**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

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**FORM 10-Q**

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| **(Mark One)**                                    |
|---------------------------------------------------|
| **x**                                             | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                        |
| **For  the quarterly period ended June 30, 2007** |
| ** **                                        |
| **or**                                            |
|                                              |
| **o**                                             | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from           to**

**Commission File Number 001-33282**

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**XTENT,INC.**

(ExactName of Registrant as Specified in Its Charter)

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

 

**125 Constitution Drive**

**Menlo Park, California 94025-1118**

(Addressof principal executive offices, including Zip Code)

**(650) 475-9400**

(Registrant’stelephone number, including area code)

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Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.     YES  x    NO  o

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

Large acceleratedfiler  o    Acceleratedfiler  o    Non-acceleratedfiler  x

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

Asof August 3, 2007, there were 22,903,762 shares of XTENT, Inc. common stockoutstanding.

 

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**XTENT,INC.**

**FORM10-Q**

**TABLE OF CONTENTS**
|                                    | ** ** | ** **                                                                                  | **Page** |
|------------------------------------|------------|---------------------------------------------------------------------------------------------|----------|
| **Part I: Financial  Information** |       |
| ** **                         |       |
| Item 1.                       |       | Condensed  Financial Statements (unaudited):                                                | 1        |
|                               |       |                                                                                        |     |
|                               |       | Condensed  Balance Sheets                                                                   | 1        |
|                               |       |                                                                                        |     |
|                               |       | Condensed  Statements of Operations                                                         | 2        |
|                               |       |                                                                                        |     |
|                               |       | Condensed  Statements of Cash Flows                                                         | 3        |
|                               |       |                                                                                        |     |
|                               |       | Notes to  Condensed Financial Statements                                                    | 4        |
|                               |       |                                                                                        |     |
| Item 2.                       |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 9        |
|                               |       |                                                                                        |     |
| Item 3.                       |       | Quantitative  and Qualitative Disclosures About Market Risk                                 | 15       |
|                               |       |                                                                                        |     |
| Item 4T.                      |       | Controls and  Procedures                                                                    | 16       |
|                               |       |                                                                                        |     |
| **Part II: Other  Information**    | 16         |
| ** **                         |       |                                                                                        |     |
| Item 1.                       |       | Legal Proceedings                                                                           | 16       |
|                               |       |                                                                                        |     |
| Item 1A.                      |       | Risk  Factors                                                                               | 16       |
|                               |       |                                                                                        |     |
| Item 2.                       |       | Changes in  Securities and Use of Proceeds                                                  | 37       |
|                               |       |                                                                                        |     |
| Item 3.                       |       | Defaults Upon  Senior Securities                                                            | 37       |
|                               |       |                                                                                        |     |
| Item 4.                       |       | Submission of  Matters to a Vote of Security Holders                                        | 37       |
|                               |       |                                                                                        |     |
| Item 5.                       |       | Other Information                                                                           | 38       |
|                               |       |                                                                                        |     |
| Item 6.                       |       | Exhibits                                                                                    | 38       |
|                               |       |                                                                                        |     |
| Signatures                         | 39         |
|                               |       |
| Certifications                     |       |
|                                    |            |                                                                                             |          |  |  |

 

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**PART I:FINANCIAL INFORMATION**

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

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

**(unaudited; inthousands, except per share amounts)**
| ** **                                                                                                                                                                                                                                                                                                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                  | ** ** | **2007**          | ** ** | **2006 (1)**     | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                  |       |              |       |                  |       |
| Current assets:                                                                                                                                                                                                                                                                                                                             |       |              |       |                  |       |
| Cash  and cash equivalents                                                                                                                                                                                                                                                                                                                  |       | $                 | 19,429     |                  | $          | 23,105 |   |
| Short-term  investments                                                                                                                                                                                                                                                                                                                     |       | 57,399            |       | —                |       |
| Prepaid  expenses and other current assets                                                                                                                                                                                                                                                                                                  |       | 616               |       | 269                   |       |
| Total  current assets                                                                                                                                                                                                                                                                                                                       |       | 77,444            |       | 23,374                |       |
|                                                                                                                                                                                                                                                                                                                                        |       |              |       |                  |       |
|                                                                                                                                                                                                                                                                                                                                        |       |              |       |                  |       |
| Property  and equipment, net                                                                                                                                                                                                                                                                                                                |       | 3,083             |       | 2,634                 |       |
| Deferred  IPO related costs                                                                                                                                                                                                                                                                                                                 |       | —            |       | 990                   |       |
| Other  non-current assets                                                                                                                                                                                                                                                                                                                   |       | 149               |       | 123                   |       |
| Total  assets                                                                                                                                                                                                                                                                                                                               |       | $                 | 80,676     |                  | $          | 27,121 |   |
|                                                                                                                                                                                                                                                                                                                                        |       |              |       |                  |       |
| **LIABILITIES,  REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                                                                                                                                 |       |              |       |                  |       |
| Current liabilities:                                                                                                                                                                                                                                                                                                                        |       |              |       |                  |       |
| Accounts  payable                                                                                                                                                                                                                                                                                                                           |       | $                 | 1,397      |                  | $          | 860 |   |
| Accrued  liabilities                                                                                                                                                                                                                                                                                                                        |       | 1,989             |       | 1,448                 |       |
| Total  current liabilities                                                                                                                                                                                                                                                                                                                  |       | 3,386             |       | 2,308                 |       |
|                                                                                                                                                                                                                                                                                                                                        |       |              |       |                  |       |
| Redeemable convertible  preferred stock: $0.001 par value; 10,000 and 14,874 shares authorized at  June 30, 2007 and December 31, 2006, respectively; zero and 14,744 shares  issued and outstanding at June 30, 2007 and December 31, 2006, respectively (Liquidation  preference: $75,899 at December 31, 2006 and none at June 30, 2007) |       | —            |       | 75,593                |       |
|                                                                                                                                                                                                                                                                                                                                        |       |              |       |                  |       |
| Stockholders' Equity  (Deficit):                                                                                                                                                                                                                                                                                                            |       |              |       |                  |       |
| Common  stock: $0.001 par value; 100,000 and 26,000 authorized at June 30, 2007 and  December 31, 2006, respectively; 22,868 and 3,352 shares issued and  outstanding at June 30, 2007 and December 31, 2006, respectively                                                                                                                  |       | 23                |       | 3                     |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                                                                                 |       | 149,270           |       | 3,956                 |       |
| Deferred  stock-based compensation                                                                                                                                                                                                                                                                                                          |       | (516              | )          | (673                  | )          |
| Other  comprehensive loss                                                                                                                                                                                                                                                                                                                   |       | (30               | )          | —                |       |
| Deficit  accumulated during development stage                                                                                                                                                                                                                                                                                               |       | (71,457           | )          | (54,066               | )          |
| Total  stockholders' equity (deficit)                                                                                                                                                                                                                                                                                                       |       | 77,290            |       | (50,780               | )          |
|                                                                                                                                                                                                                                                                                                                                        |       |              |       |                  |       |
| Total  liabilities, redeemable convertible preferred stock and stockholders' equity  (deficit)                                                                                                                                                                                                                                              |       | $            | 80,676     |                  | $     | 27,121 |   |

 

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(1)         The condensedbalance sheet at December 31, 2006 has been derived from the audited financialstatements at that date, but does not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements.

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

1

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**XTENT, INC.(a development stage company)CONDENSED STATEMENTS OF OPERATIONS (unaudited; in thousands, except per share amounts)**
| ** **                                                                                          | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** ** | ** ** | **Cumulative**              | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|-------------------|------------|------------|------------|-----------------------------|------------|
| ** **                                                                                          | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** ** | ** ** | **Period from**        | ** ** |
| ** **                                                                                          | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** ** | ** ** | **June 13, 2002** | ** ** |
| ** **                                                                                          | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** ** | ** ** | **(Date of**           | ** ** |
| ** **                                                                                          | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** ** | ** ** | **Inception) to**      | ** ** |
| ** **                                                                                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                                          | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007**          | ** ** | **2006**   | ** ** | **2007**                    | ** ** |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Operating expenses:                                                                                 |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Research and development (1)                                                                        |       | $                                                   | 7,704      |                                              | $          | 4,285             |       | $          | 13,927     |                        | $          | 7,559 |   | $ | 57,453 |   |
| General and administrative (1)                                                                      |       | 2,801                                               |       | 1,742                                             |       | 5,262             |       | 2,683      |       | 17,536                      |       |
| Total operating expenses                                                                            |       | 10,505                                              |       | 6,027                                             |       | 19,189            |       | 10,242     |       | 74,989                      |       |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Loss from operations                                                                                |       | (10,505                                             | )          | (6,027                                            | )          | (19,189           | )          | (10,242    | )          | (74,989                     | )          |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Other income (expense):                                                                             |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Interest income and other                                                                           |       | 1,049                                               |       | 297                                               |       | 1,798             |       | 405        |       | 3,532                       |       |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Net loss                                                                                            |       | (9,456                                              | )          | (5,730                                            | )          | (17,391           | )          | (9,837     | )          | (71,457                     | )          |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Deemed dividend related to beneficial conversion feature  of redeemable convertible preferred stock |       | —                                              |       | (7,417                                            | )          | —            |       | (13,095    | )          | (13,095                     | )          |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Net loss attributable to common stockholders                                                        |       | $                                                   | (9,456     | )                                                 | $          | (13,147           | )          | $          | (17,391    | )                           | $          | (22,932 | ) | $ | (84,552 | ) |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Net loss per share attributable to common stockholders  - basic and diluted                         |       | $                                              | (0.42      | )                                                 | $     | (4.89             | )          | $     | (0.93      | )                           | $     | (8.88 | ) |   |   |
|                                                                                                |       |                                                |       |                                              |       |              |       |       |       |                        |       |
| Weighted-average common shares outstanding                                                          |       | 22,551                                              |       | 2,686                                             |       | 18,649            |       | 2,582      |       |                        |       |

 

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(1) Includes thefollowing stock-based compensation charges:

 
| Research and development   |   | $ | 348 |   | $ | 209 |   | $ | 736 |   | $ | 326 |   | $ | 2,308 |   |
|----------------------------|--------|---|-----|--------|---|-----|--------|---|-----|--------|---|-----|--------|---|-------|--------|
| General and administrative |   | $ | 413 |   | $ | 161 |   | $ | 832 |   | $ | 216 |   | $ | 1,897 |   |

 

