                                                                                        |     |
| Item 6.                                      |       | Exhibits                                                                                    | 41       |
|                                              |       |                                                                                        |     |
| Signatures                                        |       |                                                                                        | 42       |
|                                              |       |                                                                                        |     |
| Certifications                                    |       |                                                                                        |     |

 

2

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**PART I: FINANCIAL INFORMATION**

 

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

 

**XTENT, INC.**

**(a development stage company)**

**CONDENSED BALANCE SHEETS**

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

 
| ** **                                                                                                                                                                                                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                      | ** ** | **2008**           | ** ** | **2007 (1)**     | ** ** |
| **ASSETS**                                                                                                                                                                                                                      |       |               |       |                  |       |
| Current assets:                                                                                                                                                                                                                 |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                       |       | $                  | 16,216     |                  | $          | 13,366 |   |
| Short-term investments                                                                                                                                                                                                          |       | 30,278             |       | 44,394                |       |
| Prepaid expenses and other current assets                                                                                                                                                                                       |       | 1,424              |       | 905                   |       |
| Total current assets                                                                                                                                                                                                            |       | 47,918             |       | 58,665                |       |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| Property and equipment, net                                                                                                                                                                                                     |       | 3,582              |       | 3,601                 |       |
| Other non-current assets                                                                                                                                                                                                        |       | 149                |       | 149                   |       |
| Total assets                                                                                                                                                                                                                    |       | $                  | 51,649     |                  | $          | 62,415 |   |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                   |       |               |       |                  |       |
| Current liabilities:                                                                                                                                                                                                            |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                                                |       | $                  | 2,040      |                  | $          | 1,960 |   |
| Accrued liabilities                                                                                                                                                                                                             |       | 2,547              |       | 2,124                 |       |
| Total current liabilities                                                                                                                                                                                                       |       | 4,587              |       | 4,084                 |       |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| Commitments and contingencies (note 6)                                                                                                                                                                                          |       |               |       |                  |       |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                                                                      |       |               |       |                  |       |
| Common stock: $0.001 par value; 100,000  shares authorized at March 31, 2008 and December 31, 2007; 23,062  and 23,015 shares issued and outstanding at March 31, 2008 and  December 31, 2007, respectively |       | 23                 |       | 23                    |       |
| Additional paid-in capital                                                                                                                                                                                                      |       | 152,491            |       | 151,496               |       |
| Deferred stock-based compensation                                                                                                                                                                                               |       | (266               | )          | (364                  | )          |
| Accumulated other comprehensive income                                                                                                                                                                                          |       | 131                |       | 36                    |       |
| Deficit accumulated during development  stage                                                                                                                                                                                   |       | (105,317           | )          | (92,860               | )          |
| Total stockholders’ equity                                                                                                                                                                                                 |       | 47,062             |       | 58,331                |       |
|                                                                                                                                                                                                                            |       |               |       |                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                 |       | $                  | 51,649     |                  | $          | 62,415 |   |

 

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(1)   Thecondensed balance sheet at December 31, 2007 has been derived from theaudited financial statements at that date, but does not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.

 

The accompanying notes are an integral partof these condensed financial statements.

 

3

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**XTENT, INC.**

**(a development stage company)**

**CONDENSED STATEMENTS OF OPERATIONS**

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

 
| ** **                                                                                          | ** ** | ** **                       | ** ** | ** **             | ** ** | **Cumulative**              | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                                                                                          | ** ** | ** **                       | ** ** | ** **             | ** ** | **Period from**        | ** ** |
| ** **                                                                                          | ** ** | ** **                       | ** ** | ** **             | ** ** | **June 13, 2002** | ** ** |
| ** **                                                                                          | ** ** | ** **                       | ** ** | ** **             | ** ** | **(Date of**           | ** ** |
| ** **                                                                                          | ** ** | **Three Months Ended** | ** ** | **Inception) to** | ** ** |
| ** **                                                                                          | ** ** | **March 31,**               | ** ** | **March 31,**     | ** ** |
| ** **                                                                                          | ** ** | **2008**                         | ** ** | **2007**               | ** ** | **2008**                    | ** ** |
| ** **                                                                                          | ** ** | ** **                       | ** ** | ** **             | ** ** | ** **                  | ** ** |
| Operating expenses:                                                                                 |       |                             |       |                   |       |                        |       |
| Research and development (1)                                                                        |       | $                                | 9,421      |                   | $          | 6,223                       |       | $ | 83,835 |   |
| General and administrative (1)                                                                      |       | 3,442                            |       | 2,461                  |       | 26,985                      |       |
| Total operating expenses                                                                            |       | 12,863                           |       | 8,684                  |       | 110,820                     |       |
|                                                                                                |       |                             |       |                   |       |                        |       |
| Loss from operations                                                                                |       | (12,863                          | )          | (8,684                 | )          | (110,820                    | )          |
|                                                                                                |       |                             |       |                   |       |                        |       |
| Interest and other income, net                                                                      |       | 406                              |       | 749                    |       | 5,503                       |       |
|                                                                                                |       |                             |       |                   |       |                        |       |
| Net loss                                                                                            |       | (12,457                          | )          | (7,935                 | )          | (105,317                    | )          |
|                                                                                                |       |                             |       |                   |       |                        |       |
| Deemed dividend related to beneficial  conversion feature of redeemable convertible preferred stock |       | —                           |       | —                 |       | (13,095                     | )          |
|                                                                                                |       |                             |       |                   |       |                        |       |
| Net loss attributable to common  stockholders                                                       |       | $                                | (12,457    | )                      | $          | (7,935                      | )          | $ | (118,412 | ) |
|                                                                                                |       |                             |       |                   |       |                        |       |
| Net loss per share attributable to common stockholders  - basic and diluted                         |       | $                                | (0.54      | )                      | $          | (0.55                       | )          |   |   |
|                                                                                                |       |                             |       |                   |       |                        |       |
| Weighted-average common shares outstanding  - basic and diluted                                     |       | 22,923                           |       | 14,482                 |       |                        |       |

 

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| (1)    Includes the following stock-based  compensation charges: |   |   |   |   |   |   |   |
|---------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Research and development                                                        |   | $      | 388    |   | $      | 388    |   | $ | 3,449 |   |
| General and administrative                                                      |   | $      | 650    |   | $      | 420    |   | $ | 3,804 |   |

 

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

 

4

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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,** | ** ** |
| ** **                                                                                   | ** ** | **2008**                                             | ** ** | **2007**           | ** ** | **2008**                    | ** ** |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| **Cash flows from operating activities:**                                                    |       |                                                 |       |               |       |                        |       |
| Net loss                                                                                     |       | $                                                    | (12,457    | )                  | $          | (7,935                      | )          | $ | (105,317 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                 |       |                                                 |       |               |       |                        |       |
| Depreciation and amortization                                                                |       | 321                                                  |       | 268                |       | 3,038                       |       |
| Amortization of securities discount                                                          |       | (192                                                 | )          | (93                | )          | (1,897                      | )          |
| Gain on sale of investments                                                                  |       | (26                                                  | )          | —             |       | (6                          | )          |
| Loss on disposal of property and equipment                                                   |       | —                                               |       | —             |       | 163                         |       |
| Stock-based compensation expense                                                             |       | 1,038                                                |       | 808                |       | 7,253                       |       |
| Stock issued in exchange for services                                                        |       | —                                               |       | —             |       | 231                         |       |
| Changes in operating assets and  liabilities:                                                |       |                                                 |       |               |       |                        |       |
| Prepaid expenses and other current assets                                                    |       | (732                                                 | )          | (447               | )          | (1,414                      | )          |
| Accrued interest receivable on securities                                                    |       | 213                                                  |       | (229               | )          | (159                        | )          |
| Accounts payable                                                                             |       | 80                                                   |       | 944                |       | 1,925                       |       |
| Accrued liabilities                                                                          |       | 446                                                  |       | 475                |       | 2,619                       |       |
| Net cash used in operating activities                                                        |       | (11,309                                              | )          | (6,209             | )          | (93,564                     | )          |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| **Cash flows from investing activities:**                                                    |       |                                                 |       |               |       |                        |       |
| Purchase of investments                                                                      |       | (5,459                                               | )          | (49,372            | )          | (123,697                    | )          |
| Proceeds from maturities of investments                                                      |       | 9,925                                                |       | —             |       | 81,504                      |       |
| Proceeds from sale of investments                                                            |       | 9,963                                                |       | —             |       | 13,949                      |       |
| Purchase of property and equipment                                                           |       | (304                                                 | )          | (432               | )          | (6,780                      | )          |
| Proceeds from sale of property and  equipment                                                |       | 2                                                    |       | —             |       | 20                          |       |
| Net cash provided by (used in) investing  activities                                         |       | 14,127                                               |       | (49,804            | )          | (35,004                     | )          |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| **Cash flows from financing activities:**                                                    |       |                                                 |       |               |       |                        |       |
| Proceeds from issuance of redeemable  convertible preferred stock, net of issuance costs     |       | —                                               |       | —             |       | 75,592                      |       |
| Proceeds from initial public offering, net  of offering costs                                |       | —                                               |       | 69,112             |       | 68,237                      |       |
| Principal payments on capital lease  obligations                                             |       | —                                               |       | —             |       | (23                         | )          |
| Proceeds from issuance of common stock and  exercise of stock options                        |       | 32                                                   |       | 38                 |       | 978                         |       |
| Net cash provided by financing activities                                                    |       | 32                                                   |       | 69,150             |       | 144,784                     |       |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| Net increase in cash and cash equivalents                                                    |       | 2,850                                                |       | 13,137             |       | 16,216                      |       |
| Cash and cash equivalents at beginning of  period                                            |       | 13,366                                               |       | 23,105             |       | —                      |       |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| Cash and cash equivalents at end of period                                                   |       | $                                                    | 16,216     |               | $          | 36,242                      |       | $ | 16,216 |   |
|                                                                                         |       |                                                 |       |               |       |                        |       |
| **Supplemental disclosure of noncash  investing and financing activities:**                  |       |                                                 |       |               |       |                        |       |
| Deferred stock-based compensation                                                            |       | $                                                    | —     |               | $          | —                      |       | $ | 1,272 |   |
| Reversal of deferred stock-based  compensation                                               |       | $                                                    | (30        | )                  | $          | (9                          | )          | $ | (125 | ) |
| Dividend related to beneficial conversion  feature of redeemable convertible preferred stock |       | $                                                    | —     |               | $          | —                      |       | $ | (13,095 | ) |
| Equipment acquired under capital leases                                                      |       | $                                                    | —     |               | $          | —                      |       | $ | (23 | ) |
| Vesting of restricted common stock from  early exercises                                     |       | $                                                    | 23         |               | $          | 26                          |       | $ | 398 |   |
| Deferred initial public offering costs                                                       |       | $                                                    | —     |               | $          | 875                         |       | $ | 875 |   |
| Changes in net unrealized gains on  investments                                              |       | $                                                    | 95         |               | $          | (29                         | )          | $ | 131 |   |

 

The accompanying notes are an integral partof these condensed financial statements.

 

5

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**XTENT, INC.**

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

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

 

**Organization**

 

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

 

The Company has incurred net operating losseseach year since inception. At March 31, 2008, the Company had anaccumulated deficit of $105.3 million. The Company has not achievedpositive cash flows from operations in any year since inception. In February 2007the Company completed its initial public offering raising net proceeds of$68.2 million. In order to continue its operations, the Company mustachieve profitable operations, obtain additional debt financing or sell additionalshares of its equity securities. The Company plans to sell additional equity ordebt securities or obtain a credit facility during 2008. There can be noassurance that the Company will be able to obtain additional debt or equityfinancing on terms acceptable to the Company, or at all. The failure of theCompany to obtain sufficient funds on acceptable terms when needed couldprevent the Company from completing clinical trials which could have a materialadverse effect on the Company’s business, results of operations and financialcondition.

 

Management is currently working toward itsobjective of realizing profitability by successfully obtaining regulatoryapproval of its products in the United States and Europe. The failure of theCompany to obtain approval of its products by regulatory authorities could havea material adverse effect on the Company’s business, results of operations,future cash flows and financial condition.

 

**Basisof Presentation**

 

Theaccompanying unaudited condensed financial statements have been prepared by theCompany in accordance with the accounting principles generally accepted in theUnited States of America for interim financial information and pursuant to theinstructions to Form 10-Q and Article 10 of Regulation S-X of theSecurities and Exchange Commission. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting only of normal recurring adjustments)considered necessary for a fair statement have been included.  The results for the three months ended March 31,2008 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2008, or for any future period.  These unaudited condensed financialstatements and notes should be read in conjunction with the audited financialstatements and the notes thereto included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007, filed with the Securities andExchange Commission on March 17, 2008.

 

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

 

***Cash and CashEquivalents***

 

The Company considers all highly liquidinvestments purchased with an original maturity of three months or less at thedate of purchase to be cash equivalents. The Company deposits cash and cashequivalents with high credit quality financial institutions. Cash equivalentsconsist primarily of liquid money market accounts, certificates of deposits andU.S. Treasury and agency securities.

 

***Investments***

 

Investments with an original maturity of morethan three months and less than one year at the date of purchase are consideredto be short-term. Investments consist primarily of fixed income securities. TheCompany classifies its investments as available-for-sale in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 115, *Accounting for Certain Investments in Debt and EquitySecurities* and they are recorded at fair value. The fair value ofinvestments is based on quoted market prices. As of March 31, 2008 all ofthe Company’s investments were short-term in nature.

 

6

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Unrealized gains and losses are reported asaccumulated other comprehensive income (loss), which is a separate component ofstockholders’ equity, until realized. Premiums (or discounts) on investmentsare amortized (or accreted) to interest and other income, net over the life ofthe investment. Realized gains and losses on investments sold are included ininterest and other income, net in the Company’s statement of operations.

 

The Company reviews its short-terminvestments on a regular basis to evaluate whether or not any security hasexperienced an other-than-temporary decline in fair value. If the Companybelieves that an other-than-temporary decline exists in one of its marketablesecurities, it writes down these investments to the fair value and records thewrite-down within interest and other income, net in the Company’s statement ofoperations.

 

***Concentration ofCredit Risk***

 

The Company’s financial instruments that areexposed to concentration of credit risk consist primarily of cash and cashequivalents and short-term investments. Financial instruments are comprisedprimarily of A1 and P1 or better-rated of money market funds, and U.S.Government and agency securities. The Company’s cash and cash equivalents aremainly deposited with one major financial institution, which at times exceedsthe amount of insurance provided by the Federal Deposit Insurance Corporationon such deposits. The Company mitigates the concentration of credit risk byplacing percentage limits on the maximum portion of the investment portfoliowhich may be invested in any one investment instrument. The Company has notrecognized any losses from credit risks on such accounts during any of theperiods presented and believes that it is not exposed to any significant riskon these balances.

 

***Comprehensive Income (Loss)***

 

Comprehensive income (loss) is defined as thechange in equity from transactions and other events and circumstances otherthan those resulting from investments by owners and distributions to owners.The Company’s unrealized gains (losses) on available-for-sale securitiesrepresent the only component of other comprehensive loss that was excluded fromthe Company’s net loss and is reflected as a component of stockholders’ equity.

 

Total comprehensive lossduring the three months ended March 31, 2008 and 2007 consisted of:

 
| ** **                                                  | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                  | ** ** | **March 31,**               | ** ** |
| ** **                                                  | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                                                  | ** ** | **(in thousands)**          | ** ** |
|                                                        |       |                             |       |   |   |
| Net loss attributable to common  stockholders               |       | $                                | (12,457    | ) | $ | (7,935 | ) |
| Unrealized gains (losses) on available-for-sale  securities |       | 95                               |       | (29 | ) |
|                                                        |       |                             |       |   |   |
| Comprehensive loss                                          |       | $                                | (12,362    | ) | $ | (7,964 | ) |

 

***NetLoss per Common Share***

 

Basic and diluted net loss per common shareis computed using the weighted-average number of shares of common stockoutstanding during the period. Potentially dilutive shares consisting of stockoptions, common stock subject to repurchase, redeemable convertible preferredstock and shares issuable under the Employee Stock Purchase Plan were notincluded in the diluted net loss per common share calculations for all periodspresented because the inclusion of such shares would have had an antidilutiveeffect.

