**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C.20549

**FORM 10-Q**

| (Mark one)                                                                                                                                                                                                                                                                                                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                                                                                                                                                | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                 |   |
| **For the  quarterly period ended April 1, 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.**

(Exact name of registrantas specified in its charter)

| **Delaware**                     |   | **32-0138874**                        |
|----------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |   |                                  |

 

**9600 54****th**** Avenue North, Suite 100**

**Plymouth, Minnesota 55442**

(Address of principalexecutive offices)

**(763) 398-7000**

(Registrant’s telephonenumber, including area code)

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 the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  YES  x    NO  o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.  (Checkone):
| Large accelerated filer:  o | Accelerated filer:  x | Non-accelerated filer:  o |
|---------------------------------------|---------------------------------|-------------------------------------|

 

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

As of May 1, 2007, there were 60,796,128 shares of common stock, parvalue $0.01 per share, of the registrant outstanding.

 

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**ev3 Inc.**

**FORM 10-Q**

**For the Quarterly Period Ended April 1, 2007**

 

**TABLE OF CONTENTS**
| **Description** | ** ** | ** **                                                                                                     | ** ** | **Page**   |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **      | ** ** | ** **                                                                                                     | ** ** | ** ** |
| **PART I.**     | ** ** | **FINANCIAL INFORMATION**                                                                                      | ** ** | ** ** |
| ** **      | ** ** | ** **                                                                                                     | ** ** | ** ** |
| ITEM 1.         |       | Financial Statements                                                                                           |       |       |
|            |       |                                                                                                           |       |       |
|            |       | Consolidated Balance  Sheets as of April 1, 2007 (unaudited) and December 31, 2006                             |       | 1          |
|            |       |                                                                                                           |       |       |
|            |       | Consolidated  Statements of Operations for the three months ended April 1, 2007 and April  2, 2006 (unaudited) |       | 2          |
|            |       |                                                                                                           |       |       |
|            |       | Consolidated  Statements of Cash Flows for the three months ended April 1, 2007 and April 2,  2006 (unaudited) |       | 3          |
|            |       |                                                                                                           |       |       |
|            |       | Notes to the  Consolidated Financial Statements                                                                |       | 4          |
|            |       |                                                                                                           |       |       |
| ITEM 2.         |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                    |       | 18         |
|            |       |                                                                                                           |       |       |
| ITEM 3.         |       | Quantitative  and Qualitative Disclosures About Market Risk                                                    |       | 29         |
|            |       |                                                                                                           |       |       |
| ITEM 4.         |       | Controls and  Procedures                                                                                       |       | 30         |
|            |       |                                                                                                           |       |       |
| **PART II.**    | ** ** | **OTHER INFORMATION**                                                                                          | ** ** | ** ** |
| ** **      | ** ** | ** **                                                                                                     | ** ** | ** ** |
| ITEM 1.         |       | Legal Proceedings                                                                                              |       | 30         |
|            |       |                                                                                                           |       |       |
| ITEM  1A.       |       | Risk  Factors                                                                                                  |       | 30         |
|            |       |                                                                                                           |       |       |
| ITEM 2.         |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                   |       | 31         |
|            |       |                                                                                                           |       |       |
| ITEM 3.         |       | Defaults Upon  Senior Securities                                                                               |       | 31         |
|            |       |                                                                                                           |       |       |
| ITEM 4.         |       | Submission of  Matters to a Vote of Security Holders                                                           |       | 31         |
|            |       |                                                                                                           |       |       |
| ITEM 5.         |       | Other Information                                                                                              |       | 31         |
|            |       |                                                                                                           |       |       |
| ITEM  6.        |       | Exhibits                                                                                                       |       | 31         |
|            |       |                                                                                                           |       |       |
| SIGNATURE  PAGE |       | 33                                                                                                             |
|            |       |                                                                                                           |
| Exhibit Index   |       | 34                                                                                                             |

 

*This reportcontains not only historical information, but also forward-looking statementswithin 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 aresubject to the safe harbor created by those sections.  We refer you to the information under theheading “Part I. Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Forward-Looking Statements.”*

*In thisreport, references to “ev3,” the “company,” “we,” “our” or “us,” unless thecontext otherwise requires, refer to ev3 Inc. and its subsidiaries.*

*Alltrademarks or trade names referred to in this report are the property of theirrespective owners.*

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**PART I:         FINANCIAL INFORMATION**

