##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 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: 000-51348
 ev3 Inc.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    32-0138874
(I.R.S. Employer Identification No.)
 9600 54th Avenue North, Suite 100
Plymouth, Minnesota 55442
 (763) 398-7000
 þ o
  o þ o
 o þ




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##### 



ev3 Inc.
FORM 10-Q
For the Quarterly Period Ended September 30, 2007
 TABLE OF CONTENTS
 Description
    
    
    
    
    
    PagePART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial StatementsConsolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006
    
    
    1Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and October 1, 2006 (unaudited)
    
    
    2Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and October 1, 2006 (unaudited)
    
    
    3Notes to the Consolidated Financial Statements
    
    
    4ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    33ITEM 4.
    
    Controls and Procedures
    
    
    34PART II.
    
    OTHER INFORMATIONITEM 1.
    
    Legal Proceedings
    
    
    36ITEM 1A.
    
    Risk Factors
    
    
    36ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    55ITEM 3.
    
    Defaults Upon Senior Securities
    
    
    55ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    55ITEM 5.
    
    Other Information
    
    
    55ITEM 6.
    
    Exhibits
    
    
    56SIGNATURE PAGE
    
    
    
    57Exhibit Index
    
    
    
    
    58Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  
 This report contains not only historical information, but also forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those
sections. We refer you to the information under the heading Part I. Item 2. Managements
Discussion and Analysis of Financial Condition and Results of OperationsForward-Looking
Statements.
 In this report, references to ev3,
the company, we, our or
us, in historical information in this report, unless the context
otherwise requires, refer to ev3 Inc. and its subsidiaries, excluding FoxHollow Technologies, Inc.,
which became a wholly owned subsidiary of ev3 on October 4,
2007. References to ev3, the company,
we, our or us in forward-looking
statements in this report refer to ev3 Inc. and its subsidiaries,
including FoxHollow Technologies, Inc.




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM I. FINANCIAL STATEMENTS
 ev3 Inc.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    49,336
    
    
    $
    24,053Short-term investments
    
    
    7,800
    
    
    
    14,700Accounts receivable, less allowances of $4,130 and $3,924, respectively
    
    
    58,476
    
    
    
    45,137Inventories, net
    
    
    44,425
    
    
    
    42,124Prepaid expenses and other assets
    
    
    9,185
    
    
    
    7,162Other receivables
    
    
    1,721
    
    
    
    2,669Total current assets
    
    
    170,943
    
    
    
    135,845Restricted cash
    
    
    1,367
    
    
    
    2,022Property and equipment, net
    
    
    25,131
    
    
    
    24,072Goodwill
    
    
    149,061
    
    
    
    149,061Other intangible assets, net
    
    
    38,462
    
    
    
    40,014Other assets
    
    
    1,103
    
    
    
    1,812Total assets
    
    $
    386,067
    
    
    $
    352,826Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    15,422
    
    
    $
    13,140Accrued compensation and benefits
    
    
    18,392
    
    
    
    16,382Accrued liabilities
    
    
    36,608
    
    
    
    10,102Current portion of long-term debt
    
    
    3,571
    
    
    
    2,143Total current liabilities
    
    
    73,993
    
    
    
    41,767Long-term debt
    
    
    7,321
    
    
    
    5,357Other long-term liabilities
    
    
    889
    
    
    
    468Total liabilities
    
    
    82,203
    
    
    
    47,592Stockholders equityCommon stock, $0.01 par value, 100,000,000 shares authorized, shares
issued and outstanding: 61,079,654 shares at September 30, 2007 and
57,594,742 at December 31, 2006
    
    
    611
    
    
    
    576Additional paid in capital
    
    
    976,743
    
    
    
    919,221Accumulated deficit
    
    
    (673,171
    )
    
    
    (614,578
    )Accumulated other comprehensive income (expense)
    
    
    (319
    )
    
    
    15Total stockholders equity
    
    
    303,864
    
    
    
    305,234Total liabilities and stockholders equity
    
    $
    386,067
    
    
    $
    352,826
  1




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##### Table of Contents



ev3 Inc.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands, except per share amounts)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    October 1, 2006
    
    
    September 30, 2007
    
    
    October 1, 2006Net sales
    
    $
    65,060
    
    
    $
    51,906
    
    
    $
    191,955
    
    
    $
    144,763Operating expenses:Cost of goods sold (a)
    
    
    23,097
    
    
    
    17,666
    
    
    
    65,916
    
    
    
    52,333Sales, general and administrative (a)
    
    
    45,353
    
    
    
    35,498
    
    
    
    125,372
    
    
    
    109,167Research and development (a)
    
    
    10,708
    
    
    
    7,036
    
    
    
    29,464
    
    
    
    19,857Amortization of intangible assets
    
    
    3,952
    
    
    
    4,483
    
    
    
    11,916
    
    
    
    13,008(Gain) loss on sale of assets, net
    
    
    
    
    
    
    18
    
    
    
    (988
    )
    
    
    142Acquired in-process research and
development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,786Special charges
    
    
    20,183
    
    
    
    
    
    
    
    20,183
    
    
    
    Total operating expenses
    
    
    103,293
    
    
    
    64,701
    
    
    
    251,863
    
    
    
    196,293Loss from operations
    
    
    (38,233
    )
    
    
    (12,795
    )
    
    
    (59,908
    )
    
    
    (51,530
    )Other income:Gain on sale of investments, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,063
    )Interest income, net
    
    
    (417
    )
    
    
    (258
    )
    
    
    (823
    )
    
    
    (1,471
    )Other income, net
    
    
    (1,554
    )
    
    
    (152
    )
    
    
    (2,066
    )
    
    
    (1,533
    )Loss before income taxes
    
    
    (36,262
    )
    
    
    (12,385
    )
    
    
    (57,019
    )
    
    
    (47,463
    )Income tax expense
    
    
    250
    
    
    
    82
    
    
    
    858
    
    
    
    328Net loss
    
    $
    (36,512
    )
    
    $
    (12,467
    )
    
    $
    (57,877
    )
    
    $
    (47,791
    )Earnings per share:Net loss per common share (basic and diluted)
    
    $
    (0.60
    )
    
    $
    (0.22
    )
    
    $
    (0.98
    )
    
    $
    (0.85
    )Weighted average shares outstanding
    
    
    60,365,027
    
    
    
    57,032,677
    
    
    
    59,141,035
    
    
    
    56,556,305(a)   Includes stock based compensation
charges of:Cost of goods sold
    
    $
    101
    
    
    $
    127
    
    
    $
    446
    
    
    $
    496Sales, general and administrative
    
    
    2,100
    
    
    
    1,389
    
    
    
    6,166
    
    
    