 

7

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

 
| ** **                                                                                                | ** ** | **Three Months Ended March 31,**              | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2008**                                                          | ** ** | **2007** | ** ** |
| ** **                                                                                                | ** ** | **(in thousands, except per share  amounts)** | ** ** |
| ** **                                                                                                | ** ** | ** **                                                        | ** ** | ** ** | ** ** |
| Numerator:                                                                                                |       |                                                              |       |   |   |
| Net loss attributable to common  stockholders                                                             |       | $                                                                 | (12,457    | ) | $ | (7,935 | ) |
|                                                                                                      |       |                                                              |       |   |   |
| Denominator:                                                                                              |       |                                                              |       |   |   |
| Weighted-average common shares outstanding                                                                |       | 23,049                                                            |       | 14,854 |   |
| Less: Weighted-average unvested common  shares subject to repurchase                                      |       | (126                                                              | )          | (372 | ) |
| Weighted-average common shares outstanding used  in computing basic and diluted net loss per common share |       | 22,923                                                            |       | 14,482 |   |
|                                                                                                      |       |                                                              |       |   |   |
| Net loss per share attributable to common stockholders  - basic and diluted                               |       | $                                                                 | (0.54      | ) | $ | (0.55 | ) |
|                                                                                                      |       |                                                              |       |   |   |

 

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

 
| ** **                                          | ** ** | **Three Months Ended   March 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| ** **                                          | ** ** | **(in thousands)**                                | ** ** |
|                                                |       |                                                   |       |   |   |
| Options to purchase common stock                    |       | 2,744                                                  |       | 1,853 |   |
| Common stock subject to repurchase                  |       | 107                                                    |       | 350 |   |
| Shares issuable under Employee Stock  Purchase Plan |       | 52                                                     |       | 9 |   |

 

***Recentand Adopted Accounting Pronouncements***

 

In June 2007, the FASBratified Emerging Issues Task Force (“EITF”) Issue No. 07-3, *Accounting for Nonrefundable Advance Payments forGoods or Services to Be Used in Future Research and Development Activities*(“EITFNo. 07-3”). EITF No. 07-3 requires nonrefundable advance payments forgoods and services that will be used or rendered for future research anddevelopment activities be deferred and capitalized. Such amounts should berecognized as an expense as the goods are delivered or the related services areperformed. EITF No. 07-3 was effective for the Company in the yearbeginning January 1, 2008. The adoption of EITF No. 07-3 did not havea material impact on the Company’s financial position, operating results orcash flows.

 

In February 2007, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 159, *The FairValue Option for Financial Assets and Financial Liabilities-including anamendment of FAS115*(“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 was effective for the Company in the yearbeginning January 1, 2008. The adoption of SFAS 159 did not have amaterial impact on the Company’s financial position, operating results or cashflows.

 

On January 1, 2008, theCompany adopted SFAS No. 157,“Fair Value Measurements,” (“SFAS 157”) as it relates to financial assets andfinancial liabilities. In February 2008, the Financial AccountingStandards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 157-2,“Effective Date of FASB Statement No. 157,” which delayed the effectivedate of SFAS 157 for all non-financial assets and non-financial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on at leastan annual basis, until January 1, 2009 for calendar year-end entities.Also in February 2008, the FASB issued FSP No. FAS 157-1, “Applicationof FASB Statement No. 157 to FASB Statement No. 13 and OtherAccounting Pronouncements That Address Fair Value Measurements for Purposes ofLease Classification or Measurement under Statement 13,” which states that SFASNo. 13, “Accounting for Leases,” (“SFAS 13”) and other accountingpronouncements that address fair value measurements for purposes of 

 

8

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lease classification ormeasurement under SFAS 13 are excluded from the provisions of SFAS 157, exceptfor assets and liabilities related to leases assumed in a business combinationthat are required to be measured at fair value under SFAS No. 141, “BusinessCombinations,” (“SFAS 141”) or SFAS No. 141 (revised 2007), “BusinessCombinations,” (“SFAS 141(R)”). SFAS 157 defines fair value, establishes aframework for measuring fair value in accounting principles generally acceptedin the United States of America, and expands disclosures about fair valuemeasurements. The provisions of this standard apply to other accountingpronouncements that require or permit fair value measurements and are to beapplied prospectively with limited exceptions. The adoption of SFAS 157 did nothave a material impact on the Company’s financial position, operating resultsor cash flows. The Company has not yet determined the impact on its financialstatements from the adoption of SFAS No. 157 as it pertains tonon-financial assets and non-financial liabilities.

 

**NOTE 3 -Investments**

 

Short-term investments, which are classifiedas available-for-sale, had maturities of less than one year and consisted ofthe following:

 
| ** **                                   | ** ** | **Amortized**           | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair**  | ** ** |
|----------------------------------------------|------------|-------------------------|------------|----------------|------------|----------------|------------|-----------|------------|
| **As of March 31, 2008** | ** ** | **Cost**                | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Value** | ** ** |
| ** **                                   | ** ** | **(in thousands)** | ** ** |
|                                         |       |                    |       |           |       |           |       |      |       |
| US government and agency securities          |       | $                       | 30,147     |           | $          | 131            |       | $         | —     |   | $ | 30,278 |   |
| Total                                        |       | $                       | 30,147     |           | $          | 131            |       | $         | —     |   | $ | 30,278 |   |

 
| ** **                                      | ** ** | **Amortized**           | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair**  | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|----------------|------------|----------------|------------|-----------|------------|
| **As of December 31, 2007** | ** ** | **Cost**                | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Value** | ** ** |
| ** **                                      | ** ** | **(in thousands)** | ** ** |
|                                            |       |                    |       |           |       |           |       |      |       |
| Commercial paper                                |       | $                       | 4,685      |           | $          | 21             |       | $         | —     |   | $ | 4,706 |   |
| US government and agency securities             |       | 33,694                  |       | 21             |       | (9             | )          | 33,706    |       |
| Corporate bonds                                 |       | 5,979                   |       | 3              |       | —         |       | 5,982     |       |
| Total                                           |       | $                       | 44,358     |           | $          | 45             |       | $         | (9         | ) | $ | 44,394 |   |

 

***Fair Value Measurements***

 

In thefirst quarter of 2008, we adopted SFAS No. 157,“Fair Value Measurements” for financial assets and liabilities.This standard defines fair value as theprice that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date(exit price). SFAS No. 157 classifies the inputs used to measure fairvalue into the following hierarchy:

 

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

 

·                  Level 2:       Inputs other than quoted prices that areobservable for the asset or liability, either directly or indirectly. Theseinclude quoted prices for similar assets or liabilities in active markets andquoted prices for identical or similar assets or liabilities in markets thatare not active.

 

·                  Level 3:       Unobservable inputs that reflect the reportingentity’s own assumptions.

 

Thefair value hierarchy of the Company’s marketable securities at fair value inconnection with the adoption of SFAS No. 157 consisted of the following asof March 31, 2008:

 
| ** **                          | ** ** | ** **                   | ** ** | **Significant Other** | ** ** |
|-------------------------------------|------------|------------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **Balance as of**  | ** ** | **Observable Inputs** | ** ** |
| ** **                          | ** ** | **March 31, 2008** | ** ** | **(Level 2)**         | ** ** |
| ** **                          | ** ** | **(in thousands)**      | ** ** |
|                                |       |                         |       |                       |       |
| US government and agency securities |       | $                            | 30,278     |                       | $          | 30,278 |   |
| Total                               |       | $                            | 30,278     |                       | $          | 30,278 |   |

 

9

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**NOTE 4 -Common Stock**

 

On February 1, 2007, the Company sold4,700,000 shares of its common stock at a public offering price of $16.00 pershare. Net cash proceeds from the Initial Public Offering were approximately$68.2 million, after deducting underwriting discounts and commissions andother offering costs.

 

Each share of common stock has the right toone vote. The holders of common stock are entitled to dividends when funds arelegally available and when declared by the Board of Directors.

 

***Restricted commonstock***

 

Certain common stock option holders have theright to exercise unvested options, subject to a repurchase right held by theCompany to repurchase the stock, at the original exercise price, in the eventof voluntary or involuntary termination of employment of the stockholder. Inaccordance with Emerging Issues Task Force Issue No. 00-23, *Issues Related to the Accounting for StockCompensation* under APB 25 and FASB Interpretation No. 44, *Accounting for Certain Transactions Involving StockCompensation*, the Company accounts for the cash received inconsideration for the early exercised options as a liability. As of March 31,2008 and December 31, 2007, there were approximately 107,000 and 164,000shares of common stock, respectively, subject to repurchase, and a relatedliability of $43,000 and $66,000, respectively.

 

**NOTE 5 -Stock Option Plans**

 

***Stock-basedcompensation and valuation assumptions***

 

The Company calculatesthe fair value of each option award on the date of grant using theBlack-Scholes option pricing model. The following assumptions were used for eachrespective period:

 
| ** **               | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------|------------|------------------------------------------------------|------------|
| ** **               | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                     |       |                                                 |       |   |   |
| **Stock Options:**       |       |                                                 |       |   |   |
| Expected volatility      |       | 60%                                                  |       | 54% |   |
| Risk free rate           |       | 2.45 - 3.18%                                         |       | 4.66 - 4.82% |   |
| Dividend yield           |       | 0%                                                   |       | 0% |   |
| Expected term (in years) |       | 4.65                                                 |       | 4.65 |   |
|                     |       |                                                 |       |   |   |
| **ESPP:**                |       |                                                 |       |   |   |
| Expected volatility      |       | 42%                                                  |       | 50% |   |
| Risk free rate           |       | 3.56%                                                |       | 5.13% |   |
| Dividend yield           |       | 0%                                                   |       | 0% |   |
| Expected term (in years) |       | 0.49                                                 |       | 0.79 |   |

 

The expected term of stock options representsthe weighted-average period the stock options are expected to remain outstandingand is based on the option vesting term, contractual terms and industry peersas the Company did not have sufficient historical information to developreasonable expectations about future exercise patterns and post-vestingemployment termination behavior. ESPP terms are for the purchase periodsstarting February 1, 2007 (Initial Public Offering) and May 15, 2007,both of which ended on November 15, 2007, and the purchase period startingNovember 15, 2007, which will end on May 15, 2008.

 

10

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The expected stock price volatilityassumptions for the Company’s stock options and ESPP for the three months endedMarch 31, 2008 and 2007 were determined by examining the historicalvolatilities for industry peers in combination with the historical volatilityof the Company since its Initial Public Offering on February 1, 2007. TheCompany will continue to analyze the historical stock price volatility andexpected term assumptions as more historical data for the Company’s commonstock becomes available.

 

The risk-free interest rate assumption at thedate of grant is based on the interest rate on U.S Treasury instruments whoseterm was consistent with the expected term of the Company’s stock options andESPP.

 

The expected dividend assumption is based onthe Company’s history and expectation of dividend payouts. In addition,SFAS 123(R) requires forfeitures to be estimated at the time of grantand revised, if necessary, in subsequent periods if actual forfeitures differfrom those estimates. Forfeitures were estimated based on historicalexperience. Prior to the adoption of SFAS 123(R), the Companyaccounted for forfeitures as they occurred.

 

Stockoption activity for the three months ended March 31, 2008 was as follows:

 
| ** **                               | ** ** | ** **                                                                               | ** ** | **Options Outstanding** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                               | ** ** | ** **                                                                               | ** ** | ** **                   | ** ** | **Weighted** | ** ** |
| ** **                               | ** ** | **Shares**                                                                               | ** ** | **Number**                   | ** ** | **Average** | ** ** |
| ** **                               | ** ** | **Available**                                                                            | ** ** | **of**                       | ** ** | **Exercise** | ** ** |
| ** **                               | ** ** | **for Grant**                                                                       | ** ** | **Shares**                   | ** ** | **Price** | ** ** |
| ** **                               | ** ** | **(in thousands, except weighted average exercise price)** | ** ** |
|                                     |       |                                                                                     |       |                         |       |   |   |
| **Balance as of December 31, 2007** |       | 67                                                                                       |       | 2,167                        |       | $ | 5.12 |   |
|                                     |       |                                                                                     |       |                         |       |   |   |
| Additional shares reserved               |       | 921                                                                                      |       | —                       |       | — |   |
| Options granted                          |       | (659                                                                                     | )          | 659                          |       | 8.06 |   |
| Options exercised                        |       | —                                                                                   |       | (47                          | )          | 0.68 |   |
| Options canceled                         |       | 35                                                                                       |       | (35                          | )          | 6.48 |   |
|                                     |       |                                                                                     |       |                         |       |   |   |
| **Balance as of March 31, 2008**    |       | 364                                                                                      |       | 2,744                        |       | $ | 5.88 |   |

 

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

 

No shares of common stock were granted to non-employeesduring the three months ended March 31, 2008 and the year ended December 31,2007. During the years ended December 31, 2006 and 2005, the Companygranted 51,000 and 39,750 shares, respectively, of common stock at exerciseprices ranging from $0.40 to $11.20 per share in exchange for services fromconsultants. Stock-based compensation expense related to stock options grantedto non-employees is recognized as the stock options are earned. The Companybelieves that the estimated fair value of the stock options is more readilymeasurable than the fair value of the services rendered.

 

The fair value of the stock options grantedto non-employees is calculated at each reporting date using the Black—Scholesoptions pricing model using the following assumptions:

 
| ** **                            | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|
| ** **                            | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                            | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Expected volatility                   |       | 56%                                                  |       | 57% |   |
| Risk free rate                        |       | 2.71 to 3.34%                                        |       | 4.60 to 4.77% |   |
| Dividend yield                        |       | 0%                                                   |       | 0% |   |
| Contractual remaining term (in years) |       | 6 to 9                                               |       | 7 to 10 |   |

 

11

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Stock-based compensation expense willfluctuate as the fair value of the common stock fluctuates. In connection withthe grant of stock and stock options to non-employees, the Company recordedstock-based compensation charges of approximately $0.8 million for theperiod from June 13, 2002 (inception) to March 31, 2008. For thethree months ended March 31, 2008 and March 31, 2007, the Companyrecorded stock-based compensation charges of approximately $5,000 and $67,000,respectively, in connection with the grant of stock options to non-employees.

 

**NOTE 6 -Commitments and Contingencies**

 

***OperatingLease***

 

In May 2007, the Company entered into anamendment to the lease agreement pursuant to which it leases its offices andmanufacturing facilities. The lease amendment extends the term of the leasethrough May 31, 2012. The Company may terminate the lease for any reasonon or after May 1, 2009, and the landlord may terminate the lease on orafter that date provided it has obtained certain redevelopment rights withrespect to the leased premises.

 

As ofMarch 31, 2008, future minimum lease payments under non-cancelableoperating leases are as follows:

 
| ** **                | ** ** | ** **              | ** ** | **Remainder of** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------|------------|-------------------------|------------|-----------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                | ** ** | **Total**               | ** ** | **2008**              | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** |
| ** **                | ** ** | **(in thousands)** | ** ** |
|                      |       |                    |       |
| Minimum lease commitments | ** ** | **$**                   | **2,017**  | ** **            | **$**      | **330**    | ** ** | **$**      | **477**    | ** ** | **$**      | **491**    | ** ** | **$** | **506** | ** ** | **$** | **213** | ** ** |
|                           |            |                         |            |                       |            |            |            |            |            |            |            |            |            |  |  |  |  |  |  |

 

***Royalty andMilestone Obligations***

 

The Company has entered into royaltyagreements with Biosensors and SurModics for proprietary materials that arecritical to the success of the Company’s products. The terms of the agreementscall for milestone payments prior to achieving sales, and quarterly royaltypayments based on the greater of specified minimums or a percentage of net sales.  As of December 31, 2007 and March 31,2008, future minimum royalty payments for these suppliers were approximately$2.1 and $2.0 million, respectively. During the three months ended March 31,2008, the Company made a minimum royalty payment of $20,000.

 

***License Agreements***

 

In July 2006, the Company entered into alicense agreement with Millimed, Inc. for certain intellectual propertyrelated to the Company’s business. In consideration for this license, theCompany made an initial payment of $350,000 in cash and issued 15,000 shares ofcommon stock during the year ended December 31, 2006. The Company also hascontingent milestone payments that are payable to another licensor. Nomilestone payments were made on these license agreements during the year ended December 31,2007 and the three months ended March 31, 2008. For both licenseagreements, there could be an additional $220,000 in milestone payments if allmilestones are achieved.