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

2

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

**(unaudited; inthousands)**
| ** **                                                                                   | ** ** | ** **                                        | ** ** | ** **        | ** ** | **Cumulative**              | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------|------------|-----------------------------|------------|
| ** **                                                                                   | ** ** | ** **                                        | ** ** | ** **        | ** ** | **Period from**        | ** ** |
| ** **                                                                                   | ** ** | ** **                                        | ** ** | ** **        | ** ** | **June 13, 2002** | ** ** |
| ** **                                                                                   | ** ** | ** **                                        | ** ** | ** **        | ** ** | **(Date of**           | ** ** |
| ** **                                                                                   | ** ** | ** **                                        | ** ** | ** **        | ** ** | **Inception) to**      | ** ** |
| ** **                                                                                   | ** ** | **Six Months Ended June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                                   | ** ** | **2007**                                          | ** ** | **2006**          | ** ** | **2007**                    | ** ** |
| **Cash flows from operating activities:**                                                    |       |                                              |       |              |       |                        |       |
| Net loss                                                                                     |       | $                                                 | (17,391    | )                 | $          | (9,837                      | )          | $ | (71,457 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities:                 |       |                                              |       |              |       |                        |       |
| Depreciation and amortization                                                                |       | 544                                               |       | 333               |       | 2,124                       |       |
| Stock-based compensation expense                                                             |       | 1,568                                             |       | 542               |       | 4,205                       |       |
| Stock issued in exchange for services                                                        |       | —                                            |       | —            |       | 230                         |       |
| Amortization of securities discount                                                          |       | (735                                              | )          | —            |       | (735                        | )          |
| Loss on disposal of property and equipment                                                   |       | —                                            |       | 10                |       | 82                          |       |
| Prepaid expenses and other current assets                                                    |       | (236                                              | )          | (3                | )          | (628                        | )          |
| Accrued interest receivable on securities                                                    |       | (137                                              | )          | —            |       | (137                        | )          |
| Accounts payable                                                                             |       | 537                                               |       | 44                |       | 1,282                       |       |
| Accrued liabilities                                                                          |       | 708                                               |       | 760               |       | 1,989                       |       |
| Net cash used in operating activities                                                        |       | (15,142                                           | )          | (8,151            | )          | (63,045                     | )          |
| **Cash flows from investing activities:**                                                    |       |                                              |       |              |       |                        |       |
| Purchase of investments                                                                      |       | (73,194                                           | )          | —            |       | (73,194                     | )          |
| Proceeds from maturities of investments                                                      |       | 16,500                                            |       | —            |       | 16,500                      |       |
| Purchase of property and equipment                                                           |       | (993                                              | )          | (616              | )          | (5,284                      | )          |
| Proceeds from sale of property and equipment                                                 |       | —                                            |       | 3                 |       | 18                          |       |
| Net cash used in investing activities                                                        |       | (57,687                                           | )          | (613              | )          | (61,960                     | )          |
| **Cash flows from financing activities:**                                                    |       |                                              |       |              |       |                        |       |
| Proceeds from initial public offering, net of  offering costs                                |       | 69,112                                            |       | —            |       | 68,237                      |       |
| Proceeds from issuance of redeemable convertible                                             |       | —                                            |       | —            |       | —                      |       |
| preferred stock, net of issuance costs                                                       |       | —                                            |       | 39,734            |       | 75,593                      |       |
| Principal payments on capital lease obligations                                              |       | —                                            |       | —            |       | (23                         | )          |
| Proceeds from issuance of common stock and exercise  of stock options                        |       | 41                                                |       | 132               |       | 627                         |       |
| Net cash provided by financing activities                                                    |       | 69,153                                            |       | 39,866            |       | 144,434                     |       |
|                                                                                         |       |                                              |       |              |       |                        |       |
| Net increase (decrease) in cash and cash equivalents                                         |       | (3,676                                            | )          | 31,102            |       | 19,429                      |       |
|                                                                                         |       |                                              |       |              |       |                        |       |
| Cash and cash equivalents at beginning of period                                             |       | 23,105                                            |       | 6,564             |       | —                      |       |
|                                                                                         |       |                                              |       |              |       |                        |       |
| Cash and cash equivalents at end of period                                                   |       | $                                                 | 19,429     |              | $          | 37,666                      |       | $ | 19,429 |   |
|                                                                                         |       |                                              |       |              |       |                        |       |
| **Supplemental disclosure of noncash investing and  financing activities:**                  |       |                                              |       |              |       |                        |       |
| Deferred stock-based compensation                                                            |       | $                                                 | —     |              | $          | —                      |       | $ | 1,272 |   |
| Reversal of deferred stock-based compensation                                                |       | $                                                 | (13        | )                 | $          | —                      |       | $ | (84 | ) |
| Conversion of redeemable convertible preferred stock  to common stock                        |       | $                                                 | 75,593     |              | $          | —                      |       | $ | 75,593 |   |
| Deferred initial public offering costs                                                       |       | $                                                 | 875        |              | $          | —                      |       | $ | — |   |
| Dividend related to beneficial conversion feature of  redeemable convertible preferred stock |       | $                                            | —     |              | $     | (13,095                     | )          | $  | (13,095 | ) |
| Equipment acquired under capital leases                                                      |       | $                                                 | —     |              | $          | —                      |       | $ | (23 | ) |
| Vesting of restricted common stock from early  exercises                                     |       | $                                                 | 52         |              | $          | —                      |       | $ | 326 |   |
| Changes in net unrealized gains (losses) on  investments                                     |       | $                                                 | (30        | )                 | $          | —                      |       | $ | (30 | ) |

 

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

3

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**XTENT,INC.**

**NOTES TO CONDENSED FINANCIALSTATEMENTS**

**(unaudited)**

**NOTE 1 — Organization and Basis of Presentation:**

**Organization**

XTENT, Inc.(the “Company”) was incorporated in the state of Delaware on June 13, 2002(“Inception”), and is focused on developing and commercializing innovative drugeluting stent systems for the treatment of coronary artery disease. The Companyis in the development stage and since inception has devoted substantially allof its time and efforts to developing products, raising capital and recruitingpersonnel. 

TheCompany has incurred net operating losses each year since Inception.  At June 30, 2007, the Company had anaccumulated deficit of approximately $71.5 million.  The Company has not achieved positive cashflows from operations for any year since Inception.  In May and June 2006, the Company completed aSeries D redeemable convertible preferred stock financing and raisedapproximately $30.0 million in cash and on February 1, 2007 completed itsinitial public offering raising net proceeds of approximately $68.2 million. Asof June 30, 2007, the Company had cash and cash equivalents and short-term investmentsof approximately $76.8 million.  Based onits current expectations of operating costs, research, development and clinicalstudies, existing capital resources will not enable the Company to maintaincurrent and planned operations beyond the second quarter of 2008.  In order to continue its operations, theCompany must obtain debt financing or sell additional shares of itsequity.  There can be no assurance that theCompany will be able to obtain debt or equity financing on terms acceptable tothe Company, or at all. The failure of the Company to obtain sufficient fundson acceptable terms when needed could have a material adverse effect on theCompany’s business, results of operations and financial condition. 

Managementis currently working toward its objective of realizing profitability bysuccessfully obtaining regulatory approval of its products in the United Statesand Europe.  The failure of the Companyto obtain approval of its products by regulatory authorities could have a materialadverse effect on the Company’s business, results of operations, future cashflows and financial condition. 

**Basis of Presentation**

The accompanying unaudited condensed financialstatements have been prepared by the Company in accordance with the accountingprinciples generally accepted in the United States of America for interimfinancial information and pursuant to the instructions to Form 10-Q and Article10 of Regulation S-X of the Securities and Exchange Commission.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, all adjustments (consisting only of normal recurringadjustments) considered necessary for a fair statement have been included.  The results for the three and six monthperiods ended June 30, 2007 are not necessarily indicative of the results thatmay be expected for the year ending December 31, 2007, or for any futureperiod.  These unaudited condensedfinancial statements and notes should be read in conjunction with the auditedfinancial statements and the notes thereto included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2006, filed with theSecurities and Exchange Commission on April 2, 2007.

**NOTE 2 -Summary of Significant Accounting Policy Update:**

***Investments*****

Investmentsconsist primarily of fixed income securities. The Company classifies their  investments as available-for-sale inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, *Accounting for Certain Investments in Debt and Equity Securities*and they are recorded at fair value. The fair value of investments is based onquoted market prices. Unrealized gains and losses are reported as a separatecomponent of stockholders’ equity until realized. Premiums (discounts) oninvestments are amortized (accreted) to interest income over the life of theinvestment. 

4

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***Comprehensive Income (Loss)***

Comprehensiveincome (loss) is defined as the change in equity from transactions and otherevents and circumstances other than those resulting from investments by ownersand distributions to owners. The Company’s unrealized gain (loss) oninvestments represents the only component of other comprehensive loss that isexcluded from the Company’s net loss. Total comprehensive loss during the threeand six months ended June 30, 2007 and 2006 consists of:
|                                | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                     | ** ** | **(in thousands)**                             | ** ** | **(in thousands)**                           | ** ** |
|                           |       |                                                |       |                                              |       |   |   |   |   |
| Net loss                       |       | $                                                   | (9,456     | )                                                 | $          | (5,730 | ) | $ | (17,391 | ) | $ | (9,837 | ) |
| Unrealized loss on investments |       | (1                                                  | )          | —                                            |       | (30 | ) | — |   |
|                           |       |                                                |       |                                              |       |   |   |   |   |
| Comprehensive loss             |       | $                                                   | (9,457     | )                                                 | $          | (5,730 | ) | $ | (17,421 | ) | $ | (9,837 | ) |

 

***Net Loss per Common Share*****

Basicand diluted net loss per common share is computed using the weighted-averagenumber of shares of common stock outstanding during the period. Potentiallydilutive securities consisting of stock options, common stock subject torepurchase and redeemable convertible preferred stock were not included in thediluted net loss per common share calculations for all periods presentedbecause the inclusion of such shares would have had an antidilutive effect. Areconciliation of the numerator and denominator used in the calculation ofbasic and diluted net loss per common share is as follows:
|                                                                                                                     | ** ** | **Three Months Ended June 30,**               | ** ** | **Six Months Ended June 30,**                 | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                          | ** ** | **2007**                                                          | ** ** | **2006**                                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                                          | ** ** | **(in thousands, except per share  amounts)** | ** ** | **(in thousands, except per share  amounts)** | ** ** |
|                                                                                                                |       |                                                              |       |                                                              |       |   |   |   |   |
| Numerator:                                                                                                          |       |                                                              |       |                                                              |       |   |   |   |   |
| Net loss attributable to common stockholders                                                                        |       | $                                                                 | (9,456     | )                                                                 | $          | (13,147 | ) | $ | (17,391 | ) | $ | (22,932 | ) |
| Denominator:                                                                                                        |       |                                                              |       |                                                              |       |   |   |   |   |
|                                                                                                                |       |                                                              |       |                                                              |       |   |   |   |   |
| Weighted-average common shares outstanding                                                                          |       | 22,865                                                            |       | 3,284                                                             |       | 18,989 |   | 3,182 |   |
| Weighted-average unvested common shares subject to  repurchase                                                      |       | (314                                                              | )          | (598                                                              | )          | (340 | ) | (600 | ) |
| Weighted-average number of common shares outstanding  used in computing basic and diluted net loss per common share |       | 22,551                                                            |       | 2,686                                                             |       | 18,649 |   | 2,582 |   |
|                                                                                                                |       |                                                              |       |                                                              |       |   |   |   |   |
| Basic and diluted net loss per common share                                                                         |       | $                                                                 | (0.42      | )                                                                 | $          | (4.89 | ) | $ | (0.93 | ) | $ | (8.88 | ) |

 

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The following redeemable convertible preferred stockand stock options were excluded from the computation of diluted net loss percommon share for the three and six month periods presented because includingthem would have an antidilutive effect:
|                                                      | ** ** | **Periods Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                  | ** ** | **2006** | ** ** |
| ** **                                           | ** ** | **(in thousands)**                   | ** ** |
| Redeemable convertible preferred stock               |       | —                                    |       | 14,744 |   |
| Options to purchase common stock                     |       | 1,957                                     |       | 1,671 |   |
| Common stock subject to repurchase                   |       | 286                                       |       | 534 |   |
| Shares issuable through Employee Stock Purchase Plan |       | 27                                        |       | — |   |

 

***Recent Accounting Pronouncements***

InFebruary 2007, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting 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 is effective for the Company in fiscal year2008 and will be applied prospectively. The Company is currently evaluating theimpact of adopting SFAS No. 159 on its financial statements. 

**NOTE 3-  Investments**

Thefair value of investments as of June 30, 2007 is summarized below: 
|                                                           | ** ** | **Amortized** | ** ** | **Unrealized**          | ** ** | **Unrealized** | ** ** | **Fair**  | ** ** |
|-----------------------------------------------------------|------------|---------------|------------|-------------------------|------------|----------------|------------|-----------|------------|
| ** **                                                | ** ** | **Cost**      | ** ** | **Gains**               | ** ** | **Losses**     | ** ** | **Value** | ** ** |
| ** **                                                | ** ** | ** **    | ** ** | **(in thousands)** | ** ** | ** **     | ** ** |
| Commercial paper                                          |       | $             | 14,297     |                    | $          | 14             |       | $         | (1         | ) | $ | 14,310 |   |
| US Government securities (maturities less than one  year) |       | 35,158        |       | 3                       |       | (17            | )          | 35,144    |       |
| Corporate bonds (maturities less than one year)           |       | 7,974         |       | —                  |       | (29            | )          | 7,945     |       |
| Total                                                     |       | $             | 57,429     |                    | $          | 17             |       | $         | (47        | ) | $ | 57,399 |   |

 

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**NOTE 4 -Common Stock**

OnJanuary 22, 2007, the Company effected a 1-for-2 reverse stock split ofits common stock and redeemable convertible preferred stock pursuant to thefiling of an Amended and Restated Certificate of Incorporation. Such Amendedand Restated Certificate of Incorporation also provided for the automaticconversion of the then outstanding shares of redeemable convertible preferredstock into shares of common stock. All share and per share amounts included inthe Company’s condensed financial statements have been adjusted to reflect thisreverse stock split for all periods presented. 

OnFebruary 1, 2007, the Company sold 4,700,000 shares of its common stock ata public offering price of $16.00 per share. Net cash proceeds from the initialpublic offering were approximately $68.2 million, after deducting underwritingdiscounts and commissions and other offering costs.  In connection with the closing of the initialpublic offering, all of the Company’s shares of Series A, B, C and Dredeemable convertible preferred stock outstanding at the time of the offeringwere automatically converted into 14,744,196 shares of common stock. 

Eachshare of common stock has the right to one vote.  The holders of common stock are entitled todividends when funds are legally available and when declared by the Board ofDirectors. 