**ITEM I:          FINANCIALSTATEMENTS**

**ev3Inc.**

**CONSOLIDATEDBALANCE SHEETS**

**(Dollarsin thousands, except per share amounts)**
| ** **                                                                                                                                                                       | ** ** | **April 1,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                       |       |                    |       |                        |       |
| ***Current  assets***                                                                                                                                                            |       |                    |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                       |       | $                       | 18,732     |                        | $          | 24,053 |   |
| Short-term  investments                                                                                                                                                          |       | 7,900                   |       | 14,700                      |       |
| Accounts  receivable, less allowance of $4,247 and $3,924, respectively                                                                                                          |       | 49,413                  |       | 45,137                      |       |
| Inventories, net                                                                                                                                                                 |       | 46,199                  |       | 42,124                      |       |
| Prepaid expenses  and other assets                                                                                                                                               |       | 5,565                   |       | 7,162                       |       |
| Other receivables                                                                                                                                                                |       | 3,652                   |       | 2,669                       |       |
| *Total  current assets*                                                                                                                                                          |       | 131,461                 |       | 135,845                     |       |
| Restricted cash                                                                                                                                                                  |       | 1,307                   |       | 2,022                       |       |
| Property and  equipment, net                                                                                                                                                     |       | 24,140                  |       | 24,072                      |       |
| Goodwill                                                                                                                                                                         |       | 149,061                 |       | 149,061                     |       |
| Other intangible  assets, net                                                                                                                                                    |       | 45,837                  |       | 40,014                      |       |
| Other assets                                                                                                                                                                     |       | 730                     |       | 1,812                       |       |
| *Total  assets*                                                                                                                                                                  |       | $                       | 352,536    |                        | $          | 352,826 |   |
| **Liabilities and stockholders’  equity**                                                                                                                                   |       |                    |       |                        |       |
| ***Current  liabilities***                                                                                                                                                       |       |                    |       |                        |       |
| Accounts payable                                                                                                                                                                 |       | $                       | 14,465     |                        | $          | 13,140 |   |
| Accrued  compensation and benefits                                                                                                                                               |       | 12,358                  |       | 16,382                      |       |
| Accrued  liabilities                                                                                                                                                             |       | 12,954                  |       | 10,102                      |       |
| Current portion  of long-term debt                                                                                                                                               |       | 2,976                   |       | 2,143                       |       |
| Total current  liabilities                                                                                                                                                       |       | 42,753                  |       | 41,767                      |       |
| Long-term debt                                                                                                                                                                   |       | 8,988                   |       | 5,357                       |       |
| Other long-term  liabilities                                                                                                                                                     |       | 1,113                   |       | 468                         |       |
| *Total  liabilities*                                                                                                                                                             |       | 52,854                  |       | 47,592                      |       |
| * *                                                                                                                                                                         |       |                    |       |                        |       |
| ***Stockholders’  equity***                                                                                                                                                 |       |                    |       |                        |       |
| Common stock,  $0.01 par value, 100,000,000 shares authorized, shares issued  and outstanding: 58,243,788 shares at April 1, 2007 and 57,594,742 at  December 31, 2006 |       | 582                     |       | 576                         |       |
| Additional paid  in capital                                                                                                                                                      |       | 923,945                 |       | 919,221                     |       |
| Accumulated  deficit                                                                                                                                                             |       | (624,788                | )          | (614,578                    | )          |
| Accumulated  other comprehensive income (expense)                                                                                                                                |       | (57                     | )          | 15                          |       |
| *Total  stockholders’ equity*                                                                                                                                               |       | 299,682                 |       | 305,234                     |       |
| *Total liabilities and  stockholders’ equity*                                                                                                                               |       | $                       | 352,536    |                        | $          | 352,826 |   |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

1

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**ev3Inc.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Dollarsin thousands, except per share amounts)**