 

***Purchase Commitments***

 

In April 2007, the Company entered intoa supply agreement with Fortimedix B.V., under which Fortimedix B.V.agreed to manufacture and deliver stents for use in the Company’s products. Theterms of the agreement requires minimum purchases over two years at contractualprices set in Euros. As of March 31, 2008, outstanding purchase ordercommitments for stents were $0.6 million based on the exchange rate on March 31,2008. Based upon the supply agreement, any further annual purchase commitmentshave been delayed until the Company receives approval from the FDA to beginclinical trials in the United States.

 

In December 2007, the Company enteredinto the Amended and Restated License Agreement with Biosensors InternationalGroup, Ltd., under which the Company purchases the drug and polymercomponents under purchase commitments which totaled approximately $767,000 asof March 31, 2008. In addition, the Company will also pay royalties toBiosensors under the license agreement when revenues are generated from productsales.

 

On October 17, 2007, the Company enteredinto a Contract Research Organization Agreement with Bailer Research, Inc.,under which Bailer will provide certain monitoring services with respect to theCompany’s United States clinical trial which is expected to begin in 2008 whenapproval is received from the FDA to begin the clinical trial. The commitmentunder this contract is estimated to be between $11 to $13 million over aperiod of 79 months. Payments will be made in installments based on trialrelated milestones.

 

12

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***Contingencies***

 

The Company is not currently subject to anymaterial legal proceedings. The Company may from time to time, however, becomea party to various legal proceedings arising in the ordinary course ofbusiness.

 

***Indemnifications***

 

In the normal course of business, the Companyenters into contracts and agreements that contain a variety of representationsand warranties and provide for general indemnifications. The Company’s exposureunder these agreements is unknown because it involves claims that may be madeagainst the Company in the future, but have not yet been made. To date, theCompany has not paid any claims or been required to defend any action relatedto its indemnification obligations. However, the Company may record charges inthe future as a result of these indemnification obligations.

 

In accordance with the Company’s amended andrestated certificate of incorporation and bylaws, the Company hasindemnification obligations to its officers and directors for certain events oroccurrences, subject to certain limits, while they are serving at the Company’srequest in such capacity. The Company also has entered into indemnificationagreements with its directors and officers, pursuant to which it hasindemnification obligations to them. There have been no claims to date and theCompany has a director and officer insurance policy that may enable it torecover a portion of any amounts paid for future claims.

 

**NOTE 7****- Income Taxes**

 

EffectiveJanuary 1, 2007, the Company adopted the provisions of FASB InterpretationNo. 48, *Accounting for Uncertainty inIncome Taxes: An Interpretation of FASB Statement No. 109* (“FIN No. 48”).  As of March 31,2008, the Company has no unrecognized tax benefit.

 

TheCompany’s practice is to recognize interest and/or penalties related to incometax matters in income tax expense.  TheCompany had no accrual for interest or penalties at March 31, 2008.

 

TheCompany files U.S. Federal and California state tax returns. The Company iscurrently not subject to income tax examinations and, in general, all tax yearsremain open due to net operating losses.

 

**ITEM 2.   MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**INTRODUCTION**

 

The following discussionshould be read in conjunction with the financial statements and the relatednotes included in this Form 10-Q, in our Form 10-K for the year endedDecember 31, 2007 and in our other filings with the Securities andExchange Commission (“SEC”). ThisQuarterly Report on Form 10-Q contains forward-looking statements withinthe meaning of the federal securities laws. These statements include, but arenot limited to, those concerning the following: futureevents, our future financial performance, business strategy, productintroductions and plans and objectives of management for future operations,regulatory approvals and clinical timelines. Forward-looking statements are subject to risks and uncertaintiesthat could cause actual results and events to differ materially. For a detaileddiscussion of these risks and uncertainties, see Part II, Item 1A “RiskFactors” below. We undertake no obligation to update forward-looking statementsto reflect events or circumstances occurring after the date of this Form 10-Q.

 

**BUSINESSOVERVIEW**

 

We are a development stage medical devicecompany focused on developing and commercializing our proprietary Custom NXdrug eluting stent, or DES, systems to treat coronary artery disease, or CAD.Since inception 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 length with asingle device. We have not yet received any government regulatory approvalsnecessary to commercialize any of our products.

 

We are conducting clinical trials to evaluateour Custom NX 36 and Custom NX 60 stent and stent delivery systems. In October 2007,the two year clinical data from our CUSTOM I clinical trial and the one yearclinical data from our CUSTOM II clinical trial were presented at the 2007Transcatheter Cardiovascular Therapeutics conference in Washington D.C. In August 2007,we completed enrollment of our CUSTOM III clinical trial which is designed tofurther evaluate the safety and efficacy of in–situ customization with 

 

13

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our stents, particularly inpatients with long lesions and multiple lesions. We believe the data from theseclinical trials provided preliminary evidence of safety and efficacy andsupports further development of our in–situ customization approach. We willneed CE Mark in the European Union in order to commercialize our products inthe European Union and certain other countries that recognize CE Mark. In December 2007,we submitted our application for CE Mark to our European Notified Body usingthe data from our CUSTOM I, II and III clinical trials. In March 2008,our Notified Body informed us that we will receive a response to our CE Markapplication in May 2008. We will need premarket approval, or PMA, from theU.S. Food and Drug Administration, or FDA, before we can market our products inthe United States, which we expect will require data from large clinical trialsof up to 2,500 patients. To initiate our CUSTOM IV trial in the United States,we must first obtain clearance of an investigational device exemption, or IDE,from the FDA. In September 2007, we applied for our IDE and in October 2007we received questions back from the FDA regarding our IDE application.  Since then, we have been engaged in ongoingcollaborative discussions with the FDA, and as a result we believe we will beable to address the FDA’s questions within a timeframe to permit us to commenceour CUSTOM IV clinical trial in the United States by the end of 2008.

 

In anticipation of approval of our products,we plan to increase our manufacturing capacity and personnel to enable us toproduce commercial quantities of our products. We anticipate that it will taketime to increase our capacity and, as a result, expansion will be initiatedprior to the anticipated approval of our products. Prior to obtainingregulatory approval, we may also begin to hire sales and marketing personnel.Following CE Mark approval in the European Union, we intend to commercializeour Custom NX DES Systems in key markets in both Europe and Asia Pacific. Weexpect 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 the UnitedStates through a direct sales force.

 

To date, we have not generated any revenuefrom our development activities and will not be able to generate revenue untilone of our products is approved, if ever. We have incurred net losses in eachyear since our inception in June 2002. Through March 31, 2008, we hadan accumulated deficit of $105.3 million. We expect our losses to continueto increase as we expand our clinical trial activities and initiatecommercialization activities. Since inception we have financed our operationsprimarily through the sale of our equity securities. On February 1, 2007we completed the initial public offering of our common stock which raised netproceeds of $68.2 million. We plan to raise additional capital in 2008through the sale of equity or debt securities or by obtaining a creditfacility.

 

In May 2004, we entered into a licenseagreement with Biosensors. Pursuant to the agreement, we obtained worldwide non-exclusiverights to use Biosensors’s drug coating on our products, and agreed to payspecified minimum royalties and royalties based on net sales of our products.In December 2007, we entered into an amended and restated licenseagreement with Biosensors. Pursuant to the original agreement, Biosensorsformulated the drug coating and we purchased the drug coating from them. Underthe restated agreement, we have the right to purchase the drug and polymercomponents separately and formulate the coating ourselves. At this time, wehave not completed the work necessary to perform the formulation ourselves andcontinue to purchase the drug coating formulated by Biosensors.

 

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

Webase the discussion and analysis of our financial condition, results ofoperations and liquidity and capital resources upon our unaudited condensedfinancial statements, which we prepare in accordance with U.S. generallyaccepted accounting principles. In preparing these financial statements, wemust make estimates and judgments that affect the reported amounts of assets,liabilities, and expenses. We evaluate our estimates based on historicalexperience and various other assumptions we believe are reasonable under thecircumstances. Our actual results could differ materially from these estimatesunder different assumptions or conditions.

 

Withthe exception of our adoption of SFAS 157,****therehave been no significant changes in our critical accounting estimates duringthe three months ended March 31, 2008 as compared to the criticalaccounting estimates disclosed in the “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” section of our Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

**FINANCIALOPERATIONS**

 

***Revenue***

 

To date, we have not generated any revenuefrom the sale of our stent systems. We do not expect to generate revenue untilthe second half of 2008 at the earliest, subject to obtaining CE Mark.

 

14

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***Research andDevelopment***

 

Since inception, we have devoted asignificant amount of resources to develop our Custom NX DES Systems. We expectour research and development expenditures to increase as we continue to devotesignificant resources to developing our products, in particular, completing theclinical trials necessary to support regulatory approval. From our inceptionthrough March 31, 2008, we incurred $83.8 million in research anddevelopment expenses.

 

***General andAdministrative***

 

General and administrative expenses consistprimarily of compensation for executive, finance, marketing and administrativepersonnel including stock-based compensation. Other significant expensesinclude professional fees for accounting and legal services associated with ourefforts to obtain and maintain protection for intellectual property related toour Custom NX DES Systems. From our inception through March 31, 2008, weincurred $27.0 million in general and administrative expenses.

 

**RESULTS OF OPERATIONS**

 

**COMPARISON OF THREE MONTHS ENDED MARCH 31,2008 AND 2007**

 

***Revenue***

 

We didnot generate any revenue during the three months ended March 31, 2008 or2007.

 

***Research and Development***

 
| ** **                        | ** ** | **Three Months Ended  March 31,** | ** ** | **Dollar** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                        | ** ** | **2008**                                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| ** **                        | ** ** | **(in thousands)**                          | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Research and development expenses |       | $                                                | 9,421      |       | $          | 6,223 |   | $ | 3,198 |   |
|                                   |            |                                                  |            |            |            |  |  |  |  |  |

 

The $3.2 million increase in research and development expenses for thethree months ended March 31, 2008, compared to the three months ended March 31,2007, was primarily attributable to:

 

·                  An increase of$1.3 million for prototype parts, supplies, and outside services related toproduct development for our Custom NX DES systems;

 

·                  An increase of$1.3 million in personnel costs related to the hiring of additional employeesin our research and development and manufacturing departments;

 

·                  An increase of$0.2 million in expenses related to the support of our clinical researchstudies; and

 

·                  An increase of$0.4 million in rent, depreciation on equipment and facilities costs as weexpanded our manufacturing capacity.

 

We expect our research and development expenses to increasesignificantly as we continue the development of our Custom NX DES Systems andconduct additional clinical trials.

 

***General and Administrative***

 
| ** **                          | ** ** | **Three Months Ended  March 31,** | ** ** | **Dollar** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2008**                                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| ** **                          | ** ** | **(in thousands)**                          | ** ** | ** ** | ** ** |
| ** **                          | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| General and administrative expenses |       | $                                                | 3,442      |       | $          | 2,461 |   | $ | 981 |   |
|                                     |            |                                                  |            |            |            |  |  |  |  |  |

 

The $1.0 million increase in general and administrative expenses forthe three months ended March 31, 2008, compared to the three months ended March 31,2007, was primarily attributable to:

 

·                  An increase of$0.3 million in personnel costs related to the hiring of additional employeesin our finance and administration and marketing departments;

 

·                  An increase of$0.2 million in employee stock-based compensation expense;

 

·                  An increase of$0.2 million in consulting, legal and professional services;

 

15

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·                  An increase of$0.1 million due to spending for trade shows, travel and marketing materials;

 

·                  An increase of$0.1 million in insurance and other administrative expenses;

 

·                  An increase of$0.1 million in rent, depreciation on equipment and facilities costs as weexpand our manufacturing capacity;

 

Weexpect our general and administrative expenses to increase significantly due tothe costs associated with the commercialization of our products.

 

***Interest and Other Income, Net***

 
| ** **                | ** ** | **Three Months Ended  March 31,** | ** ** | **Dollar** | ** ** |
|---------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                | ** ** | **2008**                                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| ** **                | ** ** | **(in thousands)**                          | ** ** | ** ** | ** ** |
| ** **                | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Interest and other income |       | $                                                | 406        |       | $          | 749 |   | $ | (343 | ) |
|                           |            |                                                  |            |            |            |  |  |  |  |  |

 

The $0.3 million decrease in interest and other income, net, for thethree months ended March 31, 2008, compared to the three months ended March 31,2007, was primarily attributable to****a decrease in the levels of cash, cash equivalentsand short-term investments, as well as lower average interest rates.

 

***LIQUIDITYAND CAPITAL RESOURCES***

 

Our cash and cash equivalents, and short-term investments balances asof March 31, 2008 and December 31, 2007 are summarized as follows:

 
| ** **                                                  | ** ** | **As of  March 31,  2008** | ** ** | **As of  December 31,  2007** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                  | ** ** | **(in thousands)**              | ** ** |
|                                                        |       |                                 |       |                                    |       |
| Cash and cash equivalents                                   |       | $                                    | 16,216     |                                    | $          | 13,366 |   |
| Short-term investments                                      |       | 30,278                               |       | 44,394                                  |       |
|                                                        |       |                                 |       |                                    |       |
| Total cash and cash equivalents and  short-term investments |       | $                                    | 46,494     |                                    | $          | 57,760 |   |

 

***Sources of Liquidity***

 

We are in the development stage and have incurred losses since ourinception in June 2002. As of March 31, 2008, we had an accumulateddeficit of $105.3 million. Prior to our Initial Public Offering, we funded ouroperations from the private placements of our convertible preferred stockresulting in aggregate net proceeds of $75.6 million through December 31,2006. On February 1, 2007, we completed our Initial Public Offering,raising $68.2 million in net proceeds. We plan to sell additional equityor debt securities or obtain a credit facility during 2008.  The process of developing our products will continueto require significant research and development, clinical trials and regulatoryapprovals.  These activities, togetherwith increases in selling, general and administrative expenses, as we preparefor a commercial launch of our products in Europe, are expected to result insubstantial operating losses for the next several years.

 

As of March 31, 2008, we did not have any outstanding or availabledebt financing arrangements, we had working capital of $43.3 million, and ourprimary source of liquidity was $46.5 million in cash and cash equivalents andshort-term investments.

 

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***Cash Flows***

 

Our operating,investing and financing activities for the three months ended March 31,2008 and March 31, 2007 are summarized as follows:

 
| ** **                                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                           | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| ** **                                           | ** ** | **(in thousands)**                          | ** ** |
|                                                 |       |                                             |       |   |   |
| Net cash used in operating activities                |       | $                                                | (11,309    | ) | $ | (6,209 | ) |
| Net cash provided by (used in) investing  activities |       | 14,127                                           |       | (49,804 | ) |
| Net cash provided by financing activities            |       | 32                                               |       | 69,150 |   |
|                                                 |       |                                             |       |   |   |
| Net increase in cash and cash equivalents            |       | $                                                | 2,850      |   | $ | 13,137 |   |

 

***Operating Activities***

 

Netcash used in operating activities was $11.3 million for the three monthsended March 31, 2008, compared to $6.2 million for the three months ended March 31,2007. The net cash used in operating activities for the three months ended March 31,2008 and 2007 primarily reflects expenses related to product development andclinical trials.  These expenses werepartially offset by depreciation and amortization, amortization of securitiesdiscount, gain on sale of investments, non-cash stock-based compensation andnon-cash changes in operating assets and liabilities.

 

***Investing Activities***

 

Net cashprovided by investing activities was $14.1 million for the three monthsended March 31, 2008, compared to net cash used in investing activities of$49.8 million for the three months ended March 31, 2007. Net cash providedby investing activities for the three months ended March 31, 2008 wasattributable to the proceeds from the sales of investments of $10.0 million andthe proceeds from the maturities of investments of $9.9 million, which werepartially offset by the purchase of short-term investments of $5.5 million andthe purchase of property and equipment of $0.3 million. Net cash used ininvesting activities for the three months ended March 31, 2007 wasprimarily attributable to the purchase of short-term investments of $49.4million and the purchase of property and equipment of $0.4 million. The netcash used to purchase investments during the three months ended March 31,2007 was derived from the cash raised by our Initial Public Offering in February 2007.