***Restricted common stock*****

Certaincommon stock option holders have the right to exercise unvested options,subject to a repurchase right held by the Company to repurchase the stock, atthe original exercise price, in the event of voluntary or involuntarytermination of employment of the stockholder. In accordance with EmergingIssues Task Force Issue No. 00-23, *IssuesRelated to the Accounting for Stock Compensation* under APB 25and FASB Interpretation No. 44, *Accountingfor Certain Transactions Involving Stock Compensation*, the Companyaccounts for the cash received in consideration for the early exercised optionsas a liability. As of June 30, 2007 and December 31, 2006, there wereapproximately 286,000 and 417,000 shares of common stock, respectively, subjectto repurchase, and a related liability of $115,000 and $167,000, respectively. 

**NOTE 5 -Stock Option Plans**

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

TheCompany calculates the fair value of each option award on the date of grantusing the Black-Scholes option pricing model. The following weighted average assumptions were used for each respectiveperiod:
|                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **               | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **               | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stock options:           |       |                                                |       |                                              |       |   |   |   |   |
| Expected volatility      |       | 54%                                                 |       | 70%                                               |       | 54% |   | 70% |   |
| Risk free rate           |       | 4.55% - 5.05%                                       |       | 4.76% - 4.95%                                     |       | 4.55% - 5.05% |   | 4.52% - 4.95% |   |
| Dividend yield           |       | 0%                                                  |       | 0%                                                |       | 0% |   | 0% |   |
| Expected term (in years) |       | 4.65                                                |       | 6.25                                              |       | 4.65 |   | 6.25 |   |
|                     |       |                                                |       |                                              |       |   |   |   |   |
| ESPP:                    |       |                                                |       |                                              |       |   |   |   |   |
| Expected volatility      |       | 42.1%                                               |       | NA                                                |       | 42.1% - 50% |   | NA |   |
| Risk free rate           |       | 4.9%                                                |       | NA                                                |       | 4.90% - 5.13% |   | NA |   |
| Dividend yield           |       | 0%                                                  |       | NA                                                |       | 0% |   | NA |   |
| Expected term (in years) |       | 0.5                                                 |       | NA                                                |       | .50 to 0.79 |   | NA |   |

 

The expected term of stock options represents theweighted-average period the stock options are expected to remain outstandingand is based on the option vesting term, contractual terms and industry peersas the Company does not have sufficient historical information to developreasonable expectations about future exercise patterns and post-vestingemployment termination behavior.  ESPPterms are for the purchase periods starting February 1, 2007 (Initial PublicOffering) and May 15, 2007, both of which will end on November 15, 2007. 

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The expected stock price volatility assumptions forthe Company’s stock options and ESPP for the three and six month periods endedJune 30, 2007 were determined by examining the historical volatilities forindustry peers in combination with the historical volatility of the Companysince its Initial Public Offering on February 1, 2007.  The Company will continue to analyze thehistorical stock price volatility and expected term assumptions as morehistorical data for the Company’s common stock becomes available. 

The risk-free interest rate assumption at the date ofgrant is based on the U.S Treasury instruments whose term is consistent withthe expected term of the Company’s stock options. 

Stock option activity for the six month period endedJune 30, 2007 is as follows: 
|                              | ** ** | ** **                                                                               | ** ** | **Options Outstanding** | ** ** |
|------------------------------|------------|------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | ** **                                                                               | ** ** | ** **                   | ** ** | ** ** | ** ** |
| ** **                   | ** ** | ** **                                                                               | ** ** | ** **                   | ** ** | **Weighted** | ** ** |
| ** **                   | ** ** | **Shares**                                                                               | ** ** | **Number**                   | ** ** | **Average** | ** ** |
| ** **                   | ** ** | **Available**                                                                            | ** ** | **of**                       | ** ** | **Exercise** | ** ** |
| ** **                   | ** ** | **for Grant**                                                                       | ** ** | **Shares**                   | ** ** | **Price** | ** ** |
| ** **                   | ** ** | **(in thousands, except weighted average exercise price)** | ** ** |
|                         |       |                                                                                     |       |                         |       |   |   |
| Balances,  December 31, 2006 |       | 132                                                                                      |       | 1,894                        |       | $ | 3.09 |   |
|                         |       |                                                                                     |       |                         |       |   |   |
| Additional shares reserved   |       | 400                                                                                      |       | —                       |       | — |   |
| Options granted              |       | (198                                                                                     | )          | 198                          |       | 11.67 |   |
| Options exercised            |       | —                                                                                   |       | (71                          | )          | 0.57 |   |
| Options forfeited/expired    |       | 64                                                                                       |       | (64                          | )          | 5.16 |   |
| Balances, June 30, 2007      |       | 398                                                                                      |       | 1,957                        |       | $ | 3.98 |   |

 

***2006 Employee Stock Purchase Plan***

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

Offering periods are scheduled to start on the firsttrading day on or after May 15 and November 15 of each year, except for thefirst such offering period, which commenced on February 1, 2007, uponcompletion of the Company’s initial public offering, and will end on the firsttrading day on or after May 15, 2007. The ESPP permits participants to purchase common stock through payrolldeductions of up to 15% of their eligible compensation which includes a participant’sbase salary, wages, overtime and shift premium, commissions, but exclusive ofpayments for incentive compensation, bonuses and other compensation.  A Participant may purchase a maximum of 1,250shares during a six-month purchase period. 

Amounts deducted and accumulated by the participantare used to purchase shares of the Company’s common stock at the end of eachsix-month purchase period.  The purchaseprice of the shares will be 85% of the lower of the fair market value of theCompany’s common stock on the first trading day of each offering period or onthe exercise date.  Participants may endtheir participation at any time during an offering period, and will be paidtheir accrued payroll deductions that have 

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not yet been used to purchase shares of commonstock.  Participation ends automaticallyupon termination of employment with the Company.  The ESPP will automatically terminate in2026, unless the Company terminates it sooner. Through June 30, 2007, no shares have been issued in connection with theESPP.

 **NOTE 6 — Commitments and Contingencies**

In April 2007, the Company entered into a supplyagreement with Fortimedix B.V., a company organized under the laws of theNetherlands, under which Fortimedix agreed to manufacture and deliver stentsfor use in the Company’s products.  Theterms of the agreement require minimum purchases over the next two years atcontractual prices set in Euros.  As of June 30, 2007, $1.0 million has beenpaid or accrued for the purchase of stents under this supply agreement, and afuture obligation of approximately $5.4 million will be payable through the endof 2008, calculated using the exchange rate on June 30, 2007. TheCompany does not believe this presents a material financial exposure, and doesnot plan to hedge against foreign currency fluctuations. 

***Operating Lease***

In May 2007, the Company entered into an amendment tothe lease agreement pursuant to which it leases its offices and manufacturingfacilities.  The lease amendment extendsthe term of the lease through May 31, 2012. The Company may terminate the lease for any reason on or after May 1,2009, and the landlord may terminate the lease on or after that date providedit has obtained certain redevelopment rights with respect to the leasedpremises.  Future minimum payments underthe amended lease as of June 30, 2007 are as follows:
| ** **                | ** ** | ** **              | ** ** | **Remainder**    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------|------------|-------------------------|------------|------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                | ** ** | **Total**               | ** ** | **of 2007** | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** |
| ** **                | ** ** | **(in thousands)** | ** ** |
| Minimum lease  commitment |       | $                       | 2,244      |             | $          | 141        |       | $          | 416        |       | $          | 477        |       | $          | 491        |   | $ | 506 |   | $ | 213 |   |
|                           |            |                         |            |                  |            |            |            |            |            |            |            |            |            |            |            |  |  |  |  |  |  |  |

 

**NOTE7 – Income Taxes**

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

The Company’s practice is to recognize interest and/orpenalties related to income tax matters in income tax expense.  The Company had no accrual for interest orpenalties at June 30, 2007. 

The Company files U.S. Federal and California statetax returns. The Company is currently not subject to income tax examinationsand, in general, all tax years remain open due to net operating losses. 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS****Introduction**

The following discussion should be read in conjunctionwith the financial statements and the related notes included in thisForm 10-Q, in our Form 10-K for the year ended December 31, 2006 and inour other filings with the Securities and Exchange Commission (“SEC”). This Quarterly Report on Form 10-Qcontains forward-looking statements within the meaning of the federalsecurities laws. These statements include, but are not limited to, thoseconcerning the following: future

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events, our future financialperformance, business strategy, product introductions and plans and objectivesof management for future operations, regulatory approvals and clinicaltimelines. Forward-lookingstatements are subject to risks and uncertainties that could cause actualresults and events to differ materially. For a detailed discussion of theserisks and uncertainties, see Part II, Item 1A “Risk Factors” below. Weundertake no obligation to update forward-looking statements to reflect eventsor circumstances occurring after the date of this Form 10-Q.

**Overview**

We are a development stage medical device companyfocused on developing and commercializing our proprietary Custom NX® drugeluting stent (“DES”) systems to treat coronary artery disease (“CAD”). Sinceour inception on June 13, 2002 (“Inception”) we have devoted substantiallyall of our resources to start-up activities, raising capital and research anddevelopment, including product design, testing, manufacturing and clinicaltrials. We have focused our development efforts on creating our Custom NX DESSystems, which allow a physician to deploy single or multiple stents ofcustomizable lengths with a single device. Our stent systems, the Custom NX 36and the Custom NX 60, incorporate a modular cobalt chromium stent design aswell as a proprietary delivery system. In addition, our stents have a drugcoating that is made up of Biolimus A9® an anti-inflammatory drug, andPolyLactic Acid, a biodegradable polymer, which in combination are intended to reducethe incidence of restenosis, or renarrowing of the previously treated arteryover time.  We have not yet received anygovernment regulatory approvals necessary to commercialize any of our products.

We are developing 36mm and 60mm stent systems based onour proprietary technology platform. Our stent design is modular in that itconsists of multiple 6mm segments in which the ends of each segment interleavewith the ends of the adjacent segments, or are interdigitated. Thisinterdigitated modular stent design allows the physician to customize the stentlength while the device is in the artery. Our delivery system incorporates aprotective sheath and a proprietary mechanism to control the number of stentsegments deployed. Our first two stent systems in development are the 36mmCustom NX 36 and the 60mm Custom NX 60. We believe these two systemswill enable physicians to provide a therapeutic solution for the majority ofCAD patients treated with currently marketed drug eluting stents. Our Custom NX 36is customizable in length and designed to treat single or multiple lesions. OurCustom NX 60 is designed to give physicians a suitable length stentto treat one long lesion or multiple smaller lesions with the use of onedevice, reducing the need for multiple catheter exchanges and related devicecosts. We believe the ability to customize our stent and potentially treatmultiple lesions and long lesions with one catheter may improve proceduralefficacy and efficiency and lower costs.

We are conducting clinical trials to evaluate ourCustom NX 36 and Custom NX 60 stent and stent delivery systems.In May 2006, the eight month clinical data from our CUSTOM I clinicaltrial was presented at the 2006 Paris Course on Revascularization conferenceand in May 2007, six month clinical data from our CUSTOM II clinicaltrial for 100 patients was presented at the 2007 EuroPCR conference inBarcelona, Spain. We believe the data from these clinical trials providedpreliminary evidence of safety and efficacy and supports further development ofour in-situ customization approach. In 2006 we completed enrollment of ourCUSTOM II clinical trial and initiated our CUSTOM III clinical trial,both of which are designed to further evaluate the safety and efficacy ofin-situ customization with our stents, particularly in patients with longlesions and multiple lesions. Assuming the results from these trials arefavorable, we believe the data from our CUSTOM I, II and III clinicaltrials will be sufficient to support our submission to our designated NotifiedBody in the European Union for CE Mark. We expect to submit our application forCE Mark in late 2007. We will need premarket approval (“PMA”), from theU.S. Food and Drug Administration (“FDA”), before we can market ourproducts in the United States, which we expect will require data fromlarge clinical trials of up to 2,500 patients. To initiate these clinicaltrials, we must first obtain clearance of an investigational device exemption (“IDE”)from the FDA.  We expect to receive thisclearance in a timeframe to permit us to initiate our pivotal U.S. trials inthe second half of 2007.

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

To date, we have not generated any revenue and willnot be able to generate revenue until one of our products is approved, if ever.We have incurred net losses in each year since our Inception in June 2002.Through June 30, 2007, we had an accumulated deficit of approximately $71.5million. We expect our losses to continue to increase as we expand our 

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clinicaltrial activities and initiate commercialization activities. Since Inception wehave financed our operations primarily through private placements of equitysecurities, and on February 1, 2007 we completed the initial public offeringof our common stock which raised net proceeds of approximately$68.2 million.  As of June 30, 2007,we have approximately $76.8 million in cash, cash equivalents and short-terminvestments.  Based on our currentexpectations of operating costs, research, development and clinical studycosts, existing capital resources will not enable us to maintain current andplanned operations beyond the middle of the second quarter of 2008.  In order to continue operations, we plan toobtain debt financing or sell additional shares of equity.