    4,554Research and development
    
    
    269
    
    
    
    151
    
    
    
    717
    
    
    
    523$
    2,470
    
    
    $
    1,667
    
    
    $
    7,329
    
    
    $
    5,573
  2




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ev3 Inc.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands, except per share amounts)
 (unaudited)
 Nine Months EndedSeptember 30, 2007
    
    
    October 1,2006Operating activitiesNet loss
    
    $
    (57,877
    )
    
    $
    (47,791
    )Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation and amortization
    
    
    17,403
    
    
    
    17,024Provision for bad debts and sales returns
    
    
    1,005
    
    
    
    414Provision for inventory obsolescence
    
    
    3,072
    
    
    
    2,647Acquired in-process research and development
    
    
    
    
    
    
    1,786Gain on sale of investments
    
    
    
    
    
    
    (1,063
    )(Gain) loss on disposal of assets
    
    
    (988
    )
    
    
    142Stock compensation expense
    
    
    7,329
    
    
    
    5,573Change in operating assets and liabilities:Accounts receivable
    
    
    (14,330
    )
    
    
    (11,358
    )Inventories
    
    
    (5,372
    )
    
    
    (5,930
    )Prepaids and other assets
    
    
    (312
    )
    
    
    (254
    )Accounts payable
    
    
    2,010
    
    
    
    77Accrued expenses and other liabilities
    
    
    27,729
    
    
    
    (1,951
    )Net cash used in operating activities
    
    
    (20,331
    )
    
    
    (40,684
    )Investing activitiesPurchase of short-term investments
    
    
    
    
    
    
    (6,750
    )Proceeds from sale of short-term investments
    
    
    6,900
    
    
    
    300Purchase of property and equipment
    
    
    (6,518
    )
    
    
    (10,168
    )Purchase of intangible assets
    
    
    (1,866
    )
    
    
    (2,822
    )Purchase of distribution rights
    
    
    (6,500
    )
    
    
    Proceeds from sale of property and equipment
    
    
    2,005
    
    
    
    69Proceeds from sale of minority investment
    
    
    
    
    
    
    1,063Acquisitions, net of cash acquired
    
    
    (2,793
    )
    
    
    (70
    )Change in restricted cash
    
    
    687
    
    
    
    921Net cash used in investing activities
    
    
    (8,085
    )
    
    
    (17,457
    )Financing activitiesProceeds from issuance of common stock
    
    
    44,542
    
    
    
    Proceeds from issuance of debt
    
    
    5,000
    
    
    
    7,500Debt issuance costs
    
    
    
    
    
    
    (113
    )Payments on long-term debt
    
    
    (1,607
    )
    
    
    Payments on capital lease obligations
    
    
    (103
    )
    
    
    (91
    )Proceeds from exercise of stock options
    
    
    4,831
    
    
    
    7,636Proceeds from employee stock purchase plan
    
    
    869
    
    
    
    Other
    
    
    (14
    )
    
    
    (129
    )Net cash provided by financing activities
    
    
    53,518
    
    
    
    14,803Effect of exchange rate changes on cash
    
    
    181
    
    
    
    274Net increase (decrease) in cash and cash equivalents
    
    
    25,283
    
    
    
    (43,064
    )Cash and cash equivalents, beginning of period
    
    
    24,053
    
    
    
    69,592Cash and cash equivalents, end of period
    
    $
    49,336
    
    
    $
    26,528Supplemental non-cash disclosure:Net assets acquired in conjunction with MTI step acquisition (see Note 6)
    
    $
    
    
    
    $
    95,438Financed insurance policies (see Note 17)
    
    $
    
    
    
    $
    3,500
  3




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ev3 Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Description of Business
   2. Basis of Presentation
    3. Stock-Based Compensation
   4




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##### Table of Contents



Three Months Ended
    
    September 30, 2007
    
    October 1, 2006Risk free interest rate
    
    
    4.6
    %
    
    
    5.0
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    43.0
    %
    
    
    49.1
    %Expected option term
    
    3.85 years
    
    
    4 years
 Nine Months Ended
    
    September 30, 2007
    
    October 1, 2006Risk free interest rate
    
    
    4.7
    %
    
    
    4.5
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    45.0
    %
    
    
    50.3
    %Expected option term
    
    3.85 years
    
    
    4 years
  Weighted-Average
    
    
    AggregateAwarded Shares
    
    
    Exercise Price Per
    
    
    IntrinsicOutstanding
    
    
    Share
    
    
    ValueBalance at January 1, 2007
    
    
    5,359,248
    
    
    $
    12.47Granted (1)
    
    
    1,126,872
    
    
    $
    17.56Exercised
    
    
    (466,910
    )
    
    $
    10.34Forfeited
    
    
    (318,203
    )
    
    $
    14.32Expired
    
    
    (58,484
    )
    
    $
    17.95Balance at September 30, 2007
    
    
    5,642,523
    
    
    $
    13.50
    
    
    $
    19,366Options exercisable at September 30, 2007
    
    
    3,062,182
    
    
    $
    11.84
    
    
    $
    15,403
 
 (1)
    
    The weighted average fair value for options granted was $7.03. 5




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##### Table of Contents



Awarded
    
    
    Weighted-AverageShares
    
    
    Grant Date FairOutstanding
    
    
    ValueNonvested balance at January 1, 2007
    
    
    217,774
    
    
    $
    15.42Granted
    
    
    614,177
    
    
    $
    17.55Vested
    
    
    (2,500
    )
    
    $
    13.99Forfeited
    
    
    (65,520
    )
    
    $
    16.91Nonvested balance at September 30, 2007
    
    
    763,931
    
    
    $
    16.93
  4. Recent Accounting Pronouncements
     6




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5. Liquidity and Capital Resources
     7




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    EquityBalance December 31, 2006
    
    
    57,594,742
    
    
    $
    576
    
    
    $
    919,221
    
    
    $
    (614,578
    )
    
    $
    15
    
    
    $
    305,234Cumulative effect of
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (716
    )
    
    
    
    
    
    
    (716
    )Adjusted Balance December
31, 2006
    
    
    57,594,742
    
    
    $
    576
    
    
    $
    919,221
    
    
    $
    (615,294
    )
    
    $
    15
    
    
    $
    304,518Common stock issued in
conjunction with
secondary offering
    
    
    2,500,000
    
    
    
    25
    
    
    
    44,517
    
    
    
    
    
    
    
    
    
    
    
    44,542Compensation expense on
equity awards and stock
purchase plan
    
    
    
    
    
    
    
    
    
    
    7,329
    
    
    
    
    
    
    
    
    
    
    
    7,329Exercise of options
    
    
    466,910
    
    
    
    5
    
    
    
    4,826
    
    
    
    
    