 

***Financing Activities***

 

Netcash provided by financing activities for the three months ended March 31,2008 was $32,000, compared to $69.2 million for the three months ended March 31,2007. Net cash provided by financing activities for the three months ended March 31,2008 was attributable to the proceeds from the exercise of stock options byemployees. Net cash provided by financing activities for the three months endedMarch 31, 2007 was primarily attributable to our Initial Public Offeringin February 2007.

 

***Operating Capital and Capital Expenditure Requirements***

 

To date, we have not commercialized anyproducts. We do not anticipate generating any revenue unless and until wesuccessfully obtain CE Mark or FDA marketing approval for, and begin selling,our Custom NX DES Systems. We anticipate that we will continue to incursubstantial net losses for the next several years as we develop our products,conduct and complete clinical trials, pursue additional applications for ourtechnology platform, expand our clinical development team and corporateinfrastructure, and prepare for the potential commercial launch of our products.

 

We believe our cash and cash equivalents andshort-term investments and interest income we earn on these balances, will besufficient to meet our anticipated cash requirements through January 31,2009. We plan to sell additional equity or debt securities or obtain a creditfacility during 2008. Any such required additional capital may not be availableon reasonable terms, if at all. The sale of additional equity and debtsecurities may result in additional dilution to our stockholders. If we raiseadditional funds through the issuance of debt securities, these securitiescould have rights senior to those of our common stock and could containcovenants that would restrict our operations. We may require additional capitalbeyond our currently forecasted amounts. For example, we will need to raiseadditional 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.

 

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We anticipate spending approximately$45.0 million to complete our CUSTOM IV and V clinical trials. Inaddition, 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.

 

Our forecasts for the period of time throughwhich our financial resources will be adequate to support our operations andthe costs to complete development of products are forward-looking statementsand involve risks and uncertainties, and actual results could vary materiallyand negatively as a result of a number of factors, including the factorsdiscussed in the “Risk Factors” contained in Item 1A of Part II ofthis report. We have based these estimates on assumptions that may prove to bewrong, and we could utilize our available capital resources sooner than wecurrently expect.

 

Because of the numerous risks anduncertainties associated with the development of medical devices, such as ourCustom NX DES Systems, we are unable to estimate the exact amounts of capitaloutlays and operating expenditures necessary to complete ongoing clinicaltrials and successfully deliver a commercial product to market. Our futurefunding requirements 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.

 

Future capital requirements will also dependon the extent to which we acquire or invest in businesses, products andtechnologies, although we currently have no commitments or agreements relatingto any of these types of transactions.

 

***Contractual Obligations***

 

Our principal commitments as of March 31, 2008 consist ofobligations under operating leases and purchase obligations that we enter intothrough the normal course of business. SeeNote 6 of our Notes to Condensed Financial Statements for more detailedinformation.

 

***Off-Balance Sheet Arrangements***

 

Sinceinception, we have not engaged in any off-balance sheet activities as definedin Regulation S-K Item 303(a)(4).

 

***Recent and Adopted AccountingPronouncements***

 

In June 2007, the FASBratified Emerging Issues Task Force (“EITF”) Issue No. 07-3, *Accounting for Nonrefundable Advance Payments forGoods or Services to Be Used in Future Research and Development Activities*(“EITFNo. 07-3”). EITF No. 07-3 requires nonrefundable advance payments forgoods and services that will be used or rendered for future research anddevelopment activities be deferred and capitalized. Such amounts should berecognized as an expense as the goods are delivered or the related services areperformed. EITF No. 07-3 was effective for us in the year beginning January 1,2008. The adoption of EITF No. 07-3 did not have a material impact on ourfinancial position, operating results or cash flows.

 

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In February 2007, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 159, *The FairValue Option for Financial Assets and Financial Liabilities—including anamendment of FAS115*(“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 was effective for us in the year beginning January 1,2008 and will be applied prospectively. The adoption of SFAS 159 did not have amaterial impact on our financial position, operating results or cash flows.

 

On January 1, 2008, weadopted SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”) as itrelates to financial assets and financial liabilities. In February 2008,the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)No. FAS 157-2, “Effective Date of FASB Statement No. 157,” whichdelayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on at leastan annual basis, until January 1, 2009 for calendar year-end entities.Also in February 2008, the FASB issued FSP No. FAS 157-1, “Applicationof FASB Statement No. 157 to FASB Statement No. 13 and OtherAccounting Pronouncements That Address Fair Value Measurements for Purposes ofLease Classification or Measurement under Statement 13,” which states that SFASNo. 13, “Accounting for Leases,” (“SFAS 13”) and other accountingpronouncements that address fair value measurements for purposes of leaseclassification or measurement under SFAS 13 are excluded from the provisions ofSFAS 157, except for assets and liabilities related to leases assumed in a businesscombination that are required to be measured at fair value under SFAS No. 141,“Business Combinations,” (“SFAS 141”) or SFAS No. 141 (revised 2007), “BusinessCombinations,” (“SFAS 141(R)”). SFAS 157 defines fair value, establishes aframework for measuring fair value in accounting principles generally acceptedin the United States of America, and expands disclosures about fair valuemeasurements. The provisions of this standard apply to other accountingpronouncements that require or permit fair value measurements and are to beapplied prospectively with limited exceptions. The adoption of SFAS 157 did nothave a material impact on our financial position, operating results or cashflows. We have not yet determined the impact on our financial statements fromthe adoption of SFAS No. 157 as it pertains to non-financial assets andnon-financial liabilities.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

 

**Interest rate risk**

 

The primary objective of our investmentactivities is to preserve our capital for the purpose of funding operationswhile at the same time maximizing the income we receive from our investmentswithout significantly increasing risk. To achieve these objectives, ourinvestment policy allows us to maintain a portfolio of cash equivalents andinvestments in a variety of marketable securities, including commercial paper,money market funds and U.S. government and agency securities. Our cash and cashequivalents as of March 31, 2008 consist primarily of liquid money marketfunds, certificates of deposits, U.S. government and agency securities. Ourshort-term investments as of March 31, 2008 consist primarily of U.S.government securities. Due to the short-term nature of our investments, webelieve that there is no material exposure to interest rate risk.

 

**Exchange rate risk**

 

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

 

If we expand our overseas operations, ouroperating results may become subject to more significant fluctuations based onchanges in exchange rates of foreign currencies in relation to the U.S. dollar.We will periodically analyze our exposure to currency fluctuations and mayadjust our policies to address any future potential exchange rate risk.

 

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**ITEM 4. CONTROLSAND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

We maintain disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the reports that we file or submit under the Exchange Act isrecorded, processed, summarized, and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

We carried out an evaluation, under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act). Based upon this evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of March 31, 2008.

 

**Changes in Internal Control Over FinancialReporting**

 

No change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) occurred during the quarter ended March 31, 2008 thathas materially affected, or is 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 to Our Business**

 

**We are a development stage company with ahistory of losses, and we expect to incur net losses for the foreseeablefuture.**

 

We have incurred net losses since ourinception in June 2002. For the years ended December 31, 2007, 2006,and 2005, we had net losses of $38.8 million, $25.0 million and$14.0 million, respectively. As of March 31, 2008, we had anaccumulated deficit of $105.3 million. To date, we have financed ouroperations primarily through private placements of our equity securities andour Initial Public Offering, completed on February 1, 2007, and havedevoted substantially all of our resources to research and development andclinical studies related to our Custom NX DES Systems, which consist of theCustom NX 36 and the Custom NX 60. Since we have not received a CE Mark orapproval from the U.S. Food and Drug Administration (“FDA”) or any otherregulatory authority for our products, we are unable to market our currentproducts and have not generated any revenue since our inception. We expect ourresearch and development expenses to increase significantly in connection withour clinical trials and other product development activities. If we receive CEMark or FDA approval of our Custom NX DES Systems, we expect to incursignificant sales and marketing expenses and manufacturing expenses as wecommercialize our products. As a result, we expect to continue to incursignificant and increasing operating losses for the foreseeable future. These losseswill continue to have an adverse effect on our stockholders’ equity.

 

**We will need substantial additional fundingand may be unable to raise capital when needed, which would force us to delay,reduce or eliminate our product development programs or commercializationefforts.**

 

We plan to raise additional capital byselling additional equity or debt securities or by obtaining a credit facilityduring 2008. We will need to raise substantial additional capital to:

 

·                  fundour operations and clinical trials;

 

·                  continueour research and development;

 

·                  scale-upour manufacturing operations;

 

·                  defend,in litigation or otherwise, any claims that we infringe third- party patent orother intellectual property rights;

 

·                  commercializeour products, if any such products receive regulatory approval for commercialsale; and

 

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

 

We believe our existing cash and cashequivalent balances and interest we earn on these balances, will be sufficientto meet our anticipated cash requirements for at least the next 9 months.However, our future funding requirements will depend on many factors,including:

 

·                  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;

 

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·                  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;

 

·                  licensingtechnologies for future development; and

 

·                  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.

 

If we raise additional funds by issuingequity securities, our stockholders may experience dilution. Debt financing, ifavailable, may involve restrictive covenants. Any debt financing or additionalequity that we raise may contain terms that are not favorable to us or ourstockholders, or may not be available at all. To raise capital, we may decideto sell unregistered stock at a discount to market with or without the issuanceof warrants. The sale of securities at a discount or the issuance of warrantsmay result in dilution to our existing stockholders. In connection with thistype of financing, we would likely be obligated to register such shares forresale at a later date. If we raise additional funds through collaboration andlicensing arrangements with third parties, it may be necessary to relinquishsome rights to our technologies or our products, or grant licenses on termsthat are not favorable to us. If we are unable to raise adequate funds, we mayhave to liquidate some or all of our assets or delay, reduce the scope of oreliminate some or all of our development programs.

 

If adequate funds are not available, we mayhave to delay development or commercialization of our products or license tothird parties the rights to commercialize products or technologies that wewould otherwise seek to commercialize. We also may have to reduce marketing,customer support or other resources devoted to our products. Any of thesefactors could harm our financial condition.

 

**We are wholly dependent on a third party forthe development of the drug coating placed on our drug eluting stents and anydelay or failure by such third party to successfully develop the drug coatingor to submit acceptable Drug Master Files, or MAFs, to regulatory authoritiescould delay our clinical trials or prevent or delay commercialization of ourCustom NX DES Systems.**

 

In May 2004, we entered into a licenseagreement with Biosensors. In December 2007, we entered into an amendedand restated license agreement with Biosensors which superseded the prioragreement. Pursuant to the agreement, we obtained non-exclusive rights to useBiosensors’s drug coating on our stent platform. The drug coating consists ofBiolimus A9®, an anti-inflammatory drug that is a derivative ofrapamycin, and PolyLactic Acid (“PLA”), a biodegradable polymer used to releasethe drug over time. In January 2008, Biosensors announced that it hadreceived CE Mark approval for its BioMatrix drug eluting stent which uses theBiolimus A9 and PLA drug coating. The drug coating has not been approved forany use in the United States or any other jurisdiction.

 

To date, Biosensors has made only limitedpublic disclosures regarding filings it has made with the FDA in connectionwith the Drug Master File, or MAF,for its BioMatrix drug eluting stent. In order to obtain CE Mark and IDEapproval for our Custom NX DES Systems, we require Biosensors, acting on ourbehalf, to submit MAFs related to our drug coating to our Notified Body and theFDA. Although Biosensors received CE Mark for its Biomatrix stent, there can beno guarantee that any MAF that Biosensors submits to a regulatory authority onour behalf will be acceptable.

 

We submitted our application for CE Markapproval of our Custom NX DES systems in December 2007, and in March of2008, our Notified Body informed us that we will receive a response to our CEMark application in May of 2008. As part of our application for CE Mark,Biosensors submitted a MAF related to our drug coating to the designatedNotified Body who reviews our CE Mark application. We will have to obtain afavorable opinion on this MAF from the Medicines Evaluation Board, or MEB, inthe Netherlands before our designated Notified Body can provide us with CE Markapproval. Although Biosensors has already submitted the MAF, it is possiblethat the Notified Body will have questions concerning the MAF. Any delaysBiosensors experiences or problems it has in responding to such questions maysubstantially delay the commercialization of our Custom NX DES systems inEurope as well as certain non-European countries that recognize the EuropeanUnion’s CE Mark.

 

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In order to obtain IDE approval from the FDAallowing us to initiate our CUSTOM IV clinical trial in the United States andin order to obtain the PMA allowing us to commercialize our Custom NX DESSystems in the United States, we need Biosensors to submit acceptable MAFsrelated to our drug coating to the FDA on our behalf. Any delays Biosensorsexperiences or problems it has in developing these acceptable MAFs orresponding to questions the FDA may have concerning the MAFs may substantiallydelay our currently planned clinical trials and the development of our productsand we may be required to restart clinical programs with an alternative drugcoating.

 

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 do not have, and may never have,any products available for sale and our efforts to obtain product approvals andcommercialize our products may not succeed or may result in delays for manyreasons.**

 

We are a development stage medical devicecompany with a limited history of operations and we currently do not have anyproducts available for sale or other sources of revenue. Our ability togenerate revenue depends entirely upon the successful clinical development,regulatory approval and commercialization of our Custom NX DES Systems. Ourproducts under development and any other products that we develop will requireextensive additional clinical testing, regulatory approval and significantmarketing efforts before they can be sold and generate any revenue. Our effortsto commercialize our products may not succeed for a number of reasonsincluding:

 

·                  ourproducts may not demonstrate safety and efficacy in our clinical trials;

 

·                  weare wholly dependent on the efforts undertaken by the supplier of the drugcoating for our products, and may be significantly impacted by any regulatorydelays or barriers that our supplier may encounter in submitting an adequate oracceptable MAF for the drug coating to the regulatory authorities on ourbehalf;

 

·                  wemay not be able to obtain regulatory approvals for our products, or theapproved indications for our products may be narrower than we seek;

 

·                  wemay experience delays in our development program, including initiation andcompletion of our clinical trials;

 

·                  anyproducts that are approved may not be accepted in the marketplace by physiciansand patients;

 

·                  physiciansmay not receive adequate coverage and reimbursement for procedures using ourproducts;

 

·                  anyrapid technological change may make our technology and products obsolete;

 

·                  wemay not be able to manufacture our Custom NX DES Systems in commercial quantitiesor at an acceptable cost;

 

·                  wemay not have adequate financial or other resources to complete the developmentand commercialization of our Custom NX DES Systems; and

 

·                  wemay be sued for infringement of intellectual property rights and could be enjoinedfrom manufacturing or selling our products.

 

We cannot market our products in the EuropeanUnion until we receive a CE Mark or in the United States until we receive PMA.The earliest we expect to commercialize our products in the European Union is thesecond half of 2008, if at all. If we are not successful in the initiation andcompletion of clinical trials for the development, approval andcommercialization of our Custom NX DES Systems for the treatment of coronaryartery disease (“CAD”), we may never generate any revenue and may be forced tocease operations.

 

**We have not received, and may never receive,FDA or other regulatory approvals to market our Custom NX DES Systems.**

 

Our Custom NX DES Systems are combinationproducts, incorporating both a drug element and a medical device, and thecombination device will be regulated as a Class III medical device in theUnited States. Information regarding the drug coating for our stents will bereviewed by the FDA’s Center for Drug Evaluation and Research (“CDER”) based onthe MAF submitted by Biosensors on our behalf, and the device will be reviewedby the FDA’s Center for Devices and Radiological Health (“CDRH”), with theoverall product subject to approval by CDRH as a medical device. We believethat no separate approval for the drug independent of the device is required.

 

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We do not currently have the necessaryregulatory approvals to market our Custom NX DES Systems or any other productsin the United States or in any foreign market, including the European Union. Ifwe obtain the necessary regulatory approvals, we plan initially to launch ourproducts in the European Union and later in the United States. Regulatoryapproval in the European Union for our products will require us to successfullyobtain CE Mark from our designated Notified Body. In March 2007, theEuropean Medicines Agency released new guidelines it is proposing for theapproval of drug eluting stents. These proposed guidelines are more rigorousthan existing standards. Although the proposed guidelines have only beenpublished for comment and are not final, in order to obtain CE Mark, we havetaken the proposed guidelines into consideration.