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

**Financial Operations**

***Revenue***

To date, we have not generated any revenue from the saleof our stent systems. We do not expect to generate revenue until 2008 at theearliest, subject to obtaining CE Mark.

***Research andDevelopment***

Our research and development expenses consistprimarily of product development, pre-clinical trials, clinical trials andregulatory expenses as well as the cost of manufacturing products for clinicaltrials. Research and development expenses include employee compensationincluding stock-based compensation, supplies and materials, consultingexpenses, license payments for acquired technology, travel and facilities. Wealso incur significant expenses to operate our clinical trials including trialdesign, clinical site reimbursement, data management and travel expenses. Fromour Inception through June 30, 2007, we incurred $57.5 million in research anddevelopment expenses.

***General and Administrative***

General and administrative expenses consist primarilyof compensation for executive, finance, marketing and administrative personnelincluding stock-based compensation. Other significant expenses includeprofessional fees for accounting and legal services associated with our effortsto obtain and maintain protection for intellectual property related to ourCustom NX DES Systems. From our Inception through June 30, 2007, we incurred$17.5 million in general and administrative expenses.

**Results of Operations**

***Comparison of ThreeMonths Ended June 30, 2007 and 2006***

***Revenue.  ***We did not generate any revenue during the three monthsended June 30, 2007 or 2006.

***Research andDevelopment.  ***Research and developmentexpenses were $7.7 million for the three months ended June 30, 2007, comparedto $4.3 million for the three months ended June 30, 2006. The increase of $3.4million was primarily due to higher personnel expenses of $1.3 million foradditional employees hired in our research and development department,  an increase of $139,000 in stock-basedcompensation, $1.2 million for prototype parts, supplies, consulting, andoutside services related to product development for our Custom NX DESsystems, $659,000 of expenses related to the support of our clinical researchstudies and the resumption of our CUSTOM III clinical trial, and $94,000 due toincreased depreciation on equipment and facilities expenses, as we expand ourmanufacturing capacity. We expect our research and development expenses toincrease significantly as we continue the development of our Custom NX DESSystems and conduct additional clinical trials.

***General andAdministrative.  ***General and administrativeexpenses were $2.8 million for the three months ended June 30, 2007, comparedto $1.7 million for the three months ended June 30, 2006. The increase of $1.1million was primarily due to higher personnel expenses of $324,000 foradditional employees hired in marketing and administration, an increase instock-based compensation expense of $252,000, $316,000 due to increasedspending for travel, trade shows and marketing 

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materials,$216,000 due to increased consulting and professional expenses related tooperating as a public company, and an increase of $116,000 related to insuranceand other administrative expenses related to becoming a public company.  These increases were partially offset by adecrease in compensation of $200,000 related to a relocation bonus paid to ourChief Financial Officer in April 2006. We expect our general and administrativeexpenses to increase significantly due to the costs associated with operatingas a publicly traded company and the costs associated with thecommercialization of our products.

***InterestIncome.  ***Interest income was $1 million forthe three months ended June 30, 2007, compared to $297,000 for the three monthsended June 30, 2006. The increase of $703,000 was due primarily to higher cashbalances as a result of our initial public offering as well as a modestincrease in interest rates, due to investment of our cash balances subsequentto the initial public offering.

***Comparison of SixMonths Ended June 30, 2007 and 2006***

***Revenue.  ***We did not generate any revenue during the six monthsended June 30, 2007 or 2006.

***Research andDevelopment.  ***Research and developmentexpenses were $13.9 million for the six months ended June 30, 2007, compared to$7.6 million for the six months ended June 30, 2006. The increase of $6.3million was primarily due to higher personnel expenses of $2.2 million foradditional employees hired in our research and development department, anincrease in stock-based compensation expense of $410,000, $2.6 million forprototype parts, supplies, and outside services related to product developmentfor our Custom NX DES systems, $813,000 of expenses related to the supportof our clinical research studies and the resumption of our CUSTOM III clinicaltrial, and $206,000 due to increased depreciation on equipment and facilitiesexpenses, as we expand our manufacturing capacity. We expect our research anddevelopment expenses to increase significantly as we continue the developmentof our Custom NX DES Systems and conduct additional clinical trials.

***General andAdministrative.  ***General and administrativeexpenses were $5.3 million for the six months ended June 30, 2007, compared to$2.7 million for the six months ended June 30, 2006. The increase of $2.6million was primarily due to higher personnel expenses of $656,000 foradditional employees hired in marketing and administration, an increase instock-based compensation expense of $616,000, $394,000 due to increasedspending for travel, trade shows and marketing materials, $880,000 due toincreased legal, consulting and professional expenses related to operating as apublic company, and an increase of $183,000 related to insurance and otheradministrative expenses related to becoming a public company. These increaseswere partially offset by a decrease in compensation of $200,000 related to arelocation bonus paid to our Chief Financial Officer in April 2006. We expectour general and administrative expenses to increase significantly due to thecosts associated with operating as a publicly traded company and the costs associatedwith the commercialization of our products.

***InterestIncome.  ***Interest income was $1.8 million forthe six months ended June 30, 2007, compared to $405,000 for the six monthsended June 30, 2006. The increase of $1.4 million was due primarily to highercash balances as a result of our initial public offering as well as a modestincrease in interest rates, due to investment of our cash balances subsequentto the initial public offering.

***BeneficialConversion Feature.******  ***In January 2006, wecompleted the issuance and sale of 4,684,892 shares of Series Cconvertible preferred stock at $5.42 per share, which price was determined byour board of directors pursuant to negotiations with the investors in thatround of financing. In June 2006, we completed the issuance and sale of3,370,758 shares of Series D convertible preferred stock at $8.90 per share,which price was determined by our board of directors pursuant to negotiationswith a new investor and existing investors in that round of financing. Inconnection with our preparation of the financial statements necessary for ourpublic offering, we reassessed the fair value of our common stock for financialaccounting purposes.  Based on thisreassessment, we determined the fair value of our common stock inJanuary 2006 to be $8.56 per share, in May 2006 to be $11.08 per share andin June 2006 to be $11.70 per share. When we issue equity securities that areconvertible into common stock at a discount from the common fair value at thecommitment date, the difference between the fair value of the common stock andthe conversion price multiplied by the number of shares issuable uponconversion is recognized as a beneficial conversion feature. The beneficialconversion feature is presented as a deemed dividend to the related securityholders with an offsetting amount to additional paid in capital and will beamortized over the period from the issue date to the first conversion date.Since the equity securities are immediately convertible into common stock bythe holder at any time, we recorded and immediately amortized a beneficialconversion charge, or deemed dividend, of approximately $5.7 million inconnection with our Series C convertible preferred stock financing in January 2006,and approximately $7.4 million in connection with our Series D. convertiblepreferred stock financing in May and June 2006. No beneficial conversion charge has been recognized in the three or sixmonth periods ending June 30, 2007.

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**Liquidity and Capital Resources**

***Sources ofLiquidity***

We are in the development stage and have incurredlosses since our Inception in June 2002. As of June 30, 2007, we had anaccumulated deficit of $71.5 million. Prior to our initial public offering, wefunded our operations from the private placements of our convertible preferredstock resulting in aggregate net proceeds of $75.6 million throughDecember 31, 2006. On February 1, 2007, we completed our initialpublic offering, raising $68.2 million in net proceeds. The process ofdeveloping our products will continue to require significant research anddevelopment, clinical trials and regulatory approvals.  These activities, together with increases inselling, general and administrative expenses, as we prepare for a commercial launchof our products in Europe, are expected to result  in substantial operating losses for the nextseveral years. As of June 30, 2007, we did not have any outstanding oravailable debt financing arrangements, we had working capital of $74.1 million,and our primary source of liquidity was $76.8 million in cash and cashequivalents and short-term investments.

***Cash Flows***

***Cash Flows fromOperating Activities.  ***Net cash used inoperating activities was $15.1 million for the six months ended June 30,2007, compared to $8.2 million for the six months ended June 30, 2006. The netcash used in operating activities primarily reflects expenses related toproduct development and clinical trials. These expenses were offset in part by depreciation and amortization, non-cashstock-based compensation and non-cash changes in operating assets andliabilities.

***Cash Flows fromInvesting Activities.  ***Net cash used ininvesting activities during the six months ended June 30, 2007 was $57.7million compared to $613,000 for the six months ended June 30, 2006. Cash usedin investing activities for the six months ended June 30, 2007 reflects $73.2million related to investment of the cash raised by our initial public offeringin February 2007, offset by $16.5 million of investment maturities. We did nothave investments in 2006. Purchases of property and equipment were $993,000 and$616,000 in the six months ending June 30, 2007 and 2006, respectively, withthe increase in 2007 representing increasing investment in production machineryand equipment as we prepare for expanded manufacturing to support our clinicaltrials.

***Cash Flows fromFinancing Activities.  ***Net cash provided byfinancing activities for the six months ended June 30, 2007 was$69.2 million, compared with $39.9 million for the six months ended June30, 2006. Net cash provided by financing activities for the six months endedJune 30, 2007 was primarily attributable to our initial public offering inFebruary 2007.  Net cash provided byfinancing activities for the six months ended June 30, 2006 was primarilyattributable to the issuance of convertible preferred stock.

***Operating Capitaland Capital Expenditure Requirements***

To date, we have not commercialized any products. Wedo not anticipate generating any revenue unless and until we successfullyobtain CE Mark or FDA marketing approval for, and begin selling, our Custom NXDES Systems. We anticipate that we will continue to incur substantial netlosses for the next several years as we develop our products, conduct and completeclinical trials, pursue additional applications for our technology platform,expand our clinical development team and corporate infrastructure, and preparefor 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 for at least the next10 months. We plan to sell additional equity or debt securities or obtaina credit facility in the first half of 2008. Any such required additionalcapital may not be available on reasonable terms, if at all. The sale ofadditional equity and debt securities may result in additional dilution to ourstockholders. If we raise additional funds through the issuance of debtsecurities, these securities could have rights senior to those of our commonstock and could contain covenants that would restrict our operations. We mayrequire additional capital beyond our currently forecasted amounts. Forexample, we will need to raise additional funds in order to build our salesforce and commercialize our products. Any such required additional capital maynot be available on reasonable terms, if at all. If we are unable to obtain additionalfinancing, we may be required to reduce the scope of, delay, or eliminate someor all of, our planned clinical trials, research, development andcommercialization activities, which could materially harm our business.

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

Our forecasts for the period of time through which ourfinancial resources will be adequate to support our operations and the costs tocomplete development of products are forward-looking statements and involverisks and uncertainties, and actual results could vary materially andnegatively as a result of a number of factors, including the factors discussedin the “Risk Factors” contained in Item 1A of Part II of this report. Wehave based these estimates on assumptions that may prove to be wrong, and wecould utilize our available capital resources sooner than we currently expect.

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

·       the scope, rate of progressand cost of our clinical trials and other research and development 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 depend on theextent to which we acquire or invest in businesses, products and technologies,although we currently have no commitments or agreements relating to any ofthese types of transactions.

***ContractualObligations***

In April 2007, we entered into a supply agreement withFortimedix B.V., a company organized under the laws of the Netherlands, underwhich Fortimedix agreed to manufacture and deliver stents designed by us foruse in our Custom NX DES system.  Thesupply agreement requires that we purchase a certain minimum number of thestents during each period at contractual prices set in Euros and also requiresFortimedix to build and maintain the production capacity to meet these minimumvolume purchase requirements.  Theinitial term of the agreement ends on March 18, 2010 and will be automaticallyextended for successive one year periods unless either party terminates theagreement by giving notice at least six months prior to the initial term or anyextension period.  To date, $1.0 millionhas been paid or accrued for the purchase of stents under this supplyagreement, and we estimate that our total remaining minimum obligation underthis agreement will be at least $5.4 million through the end of the calendaryear 2008.  This amount was calculatedusing the Euro to dollar exchange rate as of June 30, 2007. After the end ofthe calendar year 2008, we have no further obligation to purchase stents fromFortimedix unless the parties otherwise agree in writing on or before January31, 2008.