    
    
    
    
    
    
    4,831Restricted stock grants,
net of cancellations
    
    
    458,280
    
    
    
    5
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    Common stock issued
under employee stock
purchase plan
    
    
    60,534
    
    
    
    
    
    
    
    869
    
    
    
    
    
    
    
    
    
    
    
    869Shares repurchased
    
    
    (812
    )
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (14
    )Comprehensive (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,877
    )
    
    
    
    
    
    
    (57,877
    )Cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (334
    )
    
    
    (334
    )Comprehensive (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,211
    )Balance September 30, 2007
    
    
    61,079,654
    
    
    $
    611
    
    
    $
    976,743
    
    
    $
    (673,171
    )
    
    $
    (319
    )
    
    $
    303,864
 6. MTI Step Acquisition
    2006Fair value of shares/options issued
    
    $
    95,438Interest acquired in historical book value of MTI
    
    
    (12,850
    )Excess purchase price over historical book values
    
    $
    82,588
 8




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##### Table of Contents



2006Inventory
    
    $
    668Developed technology
    
    
    15,548Customer relationships
    
    
    9,964Trademarks and tradenames
    
    
    2,029Acquired in-process research and development
    
    
    1,786Goodwill
    
    
    54,605Accrued liabilities
    
    
    (2,012
    )Total
    
    $
    82,588
   7. Short-Term Investments
  8. Inventories
  September 30, 2007
    
    
    December 31, 2006Raw materials
    
    $
    7,414
    
    
    $
    7,100Work in-progress
    
    
    3,085
    
    
    
    3,271Finished goods
    
    
    38,312
    
    
    
    36,47848,811
    
    
    
    46,849Inventory reserve
    
    
    (4,386
    )
    
    
    (4,725
    )Inventory, net
    
    $
    44,425
    
    
    $
    42,124
 9




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9. Property and Equipment, Net
  September 30, 2007
    
    
    December 31, 2006Machinery and equipment
    
    $
    23,844
    
    
    $
    20,472Office furniture and equipment
    
    
    13,290
    
    
    
    11,440Leasehold improvements
    
    
    10,074
    
    
    
    9,750Construction in progress
    
    
    2,909
    
    
    
    2,04050,117
    
    
    
    43,702Less:Accumulated depreciation and amortization
    
    
    (24,986
    )
    
    
    (19,630
    )Property and equipment, net
    
    $
    25,131
    
    
    $
    24,072
  10. Goodwill and Other Intangible Assets
  Peripheral Vascular
    
    Neurovascular
    
    TotalBalance as of September 30, 2007
    
    $
    71,307
    
    $
    77,754
    
    $
    149,061
   Weighted
    
    
    September 30, 2007
    
    
    December 31, 2006Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetUseful Life
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(in years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountPatents and licenses
    
    
    5.0
    
    
    $
    12,365
    
    
    $
    (4,585
    )
    
    $
    7,780
    
    
    $
    11,435
    
    
    $
    (4,009
    )
    
    $
    7,426Developed technology
    
    
    6.0
    
    
    
    63,616
    
    
    
    (45,899
    )
    
    
    17,717
    
    
    
    63,616
    
    
    
    (40,119
    )
    
    
    23,497Trademarks and tradenames
    
    
    7.0
    
    
    
    5,122
    
    
    
    (3,119
    )
    
    
    2,003
    
    
    
    5,122
    
    
    
    (2,634
    )
    
    
    2,488Customer relationships
    
    
    5.0
    
    
    
    16,094
    
    
    
    (11,624
    )
    
    
    4,470
    
    
    
    16,094
    
    
    
    (9,491
    )
    
    
    6,603Distribution rights
    
    
    2.5
    
    
    
    9,274
    
    
    
    (2,782
    )
    
    
    6,492
    
    
    
    
    
    
    
    
    
    
    
    Other intangible assets
    
    
    
    
    
    $
    106,471
    
    
    $
    (68,009
    )
    
    $
    38,462
    
    
    $
    96,267
    
    
    $
    (56,253
    )
    
    $
    40,014
   10




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2007
    
    $
    15,0742008
    
    
    11,4902009
    
    
    6,9042010
    
    
    3,9062011
    
    
    2,492
 11. Accrued Liabilities
  September 30, 2007
    
    
    December 31, 2006Accrued professional services
    
    $
    4,879
    
    
    $
    1,900Accrued royalties
    
    
    1,814
    
    
    
    845Accrued clinical studies
    
    
    2,079
    
    
    
    359Office closure
    
    
    153
    
    
    
    345Accrued litigation settlement
    
    
    20,183
    
    
    
    Accrued other
    
    
    7,500
    
    
    
    6,653Total accrued liabilities
    
    $
    36,608
    
    
    $
    10,102
 12. Long-Term Debt
  September 30, 2007
    
    
    December 31, 2006Equipment term loan
    
    $
    10,892
    
    
    $
    7,500Less: current portion
    
    
    (3,571
    )
    
    
    (2,143
    )Total long-term debt
    
    $
    7,321
    
    
    $
    5,357
    Remaining 2007
    
    $
    8932008
    
    
    3,5712009
    
    
    3,5712010
    
    
    2,5002011
    
    
    357Total
    
    $
    10,892
 11




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##### Table of Contents



13. Gain (Loss) on Sale of Assets
  14. Interest (Income) Expense
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    October 1, 2006
    
    
    September 30, 2007
    
    
    October 1, 2006Interest expense
    
    $
    373
    
    
    $
    354
    
    
    $
    1,041
    
    
    $
    455Interest (income)
    
    
    (790
    )
    
    
    (612
    )
    
    
    (1,864
    )
    
    
    (1,926
    )Total interest (income) expense, net
    
    $
    (417
    )
    
    $
    (258
    )
    
    $
    (823
    )
    
    $
    (1,471
    )
 15. Other Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    October 1, 2006
    
    
    September 30, 2007
    
    
    October 1, 2006Net loss
    
    $
    (36,512
    )
    
    $
    (12,467
    )
    
    $
    (57,877
    )
    
    $
    (47,791
    )Changes in foreign currency translation
    
    
    (213
    )
    
    
    136
    
    
    
    (334
    )
    
    
    (119
    )Total comprehensive income (loss)
    
    $
    (36,725
    )
    
    $
    (12,331
    )
    
    $
    (58,211
    )
    
    $
    (47,910
    )
 16. Income Taxes
    12




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17. Commitments and Contingencies
 Letters of Credit
  Financed Insurance Policies
  Earn-Out Contingencies
  Contingencies
  Global Coil Patent Litigation
  13




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14




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Embolic Protection Patent Litigation
   Appriva Medical, Inc Acquisition Litigation
   15