 

The regulatory approval process in the UnitedStates for our products involves, among other things, successfully receivingauthorization from the FDA to conduct clinical trials under an investigationaldevice exemption (“IDE”), completing pre-clinical and clinical trials, andapplying for and obtaining PMA from the FDA. The PMA process requires us todemonstrate the safety and efficacy of our products to the FDA’s satisfaction.This process is expensive and uncertain and requires detailed and comprehensivescientific and human clinical data. While the FDA review process generallytakes one to three years after filing the PMA application, our PMA applicationreview could take much longer and may never result in the FDA granting PMA. TheFDA could delay, limit or deny approval of our PMA application for many reasons,including:

 

·                  ourstent systems may not be safe or effective or may not otherwise meet the FDA’srequirements;

 

·                  thedata from our pre-clinical studies and clinical trials may be insufficient tosupport approval;

 

·                  themanufacturing process or facilities we or our suppliers use may not meetstringent regulatory requirements;

 

·                  theinformation provided by the supplier of the drug coating in the MAF it submitsto the FDA on our behalf may be inadequate; and

 

·                  changesin FDA approval policies or adoption of new regulations may require us toprovide additional data.

 

We will also have to obtain similar, and insome cases more stringent, foreign regulatory approval in order tocommercialize our products outside of the United States. Even if approved, ourCustom NX DES Systems may not be approved for the indications that arenecessary or desirable for successful commercialization. We may not obtain thenecessary regulatory approvals to market our products in the European Union,United States or in other markets. Any delay in, or failure to receive ormaintain, approval for our products could prevent us from generating revenue orachieving profitability.

 

**Preliminary third-party data has raisedconcerns that drug eluting stents may cause an increase in late-stentthrombosis. In the event that regulatory authorities determine that suchconcerns are valid or otherwise require additional study and analysis, we mayexperience 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 at the September 2006 EuropeanSociety of Cardiology Annual Meeting/World Congress of Cardiology Meeting inBarcelona, Spain. This data suggested a small but significant increase in therate of death and myocardial infarction, or heart attack, potentially due tolate-stent thrombosis, in patients treated with drug eluting stents at18 months to three years after stent implantation. The FDA stated that,while these studies have raised important questions regarding the safety andefficacy of drug eluting stents, it is not possible to fully characterize themechanisms, risks and incidence rates of late-stent thrombosis followingimplantation of drug eluting stents based on currently available data. The FDAhas not issued any new position to date regarding the safety of drug elutingstents. In March 2008, the FDA published draft guidance regardingnon-clinical and clinical studies for drug eluting stents.  The draftguidance includes recommendations regarding the following areas:

 

·                  Engineeringtesting,

 

·                  Biocompatibilitytesting,

 

·                  Animalstudies,

 

·                  Chemistryand manufacturing controls,

 

·                  Clinicalpharmacology and drug release,

 

·                  Drugpharmacology, toxicology and safety data,

 

·                  Clinicalstudies, and

 

·                  Postapproval studies.

 

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InApril 2008, the FDA also conducted a public workshop on the draft guidancedocuments and provided clarification on the above matters. Although the draftguidelines are currently considered non-binding recommendations, they have beenpublished for public comment and it is expected that the FDA will conduct anyapplication review for new drug eluting stent catheter systems following thegeneral principles highlighted in the guidance.

 

**If Biosensors fails to supply us withsufficient quantities of our drug coating, development and commercialization ofour Custom NX DES Systems may be prevented or delayed as a result.**

 

We obtain our entire supply of the drugcoating for our stents from Biosensors and we are unaware of any alternativesource for this drug coating. Under the amended and restated license agreementwhich we entered into with Biosensors in December 2007, we have the rightto purchase the components of the drug coating, which are the drug and the PLA,from Biosensors in order to perform the coating formulation ourselves. Eventhough we have this right, we still obtain the formulated drug coating fromBiosensors and we will continue to do so until we complete the work necessaryin order to perform our own formulation. We do not have the right to usealternate suppliers for this drug coating that we obtain from Biosensors, orthe components of the drug coating which we plan to purchase from them in thefuture. In addition, there is no other source for the drug coating orcomponents and we are contractually restricted from obtaining Biolimus A9 fromany other source and we have not in-licensed an alternative drug for use in theevent we are unable to obtain a sufficient supply of Biolimus A9. Currently,Biosensors relies on a sole-source, Nippon Kayaku, a third- party Japanesepharmaceutical company, to manufacture and supply them with Biolimus A9,which Biosensors mixes with the PLA. We have no relationship with, controlover, or contact with this pharmaceutical company and cannot contract directlywith it 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 ofBiolimus A9, including onerous current Good Manufacturing Practicesregulations (“GMP”), which are strictly enforced by the FDA, and the Ministryof Health, Labor, and Welfare in Japan and any failure on the part of thepharmaceutical company to comply with these requirements may interruptBiosensors’ supply of Biolimus A9 and ultimately, our supply of the drugcoating. Biosensors has also entered into, and may continue to enter into,agreements to supply the drug coating to other licensees. Our clinical trialsand the development and commercialization of our Custom NX DES Systems could beprevented or delayed if:

 

·                  thesupplier of our drug coating is unable or refuses to meet our demand;

 

·                  ourlicense agreement with Biosensors terminates for any reason, includinginsolvency or our failure to obtain CE Mark or commercialize within one year ofthe date upon which the MAF that Biosensors submits in connection with our CEMark application is approved by the MEB; or

 

·                  thesupplier of our drug coating does not meet regulatory quality requirements andother specifications, certain regulatory approvals need to be obtained.

 

To date, our drug coating requirements have been limited to smallquantities that we need to conduct our development and pre-clinical andclinical trials. If we obtain market approval for our products, we anticipatethat we will require substantially larger quantities of the drug coating or thecomponents of the drug coating. Biosensors may not provide us with sufficientquantities of the drug coating or components and such supply may not meet ourquality requirements or other specifications. For example, we have, in thepast, experienced interruptions in the supply of adequate quantities ofacceptable drug coating. In addition, Biosensors recently informed usthat by June 30, 2008, it plans to close its Newport Beach, Californiafacility where it currently formulates the drug coating that it supplies tous.  In order to use drug coating formulation prepared at anotherBiosensors facility, or at our own facility, for the manufacture of devicesintended for clinical use, certain regulatory approvals need to be obtained. If such regulatory approvals are not acquired promptly following the closure ofthe Newport Beach facility, we may experience an interruption in the supply ofdrug coating suitable for use in clinical trials.  In the event we do not receive adequatesupplies of acceptable drug coating or components, we will likely be unable tolocate an alternative supplier, or any alternative drug, in a timely manner oron commercially reasonable terms, if at all. Any additional new source forBiolimus A9, the PLA or the drug coating will require the consent of Biosensorsand prior FDA approval, which will require significant time and effort toobtain and there can be no assurance that we will obtain such regulatoryapproval. The inability to obtain sufficient quantities of the drug coating orcomponents, 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.

 

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**We rely on third parties to test the drugcoating for our stents, and these third parties may use test methods thatothers may claim as their own. If we must obtain a license to use these methodsor develop new testing methods, we may experience delays in our ability toinitiate clinical trials or to obtain regulatory approvals for our products asa result.**

 

Certain tests related to the drug coating onour stents must be performed before the stents can be used in U.S. clinicaltrials or approved for commercial sale. We have agreed with Biosensors that wewill be responsible for performing some of these tests. We have not developedthe technology or methods to perform all this testing in-house, and plan torely on third parties to conduct some of the testing. We have identifiedcertain third parties who we believe have the capability to conduct thistesting using methods that do not violate the proprietary rights of others. Wecan provide no assurance, however, that these testing methods will not violatesuch rights. If others assert rights to these testing methods, we may need toobtain a license giving us the right to use the testing methods or identify ordevelop other methods for performing the required testing. We cannot assure youthat a license will be available to us or that it will be available on termsthat are agreeable to us. If we are unable to obtain a license, we cannotassure you that we will be able to identify or develop alternate testingmethods that meet our needs without delaying our regulatory submissions orapprovals. This may result in a delay in the release of, or an inability torelease, our stents for use in U.S. clinical trials or commercial products andour ability to generate revenue would be adversely affected as a result.

 

**We do not have long-term data regarding thesafety and efficacy of our Custom NX DES Systems. Any long-term data that isgenerated may not be consistent with our limited short-term data, which couldaffect the regulatory approval of our products or the rate at which ourproducts are adopted.**

 

An important factor in our clinical trials,upon which the safety and efficacy of our Custom NX DES Systems may bemeasured, is the rate of restenosis, or the renarrowing of the treated arteryover time, and the rate of reintervention, or retreatment following theprocedures using the Custom NX DES Systems. We believe that physicians andregulators will compare the rates of long-term restenosis and reinterventionfor our Custom NX DES Systems against other drug eluting or bare metal stentprocedures and other alternative procedures.

 

If, in our planned large-scale comparativepivotal clinical trial, we fail to demonstrate restenosis and reinterventionrates, as well as other clinical trial end-points and performance, comparableto other drug eluting and bare metal stents that have been approved by the FDA,our ability to successfully market our Custom NX DES Systems may besignificantly limited. If the long-term rates of restenosis and reinterventiondo not meet regulators’ or physicians’ expectations, our Custom NX DES Systemsmay not receive regulatory approval or, if approved, may not become widelyadopted and physicians may recommend that patients receive alternative drugeluting stents, such as the Cypher® stent, the Taxus® Express2TMstent and the Endeavor® stent, the three drug eluting stentscurrently marketed in the United States. Another important factor upon whichthe safety and efficacy of our Custom NX DES Systems will be measured is theincidence of late-stent thrombosis following procedures using our drug elutingstents. Some clinical data suggests a small but significant increase in therate of death and heart attack associated with drug eluting stents whencompared to bare metal stents, possibly due to late-stent thrombosis. The FDAconvened a public meeting of its Circulatory System Devices Advisory Panel on December 7and 8, 2006 with the intention of obtaining additional information on therisks, timing and incidence rates of late-stent thrombosis. In March 2008,the FDA published draft guidance regarding non-clinical and clinical studiesfor drug eluting stents See “Preliminary third-party data has raised concernsthat drug eluting stents may cause an increase in late-stent thrombosis.” Wecannot assure you that our long-term data, once obtained, will be differentthan that suggested in the recent studies regarding late-stent thrombosis.

 

Additionally, other efficacy factors mayinfluence a physician’s decision over what stents to deploy. Our Custom NX DESSystems’ stent segments may separate excessively at the time of deployment inthe artery or over time. Any such separation may lead to restenosis occurringbetween the segments or other adverse events. If the results obtained from ourclinical trials indicate that our products are not as safe or effective asother treatment options or as current short-term data would suggest, ourproducts may not be approved, adoption of our products may suffer and ourbusiness would be harmed.

 

**If our pre-clinical studies or clinical trialsdo not meet safety or efficacy endpoints, or if we experience significantdelays in completing these studies or trials, our ability to commercialize ourCustom NX DES Systems or other products and our financial position will beimpaired.**

 

Before marketing and selling our Custom NXDES Systems or any other products, we must successfully complete pre-clinicalstudies and clinical trials that demonstrate that our products are safe andeffective. We currently have a very limited amount of clinical data regardingthe safety and efficacy of our Custom NX DES Systems, and no published databeyond two years. The results from our limited short-term clinical experiencefor our Custom NX DES Systems do not necessarily predict long-term clinicalbenefit and may not be replicated in subsequent clinical trials. Furthermore,all of our existing data has been produced in studies that involve relativelysmall patient groups, and the data may not be reproduced in wider patientpopulations. We plan to conduct additional large-scale clinical trials todetermine whether our products are safe and effective and to support ourapplications for regulatory approval in the 

 

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United States. We expect thatone or more of these additional clinical studies will be a comparative studycomparing the safety and efficacy of our stents to the Cypher stent, the TaxusExpress2 stent or the Endeavor® stent, the three drug eluting stentsmarketed in the United States, or to other stents that may become approved formarketing in the United States, and that these studies will involve largepatient populations of approximately 2,500 patients.

 

The commencement or completion of any of ourclinical trials may be delayed or halted for numerous reasons, including, butnot limited to, the following:

 

·                  Biosensorsfails to submit on our behalf and in a timely fashion, if at all, a MAF for thedrug coating with the FDA, or such filing fails to meet regulatoryrequirements;

 

·                  Biosensorsfails to respond in a timely manner, if at all, to questions that the FDA mayhave concerning a MAF Biosensors submits to the FDA on our behalf, inconnection with our IDE submission;

 

·                  theFDA or other regulatory authorities do not approve our clinical trial protocolsor our clinical trials, or suspend or place a clinical trial on hold;

 

·                  patientsdo not enroll in clinical trials at the rate we expect;

 

·                  third-partyclinical investigators do not conduct follow-up visits with patients orpatients drop out of the clinical trial at rates we do not expect;

 

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

 

·                  patientsdie during a clinical trial for a variety of reasons, including the advancedstage of their disease and medical problems, which may or may not be related toour products;

 

·                  third-partyclinical investigators do not perform our clinical trials on our anticipatedschedule or consistent with the clinical trial protocol, good clinicalpractices or other regulatory requirements, or other third-party organizationsdo not perform data collection and analysis in a timely or accurate manner;

 

·                  regulatoryinspections of our clinical trials or manufacturing facilities, which may,among other things, require us to undertake corrective action or suspend orterminate our clinical trials if investigators find us or our suppliers not incompliance with regulatory requirements;

 

·                  changesin governmental regulations or administrative actions;

 

·                  theinterim results of our clinical trials are inconclusive or negative; or

 

·                  ourclinical trial designs, although approved, are inadequate to demonstrate safetyand/or efficacy.

 

Before we can commence our planned pivotalclinical trial in the United States for our Custom NX DES Systems, we mustreceive the FDA’s approval of our IDE application. In September 2007, weapplied for our IDE and in October 2007 we received questions back fromthe FDA regarding our IDE application. Since then, we have been engaged in ongoing collaborative discussionswith the FDA, and as a result we believe we will be able to address the FDA’squestions within a timeframe to permit us to commence our CUSTOM IV clinicaltrial in the United States by the end of 2008.

 

Product development, including pre-clinicalstudies and clinical testing, is a long, expensive and uncertain process and issubject to delays. It may take us several years to complete our testing, if wecomplete it at all, and a clinical trial may fail at any stage. Furthermore,data obtained from any clinical trial may be inadequate to support a PMAapplication or any foreign regulatory applications. Additionally, pre-clinicaland clinical data can also be interpreted in different ways, which could delay,limit or prevent regulatory approval for our products.

 

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**Clinical trials necessary to support a PMAapplication will be expensive and will require the enrollment of large numbersof patients, and suitable patients may be difficult to identify and recruit.**

 

Clinical trials necessary to support a PMAapplication for our Custom NX DES Systems will be expensive and will requirethe enrollment of large numbers of patients, and suitable patients may bedifficult to identify and recruit. The clinical trials supporting the PMAapplications for the Cypher stent, the Taxus Express2 stent and the Endeavorstent, which are approved by the FDA and currently marketed, involved patientpopulations of approximately 1,000, 1,300 and 1,100 respectively. We expectthat we will provide the FDA with data on approximately 2,500 patients with12-month follow-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. Forexample, at an FDA workshop held in April 2008, the FDA recommended 18month follow-up on at least 50% of patients. Patient enrollment in clinicaltrials and completion of patient follow-up depend on many factors, includingthe size of the patient population, the nature of the trial protocol, theproximity of patients to clinical sites and the eligibility criteria for theclinical trial and patient compliance. For example, patients may be discouragedfrom enrolling in our clinical trials if the trial protocol requires them toundergo extensive post-treatment procedures or follow-up to assess the safetyand efficacy of our products, or they may be persuaded to participate incontemporaneous clinical trials of competitive products. In addition, patientsparticipating in our clinical trials may die before completion of the trial orsuffer adverse medical events unrelated to our products. Delays in patientenrollment or failure of patients to continue to participate in a clinicaltrial may cause an increase in costs and delays or result in the failure of theclinical trial.