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In May 2007, we entered into an amendment to our leaseagreement with our landlord, 125 Constitution Associates, L.P., a Californialimited partnership pursuant to which we lease our principal business officesin Menlo Park, California.  Under the terms of the amendment, we extendedthe term of our lease to May 31, 2012. We also expanded the leased premises to include an additional 30,398square feet.  We may terminate the lease at any time on or after May 1,2009, and 125 Constitution Associates, L.P. may terminate the lease at any timeon or after May 1, 2009 if it has obtained certain redevelopment rights withrespect to the leased premises.  Futureminimum lease commitments as of June 30, 2007 are as follows, assuming neitherparty terminates the lease prior to the end of the term:
| ** **                | ** ** | ** **              | ** ** | **Remainder**    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------|------------|-------------------------|------------|------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                | ** ** | **Total**               | ** ** | **of 2007** | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** |
| ** **                | ** ** | **(in thousands)** | ** ** |
| Minimum lease  commitment |       | $                       | 2,244      |             | $          | 141        |       | $          | 416        |       | $          | 477        |       | $     | 491        |   | $ | 506 |   | $ | 213 |   |
|                           |            |                         |            |                  |            |            |            |            |            |            |            |            |            |            |            |  |  |  |  |  |  |  |

 

**Off-Balance Sheet Arrangements**

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

**Critical Accounting Policies andEstimates**

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

**RecentAccounting Pronouncements**

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

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

Our exposure to interest rate risk at June 30, 2007 isrelated primarily to our investment portfolio. Our investment portfolioincludes a variety of marketable securities, including commercial paper andU.S. government securities.  Achange in prevailing interest rates may cause the fair value of our investmentsto fluctuate.  For example, if we hold asecurity that was issued with a fixed interest rate at the then-prevailing rateand the prevailing rate rises, the fair value of the principal amount of ourinvestment will probably decline.  To minimizethis risk, investments are generally held to maturity, and we balance portfoliomaturities to both meet cash flow requirements and limit possible long terminterest rate risks.

We have entered into a supply agreement withFortimedix B.V. which requires that we purchase certain minimum volumes ofstents at contractual prices set in Euros. We estimate that our total remaining minimum obligation under thisagreement will be at least $5.4 million through the end of the calendar year2008, and this could increase based on foreign currency rate fluctuations.  For the purposes of the foregoing estimate,we have used the Euro to dollar exchange rate as of June 30, 2007. We donot believe this presents a material financial exposure, and do not plan tohedge against foreign currency fluctuations.

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**ITEM 4T. CONTROLS AND PROCEDURES**

**Disclosure Controls and Procedures**

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

We carried out an evaluation, under the supervisionand with the participation of our management, including our Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act). Basedupon this evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of June30, 2007.

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

**PART II:OTHER INFORMATION**

**ITEM 1. LEGAL PROCEEDINGS**

##### None

**ITEM 1A. RISK FACTORS**

**Risks Related toOur Business**

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

We have incurred netlosses since our Inception in June 2002. For the years endedDecember 31, 2004, 2005, and 2006, we had net losses of $8.9 million,$14.0 million and $25.0 million, respectively. Through June 30, 2007,we had an accumulated deficit of $71.5 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 have devotedsubstantially all of our resources to research and development of our Custom NXDES Systems, which consist of the Custom NX 36 and the Custom NX 60. Since wehave not received a CE Mark or approval from the U.S. Food and DrugAdministration (“FDA”) or any other regulatory authority for our products, weare unable to market our current products and have not generated any revenuesince our Inception. We expect our research and development expenses toincrease significantly in connection with our clinical trials and other productdevelopment activities. If we receive CE Mark or FDA approval of our Custom NXDES Systems, we expect to incur significant sales and marketing expenses andmanufacturing expenses as we commercialize our products. Additionally, weexpect that our general and administrative expenses will increase due to theadditional operational and reporting costs associated with being a publiccompany. As a result, we expect to continue to incur significant and increasingoperating losses for the foreseeable future. These losses will continue to havean adverse effect on our stockholders’ equity.

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

In May 2004, weentered into a license agreement with Biosensors. Pursuant to the agreement, weobtained non-exclusive rights to use Biosensors’s drug coating on our stentplatform. The drug coating consists of Biolimus A9®, an anti-inflammatory drugthat is a derivative of rapamycin, and PolyLactic Acid (“PLA”), a biodegradablepolymer used to release the drug over time. The drug coating has not beenapproved for any use in the European Union, the United States or any otherjurisdiction. In April 2005, Biosensors submitted its first module for themaster file (“MAF”), for the Biolimus A9 and PLA 

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formulation with itsdesignated Notified Body, an independent third party appointed by regulatoryauthorities to conduct the requisite conformity assessment, in conjunction withBiosensors’ application for CE Mark of its BioMatrix drug eluting stent.Biosensors does not have any prior experience in developing or manufacturingdrugs or obtaining regulatory approval for drugs or drugs used in combinationwith a medical device in any jurisdiction.

In May 2006,Biosensors publicly disclosed that it had responded to all requests foradditional information received from its designated Notified Body or therelevant drug authority; however, there can be no assurance that the NotifiedBody will accept Biosensors’ MAF in its filed form, even with the inclusion ofthe additional requested data. We have not been involved with, or had accessto, any of Biosensors’ filings with its designated Notified Body or therelevant regulatory authorities in the European Union. There is a significantchance that the designated Notified Body, after continued deliberations, mayrequest additional data or tests that could be time consuming for Biosensors toprovide. The designated Notified Body who will be reviewing our CE Markapplication will be given access to Biosensors’ MAF in connection with ourapplications for CE Mark. Biosensors will have to obtain a favorable opinionfrom the relevant drug authority on its MAF before our designated Notified Bodycan provide us with CE Mark approval. To date, Biosensors has made only limitedpublic disclosure regarding filings it has made with the FDA in connection withits MAF for the drug coating. Any delays Biosensors experiences or problems ithas in developing a MAF that we need to reference in our application for CEMark in the European Union or our PMA application in the United States, maysubstantially delay our currently planned clinical trials and the developmentof our products and we may be required to restart clinical programs with analternative drug coating.  In the eventwe experience these delays or need to restart clinical programs our regulatoryand commercialization timelines will need to be extended and we may experiencea significant decline in our stock price.

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

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

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

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

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

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

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

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

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

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

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

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

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We cannot market ourproducts in the European Union until we receive a CE Mark or in the UnitedStates until we receive premarket approval (“PMA”). The earliest we expect tocommercialize our products in the European Union is the second half of 2008, ifat all, and in the United States in the first half of 2010, if at all. If weare not successful in the initiation and completion of clinical trials for thedevelopment, approval and commercialization of our Custom NX DES Systems forthe treatment of coronary artery disease (“CAD”), we may never generate anyrevenue and may be forced to cease operations.

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

In addition to thesubmission of a MAF, that is acceptable to regulatory authorities, by thesupplier for the drug coating that we use on our products, which we intend toreference in the regulatory applications for our products, we must obtainregulatory approval to market our drug eluting stents. Our Custom NX DESSystems are combination products, incorporating both a drug element and amedical device, and the combination device will be regulated as aClass III medical device in the United States. The drug coating forour stents will be reviewed by the FDA’s Center for Drug Evaluation andResearch (“CDER”), and the device will be reviewed by the FDA’s Center forDevices and Radiological Health (“CDRH”), with the overall product approved byCDRH as a medical device. We believe that no separate approval for the drugindependent of the device is required.

We donot currently have the necessary regulatory approvals to market our Custom NXDES Systems or any other products in the United States or in any foreignmarket, including the European Union. If we obtain the necessary regulatoryapprovals, we plan initially to launch our products in the European Union andlater in the United States. Regulatory approval in the European Union forour products will require us to successfully obtain CE Mark from a designatedNotified Body. Recently, the European Medicines Agency released new guidelinesit is proposing for the approval of drug eluting stents.  These new guidelines are more rigorous thanexisting standards.  Although theproposed guidelines have only been published for comment and are not final, weexpect that in order to obtain CE Mark we will need to take these newguidelines into consideration.  Theregulatory approval process in the United States for our productsinvolves, among other things, successfully receiving authorization from the FDAto conduct clinical trials under an investigational device exemption (“IDE”),completing pre-clinical and clinical trials, and applying for and obtainingpre-market approval (“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 can delay, limit or deny approval of our PMA application for many reasons,including:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Weobtain our entire supply of the drug coating for our stents from Biosensors andwe are unaware of any alternative source for this drug coating. We do not havethe right to use alternate suppliers for this drug coating that we obtain fromBiosensors. In addition, there is no other source for the drug coating and weare contractually restricted from obtaining Biolimus A9 from any other sourceand we have not in-licensed an alternative drug for use in the event we areunable to obtain a sufficient supply of Biolimus A9. Currently, Biosensorsrelies on a sole-source, Nippon Kayaku, a third-party Japanesepharmaceutical company, to manufacture and supply them with Biolimus A9, whichBiosensors mixes with the PLA. We have no relationship with, control over, orcontact with this pharmaceutical company and cannot contract directly with itto obtain Biolimus A9 if we are unable to obtain Biolimus A9 from Biosensors.In addition, the pharmaceutical company is subject to significant legal andregulatory requirements with regard to the production of Biolimus A9, includingonerous current Good Manufacturing Practices regulations (“GMP”), which arestrictly enforced by the FDA, and the 

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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 trials and the development andcommercialization of our Custom NX DES Systems could be prevented or delayedif:

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

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

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

To date, our drug coatingrequirements have been limited to small quantities that we need to conduct ourdevelopment and pre-clinical and clinical trials. If we obtain market approvalfor our products, we anticipate that we will require substantially largerquantities of the drug coating. Biosensors may not provide us with sufficientquantities of the drug coating and such supply may not meet our qualityrequirements or other specifications. For example, we experienced a temporaryinterruption in the supply of drug coating in the second quarter of 2007.  In the event we do not receive adequatesupply of the drug coating, we will likely be unable to locate an alternativesupplier of the drug coating, or any alternative drug, in a timely manner or oncommercially reasonable terms, if at all. Any additional new source forBiolimus A9, the PLA or the drug coating will require the consent of Biosensorsand prior FDA approval, which will require significant time and effort toobtain and there can be no assurance that we will obtain such regulatoryapproval. The inability to obtain sufficient quantities of the drug coating orany delay in obtaining such supply could delay our clinical trials or affectthe commercialization of our Custom NX DES Systems, which could have asignificant adverse affect on our future operations.

**We rely on third parties to test the drug coating forour stents, and these third parties may use test methods that others may claimas their own. If we must obtain a license to use these methods or develop newtesting methods, we may experience delays in our ability to initiate clinicaltrials or to obtain regulatory approvals for our products as a result.**

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

**We do not have long-term data regarding the safety andefficacy of our Custom NX DES Systems. Any long-term data that is generated maynot be consistent with our limited short-term data, which could affect theregulatory approval of our products or the rate at which our products areadopted.**

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

If, in our planned large-scalecomparative pivotal clinical trial, we fail to demonstrate restenosis andreintervention rates, as well as other clinical trial end-points andperformance, comparable to other drug eluting and bare metal stents that havebeen approved by the FDA, our ability to successfully market Custom NX DESSystems may be significantly limited. If the long-term rates of restenosis andreintervention do not meet regulators’ or physicians’ expectations, our CustomNX DES 

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Systems may not receiveregulatory approval or, if approved, may not become widely adopted andphysicians may recommend that patients receive alternative drug eluting stents,such as the Cypher® stent and the Taxus® Express2TM stent, the two drug eluting stents currentlymarketed in the United States. Another important factor upon which the safetyand efficacy of our Custom NX DES Systems will be measured is the incidence oflate-stent thrombosis following procedures using our drug eluting stents.Recent clinical data suggests a small but significant increase in the rate ofdeath and heart attack, possibly due to late-stent thrombosis. The FDAconvened a public meeting of its Circulatory System Devices Advisory Panel onDecember 7 and 8, 2006 with the intention of obtaining additionalinformation on the risks, timing and incidence rates of late-stentthrombosis. See “Preliminary third-party data has raised concerns thatdrug eluting stents may cause an increase in late-stent thrombosis.”

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

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

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

Before marketing and sellingour Custom NX DES Systems or any other products, we must successfully completepre-clinical studies and clinical trials that demonstrate that our products aresafe and effective. We currently have a very limited amount of clinical dataregarding the safety and efficacy of our Custom NX DES Systems, and nopublished data beyond twelve months. The results from our limited short-termclinical experience for our Custom NX DES Systems do no necessarily predictlong-term clinical benefit and may not be replicated in subsequent clinicaltrials. Furthermore, all of our existing data has been produced in studies thatinvolve relatively small patient groups, and the data may not be reproduced inwider patient populations. We plan to conduct additional large-scale clinicaltrials to determine whether our products are safe and effective and to supportour applications for regulatory approval in the European Union and the UnitedStates. We expect that one or more of these additional clinical studies will bea comparative study comparing the safety and efficacy of our stents to theCypher stent or the Taxus Express2 stent, the two drug eluting stents marketedin the United States, and that these studies will involve large patientpopulations of approximately 2,500 patients.