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##### Table of Contents



MTI Stockholder Litigation
  18. Segment and Geographic Information
  16




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Net salesPeripheral Vascular:Stents
    
    $
    23,105
    
    
    $
    16,525
    
    
    $
    65,064
    
    
    $
    45,591Thrombectomy and embolic protection
    
    
    5,368
    
    
    
    5,750
    
    
    
    20,029
    
    
    
    15,429Procedural support and other
    
    
    10,240
    
    
    
    8,894
    
    
    
    30,742
    
    
    
    26,062Total Peripheral Vascular
    
    $
    38,713
    
    
    $
    31,169
    
    
    $
    115,835
    
    
    $
    87,082Neurovascular:Embolic products
    
    $
    14,698
    
    
    $
    10,177
    
    
    $
    40,451
    
    
    $
    26,972Neuro access and delivery products and other
    
    
    11,649
    
    
    
    10,560
    
    
    
    35,669
    
    
    
    30,709Total Neurovascular
    
    $
    26,347
    
    
    $
    20,737
    
    
    $
    76,120
    
    
    $
    57,681Total net sales
    
    $
    65,060
    
    
    $
    51,906
    
    
    $
    191,955
    
    
    $
    144,763Gross profitPeripheral Vascular
    
    $
    23,421
    
    
    $
    18,514
    
    
    $
    69,502
    
    
    $
    48,649Neurovascular
    
    
    18,542
    
    
    
    15,726
    
    
    
    56,537
    
    
    
    43,781Total
    
    $
    41,963
    
    
    $
    34,240
    
    
    $
    126,039
    
    
    $
    92,430Operating expense
    
    
    80,196
    
    
    
    47,035
    
    
    
    185,947
    
    
    
    143,960Loss from operations
    
    $
    (38,233
    )
    
    $
    (12,795
    )
    
    $
    (59,908
    )
    
    $
    (51,530
    )
 September 30,
    
    
    December 31,2007
    
    
    2006Total assetsPeripheral Vascular
    
    $
    232,376
    
    
    $
    209,414Neurovascular
    
    
    153,691
    
    
    
    143,412Total
    
    $
    386,067
    
    
    $
    352,826
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Geographic DataNet SalesUnited States
    
    $
    38,312
    
    
    $
    31,127
    
    
    $
    113,028
    
    
    $
    86,590International
    
    
    26,748
    
    
    
    20,779
    
    
    
    78,927
    
    
    
    58,173Total net sales
    
    $
    65,060
    
    
    $
    51,906
    
    
    $
    191,955
    
    
    $
    144,763
 September 30,
    
    
    December 31,2007
    
    
    2006Long-lived AssetsUnited States
    
    $
    24,189
    
    
    $
    23,422International
    
    
    942
    
    
    
    650Total long-lived assets
    
    $
    25,131
    
    
    $
    24,072
 17




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19. Related Party Transaction
   20. Subsequent Events
     18




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
      19




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Recent Development
   20




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21




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Results of Operations
  Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    October 1,
    
    
    Percent
    
    
    September 30,
    
    
    October 1,
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeResults of Operations:Net sales
    
    $
    65,060
    
    
    $
    51,906
    
    
    
    25.3
    %
    
    $
    191,955
    
    
    $
    144,763
    
    
    
    32.6
    %Operating expenses:Cost of goods sold (a)
    
    
    23,097
    
    
    
    17,666
    
    
    
    30.7
    %
    
    
    65,916
    
    
    
    52,333
    
    
    
    26.0
    %Sales, general and administrative (a)
    
    
    45,353
    
    
    
    35,498
    
    
    
    27.8
    %
    
    
    125,372
    
    
    
    109,167
    
    
    
    14.8
    %Research and development (a)
    
    
    10,708
    
    
    
    7,036
    
    
    
    52.2
    %
    
    
    29,464
    
    
    
    19,857
    
    
    
    48.4
    %Amortization of intangible assets
    
    
    3,952
    
    
    
    4,483
    
    
    
    (11.8
    )%
    
    
    11,916
    
    
    
    13,008
    
    
    
    (8.4
    )%(Gain) loss on sale of assets, net
    
    
    
    
    
    
    18
    
    
    NM
    
    
    (988
    )
    
    
    142
    
    
    NMAcquired in-process research and
development
    
    
    
    
    
    
    
    
    
    NM
    
    
    
    
    
    
    1,786
    
    
    NMSpecial charges
    
    
    20,183
    
    
    
    
    
    
    NM
    
    
    20,183
    
    
    
    
    
    
    NMTotal operating expenses
    
    
    103,293
    
    
    
    64,701
    
    
    
    59.6
    %
    
    
    251,863
    
    
    
    196,293
    
    
    
    28.3
    %Loss from operations
    
    
    (38,233
    )
    
    
    (12,795
    )
    
    
    198.8
    %
    
    
    (59,908
    )
    
    
    (51,530
    )
    
    
    16.3
    %Other income:Gain on sale of investments, net
    
    
    
    
    
    
    
    
    
    NM
    
    
    
    
    
    
    (1,063
    )
    
    NMInterest income, net
    
    
    (417
    )
    
    
    (258
    )
    
    
    61.6
    %
    
    
    (823
    )
    
    
    (1,471
    )
    
    
    (44.1
    )%Other income, net
    
    
    (1,554
    )
    
    
    (152
    )
    
    
    922.4
    %
    
    
    (2,066
    )
    
    
    (1,533
    )
    
    
    34.8
    %Loss before income taxes
    
    
    (36,262
    )
    
    
    (12,385
    )
    
    
    192.8
    %
    
    
    (57,019
    )
    
    
    (47,463
    )
    
    
    20.1
    %Income tax expense
    
    
    250
    
    
    
    82
    
    
    NM
    
    
    858
    
    
    
    328
    
    
    NMNet loss
    
    $
    (36,512
    )
    
    $
    (12,467
    )
    
    
    192.9
    %
    
    $
    (57,877
    )
    
    $
    (47,791
    )
    
    
    21.1
    %Net loss per
common share (basic and diluted)
    
    $
    (0.60
    )
    
    $
    (0.22
    )
    
    
    
    
    
    $
    (0.98
    )
    
    $
    (0.85
    )Weighted average shares outstanding
    
    
    60,365,027
    
    
    
    57,032,677
    
    
    
    
    
    
    
    59,141,035
    
    
    
    56,556,305
 
 (a)
    
    Includes stock-based compensation charges of: Cost of goods sold
    
    $
    101
    
    
    $
    127
    
    
    
    
    
    
    $
    446
    
    
    $
    496Sales, general and administrative
    
    
    2,100
    
    
    
    1,389
    
    
    
    
    
    
    
    6,166
    
    
    