 

**Physicians may not widely adopt our Custom NXDES Systems unless they determine, based on experience, long-term clinical dataand published peer reviewed journal articles, that the use of our Custom NX DESSystem provides a safe and effective alternative to other existing treatmentsfor coronary artery disease, and meets other physician expectations.**

 

Physicians tend to be slow to change theirmedical treatment practices because of perceived liability risks arising fromthe use of new products and the uncertainty of third-party coverages andreimbursement. We believe that physicians will not widely adopt our Custom NXDES Systems unless they determine, based on experience, long-term clinical dataand published peer reviewed journal articles, that the use of our Custom NX DESSystems provides a safe and effective alternative to other existing treatmentsfor coronary artery disease, including coronary artery bypass grafting (“CABG”),balloon angioplasty, 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.

 

We cannot provide any assurance that the datacollected from our current and planned clinical trials will be sufficient todemonstrate that our Custom NX DES Systems are an attractive alternative toother drug eluting stent procedures. If we fail to demonstrate safety andefficacy that is at least comparable to other drug eluting or bare metal stentsthat have received regulatory approval and that are available on the market,our ability to successfully market our Custom NX DES Systems will besignificantly limited. Even if the data collected from clinical studies orclinical experience indicate positive results, each physician’s actualexperience with our Custom NX DES Systems will vary. Clinical trials conductedwith our Custom NX DES Systems have involved procedures performed by physicianswho are technically proficient and are high-volume users of drug elutingstents. Consequently, both short- and long-term results reported in theseclinical trials may be significantly more favorable than typical results ofpracticing physicians, which could negatively impact rates of adoption of ourproducts. In addition to safety and efficacy, we believe that productcharacteristics such as ease of use and consistency of performance are alsoimportant. If we are not able to meet physician expectations with respect tothese characteristics, market acceptance and adoption of our products may beimpacted. We also believe that published peer-reviewed journal articles andrecommendations and support by influential physicians regarding our Custom NXDES Systems will be important for market acceptance and adoption, and we cannotassure you that we will receive these recommendations and support, or thatsupportive articles will be published.

 

**Problems with the stent to be used in thecontrol group during our planned U.S. pivotal clinical trial could adverselyaffect its outcome.**

 

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

 

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**Our products are based on a new technology,and we have only limited experience in regulatory affairs, which may affect ourability or the time required to obtain necessary regulatory approvals, if atall.**

 

Drug eluting stents were introduced in theUnited States in 2003. To date, the FDA has approved only the Taxus Express2,the Cypher and the Endeavor drug eluting stents for commercial sale. Becausedrug eluting stents are relatively new and long-term success measures have not beencompletely validated, regulatory agencies, including the FDA, may takesignificantly more time in evaluating product approval applications for thosetypes of products. For example, there are currently several methods ofmeasuring restenosis and we do not know which of these metrics, or combinationof these metrics, will be considered appropriate by the FDA for evaluating theclinical efficacy of stents. Treatments may exhibit a favorable measureusing one of these metrics and an unfavorable measure using another metric. Anychange in the accepted metrics may result in reconfiguration of, and delays in,our clinical trials. Furthermore, the result of recent studies suggesting acorrelation between drug eluting stents and incidents of late-stent thrombosismay further delay and complicate the regulatory pathway for our products.Additionally, we have limited experience in filing and prosecuting theapplications necessary to gain regulatory approvals, and we have limitedpersonnel and resources to dedicate to the filing and prosecution of theseapplications. As a result, we may experience a long regulatory process inconnection with obtaining regulatory approvals for our products.

 

**If the third parties on which we rely toconduct our clinical trials and to assist us with pre-clinical development donot perform as contractually required or expected, we may not be able to obtainregulatory approval for or commercialize our products.**

 

We do not have the ability to independentlyconduct clinical trials for our products, and we must rely on third parties,such as contract research organizations, medical institutions, clinicalinvestigators and contract laboratories to conduct our clinical trials. Inaddition, we rely on third parties to assist with the pre-clinical developmentof our products. If these third parties do not successfully carry out theircontractual duties or regulatory obligations or meet expected deadlines, ifthese third parties need to be replaced, or if the quality or accuracy of thedata they obtain is compromised due to the failure to adhere to our clinicalprotocols or regulatory requirements or for other reasons, our pre-clinicaldevelopment activities or clinical trials may be extended, delayed, suspendedor terminated, and we may not be able to obtain regulatory approval for orsuccessfully commercialize our products on a timely basis, if at all.Furthermore, our third-party clinical trial investigators may be delayed inconducting our clinical trials for reasons outside of their control.

 

**Even if our products are approved byregulatory authorities, if we or our suppliers fail to comply with ongoingregulatory requirements, or if we experience unanticipated problems with ourproducts, these products could be subject to restrictions or withdrawal fromthe market.**

 

Any product for which we obtain marketingapproval, along with the manufacturing processes, post-approval clinical dataand promotional activities for such product, will be subject to continualreview and periodic inspections by the FDA and other regulatory bodies. Inparticular we and our suppliers are required to comply with the Quality SystemRegulation (“QSR”), for the manufacture of our Custom NX DES Systems and GMPfor the manufacture of our drug coating and other regulations, which cover themethods and documentation of the design, testing, production, control, qualityassurance, labeling, packaging, storage and shipping of any product for whichwe obtain marketing approval. The FDA enforces the GMP and QSR throughunannounced inspections. We and our third-party manufacturers and suppliershave not yet been inspected by the FDA and will have to successfully completesuch inspections before we receive regulatory approvals for our products.Failure by us or one of our suppliers, including the supplier of our drugcoating, to comply with statutes and regulations administered by the FDA andother regulatory bodies, or failure to take adequate response to anyobservations, could result in, among other things, any of the following enforcementactions:

 

·                  warningletters or untitled letters;

 

·                  finesand civil penalties;

 

·                  unanticipatedexpenditures;

 

·                  delaysin approving, or refusal to approve, our products;

 

·                  withdrawalor suspension of approval by the FDA or other regulatory bodies;

 

·                  productrecall or seizure;

 

·                  ordersfor physician notification or device repair, replacement or refund;

 

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·                  interruptionof production;

 

·                  operatingrestrictions;

 

·                  injunctions;and

 

·                  criminalprosecution.

 

If any of these actions were to occur itwould harm our reputation and cause our product sales and profitability tosuffer. Furthermore, our key component suppliers may not currently be or maynot continue to be in compliance with applicable regulatory requirements.

 

Even if regulatory approval of a product isgranted, the approval may be subject to limitations on the indicated uses forwhich the product may be marketed. If the FDA determines that our promotionalmaterials, training or other activities constitute promotion of an unapproveduse, it could request that we cease or modify our training or promotionalmaterials or subject us to regulatory enforcement actions. It is also possiblethat other federal, state or foreign enforcement authorities might take actionif they consider our training or other promotional materials to constitutepromotion of an unapproved use, which could result in significant fines orpenalties under other statutory authorities, such as laws prohibiting falseclaims for reimbursement.

 

Moreover, any modification to a device thathas received FDA approval that could significantly affect its safety oreffectiveness, or that would constitute a major change in its intended use,design or manufacture, requires a new approval from the FDA. If the FDAdisagrees with any determination by us that new approval is not required, wemay be required to cease marketing or to recall the modified product until weobtain approval. In addition, we could also be subject to significant regulatoryfines or penalties.

 

In addition, we may be required to conductcostly post-market testing and surveillance to monitor the safety or efficacyof our products, and we will be required to report adverse events andmalfunctions related to our products. Later discovery of previously unknownproblems with our products, including unanticipated adverse events or adverseevents of unanticipated severity or frequency, manufacturing problems, orfailure to comply with regulatory requirements such as QSR or GMP, may resultin restrictions on such products or manufacturing processes, withdrawal of theproducts from the market, voluntary or mandatory recalls, fines, suspension ofregulatory approvals, product seizures, injunctions or the imposition of civilor criminal penalties. For example, Boston Scientific has initiated significantrecalls of its stent products due to manufacturing and other quality issuesassociated with the products.

 

Further, healthcare laws and regulations maychange significantly in the future. Any new healthcare laws or regulations mayadversely affect our business. A review of our business by courts or regulatoryauthorities may result in a determination that could adversely affect ouroperations. Also, the healthcare regulatory environment may change in a waythat restricts our operations.

 

**Failure to obtain regulatory approval inforeign jurisdictions will prevent us from marketing our products abroad.**

 

We intend to market our products ininternational markets. In order to market our products in the European Unionand many other foreign jurisdictions, we must obtain separate regulatoryapprovals. The approval procedure varies among countries and can involveadditional testing, and the time required to obtain approval may differ fromthat required to obtain FDA approval. The foreign regulatory approval processmay include all of the risks associated with obtaining FDA approval in additionto other risks. We may not obtain foreign regulatory approvals on a timelybasis, if at all. Approval by the FDA does not ensure approval by regulatoryauthorities in other countries, and approval by one foreign regulatoryauthority does not ensure approval by regulatory authorities in other foreigncountries or by the FDA. We may not be able to file for regulatory approvalsand may not receive necessary approvals to commercialize our products in anymarket.

 

**Risks Related to Our Intellectual Property**

 

**Third parties hold a large number of patentsrelated to stents and we do not have rights to many of these patents.**

 

Intellectual property rights, including inparticular patent rights, play a critical role in the medical device industry,and therefore in our business. We face significant risks relating to patents,both as to our own patent position as well as to patents held by third parties.If any third-party intellectual property claim against us is successful, wecould be prevented from commercializing our Custom NX DES Systems or otherproducts.

 

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There are numerous U.S. and foreign issuedpatents and pending patent applications owned by third parties with patentclaims in areas that are the focus of our product development efforts. We areaware of patents owned by third parties, to which we do not have licenses, thatrelate to, among other things:

 

·                  useof rapamycin or its analogs to treat restenosis;

 

·                  stentstructures and materials;

 

·                  cathetersused to deliver stents; and

 

·                  stentmanufacturing and coating 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 mixed in a polymer coating on a drug eluting stent for the treatment ofrestenosis. These include, without limitation, the “Wright” family of patentsand the “Falotico” family of patents.  Wyeth owns, and has licensed toCordis, the “Morris” family of patents which are directed to the use ofrapamycin for the treatment of restenosis, including the delivery of rapamycinfrom a stent impregnated with the drug.

 

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

 

Various patents owned by third parties aredirected to stent structures and materials. These patents include a group of “Lau”patents that were owned by Guidant Corporation, a newly acquired subsidiary ofBoston Scientific whose stent technology has been acquired by Abbott Vascularsubject to certain rights retained by Boston Scientific, which are directed toflexible stent structures. The “Boneau” family of patents, owned by Medtronic, aredirected to stents comprising multiple closed-loop elements. The “Fariabi”family of patents, formerly owned by Guidant, are directed to stents comprisingcobalt- chromium alloys. The “Israel” and “Pinchasik” families of patents,owned by Medinol, are directed to stents with meandering strut patterns. Apatent owned by Wall is directed to a radially collapsible mesh sleeve.

 

Other third-party patents are directed tostent delivery catheter technology. There are also a number of patents thatwere held by Guidant Corporation directed to rapid exchange catheters forangioplasty and stent delivery. These include, without limitation, the “Yock”and “Horzewski” families of patents, directed to rapid exchange angioplastycatheters, and the “Lau” family of patents directed to rapid exchange stentcatheters. Boston Scientific owns other patents directed to rapid exchangeangioplasty catheters, including, the “Bonzel” family of patents. Medtronicowns certain patents directed to guidewire handling technology in stentdelivery catheters, including certain patents issued to Crittenden and Kramer.A patent issued to Fischell is directed to a sheathed stent delivery catheter.Guidant Corporation also held a patent issued to Cox, directed to a stentdelivery catheter having an adjustable-length balloon. Certain patents owned byBoston Scientific or its subsidiaries are also directed to stent deliverycatheters having adjustable-length balloons. Certain patents owned by thirdparties relate to methods for coating stents. For example, the “Hossainy”family of patents that were held by Guidant Corporation are directed to methodsof coating stents with a primer layer and a reservoir layer.

 

The patents described above could be found tocover our technology and may materially and adversely affect our business. Inaddition, these patents are given only as examples and there may be otherpatents in addition to those described above that may materially and adverselyaffect our business. Moreover, because patent applications can take many yearsto issue, there may be currently pending applications, unknown to us, which maylater result in issued patents that pose a material risk to us.

 

**Many of our competitors are much larger thanwe are, with significant resources and incentives to initiate litigationagainst us.**

 

Based on the prolific litigation that hasoccurred in the stent industry and the fact that we may pose a competitivethreat to some large and well-capitalized companies that own or control patentsrelating to stents and their use, manufacture and delivery, we believe that itis possible that one or more third parties will assert a patent infringementclaim against the manufacture, use or sale of our Custom NX DES Systems basedon one or more of these patents. It is also possible that a lawsuit assertingpatent infringement and related claims will be filed against us and it ispossible that a lawsuit may have already been filed against us of which we arenot aware. A number of these patents are owned by very large and well-capitalizedcompanies that are active participants in the stent market. As the number ofcompetitors in the drug eluting stent market grows, the possibility ofinadvertent patent infringement by us or a patent infringement claim against usincreases.

 

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These companies have maintained theirposition in the market by, among other things, establishing intellectualproperty rights relating to their products and enforcing these rightsaggressively against their competitors and new entrants into the market. All ofthe major companies in the stent and related markets, including Abbott Vascular(which acquired Guidant’s stent technology), Boston Scientific, Johnson &Johnson and Medtronic, have been repeatedly involved in patent litigationrelating to stents since at least 1997. The stent and related markets haveexperienced rapid technological change and obsolescence in the past, and ourcompetitors have strong incentives to stop or delay the introduction of newproducts and technologies. We may pose a competitive threat to many of thecompanies in the stent and related markets. Accordingly, many of thesecompanies will have a strong incentive to take steps, through patent litigationor otherwise, to prevent us from commercializing our products.

 

**Any lawsuit, whether initiated by us toenforce our intellectual property rights or by a third party against usalleging infringement, may cause us to expend significant financial and otherresources, and may divert our attention from our business.**

 

In any infringement lawsuit, a third partycould seek to enjoin, or prevent, us from commercializing our Custom NX DESSystems or any future products, may seek damages from us and any such lawsuitwould likely be expensive for us to defend against. Our involvement inintellectual property litigation could result in significant expense. Some ofour competitors, such as Boston Scientific, Johnson & Johnson, AbbottVascular and Medtronic, have considerable resources available to them and astrong economic incentive to undertake substantial efforts to stop or delay usfrom bringing our Custom NX DES Systems to market and achieving marketacceptance. We, on the other hand, are a development stage company withcomparatively few resources available to us to engage in costly and protractedlitigation. A court may determine that patents held by third parties are validand infringed by us and we may be required to:

 

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

 

·                  ceasethe development, manufacture, use and sale of products that infringe the patentrights of others, including our Custom NX DES Systems, through a court-imposedsanction called an injunction;

 

·                  expendsignificant resources to redesign our technology so that it does not infringeothers’ patent rights, or to develop or acquire non-infringing intellectualproperty, which may not be possible;

 

·                  discontinuemanufacturing or other processes incorporating infringing technology; or

 

·                  obtainlicenses to the infringed intellectual property, which may not be available tous on acceptable terms, or at all.

 

Any development or acquisition ofnon-infringing products or technology or licenses could require the expenditureof substantial time and other resources and could have a material adverseeffect on our business and financial results. If we are required to, butcannot, obtain a license to valid patent rights held by a third party, we wouldlikely be prevented from commercializing the relevant product. We believe thatit is unlikely that we would be able to obtain a license to any necessarypatent rights controlled by companies against which we would compete directly.If we need to redesign products to avoid third-party patents, we may suffersignificant regulatory delays associated with conducting additional studies orsubmitting technical, manufacturing or other information related to theredesigned product and, ultimately, in obtaining regulatory approval.