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

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

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

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

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

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

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

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

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

·       changes in governmentalregulations or administrative actions;

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

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

Before we can commenceour planned pivotal clinical trial in the United States for our Custom NX DESSystems, an IDE application must be submitted and approved by the FDA.  We currently anticipate beginning our IDEstudy in the second half of 2007. Product development, including pre-clinical studies and clinicaltesting, is a long, expensive and uncertain process and is subject to delays.It may take us several years to complete our testing, if we complete it at all,and a clinical trial may fail at any stage. Furthermore, data obtained from anyclinical trial may be inadequate to support a PMA application or any foreignregulatory applications. Additionally, pre-clinical and clinical data can alsobe interpreted in different ways, which could delay, limit or preventregulatory approval for our products.

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

Clinical trials necessaryto support a PMA application for our Custom NX DES Systems will be expensiveand will require the enrollment of large numbers of patients, and suitablepatients may be difficult to identify and recruit. The clinical trialssupporting the PMA applications for the Cypher stent and the Taxus Express2stent, which are approved by the FDA and currently marketed, involved patientpopulations of approximately 1,000 and 1,300, respectively. We expect that wewill provide the FDA with data on approximately 2,500 patients with 12-monthfollow-up to support our PMA application. The FDA may require us tosubmit data on a greater number of patients or a longer follow-up period.Patient enrollment in clinical trials and completion of patient follow-updepend on many factors, including the size of the patient population, thenature of the trial protocol, the proximity of patients to clinical sites andthe eligibility criteria for the clinical trial and patient compliance. Forexample, patients may be discouraged from enrolling in our clinical trials ifthe trial protocol requires them to undergo extensive post-treatment proceduresor follow-up to assess the safety and efficacy of our products, or they may bepersuaded to participate in contemporaneous clinical trials of competitiveproducts. In addition, patients participating in our clinical trials may diebefore completion of the trial or suffer adverse medical events unrelated to ourproducts. Delays in patient enrollment or failure of patients to continue toparticipate in a clinical trial may cause an increase in costs and delays orresult in the failure of the clinical trial.

**Physicians may not widely adopt our Custom NX DESSystems unless they determine, based on experience, long-term clinical data andpublished 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.**

Physicians tend to beslow to change their medical treatment practices because of perceived liabilityrisks arising from the use of new products and the uncertainty of third-partycoverages and reimbursement. We believe that physicians will not widely adoptour Custom NX DES Systems unless they determine, based on experience, long-termclinical data and published peer reviewed journal articles, that the use of ourCustom NX DES Systems provides a safe and effective alternative to otherexisting treatments for coronary artery disease, including coronary arterybypass grafting (“CABG”), balloon angioplasty, bare metal stents and other drugeluting stents, such as Johnson & Johnson’s Cypher stent and BostonScientific’s Taxus Express2 stent. In particular, the use of bare metal stentshas reportedly increased, and the use of drug eluting stents has reportedlydecreased, at certain hospitals in the United States and elsewhere as a resultof recent clinical data indicating a higher incidence rate of late stent thrombosis.We cannot 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 anyassurance that the data collected from our current and planned clinical trialswill be sufficient to demonstrate that our Custom NX DES Systems are anattractive alternative to other drug eluting stent procedures. If we fail

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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 be significantlylimited. Even if the data collected from clinical studies or clinicalexperience indicate positive results, each physician’s actual experience withour Custom NX DES Systems will vary. Clinical trials conducted with our CustomNX DES Systems have involved procedures performed by physicians who aretechnically proficient and are high-volume users of drug eluting stents.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. 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 the controlgroup during our planned U.S. pivotal clinical trial could adversely affect itsoutcome.**

We expect our pivotalclinical trial in the United States to compare the performance, includingsafety and efficacy, of our products against those of a currently marketed drugeluting stent. Our planned pivotal clinical trial could be significantlydelayed or harmed if the stent we use for the control group experiencesproblems. We may use one of the two currently marketed drug eluting stents, theCypher stent or the Taxus Express2 stent, as the control stent in our plannedpivotal clinical trial. In July 2004, Boston Scientific announced therecall of approximately 85,000 Taxus stent systems and approximately 11,000Express2 stent systems due to characteristics in the delivery catheters that hadthe potential to impede balloon deflation during a balloon angioplastyprocedure. In August 2004, Boston Scientific announced that it wouldrecall an additional 3,000 Taxus stents. If prior to or during the enrollmentand treatment period for our planned pivotal clinical trial, there is a recallof the 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.

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

Drug eluting stents wereintroduced in the United States in 2003. To date, the FDA has approved only theTaxus Express2 and the Cypher drug eluting stents for commercial sale. Becausedrug eluting stents are relatively new and long-term success measures have notbeen completely 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 measure usingone 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-stentthrombosis may further delay and complicate the regulatory pathway for ourproducts. Additionally, we have limited experience in filing and prosecutingthe applications 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 to conduct ourclinical trials and to assist us with pre-clinical development do not performas contractually required or expected, we may not be able to obtain regulatoryapproval for or commercialize our products.**

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

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**Even if our products are approved by regulatoryauthorities, if we or our suppliers fail to comply with ongoing regulatoryrequirements, or if we experience unanticipated problems with our products,these products could be subject to restrictions or withdrawal from the market.**

Any product for which weobtain marketing approval, along with the manufacturing processes,post-approval clinical data and promotional activities for such product, willbe subject to continual review and periodic inspections by the FDA and otherregulatory bodies. In particular we and our suppliers are required to complywith the Quality System Regulation (“QSR”), for the manufacture of our CustomNX DES Systems and GMP for the manufacture of our drug coating and otherregulations, which cover the methods and documentation of the design, testing,production, control, quality assurance, labeling, packaging, storage andshipping of any product for which we obtain marketing approval. The FDAenforces the GMP and QSR through unannounced inspections. We and our third-partymanufacturers and suppliers have not yet been inspected by the FDA and willhave to successfully complete such inspections before we receive regulatoryapprovals for our products. Failure by us or one of our suppliers, includingthe supplier of our drug coating, to comply with statutes and regulationsadministered by the FDA and other regulatory bodies, or failure to takeadequate response to any observations, could result in, among other things, anyof the following enforcement actions:

·       warning letters or untitledletters;

·       fines and civil penalties;

·       unanticipated expenditures;

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

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

·       product recall or seizure;

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

·       interruption of production;

·       operating restrictions;

·       injunctions; and

·       criminal prosecution.

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

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

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

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In addition, we may berequired to conduct costly post-market testing and surveillance to monitor thesafety or efficacy of our products, and we will be required to report adverseevents and malfunctions related to our products. Later discovery of previouslyunknown problems with our products, including unanticipated adverse events oradverse events of unanticipated severity or frequency, manufacturing problems,or failure to comply with regulatory requirements such as QSR or GMP, 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 lawsand regulations may change significantly in the future. Any new healthcare lawsor regulations may adversely affect our business. A review of our business bycourts or regulatory authorities may result in a determination that couldadversely affect our operations. Also, the healthcare regulatory environmentmay change in a way that restricts our operations.

**Failure to obtain regulatory approval in foreignjurisdictions will prevent us from marketing our products abroad.**

We intend to market ourproducts in international markets. In order to market our products in theEuropean Union and many other foreign jurisdictions, we must obtain separateregulatory approvals. The approval procedure varies among countries and caninvolve additional testing, and the time required to obtain approval may differfrom that required to obtain FDA approval. The foreign regulatory approvalprocess may include all of the risks associated with obtaining FDA approval inaddition to other risks. We may not obtain foreign regulatory approvals on atimely basis, if at all. Approval by the FDA does not ensure approval byregulatory authorities in other countries, and approval by one foreignregulatory authority does not ensure approval by regulatory authorities inother foreign countries or by the FDA. We may not be able to file forregulatory approvals and may not receive necessary approvals to commercializeour products in any market.

**Risks Related to Our Intellectual Property**

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

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

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

·       use of rapamycin or itsanalogs to treat restenosis;

·       stent structures andmaterials;

·       catheters used to deliverstents; and

·       stent manufacturing andcoating processes.

Cordis, a subsidiary ofJohnson & Johnson, is the owner of a number of patents and patentapplications directed to the use and delivery of rapamycin or its analogs as astand-alone therapy or as part of a drug eluting stent for the treatmentof restenosis as well as stents incorporating such materials. These include,without limitation, the “Morris” family of patents, the “Wright” family ofpatents and the “Falotico” family of patents.

Boston Scientific holdsrights to the “Grainger” family of patents directed to methods of inhibitingsmooth muscle cell proliferation, or growth, using certain compounds and to the“Kunz” family of patents directed to methods for maintaining vessel luminalarea with a stent that includes a cytostatic, or cell division inhibiting,agent.

Various patents owned bythird parties are directed to stent structures and materials. These patentsinclude a group of “Lau” patents that were owned by Guidant Corporation, anewly acquired subsidiary of Boston Scientific whose stent

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technology has beenacquired by Abbott Vascular subject to certain rights retained by BostonScientific, which are directed to flexible stent structures. The “Boneau”family of patents, owned by Medtronic, are directed to stents comprisingmultiple closed-loop elements. The “Fariabi” family of patents, owned byGuidant, are directed to stents comprising cobalt-chromium alloys. The “Israel”and “Pinchasik” families of patents, owned by Medinol, are directed to stentswith meandering strut patterns. A patent owned by Wall is directed to aradially collapsible mesh sleeve.

Other third-partypatents are directed to stent delivery catheter technology. There are also anumber of patents that were held by Guidant Corporation directed to rapidexchange catheters for angioplasty and stent delivery. These include, withoutlimitation, the “Yock” and “Horzewski” families of patents, directed to rapidexchange angioplasty catheters, and the “Lau” family of patents directed torapid exchange stent catheters. Boston Scientific owns other patents directedto rapid exchange angioplasty catheters, including, the “Bonzel” family ofpatents. Medtronic owns certain patents directed to guidewire handlingtechnology in stent delivery catheters, including certain patents issued toCrittenden and Kramer. A patent issued to Fischell is directed to a sheathedstent delivery catheter. Guidant Corporation also held a patent issued to Cox,directed to a stent delivery catheter having an adjustable-lengthballoon. Certain patents owned by Boston Scientific or its subsidiaries arealso directed to stent delivery catheters having adjustable-lengthballoons. Certain patents owned by third parties relate to methods for coatingstents. For example, the “Hossainy” family of patents that were held by GuidantCorporation are directed to methods of coating stents with a primer layer and areservoir layer.

The patents describedabove could be found to cover our technology and may materially and adverselyaffect our business. In addition, these patents are given only as examples andthere may be other patents in addition to those described above that maymaterially and adversely affect our business. Moreover, because patentapplications can take many years to issue, there may be currently pendingapplications, unknown to us, which may later result in issued patents that posea material risk to us.

**Many of our competitors are much larger than we are,with significant resources and incentives to initiate litigation against us.**

Based on the prolificlitigation that has occurred in the stent industry and the fact that we maypose a competitive threat to some large and well-capitalized companies that ownor control patents relating to stents and their use, manufacture and delivery,we believe that it is possible that one or more third parties will assert apatent infringement claim against the manufacture, use or sale of our Custom NXDES Systems based on one or more of these patents. It is also possible that alawsuit asserting patent infringement and related claims will be filed againstus and it is possible that a lawsuit may have already been filed against us ofwhich we are not aware. A number of these patents are owned by very large andwell-capitalized companies that are active participants in the stent market. Asthe number of competitors in the drug eluting stent market grows, thepossibility of inadvertent patent infringement by us or a patent infringementclaim against us increases.

These companies havemaintained their position in the market by, among other things, establishingintellectual property rights relating to their products and enforcing theserights aggressively against their competitors and new entrants into the market.All of the major companies in the stent and related markets, including AbbottVascular (formerly Guidant), Boston Scientific, Johnson & Johnson andMedtronic, have been repeatedly involved in patent litigation relating tostents since at least 1997. The stent and related markets have experiencedrapid technological change and obsolescence in the past, and our competitorshave strong incentives to stop or delay the introduction of new products andtechnologies. We may pose a competitive threat to many of the companies in thestent and related markets. Accordingly, many of these companies will have astrong incentive to take steps, through patent litigation or otherwise, toprevent us from commercializing our products.