    4,554Research and development
    
    
    269
    
    
    
    151
    
    
    
    
    
    
    
    717
    
    
    
    523$
    2,470
    
    
    $
    1,667
    
    
    
    
    
    
    $
    7,329
    
    
    $
    5,573
 22




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Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    October 1,
    
    
    Percent
    
    
    September 30,
    
    
    October 1,
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeNET SALES BY SEGMENT:Peripheral Vascular:Stents
    
    $
    23,105
    
    
    $
    16,525
    
    
    
    39.8
    %
    
    $
    65,064
    
    
    $
    45,591
    
    
    
    42.7
    %Thrombectomy and embolic protection
    
    
    5,368
    
    
    
    5,750
    
    
    
    (6.6
    )%
    
    
    20,029
    
    
    
    15,429
    
    
    
    29.8
    %Procedural support and other
    
    
    10,240
    
    
    
    8,894
    
    
    
    15.1
    %
    
    
    30,742
    
    
    
    26,062
    
    
    
    18.0
    %Total Peripheral Vascular
    
    $
    38,713
    
    
    $
    31,169
    
    
    
    24.2
    %
    
    $
    115,835
    
    
    $
    87,082
    
    
    
    33.0
    %Neurovascular:Embolic products
    
    
    14,698
    
    
    
    10,177
    
    
    
    44.4
    %
    
    
    40,451
    
    
    
    26,972
    
    
    
    50.0
    %Neuro access and delivery products
and other
    
    
    11,649
    
    
    
    10,560
    
    
    
    10.3
    %
    
    
    35,669
    
    
    
    30,709
    
    
    
    16.2
    %Total Neurovascular
    
    $
    26,347
    
    
    $
    20,737
    
    
    
    27.1
    %
    
    $
    76,120
    
    
    $
    57,681
    
    
    
    32.0
    %Total
    
    $
    65,060
    
    
    $
    51,906
    
    
    
    25.3
    %
    
    $
    191,955
    
    
    $
    144,763
    
    
    
    32.6
    %
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    October 1,
    
    
    Percent
    
    
    September 30,
    
    
    October 1,
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeNET SALES BY GEOGRAPHY:United States
    
    $
    38,312
    
    
    $
    31,127
    
    
    
    23.1
    %
    
    $
    113,028
    
    
    $
    86,590
    
    
    
    30.5
    %InternationalBefore foreign exchange impact
    
    
    25,514
    
    
    
    20,779
    
    
    
    22.8
    %
    
    
    75,199
    
    
    
    58,173
    
    
    
    29.3
    %Foreign exchange impact
    
    
    1,234
    
    
    
    
    
    
    
    NM
    
    
    
    3,728
    
    
    
    
    
    
    
    NMTotal
    
    
    26,748
    
    
    
    20,779
    
    
    
    28.7
    %
    
    
    78,927
    
    
    
    58,173
    
    
    
    35.7
    %Total
    
    $
    65,060
    
    
    $
    51,906
    
    
    
    25.3
    %
    
    $
    191,955
    
    
    $
    144,763
    
    
    
    32.6
    %
 Comparison of the Three Months Ended September 30, 2007 to the Three Months Ended October 1, 2006
 Net sales
 Net sales of peripheral vascular products
 Net sales of neurovascular products
 23




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Net sales by geography
 Cost of goods sold
 Sales, general and administrative expense
 Research and development
 Amortization of intangible assets
 Special charges.
 24




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##### Table of Contents



Gain (loss) on sale of assets, net
 Interest income, net
 Other income, net
 Income tax expense Accounting for Uncertainty in Income Taxes
 Comparison of the Nine Months Ended September 30, 2007 to the Nine Months Ended October 1, 2006
 Net sales
 Net sales of peripheral vascular products
 Net sales of neurovascular products
 Net sales by geography
 25




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##### Table of Contents



Cost of goods sold
 Sales, general and administrative expense
 Research and development
 Amortization of intangible assets
 Special charges.
 Gain (loss) on sale of assets, net
 Interest income, net
 Other income, net
 Income tax expense Accounting for Uncertainty in Income Taxes
 26




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##### Table of Contents



Liquidity and Capital Resources
 September 30,
    
    December 31,Balance Sheet Data
    
    2007
    
    2006(in thousands)Cash and cash equivalents
    
    $
    49,336
    
    
    $
    24,053Short-term investments
    
    
    7,800
    
    
    
    14,700Total current assets
    
    
    170,943
    
    
    
    135,845Total assets
    
    
    386,067
    
    
    
    352,826Total current liabilities
    
    
    73,993
    
    
    
    41,767Total liabilities
    
    
    82,203
    
    
    
    47,592Total stockholders equity
    
    
    303,864
    
    
    
    305,234
 Financing history.
 Cash, cash equivalents and short-term investments.
 Credit facility.
  27




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##### Table of Contents



Operating activities.
 Investing activities.
 Financing activities.
 Contractual cash obligations
 Other liquidity information.
 28




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29




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##### Table of Contents



Credit Risk.
 Related Party Transactions
  Critical Accounting Policies and Estimates
  Accounting for Income Taxes
     Seasonality and Quarterly Fluctuations
   30




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##### Table of Contents



Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
      Forward-Looking Statements
  31




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##### Table of Contents




    
    Risks associated with our merger with FoxHollow Technologies, Inc., as described in more
detail under the heading Part II  Item 1A. Risk Factors contained elsewhere in this
report.
    
    History of operating losses and negative cash flow;
    
    Lack of market acceptance of new products;
    
    Delays in product introduction;
    
    Exposure to assertions of intellectual property claims and failure to protect our
intellectual property;
    
    Effects of litigation, including threatened or pending litigation, on matters relating
to patent infringement, employment, and commercial disputes;
    
    Failure of our business strategy, which relies on assumptions about the market for our
products;
    
    Failure to obtain additional capital when needed or on acceptable terms;
    
    Disruption in our ability to manufacture our products or the ability of our key
suppliers to provide us products or components or raw materials for products resulting in
our inability to supply market demand for our products;
    
    Increases in prices for raw materials;
    
    Failure to retain senior management or replace lost senior management;
    
    Employee slowdowns, strikes or similar actions;
    
    Significant and unexpected claims under our EverFlex self-expanding stent worldwide
fracture-free guarantee program in excess of our reserves;
    
    Failure to integrate effectively newly acquired operations, including most recently
FoxHollows operations;
    
    Incurrence of additional debt, contingent liabilities and expenses in connection with
future acquisitions;
    
    Failure of our customers or patients to obtain third party reimbursement for their
purchases of our products;
    
    Consolidation in the healthcare industry, which could lead to demands for price
concessions or to the exclusion of some suppliers from certain of our markets;
    