 

While our products are in clinical trials,and prior to commercialization, we believe our activities in the United Statesrelated to the submission of data to the FDA could fall within the scope of thestatutory infringement exemption that covers activities related to developinginformation for submission to the FDA. However, this statutory exemption wouldnot cover our stent manufacturing or other activities in the United States thatsupport overseas clinical trials or commercial sales if those activities arenot also reasonably related to developing information for submission to theFDA. Currently available drug eluting stents are manufactured outside of theUnited States, which may insulate manufacturers from adverse rulings on U.S.patent infringement claims. In an adverse ruling, a court may order aninjunction requiring a company to stop its U.S. domestic manufacturingoperations. We currently do not have any plans to manufacture our stentsoutside of the United States and any finding of patent infringement against usin the United States could result in our being enjoined from manufacturing ourproducts in the United States and could affect our ability to sell our productsin the European Union. In any event, the fact that no third party has asserteda patent infringement claim against us to date should not be taken as anindication, or provide any level of comfort, that a patent infringement claimwill not be asserted against us prior to or upon commercialization.

 

In addition, some of our agreements,including our agreement with Biosensors for the supply of the drug coating, ouragreement with SurModics for the supply of the lubricious coating on ourcatheter and our agreement with Millimed for the license of patents related tosegmented stent designs require us to indemnify the other party in certaincircumstances where our products have been found to infringe a patent or otherproprietary rights of others. An indemnification claim against us may requireus to pay substantial sums to our licensor or supplier, including its attorneys’fees.

 

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**If we are unable to obtain and maintainintellectual property protection covering our products, others may be able tomake, use or sell our products, which would adversely affect our revenue.**

 

Our ability to protect our products fromunauthorized or infringing use by third parties depends substantially on ourability to obtain and maintain valid and enforceable patents. As of March 31,2008 we had seven issued U.S. patents, one of which is under exclusive license,covering certain aspects of the technology that we intend to commercialize anda number of other issued patents and pending patent applications in the UnitedStates and abroad. Due to evolving legal standards relating to the patentability,validity and enforceability of patents covering medical devices andpharmaceutical inventions and the scope of claims made under these patents, ourability to obtain and enforce patents is uncertain and involves complex legaland factual questions. Accordingly, rights under any of our issued patents maynot provide us with commercially meaningful protection for our products orafford us a commercial advantage against our competitors or their competitiveproducts or processes. In addition, patents may not issue from any pending orfuture patent applications owned by or licensed to us, and moreover, patentsthat have issued to us or may issue in the future may not be valid orenforceable. Further, even if valid and enforceable, our patents may not be sufficientlybroad to prevent others from marketing products like ours, despite our patentrights.

 

The validity of our patent claims depends, inpart, on whether prior art references exist that describe or render obvious ourinventions as of the filing date of our patent applications. We may not haveidentified all prior art, such as U.S. and foreign patents or publishedapplications or published scientific literature, that could adversely affectthe validity of our issued patents or the patentability of our pending patentapplications. For example, patent applications in the United States aremaintained in confidence for up to 18 months after their filing. In somecases, however, patent applications remain confidential in the United StatesPatent and Trademark Office (“USPTO”), for the entire time prior to issuance asa U.S. patent. Patent applications filed in countries outside the United Statesare not typically published until at least 18 months from their firstfiling date. Similarly, publication of discoveries in the scientific or patentliterature often lags behind actual discoveries. Therefore, we cannot becertain that we were the first to invent, or the first to file patentapplications relating to, our stent technologies. In the event that a third partyhas also filed a U.S. patent application covering our stents or a similarinvention, we may have to participate in an adversarial proceeding, known as aninterference, declared by the USPTO to determine priority of invention in theUnited States. It is possible that we may be unsuccessful in the interference,resulting in a loss of some portion or all of our position in the UnitedStates. The laws of some foreign jurisdictions do not protect intellectualproperty rights to the same extent as in the United States, and many companieshave encountered significant difficulties in protecting and defending suchrights in foreign jurisdictions. If we encounter such difficulties or we areotherwise precluded from effectively protecting our intellectual propertyrights in foreign jurisdictions, our business prospects could be substantiallyharmed.

 

We may initiate litigation to enforce ourpatent rights, which may prompt our adversaries in such litigation to challengethe validity, scope or enforceability of our patents. If a court decides thatour patents are not valid, not enforceable or of a limited scope, we will nothave the right to stop others from using our technology.

 

We also rely on trade secret protection toprotect our interests in proprietary know-how and for processes for whichpatents are difficult to obtain or enforce. We may not be able to protect ourtrade secrets adequately. In addition, we rely on non-disclosure andconfidentiality agreements with employees, consultants and other parties to protect,in part, trade secrets and other proprietary technology. These agreements maybe breached and we may not have adequate remedies for any breach. Moreover,others may independently develop equivalent proprietary information, and thirdparties may otherwise gain access to our trade secrets and proprietaryknowledge. Any disclosure of confidential data into the public domain or tothird parties could allow our competitors to learn our trade secrets and usethe information in competition against us.

 

We are aware that another medical businessthat holds patents to certain stent designs has used the name XTENT for limitedpurposes in the past. If it turns out that the other business has superiortrademark rights in the name, and if the other business were to challenge ouruse of the XTENT name, we would then need to convince a court that there is nolikelihood of consumer confusion. If we were unsuccessful in court, then wecould be held liable for trademark infringement and we might then have tochange our name as well as pay monetary damages. If we were forced to changeour name, we may suffer from a loss of brand recognition, we may be required toretrieve product and interrupt supply, and may have to devote substantialresources advertising and marketing our products under a new brand name.

 

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** **

**Risks Related to Commercialization**

 

**The medical device industry is highlycompetitive and subject to rapid technological change. If our competitors arebetter able to develop and market products that are safer, more effective, lesscostly or otherwise more attractive than any products that we may develop, ourcommercial opportunity will be reduced or eliminated.**

 

The medical device industry is highlycompetitive and subject to rapid and profound technological change. Our successdepends, in part, upon our ability to maintain a competitive position in thedevelopment of technologies and products for use in the treatment of CAD.

 

We face competition from established pharmaceuticaland biotechnology companies, as well as from academic institutions, governmentagencies and private and public research institutions in the United States andabroad. Most of the companies developing or marketing competing products arepublicly traded or divisions of publicly-traded companies, and these companiesenjoy several competitive advantages, including:

 

·                  greaterfinancial and human resources for product development, sales and marketing, andpatent litigation;

 

·                  significantlygreater name recognition;

 

·                  establishedrelations with healthcare professionals, customers and third- party payors;

 

·                  additionallines of products, and the ability to offer rebates or bundle products to offerhigher discounts or incentives to gain a competitive advantage;

 

·                  establisheddistribution networks; and

 

·                  greaterexperience in conducting research and development, manufacturing, clinicaltrials, obtaining regulatory approval for products and marketing approvedproducts.

 

For example, Johnson & Johnson,Boston Scientific and Medtronic, three companies with far greater financial andmarketing resources than we possess, have each developed, and are activelymarketing, drug eluting stents that have been approved by the FDA. We may beunable to demonstrate that our Custom NX DES Systems offer any advantages overJohnson & Johnson’s Cypher stent, Boston Scientific’s Taxus Express2stent, or Medtronic’s Endeavor stent. Other large companies, includingMedtronic and Abbott Laboratories, are developing and commercializing drugeluting stents. Smaller or early-stage companies may also prove to besignificant competitors, particularly through collaborative arrangements with,or mergers with or acquisitions by, large and established companies or throughthe development of novel products and technologies.

 

The industry in which we operate hasundergone, and is expected to continue to undergo, rapid and significanttechnological change, and we expect competition to intensify as technicaladvances are made. Our competitors may develop and patent processes or productsearlier than us, obtain regulatory approvals for competing products more rapidlythan us, and develop more effective or less expensive products or technologiesthat render our technology or products obsolete or non-competitive. Forexample, we are aware of companies that are developing various otherless-invasive technologies for treating CAD, which could make our stentplatform obsolete. We also compete with our competitors in recruiting andretaining qualified scientific and management personnel, establishing clinicaltrial sites and patient registration for clinical trials, as well as inacquiring technologies and technology licenses complementary to our programs oradvantageous to our business. If our competitors are more successful than us inthese matters, our business may be harmed.

 

**If we are unable to establish sales and marketingcapabilities or enter into and maintain arrangements with third parties to selland market our Custom NX DES Systems, our business may be harmed.**

 

We do not have a sales organization and haveno experience as a company in the sales, marketing and distribution of stentsystems or other medical devices. To be successful in commercializing ourproducts we must either develop a sales and marketing infrastructure or enterinto distribution arrangements with others to market and sell our products. Wehave not yet hired any European sales people or entered into any third-partydistribution agreements.

 

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

 

**We have limited device manufacturing and drugcoating capabilities and manufacturing personnel, and if our devicemanufacturing and drug coating facilities or our suppliers are unable toprovide an adequate supply of products, our growth could be limited and ourbusiness could be harmed.**

 

We currently have limited resources,facilities and experience to commercially manufacture the device component ofour products and apply the drug coating to the stents. In addition, pursuant tothe terms of the restated license agreement with Biosensors, we are in theprocess of preparing to perform our own drug coating formulation, a processcurrently performed by Biosensors. In order to produce our Custom NX DESSystems in the quantities that we anticipate will be required to meetanticipated market demand, we will need to increase, or scale-up, theproduction process by a significant factor over our current level of production.There are technical challenges to scaling-up manufacturing capacity anddeveloping commercial-scale manufacturing facilities that will require theinvestment of substantial additional funds and hiring and retaining additionalmanagement and technical personnel who have the necessary manufacturingexperience. We may not successfully complete any required scale-up in a timelymanner or at all. If we are unable to do so, we may not be able to produceproducts in sufficient quantities to meet the requirements for the launch ofthe product or to meet future demand, if at all. During a routine audit, wediscovered that our new device configuration required revised sterilizationprocedures, which were successfully validated in March 2007. In the eventthat 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 our Custom NX DESSystems and apply the drug coating at our facilities in Menlo Park, California.Under the terms of our lease agreement for these facilities, our landlord mayterminate our lease at any time on or after May 1, 2009 if it has obtainedcertain redevelopment rights with respect to the leased premises. Prior to thecommercial launch of our product our leased premises will have to be inspectedand approved by the FDA, and will likely require additional certifications bythe State of California Department of Health Services (“CDHS”). In addition, weexpect that our facility will be audited for purposes of InternationalStandardisation Organization (“ISO”) compliance in 2008. If audits andinspections of our facilities determine that our facility does not meetapplicable standards, or if there is a disruption to our existing manufacturingfacility, or if our landlord elects to terminate our lease on or after May 1,2009, we will have no other means of manufacturing our products until we areable to restore the manufacturing capability at our facility or leasealternative manufacturing facilities and obtain regulatory approval for thesefacilities. Because our Menlo Park facilities are located in a seismic zone, weface the risk that an earthquake may damage our facilities and disrupt ouroperations. If we are unable to produce sufficient quantities of our productsfor use in our current and planned clinical trials, if we obtain regulatoryapproval of our products and are unable to produce sufficient quantities of ourproducts to support our planned commercial activities or if our manufacturingprocess yields substandard products, our development and commercializationefforts would be delayed.

 

**If the cost of our drug coating or othercomponents of our stent systems increase significantly, our business and ourresults of operations may be harmed.**

 

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

 

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**Our manufacturing facilities and themanufacturing facilities of our suppliers must comply with strictly enforcedregulatory requirements. If we fail to achieve regulatory approval for thesemanufacturing facilities, our business and our results of operations would beharmed.**

 

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

 

**We depend on single-source suppliers for someof the components in our Custom NX DES Systems. The loss of these supplierscould delay our clinical trials or prevent or delay commercialization of ourCustom NX DES Systems.**

 

Although we have identified several vendorsfor the components of our products, some of our components are currentlyprovided by only one vendor, or a single-source supplier. In addition to ourreliance on Biosensors as the only source for the supply of our drug coating,we also depend on SurModics, which provides the slippery coating on our sheath.We do not have long-term contracts with some of our third-party suppliers ofcomponents used in the manufacture of our stent delivery catheters or thecobalt chromium tubing and laser-precision cutting process required to produce thestent segments included in our device. In addition, we do not have long-termcontracts with our third-party suppliers of some of the equipment andcomponents that are used in our manufacturing process and we do not carry asignificant inventory of most components used in our products. Establishingadditional or replacement suppliers for these components, and obtaining anyadditional regulatory approvals that may result from adding or replacingsuppliers, will take a substantial amount of time. We may also have difficultyobtaining similar components from other suppliers that are acceptable to theFDA or foreign regulatory authorities. Furthermore, since some of thesesuppliers are located outside of the United States, we are subject to foreignexport laws and U.S. import and customs regulations, which complicate and coulddelay shipments to us. Some of our suppliers are also our competitors and maybe reluctant to supply components to us on favorable terms, if at all.

 

If we have to switch to replacement suppliers,we will face additional regulatory delays and the manufacture and delivery ofour Custom NX DES Systems would be interrupted for an extended period of time,which would delay completion of our clinical trials or commercialization of ourproducts. In addition, we will be required to obtain prior regulatory approvalfrom the FDA or foreign regulatory authorities to use different suppliers orcomponents that may not be as safe or as effective. As a result, regulatoryapproval of our products may not be received on a timely basis or at all.

 

**If we do not achieve our projecteddevelopment goals in the time frames we announce and expect, thecommercialization of our products may be delayed and, as a result, our stockprice may decline.**

 

From time to time, we may estimate andpublicly announce the anticipated timing of the accomplishment of variousclinical, regulatory and other product development goals, which we sometimesrefer to as milestones. These milestones could include obtaining CE Markapproval in the European Union, the initiation of our pivotal U.S. clinicaltrial for our Custom NX DES Systems, the enrollment of patients in our clinicaltrials, the release of data from our clinical trials and other clinical andregulatory events. The actual timing of these milestones could varydramatically compared to our estimates, in some cases for reasons beyond ourcontrol. We cannot assure you that we will meet our projected milestones and ifwe do not meet these milestones as publicly announced, the commercialization ofour products may be delayed and, as a result, our stock price may decline.

 

**We may not be successful in our efforts toexpand our portfolio of products and develop additional technologies.**

 

A key element of our strategy is to discover,develop and commercialize a portfolio of new products in addition to our CustomNX DES Systems. We are seeking to do so through our internal research programsand intend to explore strategic collaborations for the development of newproducts utilizing our stent technology. Research programs to identify newdisease targets, products and delivery techniques require substantialtechnical, financial and human resources, whether or not any products areultimately identified. We may determine that one or more of our pre-clinicalprograms do not have sufficient potential to warrant the allocation ofresources, such as the potential development of our stent technology for thetreatment of peripheral artery disease (“PAD”). Our research programs mayinitially show promise in identifying potential products, yet fail to yieldproducts for clinical development for many reasons, including the following:

 

·                  theresearch methodology used may not be successful in identifying potentialproducts;

 

·                  competitorsmay develop alternatives that render our products obsolete;

 

·                  ourproducts may not be deployed safely or effectively;

 

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·                  productsmay on further study be shown to have harmful side effects or othercharacteristics that indicate they are unlikely to be effective;

 

·                  ourclinical trials may not be successful; and

 

·                  wemay not receive regulatory approval.

 

**We depend on our officers, and if we are notable to retain them or recruit additional qualified personnel, our businesswill suffer.**

 

We are highly dependent on our President andChief Executive Officer, Gregory D. Casciaro and our other officers. Due tothe specialized knowledge each of our officers possesses with respect tointerventional cardiology and our operations, the loss of service of any of ourofficers could delay or prevent the successful completion of our clinicaltrials and the commercialization of our Custom NX DES Systems. Each of ourofficers 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 regulatory approval for ourproducts, we expect to rapidly expand our operations and grow our research anddevelopment, product development and administrative operations. Our growth willrequire hiring a significant number of qualified clinical, scientific,commercial and administrative personnel. Accordingly, recruiting and retainingsuch personnel in the future will be critical to our success. There is intensecompetition from other companies and research and academic institutions forqualified personnel in the areas of our activities. Our offices are located inthe San Francisco Bay Area, where competition for personnel withhealthcare industry skills is intense. If we fail to identify, attract, retainand motivate these highly skilled personnel, we may be unable to continue ourdevelopment and commercialization activities.