**Any lawsuit, whether initiated by us to enforce ourintellectual property rights or by a third party against us alleginginfringement, may cause us to expend significant financial and other resources,and may divert our attention from our business.**

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

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·       pay damages, including upto treble damages and the other party’s attorneys’ fees, which may besubstantial;

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

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

·       discontinue manufacturingor other processes incorporating infringing technology; or

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

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

While our products are inclinical trials, and prior to commercialization, we believe our activities inthe United States related to the submission of data to the FDA could fallwithin the scope of the statutory infringement exemption that covers activitiesrelated to developing information for submission to the FDA. However, thisstatutory exemption would not cover our stent manufacturing or other activitiesin the United States that support overseas clinical trials or commercial salesif those activities are not also reasonably related to developing informationfor submission to the FDA. Currently available drug eluting stents aremanufactured outside of the United States, which may insulate manufacturersfrom adverse rulings on U.S. patent infringement claims. In an adverse ruling,a court may order an injunction requiring a company to stop its U.S. domesticmanufacturing operations. We currently do not have any plans to manufacture ourstents outside of the United States and any finding of patent infringementagainst us in the United States could result in our being enjoined frommanufacturing our products in the United States and could affect our ability tosell our products in the European Union. In any event, the fact that no thirdparty has asserted a patent infringement claim against us to date should not betaken as an indication, or provide any level of comfort, that a patentinfringement claim will not be asserted against us prior to or uponcommercialization.

In addition, some of ouragreements, including our agreement with Biosensors for the supply of the drugcoating, our agreement with SurModics for the supply of the lubricious coatingon our catheter and our agreement with Millimed for the license of patentsrelated to segmented stent designs require us to indemnify the other party incertain circumstances where our products have been found to infringe a patentor other proprietary rights of others. An indemnification claim against us mayrequire us to pay substantial sums to our licensor or supplier, including itsattorneys’ fees.

**If we are unable to obtain and maintain intellectualproperty protection covering our products, others may be able to make, use orsell our products, which would adversely affect our revenue.**

Our ability to protectour products from unauthorized or infringing use by third parties dependssubstantially on our ability to obtain and maintain valid and enforceablepatents. As of June 30, 2007 we have four issued U.S. patents, one of which isunder exclusive license, covering certain aspects of the technology that weintend to commercialize and a number of other issued patents and pending patentapplications in the United States and abroad. Due to evolving legal standardsrelating to the patentability, validity and enforceability of patents coveringmedical devices and pharmaceutical inventions and the scope of claims madeunder these patents, our ability to obtain and enforce patents is uncertain andinvolves complex legal and factual questions. Accordingly, rights under any ofour issued patents may not provide us with commercially meaningful protectionfor our products or afford us a commercial advantage against our competitors ortheir competitive products or processes. In addition, patents may not issuefrom any pending or future patent applications owned by or licensed to us, andmoreover, patents that have issued to us or may issue in the future may not bevalid or enforceable. Further, even if valid and enforceable, our patents maynot be sufficiently broad to prevent others from marketing products like ours,despite our patent rights.

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The validity of ourpatent claims depends, in part, on whether prior art references exist thatdescribe or render obvious our inventions as of the filing date of our patentapplications. We may not have identified all prior art, such as U.S. andforeign patents or published applications or published scientific literature,that could adversely affect the validity of our issued patents or thepatentability of our pending patent applications. For example, patentapplications in the United States are maintained in confidence for up to 18months after their filing. In some cases, however, patent applications remainconfidential in the United States Patent and Trademark Office (“USPTO”), forthe entire time prior to issuance as a U.S. patent. Patent applications filedin countries outside the United States are not typically published until atleast 18 months from their first filing date. Similarly, publication ofdiscoveries in the scientific or patent literature often lags behind actualdiscoveries. Therefore, we cannot be certain that we were the first to invent,or the first to file patent applications relating to, our stent technologies.In the event that a third party has also filed a U.S. patent applicationcovering our stents or a similar invention, we may have to participate in anadversarial proceeding, known as an interference, declared by the USPTO todetermine priority of invention in the United States. It is possible that wemay be unsuccessful in the interference, resulting in a loss of some portion orall of our position in the United States. The laws of some foreignjurisdictions do not protect intellectual property rights to the same extent asin the United States, and many companies have encountered significant difficultiesin protecting and defending such rights in foreign jurisdictions. If weencounter such difficulties or we are otherwise precluded from effectivelyprotecting our intellectual property rights in foreign jurisdictions, ourbusiness prospects could be substantially harmed.

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

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

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

**Risks Related to Commercialization**

**The medical device industry is highly competitive andsubject to rapid technological change. If our competitors are better able todevelop and market products that are safer, more effective, less costly orotherwise more attractive than any products that we may develop, our commercialopportunity will be reduced or eliminated.**

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

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

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

·       significantly greater namerecognition;

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

·       additional lines of products,and the ability to offer rebates or bundle products to offer higher discountsor incentives to gain a competitive advantage;

·       established distributionnetworks; and

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

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

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

**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 salesorganization and have no experience as a company in the sales, marketing anddistribution of stent systems or other medical devices. To be successful incommercializing our products we must either develop a sales and marketinginfrastructure or enter into distribution arrangements with others to marketand sell our products. We have not yet hired any European sales people orentered into any third-party distribution agreements other than withBiosensors for certain Pacific Rim countries.

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

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**We have limited device manufacturing and drug coatingcapabilities and manufacturing personnel, and if our device manufacturing anddrug coating facilities or our suppliers are unable to provide an adequatesupply of products, our growth could be limited and our business could beharmed.**

We currently have limitedresources, facilities and experience to commercially manufacture the devicecomponent of our products and apply the drug coating to the stents. In order toproduce our Custom NX DES Systems in the quantities that we anticipate will berequired to meet anticipated market demand, we will need to increase, orscale-up, the production process by a significant factor over our current levelof production. There are technical challenges to scaling-up manufacturingcapacity and developing commercial-scale manufacturing facilities thatwill require the investment of substantial additional funds and hiring andretaining additional management and technical personnel who have the necessarymanufacturing experience. We may not successfully complete any requiredscale-up in a timely manner or at all. If we are unable to do so, we may not beable to produce products in sufficient quantities to meet the requirements forthe launch of the product or to meet future demand, if at all. During a routineaudit, we discovered that our new device configuration required revisedsterilization procedures, which were successfully validated in March 2007. Inthe event that we encounter similar challenges in the future, we may experienceinterruptions in the supply of our devices and as a result may be unable tomeet demand. If we develop and obtain regulatory approval for our products andare unable to manufacture a sufficient supply of our products, our revenue,business and financial prospects would be adversely affected. In addition, ifthe scaled-up production process is not efficient or produces stents that donot meet quality and other standards, our future gross margins may decline.

We currently assemble ourCustom NX DES Systems and apply the drug coating at our facilities in MenloPark, California. We recently amended our lease agreement for these facilitiesexpanding our leased premises to include an additional 30,398 square feet ofspace. Under the terms of the amended lease agreement, 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”), andInternational Standardisation Organization (“ISO”). If there were a disruptionto our existing manufacturing facility, or if our landlord elected to terminateour lease on or after May 1, 2009, we would have no other means ofmanufacturing our products until we were able to restore the manufacturingcapability at our facility or lease alternative manufacturing facilities andobtain regulatory approval for these facilities. Because our Menlo Parkfacilities are located in a seismic zone, we face the risk that an earthquakemay damage our facilities and disrupt our operations. Finally, based on averbal agreement with Biosensors, we currently apply the drug coating to ourstents in our Menlo Park facilities. Our license agreement with Biosensors doesnot expressly permit us to apply the drug coating to our stents except undercertain limited conditions and we do not have any other written agreement thatwould allow this to continue to occur. If we are unable to produce sufficientquantities of our products for use in our current and planned clinical trials,if we obtain regulatory approval of our products and are unable to producesufficient quantities of our products to support our planned commercialactivities or if our manufacturing process yields substandard products, ourdevelopment and commercialization efforts would be delayed.

**If the cost of our drug coating or other components ofour stent systems increase significantly, our business and our results ofoperations may be harmed.**

**Under the terms of our licenseagreement with Biosensors, the price we pay for our drug coating may increaseas Biosensors’ cost of**manufacturing and supplying the drug coating increases. We have experienced oneprice increase in the past and we may experience additional increases in thefuture. If we experience significant increases in the cost of our drug coatingor other key components of our stent systems, our business and our results ofoperations may be harmed.

**Our manufacturing facilities and the manufacturingfacilities of our suppliers must comply with strictly enforced regulatoryrequirements. If we fail to achieve regulatory approval for these manufacturingfacilities, our business and our results of operations would be harmed.**

Completion of ourclinical trials and commercialization of our products require access to, or thedevelopment of, manufacturing facilities that comply with QSR and GMP. We mayestablish a manufacturing facility outside of the United States and can provideno assurance that our manufacturing facility would meet applicable foreignregulatory requirements or standards at acceptable cost, on a timely basis, orat all. In addition, the FDA must approve facilities that manufacture ourproducts for domestic commercial purposes, as well as the manufacturingprocesses and specifications for the product. Biosensors and suppliers ofcomponents of, and products used to manufacture, our products must also complywith FDA and foreign regulatory requirements, which often require significanttime, money and record-keeping and quality assurance

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efforts and subject usand our suppliers to potential regulatory inspections and stoppages. We,Biosensors, or our other suppliers may not satisfy these regulatoryrequirements. If we or our suppliers do not achieve required regulatoryapproval for our manufacturing operations, our commercialization efforts couldbe delayed, which would harm our business and our results of operations.

**We depend on single-source suppliers for some ofthe components in our Custom NX DES Systems. The loss of these suppliers coulddelay our clinical trials or prevent or delay commercialization of our CustomNX DES Systems.**

Although we haveidentified several vendors for the components of our products, some of ourcomponents are currently provided by only one vendor, or a single-sourcesupplier. In addition to our reliance on Biosensors as the only source for thesupply of our drug coating, we also depend on SurModics, which provides theslippery coating on our sheath. We do not have long-term contracts with some ofour third-party suppliers of components used in the manufacture of ourstent delivery catheters or the cobalt chromium tubing and laser-precisioncutting process required to produce the stent segments included in our device.In addition, we do not have long-term contracts with our third-partysuppliers of some of the equipment and components that are used in ourmanufacturing process and we do not carry a significant inventory of mostcomponents used in our products. Establishing additional or replacementsuppliers for these components, and obtaining any additional regulatoryapprovals that may result from adding or replacing suppliers, will take asubstantial amount of time. We may also have difficulty obtaining similarcomponents from other suppliers that are acceptable to the FDA or foreign regulatoryauthorities. Furthermore, since some of these suppliers are located outside ofthe United States, we are subject to foreign export laws and U.S. import andcustoms regulations, which complicate and could delay shipments to us. Some ofour suppliers are also our competitors and may be reluctant to supplycomponents to us on favorable terms, if at all.

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

**If we do not achieve our projected development goalsin the time frames we announce and expect, the commercialization of ourproducts may be delayed and, as a result, our stock price may decline.**

From time to time, we mayestimate and publicly announce the anticipated timing of the accomplishment ofvarious clinical, regulatory and other product development goals, which wesometimes refer to as milestones. These milestones could include obtaining CEMark approval in the European Union, the initiation of our pivotal U.S.clinical trial for our Custom NX DES Systems, the enrollment of patients in ourclinical trials, the release of data from our clinical trials and otherclinical and regulatory events. The actual timing of these milestones couldvary dramatically compared to our estimates, in some cases for reasons beyondour control. We cannot assure you that we will meet our projected milestonesand if we do not meet these milestones as publicly announced, thecommercialization of our products may be delayed and, as a result, our stockprice may decline.

**We may not be successful in our efforts to expand ourportfolio of products and develop additional technologies.**

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

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

·       competitors may developalternatives that render our products obsolete;

·       our products may not bedeployed safely or effectively;

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

·       our clinical trials may notbe successful; and

·       we may not receiveregulatory approval.