    Failure to comply with applicable laws and regulations and to obtain and maintain
required regulatory approvals for our products in a cost-effective manner or at all;
    
    Adverse changes in applicable laws or regulations;
    
    Exposure to product liability claims;
    
    Risks inherent in operating internationally and selling and shipping our products and
purchasing our products and components internationally;
    
    Fluctuations in foreign currency exchange rates and interest rates;
    
    Fluctuations in quarterly operating results as a result of seasonality and other items,
such as the timing and extent of promotional pricing or volume discounts; the timing of
larger orders by customers and the timing of shipment of such orders; changes in average
selling prices; the number and mix of products sold in the quarter; the availability and
cost of components and materials; and costs, benefits and timing of new product
introductions;
    
    Obligation to make significant milestone payments not currently reflected in our
financial statements;
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
    
    Reliance on independent sales distributors and sales associates to market and sell our
products in certain foreign countries, including our reliance on Medtronic for sales of our
products in Japan;
    
    Loss of customers;
    
    Disruption in the supply of products of Invatec S.r.l. that we distribute or our
relationship with Invatec;
    
    Dependence upon a few of our products to generate a large portion of our net sales and
exposure if drug-eluting stents become a dominant therapy in the peripheral vascular stent
market and we are not able to develop or acquire a drug-eluting stent to market and sell;
    
    Failure to develop innovative and successful new products and technologies;
    
    Highly competitive nature of the markets in which we sell our products and the
introduction of competing products;
    
    Inability to meet performance enhancement objectives, including efficiency and cost
reduction strategies;
    
    Reliance on our management information systems for inventory management, distribution
and other functions and to maintain our research and development and clinical data;
    
    Failure to comply with our covenants under our loan and security agreement with Silicon
Valley Bank;
    
    Inability to use net operating losses to reduce tax liability if we become profitable;
    
    Absence of expected returns from the amount of intangible assets we have recorded;
    
    Changes in generally accepted accounting principles;
    
    Conditions and changes in medical device industry or in general economic and business
conditions;
    
    Conflicts of interests due to our ownership structure; or
    
    Ineffectiveness of our internal controls.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  33




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Interest Rate Risk
  Foreign Currency Exchange Rate Risk
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  34




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Changes in Internal Control Over Financial Reporting
  35




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Risks Relating to Recently Completed Merger with FoxHollow
 We may be unable to integrate successfully FoxHollows operations into ours or to realize the
anticipated cost savings, revenues and other potential benefits of our merger with FoxHollow in a
timely manner or at all. As a result, our business, operating results and stock price may be
adversely affected.
  
    
    executing on the strategic vision we communicated to the market regarding the merger;
    
    coordinating and consolidating geographically separated organizations, systems and
facilities;
    
    coordinating sales and marketing efforts to effectively communicate our capabilities and
effectively cross-sell our products;
    
    expanding the sale of FoxHollows products into our international operations and
distribution network;
    
    combining our and FoxHollows sales force territories and competencies associated with the
sale of our products;
    
    maintaining key employees and employee morale;
    
    addressing possible differences in business backgrounds, corporate cultures and management
philosophies;
    
    coordinating research and development activities to accelerate introduction of new products
and technologies with reduced costs;
    
    preserving our customer, distribution, reseller, manufacturing, supplier, marketing and
other important relationships and resolving any potential conflicts;
    
    integrating numerous operating systems, including those involving management information,
purchasing, accounting and finance, sales, billing, payroll, employee benefits and regulatory
compliance;
    
    reconciling inconsistent standards, controls, procedures and policies; and
    
    creating a consolidated internal control over financial reporting structure to enable us
and our independent public registered accounting firm to report on the effectiveness of our
internal control over financial reporting.
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Charges resulting from the application of the purchase method of accounting relating to our merger
with FoxHollow may adversely affect the market value of our common stock following the merger.
  We have incurred and expect to continue to incur significant transaction and integration-related
costs in connection with our merger with FoxHollow and the integration of FoxHollows operations
into ours.
  Risks Relating to Our Business
 Any loss of revenue from our relationship with Merck & Co., Inc. could have a significant adverse
affect on our operating results and the price of our common stock might decline as a result of
either the adverse impact on our revenues or the loss of investor confidence due to the termination
of the amended collaboration agreement with Merck.
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In order to be successful, we must retain and motivate key employees. Any failure to do so could
adversely affect our business and operating results.
  We have incurred losses to date and no assurance can be provided that we will achieve
profitability.
  We may require additional capital in the future, which may not be available or may be available
only on unfavorable terms. Any equity financings may be dilutive to our stockholders.
  Our business strategy relies on assumptions about the market for our products, which, if incorrect,
would adversely affect our business and operating results.
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Some of our products are emerging technologies or have only recently been introduced into the
market. If physicians do not recommend and endorse them or if our working relationships with
physicians deteriorate, our products may not be accepted in the marketplace, which would adversely
affect our business and operating results.
   Growth in the demand for our SilverHawk product in the United States has slowed and any failure by
us to generate additional demand may negatively affect our operating results. In addition, there
exists limited long-term data regarding the safety and efficacy of the SilverHawk. Future long-term
data may not be positive or consistent with data currently available, which would adversely affect
SilverHawks market acceptance and could adversely affect our business.
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Our family of self-expanding stents generate a significant portion of our net revenue. Accordingly,
if sales of these products were to decline, our operating results and business prospects would be
adversely affected.
  Our future success depends in part on the introduction of new products. Accordingly, any failure to
develop and market new products in a timely fashion that are accepted by the marketplace could
adversely affect our business and operating results.
   A number of our proposed products are in the early stages of development and some are in clinical
trials. If the development of these products is not successfully completed or if these trials are
unsuccessful, or if the U.S. Food and Drug Administration, or FDA, or other regulatory agencies
require additional trials to be conducted, these products may not be commercialized and our
business prospects may suffer.
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Our future success depends in part on our ability to sell SilverHawk internationally. There are
risks inherent in operating internationally and selling and shipping products and purchasing
components internationally, which may adversely impact our net revenue, operating results and
financial condition.
    