 

**If we are unable to manage our expectedgrowth, we may not be able to commercialize our products, including our CustomNX DES Systems.**

 

If we obtain CE Mark and FDA approval for ourproducts, we intend to continue to rapidly expand our operations and grow ourresearch and development, product development and administrative operations andinvest substantially in our manufacturing facilities. This expansion has and isexpected to continue to place a significant strain on our management andoperational and financial resources. In particular, the commencement of ourplanned pivotal clinical trial in the United States will consume a significantportion of management’s time and our financial resources. To manage anyexpected growth and to commercialize our Custom NX DES Systems, we will berequired to improve existing, and implement new, operational and financialsystems, procedures and controls and expand, train and manage our growingemployee base. Our current and planned personnel, systems, procedures andcontrols may not be adequate to support our anticipated growth. If we areunable to manage our growth effectively, our business could be harmed.

 

**Risks Related to Our Industry**

 

**If we fail to obtain an adequate level ofreimbursement for our products from third-party payors, there may be nocommercially viable markets for our products or the markets may be much smallerthan expected.**

 

Our failure to receive adequate reimbursementor pricing approvals in the United States or internationally would negativelyimpact market acceptance of our products in the markets in which thoseapprovals are sought. The efficacy, safety, performance and cost-effectivenessof our products under development and of any competing products are some of thefactors that will determine the availability of coverage and level ofreimbursement. In the United States, a preliminary threshold for coverage andpayment of medical devices and drugs generally includes approvals or clearancesfrom the FDA. In addition, there is significant uncertainty concerningthird-party coverage and reimbursement of newly approved medical products anddrugs. Future legislation, regulation or coverage and reimbursement policies ofthird-party payors may adversely affect the demand for our products currentlyunder development and limit our ability to profitably sell our products.Third-party payors continually attempt to contain or reduce healthcare costs bychallenging the prices charged for healthcare products and services, resultingin a downward pressure of reimbursement rates generally. Under recentregulatory changes to the methodology for calculating payments for currentinpatient procedures in certain hospitals, Medicare payment rates for surgicaland cardiac procedures have been decreased, including 

 

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approximately 10% to 14%reductions for those procedures using drug eluting stents. The reductions areto be transitioned over the three year period that began in fiscal year 2007.The Centers for Medicare and Medicaid Services (“CMS”), responsible foradministering the Medicare program, also indicated it will begin to moveforward with developing revised reimbursement codes that better reflect theseverity of the patient’s condition in the hospital inpatient prospectivepayment system for fiscal year 2008. If coverage and reimbursement for ourproducts is unavailable, insufficient or limited in scope or amount, or ifpricing is set at unsatisfactory levels, market acceptance of our productswould be impaired and our future revenues, if any, would be adversely affected.

 

**Legislative or regulatory reform of thehealthcare system may affect our ability to sell our products profitably.**

 

In the United States and in certain foreignjurisdictions, there have been a number of legislative and regulatory proposalsto change the regulatory and healthcare systems in ways that could impact ourability to sell our products profitably, if at all. In the United States inrecent years, new legislation has been proposed at the federal and state levelsthat would effect major changes in the healthcare system. In addition, newregulations and interpretations of existing healthcare statutes and regulationsare frequently adopted. Post-payment reviews of claims also are conducted. Forexample, in 2005 the Office of Inspector General of the U.S. Department ofHealth and Human Services (“OIG”) audited certain sample claims paid byMedicare contracts for in-patient and out-patient claims involving arterialstent implantation to determine whether Medicare payments for these serviceswere appropriate. The OIG found that 20 of 72 reviewed claims did not meetMedicare reimbursement requirements. Findings of ongoing or widespreadinappropriate billing of arterial stents could lead to increased scrutiny inthis area, which in turn, could affect our ability to raise capital, obtainadditional collaborators and market our products. We also expect to experiencepricing pressures in connection with the future sale of our products due to thetrend toward managed health care, the increasing influence of healthmaintenance organizations and additional legislative proposals. Our results ofoperations could be adversely affected by these and other future healthcarereforms.

 

**We face the risk of product liability claimsand may not be able to obtain insurance.**

 

Our business exposes us to the risk ofproduct liability claims that is inherent in the testing, manufacturing andmarketing of medical devices. We may be subject to product liability claims ifour stents cause, or merely appear to have caused, an injury. Claims may bemade by patients, consumers, healthcare providers, third-party strategiccollaborators or others selling our products. Although we have productliability 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 to claims against us evenif the apparent injury is due to the actions of others. For example, we rely onthe expertise of physicians, nurses and other associated medical personnel toperform the medical procedure and related processes to implant our coronarystents into patients. If these medical personnel are not properly trained orare negligent, the therapeutic effect of our stents may be diminished or thepatient may suffer critical injury, which may subject us to liability. Inaddition, an injury that is caused by the activities of our suppliers, such asthose who provide us with cobalt chromium tubing for our stents, those thatlaser cut our stents or the supplier of our drug coating, may be the basis fora claim against us.

 

These liabilities could prevent or interferewith our product commercialization efforts. Defending a suit, regardless ofmerit, could be costly, could divert management’s attention from our businessand might result in adverse publicity, which could result in the withdrawal of,or inability to recruit, clinical trial patient participants or result inreduced acceptance of our products in the market.

 

**Risks Related to Our Operations**

 

**Our operations involve hazardous materials,and we must comply with environmental laws and regulations, which can beexpensive.**

 

We are subject to a variety of federal, stateand local regulations relating to the use, handling, storage, disposal, andhuman exposure to hazardous and toxic materials. We could incur costs, fines,and civil and criminal sanctions, third-party property damage or personalinjury claims, or could be required to incur substantial investigation orremediation costs, if we were to violate or become liable under environmentallaws. We do not have insurance for environmental liabilities and liability underenvironmental laws can be joint and several and without regard to comparativefault. Environmental laws could become more stringent over time, imposinggreater compliance costs and increasing risks and penalties associated withviolations, which could harm our business. Compliance 

 

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with current or futureenvironmental and safety laws and regulations could restrict our ability toexpand our facilities, impair our research, development or production efforts,or require us to incur other significant expenses. There can be no assurancethat violations of environmental laws or regulations will not occur in thefuture as a result of the inability to obtain permits, human error, accident,equipment failure or other causes.

 

**We have limited experience complying withpublic company obligations, including recently enacted changes in securitieslaws and regulations. Compliance with these requirements will increase ourcosts and require additional management resources, and we still may fail tocomply.**

 

We operated as a private company until February 2007and prior to that, we were not subject to many of the requirements applicableto public companies. Recently enacted and proposed changes in the laws andregulations affecting public companies, including the provisions of theSarbanes-Oxley Act of 2002 and rules related to corporate governance andother matters subsequently adopted by the SEC and NASDAQ Global Market, willresult 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 by Section 404 of theSarbanes-Oxley Act of 2002, the SEC adopted rules requiring us to includea report of management on our internal control over financial reporting in ourannual reports on Form 10-K. In addition, in our annual report on Form 10-Kfor the year ending December 31, 2008, the independent registered publicaccounting firm auditing our financial statements must attest to theeffectiveness of our internal control over financial reporting. We may beunable to comply with these requirements by the applicable deadlines beginningwith our Form 10-K for the period ending December 31, 2008. Ourindependent registered public accounting firm will test our internal controlover financial reporting in connection with Section 404 requirements andcould, as part of that documentation and testing, identify material weaknesses,significant deficiencies or other areas requiring further attention orimprovement.

 

**We expect that the price of our common stockwill fluctuate substantially.**

 

There has been a public market for our commonstock for a limited amount of time. The market price for our common stock willbe affected by a number of factors, including:

 

·                  theresults of our clinical trials;

 

·                  thetiming of our regulatory approvals;

 

·                  announcementsrelated to litigation;

 

·                  statementsmade by Biosensors relating to regulation or supply of the drug coating;

 

·                  theannouncement of new products or service enhancements by us or our competitors;

 

·                  quarterlyvariations in our or our competitors’ results of operations;

 

·                  changesin earnings estimates, investors’ perceptions, recommendations by securitiesanalysts or our failure to achieve analysts’ earning estimates;

 

·                  thelow trading volume of our common stock;

 

·                  developmentsin our industry, including changes in third-party reimbursement; and

 

·                  generalmarket conditions and other factors unrelated to our operating performance orthe operating performance of our competitors.

 

These factors may materially and adverselyaffect the market price of our common stock.

 

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**Our directors, officers and principalstockholders have significant voting power and may take actions that may not bein the best interests of our other stockholders.**

 

As of March 31, 2008, our officers,directors and principal stockholders each holding more than 5% of our commonstock collectively will control approximately 67.2% of our outstanding commonstock. As a result, these stockholders, if they act together, will be able tocontrol the management and affairs of our company and most matters requiringstockholder approval, including the election of directors and approval ofsignificant corporate transactions. This concentration of ownership may havethe effect of delaying or preventing a change in control and might adverselyaffect the market price of our common stock. This concentration of ownershipmay not be in the best interests of our other stockholders.

 

**Volatility in the stock price of othercompanies may contribute to volatility in our stock price.**

 

The NASDAQ Global Market, particularly inrecent years, has experienced significant volatility with respect to medicaltechnology, pharmaceutical, biotechnology and other life science companystocks. The volatility of medical technology, pharmaceutical, biotechnology andother life science company stocks often does not relate to the operatingperformance of the companies represented by the stock. Further, there has beenparticular volatility in the market price of securities of early stage anddevelopment stage life science companies. These broad market and industryfactors may seriously harm the market price of our common stock, regardless of ouroperating performance. In the past, following periods of volatility in themarket price of a company’s securities, securities class action litigation hasoften been instituted. A securities class action suit against us could resultin substantial costs, potential liabilities and the diversion of management’sattention and resources.

 

**Anti-takeover provisions in our amended andrestated certificate of incorporation and amended and restated bylaws, andDelaware law, contain provisions that could discourage a takeover.**

 

Anti-takeover provisions of our amended andrestated certificate of incorporation and amended and restated bylaws andDelaware law may have the effect of deterring or delaying attempts by ourstockholders to remove or replace management, engage in proxy contests andeffect changes in control. The provisions of our charter documents include:

 

·                  aclassified board so that only one of the three classes of directors on ourboard of directors is elected each year;

 

·                  eliminationof cumulative voting in the election of directors;

 

·                  proceduresfor advance notification of stockholder nominations and proposals;

 

·                  theability of our board of directors to amend our bylaws without stockholderapproval;

 

·                  asupermajority stockholder vote requirement for amending certain provisions ofour amended and restated certificate of incorporation and our amended andrestated bylaws; and

 

·                  theability of our board of directors to issue up to 10,000,000 shares of preferredstock without stockholder approval upon the terms and conditions and with therights, privileges and preferences as our board of directors may determine.

 

In addition, as a Delaware corporation, weare subject to Delaware law, including Section 203 of the Delaware GeneralCorporation Law. In general, Section 203 prohibits a Delaware corporationfrom engaging in any business combination with any interested stockholder for aperiod of three years following the date that the stockholder became aninterested stockholder unless certain specific requirements are met as setforth in Section 203. These provisions, alone or together, could have theeffect of deterring or delaying changes in incumbent management, proxy contestsor changes in control.

 

**We have not paid dividends in the past and donot expect to pay dividends in the future, and any return on investment may belimited to the value of our stock.**

 

We have never paid cash dividends on ourcommon stock and do not anticipate paying cash dividends on our common stock inthe foreseeable future. The payment of dividends on our common stock willdepend on our earnings, financial condition and other business and economicfactors affecting us at such time as our board of directors may considerrelevant. If we do not pay dividends, our stock may be less valuable because areturn on your investment will only occur if our stock price appreciates.

 

40

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

 

On February 1, 2007, we sold4.7 million shares at $16.00 per share in the initial public offering ofour common stock. Net cash proceeds from the offering were $68.2 million,after deducting approximately $7.0 million of underwriting discounts andcommissions and other offering costs. We registered the Initial Public Offeringof our common stock, par value $0.001 per share, on a Registration Statement onForm S-1, as amended, (Registration No. 333-136371), which wasdeclared effective on January 31, 2007. Of the $68.2 million in netproceeds, through March 31, 2008, we have spent approximately$55.2 million including: $3.9 million for sales and marketinginitiatives, $38.8 million for research and development activities,$10.2 million for operating and general corporate purposes and $2.3 millionfor property and equipment in order to expand our manufacturing capability toconduct our CUSTOM III, IV and V clinical trials and prepare forcommercialization outside the United States.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

None.

 

**ITEM 5. OTHER INFORMATION**

 

None.

 

**ITEM 6. EXHIBITS**

 
| **Exhibit  Number**  | ** ** | **Description**                                                                                                                                                                                                                                                          |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2(1)               |       | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                       |
| 3.4(1)               |       | Amended and Restated Bylaws.                                                                                                                                                                                                                                             |
| 4.1(1)               |       | Specimen Common Stock certificate of the Registrant.                                                                                                                                                                                                                     |
| 10.1(1)              |       | Form of Indemnification Agreement for directors and executive  officers.                                                                                                                                                                                            |
| 10.2(1)              |       | 2002 Stock Plan and form of stock option agreements used thereunder.                                                                                                                                                                                                     |
| 10.3(1)              |       | 2006 Equity Incentive Plan and form of stock option agreement used  thereunder.                                                                                                                                                                                          |
| 10.4(1)              |       | 2006 Employee Stock Purchase Plan.                                                                                                                                                                                                                                       |
| 10.5(1)              |       | Amended and Restated Investor Rights Agreement dated May 5, 2006  by and among the Registrant and certain stockholders.                                                                                                                                             |
| 10.6(1)              |       | Business Park Lease dated September 15, 2003, as amended  November 22, 2005, by and between the Registrant  and 125 Constitution Associates, L.P. for office space located at  125 Constitution Drive, Menlo Park, California, 94025-1118. |
| 10.8(1)†        |       | Master License Agreement dated December 30, 2002, as amended June 30,  2006, by and between the Registrant and SurModics, Inc.                                                                                                                            |
| 10.9(1)              |       | License Agreement dated July 10, 2006 by and between the  Registrant and Millimed A/S.                                                                                                                                                                              |
| 10.10(2)†       |       | Supply Agreement dated April 2, 2007 by and between Registrant  and Fortimedix B.V.                                                                                                                                                                                 |
| 10.11(3)             |       | Second Amendment to Lease dated May 17, 2007 by and between the  Registrant and 125 Constitution Associates, L.P.                                                                                                                                                   |
| 10.12(4) † |       | Amended  and Restated License Agreement dated December 3, 2007 by and between  Registrant, Biosensors International Group, Ltd. and Biosensors  Europe S.A.                                                                                               |
| 31.1                 |       | Certification of Chief Executive Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                |
| 31.2                 |       | Certification of Chief Financial Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                |
| 32.1                 |       | Certification of Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                           |
| 32.2                 |       | Certification of Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                           |

 

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| (1)    | Incorporated by  reference from our Registration Statement on Form S-1 (Registration  No. 333-136371), which was declared effective on January 31, 2007. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                    |
| (2)    | Incorporated by  reference from our Quarterly Report on Form 10-Q for the quarter ended  March 31, 2007, filed May 14, 2007.                        |
|   |                                                                                                                                                                    |
| (3)    | Incorporated by  reference from our Quarterly Report on Form 10-Q for the quarter ended  June 30, 2007, filed August 13, 2007.                      |
|   |                                                                                                                                                                    |
| (4)    | Incorporated by  reference from our Annual Report on Form 10-K for the year ended  December 31, 2007, filed March 17, 2008.                              |
|   |                                                                                                                                                                    |
| † | Portions of the exhibit  have been omitted pursuant to a request for confidential treatment. The  confidential portions have been filed with the SEC.                   |

 

41

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
| ** **                         | **XTENT, Inc.** |
|------------------------------------|----------------------|
|                               |                 |   |
| Date:  May 13, 2008 | By:                  | /s/ GREGORY D. CASCIARO |
| ** **                         | ** **           | **GREGORY D. CASCIARO** |
| ** **                         | ** **           | **President and Chief Executive Officer** |
| ** **                         | ** **           | **(Principal Executive Officer)** |
|                               |                 |   |
|                               |                 |   |
| Date:  May 13, 2008 | By:                  | /s/ TIMOTHY D. KAHLENBERG |
| ** **                         | ** **           | **TIMOTHY D. KAHLENBERG** |
| ** **                         | ** **           | **Chief Financial Officer** |
| ** **                         | ** **           | **(Principal Accounting and Financial  Officer)** |

 

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