**We depend on our officers, and if we are not able toretain them or recruit additional qualified personnel, our business willsuffer.**

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

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

**We will need substantial additional funding and may beunable to raise capital when needed, which would force us to delay, reduce oreliminate our product development programs or commercialization efforts.**

We will need to raisesubstantial additional capital to:

·       fund our operations andclinical trials;

·       continue our research anddevelopment;

·       scale-up our manufacturingoperations;

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

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

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

We believe our existingcash and cash equivalent balances and interest we earn on these balances, willbe sufficient to meet our anticipated cash requirements for at least the next10 months. However, our future funding requirements will depend on manyfactors, including:

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

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

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

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

·       the cost and timing ofregulatory approvals;

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

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

·       the effect of competingtechnological and market developments;

·       licensing technologies forfuture development; and

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

If we raise additionalfunds by issuing equity securities, our stockholders may experience dilution.Debt financing, if available, may involve restrictive covenants. Any debtfinancing or additional equity that we raise may contain terms that are notfavorable to us or our stockholders. If we raise additional funds throughcollaboration and licensing arrangements with third parties, it may benecessary to relinquish some rights to our technologies or our products, orgrant licenses on terms that are not favorable to us. If we are unable to raiseadequate funds, we may have to liquidate some or all of our assets or delay,reduce the scope of or eliminate some or all of our development programs.

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

**If we are unable to manage our expected growth, we maynot be able to commercialize our products, including our Custom NX DES Systems.**

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

**Risks Related 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 receiveadequate reimbursement or pricing approvals in the United States orinternationally would negatively impact market acceptance of our products inthe markets in which those approvals are sought. The efficacy, safety,performance and cost-effectiveness of our products under development and of anycompeting products are some of the factors that will determine the availabilityof coverage and level of reimbursement. In the United States, a preliminarythreshold for coverage and payment of medical devices and drugs generallyincludes approvals or clearances from the FDA. In addition, there is significantuncertainty concerning third-party coverage and reimbursement of newlyapproved medical products and drugs. Future legislation, regulation or coverageand reimbursement policies of third-party payors may adversely affect thedemand for our products currently under development and limit our ability toprofitably sell our products. Third-party payors continually attempt tocontain or reduce healthcare costs by challenging the prices charged forhealthcare products and services, resulting in a downward pressure ofreimbursement rates generally. Under recent regulatory changes to themethodology for calculating payments for current inpatient procedures incertain hospitals, Medicare payment rates for surgical and cardiac procedureshave been decreased, including approximately 10% to 14% reductions for thoseprocedures using drug eluting stents. The reductions are to be transitionedover the next three years, beginning in fiscal year 2007. The Centers forMedicare and Medicaid Services (“CMS”), responsible for administering theMedicare program, also indicated it will begin to move forward with developingrevised reimbursement codes that better reflect the severity of the patient’scondition in the hospital inpatient prospective payment system for fiscal year 2008.If coverage and reimbursement for our

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products is unavailable,insufficient or limited in scope or amount, or if pricing is set atunsatisfactory levels, market acceptance of our products would be impaired andour future revenues, if any, would be adversely affected.

**Legislative or regulatory reform of the healthcaresystem may affect our ability to sell our products profitably.**

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

**We face the risk of product liability claims and maynot be able to obtain insurance.**

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

We may be subject toclaims against us even if the apparent injury is due to the actions of others.For example, we rely on the expertise of physicians, nurses and otherassociated medical personnel to perform the medical procedure and relatedprocesses to implant our coronary stents into patients. If these medicalpersonnel are not properly trained or are negligent, the therapeutic effect ofour stents may be diminished or the patient may suffer critical injury, whichmay subject us to liability. In addition, an injury that is caused by theactivities of our suppliers, such as those who provide us with cobalt chromiumtubing for our stents, those that laser cut our stents or the supplier of ourdrug coating, may be the basis for a claim against us.

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

**Risks Related to Our Operations**

**Our operations involve hazardous materials, and wemust comply with environmental laws and regulations, which can be expensive.**

We are subject to avariety of federal, state and local regulations relating to the use, handling,storage, disposal, and human exposure to hazardous and toxic materials. Wecould incur costs, fines, and civil and criminal sanctions, third-partyproperty damage or personal injury claims, or could be required to incursubstantial investigation or remediation costs, if we were to violate or becomeliable under environmental laws. We do not have insurance for environmentalliabilities and liability under environmental laws can be joint and several andwithout regard to comparative fault. Environmental laws could become morestringent over time, imposing greater compliance costs and increasing risks andpenalties associated with violations, which could harm our business. Compliancewith current or future environmental and safety laws and regulations

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could restrict our abilityto expand our facilities, impair our research, development or productionefforts, or require us to incur other significant expenses. There can be noassurance that violations of environmental laws or regulations will not occurin the future as a result of the inability to obtain permits, human error,accident, equipment failure or other causes. For example, we had a chemicalspill at our Menlo Park facility in February 2006, and although we believethat we took all appropriate actions to respond to the accident and that thereis no remaining liability, we can provide no assurance that these actions weresufficient to prevent future chemical spills.

**We have limited experience complying with publiccompany obligations, including recently enacted changes in securities laws andregulations. Compliance with these requirements will increase our costs andrequire additional management resources, and we still may fail to comply.**

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

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

**Changes in, or interpretations of, accountingrules and regulations, such as expensing of stock options, could result inunfavorable accounting charges or require us to change our compensationpolicies.**

The Financial AccountingStandards Board has adopted a new accounting pronouncement requiring therecording of expense for the fair value of stock options granted to employees.The impact of the adoption of SFAS No. 123(R) for the six monthsended June 30, 2007 was $1.3 million and $1.4 million for the year endedDecember 31, 2006. We rely heavily on stock options to motivate currentemployees and to attract new employees. As a result of the requirement toexpense stock options, we may choose to reduce our reliance on stock options asa motivational tool. If we reduce our use of stock options, it may be moredifficult for us to attract and retain qualified employees. However, if we donot reduce our reliance on stock options, our reported net losses may increase,which may have an adverse effect on our reported results of operations.

**We expect that the price of our common stock willfluctuate substantially.**

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

·       the results of our clinicaltrials;

·       the timing of ourregulatory approvals;

·       announcements related tolitigation;

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

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

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

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

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

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

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

**A sale of a substantial number of shares of our commonstock may cause the price of our common stock to decline.**

If our stockholders sellsubstantial amounts of our common stock in the public market, including sharesissued upon the exercise of options, the market price of our common stock coulddecline. There will be approximately 18,179,378 shares of common stock eligiblefor sale on August 27, 2007 upon the expiration of lock-up arrangementsbetween our stockholders and underwriters. These sales also might make it moredifficult for us to sell equity or equity-related securities in thefuture at a time and price that we deem reasonable or appropriate.

**Our directors, officers and principal stockholdershave significant voting power and may take actions that may not be in the bestinterests of our other stockholders.**

As of August 1,2007, our officers, directors and principal stockholders each holding more than5% of our common stock collectively will control approximately 65.8% of ouroutstanding common stock. As a result, these stockholders, if they acttogether, will be able to control the management and affairs of our company andmost matters requiring stockholder approval, including the election ofdirectors and approval of significant corporate transactions. Thisconcentration of ownership may have the effect of delaying or preventing achange in control and might adversely affect the market price of our commonstock. This concentration of ownership may not be in the best interests of ourother stockholders.

**Volatility in the stock price of other companies maycontribute to volatility in our stock price.**

The NASDAQ Global Market,particularly in recent years, has experienced significant volatility withrespect to medical technology, pharmaceutical, biotechnology and other lifescience company stocks. The volatility of medical technology, pharmaceutical,biotechnology and other life science company stocks often does not relate tothe operating performance of the companies represented by the stock. Further,there has been particular volatility in the market price of securities of earlystage and development stage life science companies. These broad market andindustry factors may seriously harm the market price of our common stock,regardless of our operating performance. In the past, following periods ofvolatility in the market price of a company’s securities, securities classaction litigation has often been instituted. A securities class action suitagainst us could result in substantial costs, potential liabilities and thediversion of management’s attention and resources.

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

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

·       a classified board so thatonly one of the three classes of directors on our board of directors is electedeach year;

·       elimination of cumulativevoting in the election of directors;

·       procedures for advancenotification of stockholder nominations and proposals;

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

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

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

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

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

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

**ITEM 2. CHANGES IN SECURITIESAND USE OF PROCEEDS**

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

Of the $68.2 million in net proceeds, through June 30,2007, we have spent approximately $17.8 million including: $1.4 million forsales and marketing initiatives, $12.4 million for research and developmentactivities, $3.2 million for operating and general corporate purposes and$848,000 for property and equipment in order to expand our manufacturingcapability to complete our CUSTOM III, IV and V clinical trials.

**ITEM 3.DEFAULTS UPON SENIOR SECURITIES**

None.

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

On June 20, 2007,we held an annual meeting of our stockholders at our corporate headquarters inMenlo Park, California. The first item of business at the meeting was theelection of one Class I director. The nominee, Gregory** **D.** **Casciaro,was elected by a majority of votes present at the meeting as follows:
| Name                 | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|----------------------|------------|--------------------|------------|-------------------------|------------|
| Gregory D.  Casciaro |       | 20,557,545         |       | 22,430                  |       |

The name of each director other than Mr. Casciaro,whose term of office as a director continued after the annual meeting ofstockholders is set forth below:

Henry A. Plain, Jr.

Robert C. Bellas, Jr.

Michael A. Carusi

Robert E. Flaherty

Edward W. Unkart

Allan R. Will

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The second item ofbusiness at the meeting was the ratification of the appointment of PricewaterhouseCoopersLLP as our independent registered public accounting firm for the year endedDecember 31, 2007. The appointment of PricewaterhouseCoopers LLP wasratified with 20,578,775 votes in favor, 1,200 against and no abstentions.

**ITEM 5. OTHER INFORMATION**

On August 9, 2007, our board ofdirectors elected Michael L. Eagle to serve on our board of directors as aClass I director.  Mr. Eagle’sappointment fills a vacancy that has existed on our board since our June 20, 2007annual meeting of stockholders.  Underthe provisions of our bylaws, as a Class I director, Mr. Eagle will hold officeuntil the next election of Class I directors which will take place at ourannual meeting of stockholders in 2010.

Subject to our determination that heis an independent director, we expect to name Mr. Eagle as a member of ourAudit Committee and as Chairman of our Nominating and Corporate GovernanceCommittee.

Mr. Eagle will receive a retainer of$35,000 per year for serving on our board of directors and $10,000 per year forchairing our Nominating and Corporate Governance Committee.  In addition, pursuant to our 2006 EquityIncentive Plan, Mr. Eagle was automatically granted an option to purchase30,000 shares of our common stock at an exercise price of $9.06 per share.

Mr. Eagle has over 30 years ofexperience in manufacturing and general management positions in industry,including medical devices and pharmaceutical products. He was VicePresident-Manufacturing for Eli Lilly and Company from 1993-2001. He is aformer CEO of IVAC Corporation, and Sr. VP of the Medical Devices andDiagnostics Division of Eli Lilly (later Guidant Corporation). He retired fromEli Lilly and Company in 2001.  He isChairman of the Board of Directors of Favrille, Inc., and a member of the boardof directors of Radiant Medical, Siegel-Robert Corporation, SomaxonPharmaceutical, and Micrus Endovascular. Mr. Eagle received his B.S. in Mechanical Engineering from KetteringUniversity and his M.B.A. from the Krannert School of Management at Purdue University.

**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. |
| 10.7(1)†   |       | License Agreement dated May 4, 2004 as amended  February 9, 2005, by and between the Registrant, Biosensors  International Group, Ltd. (formerly Sun Biomedical, Ltd.), and  Biosensors Europe SA (an affiliate of Occam International, B.V.)             |
| 10.8(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           |       | Second Amendment to Lease dated May 17, 2007 by and  between the Registrant and 125 Constitution Associates, L.P.                                                                                                                                                        |
| 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)             Incorporatedby reference from our Registration Statement on Form S-1 (RegistrationNo. 333-136371), which was declared effective on January 31, 2007.

(2)             Incorporatedby reference from our Quarterly Report on Form 10-Q for the quarter ended March31, 2007, filed May 14, 2007.

†                     Portionsof the exhibit have been omitted pursuant to a request for confidentialtreatment. The confidential portions have been filed with the SEC.

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                            |       | XTENT, Inc.                                       |
|----------------------------|------------|---------------------------------------------------|
|                       |       |                                              |
| Date: August 13, 2007 |       | By:                                               | /s/ GREGORY  D. CASCIARO |   |
|                       | ** ** | **GREGORY  D. CASCIARO**                          |
|                       | ** ** | **President  and Chief Executive Officer**        |
|                       | ** ** | **(Principal  Executive Officer)**                |
|                       |       |                                              |
|                       |       |                                              |
| Date: August 13, 2007 |       | By:                                               | /s/ TIMOTHY  D. KAHLENBERG |   |
|                       | ** ** | **TIMOTHY  D. KAHLENBERG**                        |
|                       | ** ** | **Chief  Financial Officer**                      |
|                       | ** ** | **(Principal  Accounting and Financial Officer)** |

 

39

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