    
    the imposition of additional U.S. and foreign governmental controls or regulations;
    
    the imposition of costly and lengthy new export licensing requirements;
    
    the imposition of U.S. and/or international sanctions against a country, company, person or
entity with whom the company does business that would restrict or prohibit continued business
with the sanctioned country, company, person or entity;
    
    economic instability;
    
    a shortage of high-quality sales people and distributors;
    
    loss of any key personnel that possess proprietary knowledge, or who are otherwise
important to our success in certain international markets;
    
    changes in third-party reimbursement policies that may require some of the patients who
receive our products to directly absorb medical costs or that may necessitate the reduction of
the selling prices of our products;
    
    changes in duties and tariffs, license obligations and other non-tariff barriers to trade;
    
    the imposition of new trade restrictions;
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
    
    the imposition of restrictions on the activities of foreign agents, representatives and
distributors;
    
    scrutiny of foreign tax authorities which could result in significant fines, penalties and
additional taxes being imposed on combined company;
    
    pricing pressure that we may experience internationally;
    
    laws and business practices favoring local companies;
    
    significantly longer payment cycles;
    
    difficulties in maintaining consistency with our internal guidelines;
    
    difficulties in enforcing agreements and collecting receivables through certain foreign
legal systems;
    
    difficulties in enforcing or defending intellectual property rights; and
    
    exposure to different legal and political standards due to conducting business in over 50
countries.
  Fluctuations in foreign currency exchange rates could result in declines in our reported net
revenue and earnings.
  If third parties claim that we infringe upon their intellectual property rights, we may incur
liabilities and costs and may have to redesign or discontinue selling the affected product.
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
    
    be expensive and time consuming to defend;
    
    result in us being required to pay significant damages to third parties;
    
    cause us to cease making or selling products that incorporate the challenged intellectual
property;
    
    require us to redesign, reengineer or rebrand our products, if feasible;
    
    require us to enter into royalty or licensing agreements in order to obtain the right to
use a third partys intellectual property, which agreements may not be available on terms
acceptable to us or at all;
    
    divert the attention of our management; or
    
    result in our customers or potential customers deferring or limiting their purchase or use
of the affected products until resolution of the litigation.
  We are currently involved in intellectual property litigation, which has been costly for us to
defend and the resolution of which could have a material adverse effect on our business, financial
condition and operating results.
  If our patents and other intellectual property rights do not adequately protect our products, we
may lose market share to our competitors, which would harm our business.
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We manufacture our products at single locations. Any disruption in these manufacturing facilities,
any patent infringement claims with respect to our manufacturing process or otherwise any inability
to manufacture a sufficient number of our products to meet demand could adversely affect our
business and operating results.
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Our dependence on key suppliers puts us at risk of interruptions in the availability of our
products, which could reduce our net revenue and adversely affect our operating results. In
addition, increases in prices for raw materials and components used in our products could adversely
affect our operating results.
   Significant and unexpected claims under our EverFlex self-expanding stent worldwide fracture-free
guarantee program in excess of our reserves could significantly harm our business, operating
results and financial condition.
  Our inability to successfully grow through future acquisitions, our failure to integrate any
acquired businesses successfully into our existing operations or our discovery of previously
undisclosed liabilities could negatively affect our business and operating results.
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
    
    difficulties in integrating any acquired companies, personnel and products into our
existing business;
    
    delays in realizing projected efficiencies, cost savings, revenue synergies and other
anticipated benefits of the acquired company or products;
    
    inaccurate assessment of undisclosed, contingent or other liabilities or problems;
    
    diversion of our managements time and attention from other business concerns;
    
    limited or no direct prior experience in new markets or countries we may enter;
    
    higher costs of integration than we anticipated; or
    
    difficulties in retaining key employees of the acquired business who are necessary to
manage these acquisitions.
   The demand for our products, the prices which customers and patients are willing to pay for our
products and the number of procedures performed using our products depend upon the ability of our
customers and patients to obtain sufficient third party reimbursement for their purchases of our
products.
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Consolidation in the healthcare industry could lead to demands for price concessions or to the
exclusion of some suppliers from certain of our markets, which could have an adverse effect on our
business, financial condition or operating results.
  Our products and our product development and marketing activities are subject to extensive
regulation as a result of which we may not be able to obtain required regulatory approvals for our
products in a cost-effective manner or at all, which could adversely affect our business and
operating results.
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
    
    imposing fines and penalties on us;
    
    preventing us from manufacturing or selling our products;
    
    bringing civil or criminal charges against us;
    
    delaying the introduction of our new products into the market;
    
    suspending any ongoing clinical trials;
    
    issuing an injunction preventing us from manufacturing or selling our products or imposing
restrictions;
    
    recalling or seizing our products; or
    
    withdrawing or denying approvals or clearances for our products.
 Our failure to comply with applicable regulatory requirements may also result in us not being able
to meet the demands of our customers and our customers canceling orders or purchasing products from
our competitors, which could adversely affect our business and operating results.
   Our marketing activities are subject to regulation regarding the promotion of off-label uses,
which restrict our ability to market our products and could adversely affect our growth. Any
off-label use of our products may result in injuries that could lead to product liability claims
against us.
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If we or others identify side effects after any of our products are on the market, we may be
required to withdraw our products from the market, which would hinder or preclude our ability to
generate revenues.
  
    
    regulatory authorities may withdraw their approvals;
    
    we may be required to reformulate or redesign our products;
    
    we may have to recall the affected products from the market and may not be able to
reintroduce them onto the market;
    
    our reputation in the marketplace may suffer; and
    
    we may become the target of lawsuits, including class action suits.
  Our manufacturing facilities are subject to extensive governmental regulation with which compliance
is costly and which expose us to penalties for non-compliance.
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Our operations are subject to environmental, health and safety, and other laws and regulations,
with which compliance is costly and which expose us to penalties for non-compliance.
  Our quarterly operating and financial results may fluctuate in future periods.
  
    
    the seasonality of our product sales, which typically results in higher demand in our
fourth fiscal quarter and lower sales volumes in our third fiscal quarter;
    
    the mix of our products sold;
    
    demand for, and pricing of, our products;
    
    timing of or failure to obtain regulatory approvals for products;
    
    costs, benefits and timing of new product introductions;
    
    the timing and extent of promotional pricing or volume discounts;
    
    the timing of larger orders by customers and the timing of shipment of such orders;
    
    changes in average selling prices;
    
    the availability and cost of components and materials; and
    
    fluctuations in foreign currency exchange rates.
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We may become obligated to make large milestone payments that are not reflected in our financial
statements in certain circumstances, which would negatively impact our cash flows from operations.
   We rely on independent sales distributors and sales associates to market and sell our products
outside of the United States, Canada and Europe.
  If we fail to comply with the U.S. Federal Anti-Kickback Statute and similar state laws, we could
be subject to criminal and civil penalties and exclusion from the Medicare, Medicaid and other
federal health care programs, which could have a material adverse effect on our business and
operating results.
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If there is a disruption in the supply of the products of Invatec Technology Center GmbH that we
distribute or if our relationship with Invatec is impaired, our net revenue and operating results
would be adversely impacted.
  We are exposed to product liability claims that could have an adverse effect on our business and
operating results.
  Our net revenue could decline significantly if drug-eluting stents become a dominant therapy in the
peripheral vascular stent market and we are not able to develop or acquire a drug-eluting stent to
market and sell.
  We face competition from other companies, many of which have substantially greater resources than
us and may be able to more effectively develop, market and sell their products than we can, which
could adversely impact our business, net revenue and operating results. Consolidation in the
medical technology industry would exacerbate these risks.
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We rely on our management information systems for inventory management, distribution and other
functions and to maintain our research and development and clinical data. If our information
systems fail to adequately perform these functions or if we experience an interruption in their
operation, our business and operating results could be adversely affected.
  
    
    earthquake, fire, flood and other natural disasters;
    
    terrorist attacks and attacks by computer viruses or hackers; and
    
    power loss or computer systems, Internet, telecommunications or data network failure.
  The restrictive covenants in our loan agreement could limit our ability to conduct our business and
respond to changing economic and business conditions and may place us at a competitive disadvantage
relative to other companies that are subject to fewer restrictions.
  
    
    transfer all or any part of our business or properties;
    
    permit or suffer a change in control;
    
    merge or consolidate, or acquire all or substantially all of the capital stock or property
of another company;
    
    engage in new business;
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
    
    incur additional indebtedness or liens with respect to any of their properties;
    
    pay dividends or make any other distribution on or purchase of, any of their capital stock;
    
    make investments in other companies; or
    
    engage in related party transactions,
   If we become profitable, we cannot assure you that our net operating losses will be available to
reduce our tax liability.
  A substantial portion of our assets consist of goodwill and an impairment in the value of our
goodwill would have the effect of decreasing our earnings or increasing our losses.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Recent Sales of Unregistered Equity Securities
  Issuer Purchases of Equity Securities
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
  Exhibit No.
    
    Description2.1
    
    
    Agreement and Plan of Merger dated as of July 21, 2007 by and
among ev3 Inc., Foreigner Merger Sub, Inc. and FoxHollow
Technologies, Inc. (incorporated by reference to Exhibit 2.1
to ev3s Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 23, 2007 (File No. 000-51348))3.1
    
    
    Amended and Restated Certificate of Incorporation of ev3 Inc.
(incorporated by reference to Exhibit 2.1 to ev3s Current
Report on Form 8-K filed with the Securities and Exchange
Commission on July 23, 2007 (File No. 000-51348))3.2
    
    
    Certificate of Amendment to Amended and Restated Certificate
of Incorporation of ev3 Inc. (incorporated by reference to
Exhibit 99.1 to ev3s Current Report on Form 8-K filed on June
27, 2005 (File No. 000-51348)3.3
    
    
    Certificate of Amendment to Amended and Restated Certificate
of Incorporation of ev3 Inc. (incorporated by reference to
Exhibit 3.1 to ev3s Current Report on Form 8-K filed on July
23, 2007 (File No. 000-51348))10.1
    
    
    Voting Agreement dated as of July 21, 2007 by and between
Merck & Co, Inc. and ev3 Inc. (incorporated by reference to
Exhibit 10.1 to ev3s Current Report on Form 8-K filed with
the Securities and Exchange Commission on July 23, 2007 (File
No. 000-51348)10.2
    
    
    Form of Voting Agreement dated as of July 21, 2007 by and
between the officers and directors of FoxHollow Technologies,
Inc. and ev3 Inc. (incorporated by reference to Exhibit 10.2
to ev3s Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 23, 2007 (File No. 000-51348)31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a)
(Filed herewith)31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a)
(Filed herewith)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 (Furnished herewith)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 (Furnished herewith)
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SIGNATURES
  November 7, 2007
    ev3 Inc.By:
    /s/ James M. CorbettJames M. CorbettChairman, President and Chief Executive Officer
(principal executive officer)By:
    /s/ Patrick D. SpanglerPatrick D. SpanglerSenior Vice President, Chief Financial Officer
and Treasurer
(principal financial and accounting officer) 57




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ev3 Inc.
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
 Exhibit No.
    
    Description
    
    Method of Filing2.1
    
    
    Agreement and Plan of
Merger dated as of July 21,
2007 by and among ev3 Inc.,
Foreigner Merger Sub, Inc.
and FoxHollow Technologies,
Inc.
    
    Incorporated by reference
to Exhibit 2.1 to ev3s
Current Report on Form 8-K
filed with the Securities
and Exchange Commission on
July 23, 2007 (File No.
000-51348)3.1
    
    
    Amended and Restated
Certificate of
Incorporation of ev3 Inc.
    
    Incorporated by reference
to Exhibit 3.1 of ev3s
Amendment No. 5 to
Registration Statement on
Form S-1 filed on June 14,
2005 (File No. 333-123851)3.2
    
    
    Certificate of Amendment to
Amended and Restated
Certificate of
Incorporation of ev3 Inc.
    
    Incorporated by reference
to Exhibit 99.1 to ev3s
Current Report on Form 8-K
filed on June 27, 2005
(File No. 000-51348)3.3
    
    
    Certificate of Amendment to
Amended and Restated
Certificate of
Incorporation of ev3 Inc.
    
    Incorporated by reference
to Exhibit 3.1 to ev3s
Current Report on Form 8-K
filed with the Securities
and Exchange Commission on
July 23, 2007 (File No.
000-51348)10.1
    
    
    Voting Agreement dated as
of July 21, 2007 by and
between Merck & Co, Inc.
and ev3 Inc.
    
    Incorporated by reference
to Exhibit 10.1 to ev3s
Current Report on Form 8-K
filed with the Securities
and Exchange Commission on
July 23, 2007 (File No.
000-51348)10.2
    
    
    Form of Voting Agreement
dated as of July 21, 2007
by and between the officers
and directors of FoxHollow
Technologies, Inc. and ev3
Inc.
    
    Incorporated by reference
to Exhibit 10.2 to ev3s
Current Report on Form 8-K
filed with the Securities
and Exchange Commission on
July 23, 2007 (File No.
000-51348)10.3
    
    
    Amendment, Waiver, Consent
and Assumption Agreement
dated as of July 21, 2007
by and among Merck & Co.,
Inc., FoxHollow
Technologies, Inc. and ev3
Inc.
    
    Incorporated by reference
to Exhibit 10.3 to ev3s
Current Report on Form 8-K
filed with the Securities
and Exchange Commission on
July 23, 2007 (File No.
000-51348)31.1
    
    
    Certification of Chief
Executive Officer Pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
and SEC Rule 13a-14(a)
    
    Filed herewith31.2
    
    
    Certification of Chief
Financial Officer Pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
and SEC Rule 13a-14(a)
    
    Filed herewith32.1
    
    
    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
    
    Furnished herewith32.2
    
    
    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
    
    Furnished herewith
 58