**(unaudited)**
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                          | ** ** | **April 1, 2007**      | ** ** | **April 2, 2006** | ** ** |
|                                                |       |                             |       |   |   |
| Net sales                                           |       | $                                | 61,499     |   | $ | 42,237 |   |
| Operating  expenses:                                |       |                             |       |   |   |
| Cost of goods sold (a)                              |       | 20,457                           |       | 16,488 |   |
| Sales, general and administrative (a)               |       | 39,137                           |       | 37,861 |   |
| Research and development (a)                        |       | 7,433                            |       | 6,774 |   |
| Amortization of intangible assets                   |       | 4,100                            |       | 4,243 |   |
| Loss on sale of assets, net                         |       | 16                               |       | 170 |   |
| Acquired in-process research and development        |       | —                           |       | 1,786 |   |
| Total operating expenses                            |       | 71,143                           |       | 67,322 |   |
| Loss from  operations                               |       | (9,644                           | )          | (25,085 | ) |
| Other income:                                       |       |                             |       |   |   |
| Interest income, net                                |       | (109                             | )          | (699 | ) |
| Other income, net                                   |       | (317                             | )          | (54 | ) |
| Loss before income taxes                            |       | (9,218                           | )          | (24,332 | ) |
| Income tax expense                                  |       | 276                              |       | 169 |   |
| Net loss                                            |       | $                                | (9,494     | ) | $ | (24,501 | ) |
|                                                |       |                             |       |   |   |
| Earnings per  share:                                |       |                             |       |   |   |
| Net loss per  common share (basic and diluted) |       | $                                | (0.17      | ) | $ | (0.44 | ) |
| Weighted average  common shares outstanding         |       | 57,514,255                       |       | 55,944,925 |   |

 

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| (a) Includes stock-based  compensation charges of: |   |   |   |   |   |
|----------------------------------------------------|--------|--------|--------|--------|--------|

 
| Cost of goods sold                |   | $     | 158    |   | $      | 214   |   |
|-----------------------------------|--------|-------|--------|--------|--------|-------|--------|
| Sales, general and administrative |   | 1,859 |   | 1,366  |   |
| Research and development          |   | 182   |   | 214    |   |
|                              |   | $     | 2,199  |   | $      | 1,794 |   |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

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**ev3Inc.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Dollarsin thousands, except per share amounts)**

**(unaudited)**
| ** **                                                                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                  | ** ** | **April 1,  2007**          | ** ** | **April 2,   2006** | ** ** |
| **Operating  activities**                                                   |       |                             |       |   |   |
| Net loss                                                                    |       | $                                | (9,494     | ) | $ | (24,501 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities |       |                             |       |   |   |
| Depreciation and amortization                                               |       | 5,904                            |       | 5,516 |   |
| Provision for bad debts and sales returns                                   |       | 306                              |       | 50 |   |
| Provision for inventory obsolescence                                        |       | 1,025                            |       | 556 |   |
| Acquired in-process research and development                                |       | —                           |       | 1,786 |   |
| Loss on disposal of assets                                                  |       | 16                               |       | 170 |   |
| Stock compensation expense                                                  |       | 2,199                            |       | 1,794 |   |
| Change in  operating assets and liabilities:                                |       |                             |       |   |   |
| Accounts receivable                                                         |       | (4,574                           | )          | (2,240 | ) |
| Inventories                                                                 |       | (5,099                           | )          | (1,007 | ) |
| Prepaids and other assets                                                   |       | (864                             | )          | (481 | ) |
| Accounts payable                                                            |       | 1,259                            |       | (2,300 | ) |
| Accrued expenses and other liabilities                                      |       | (1,479                           | )          | (2,861 | ) |
| Net cash used in operating activities                                       |       | (10,801                          | )          | (23,518 | ) |
| **Investing  activities**                                                   |       |                             |       |   |   |
| Purchase of short-term investments                                          |       | —                           |       | (6,650 | ) |
| Proceeds from sale of short-term investments                                |       | 6,800                            |       | — |   |
| Purchase of property and equipment                                          |       | (1,878                           | )          | (2,740 | ) |
| Purchase of patents and licenses                                            |       | (651                             | )          | (173 | ) |
| Purchase of distribution rights                                             |       | (6,500                           | )          | — |   |
| Change in restricted cash                                                   |       | 722                              |       | (238 | ) |
| Other                                                                       |       | —                           |       | (149 | ) |
| Net cash used in investing activities                                       |       | (1,507                           | )          | (9,950 | ) |
| **Financing  activities**                                                   |       |                             |       |   |   |
| Proceeds from issuance of debt                                              |       | 5,000                            |       | — |   |
| Payments on long-term debt                                                  |       | (536                             | )          | — |   |
| Payments on capital lease obligations                                       |       | (32                              | )          | (30 | ) |
| Proceeds from exercise of stock options                                     |       | 2,531                            |       | 1,185 |   |
| Net cash provided by financing activities                                   |       | 6,963                            |       | 1,155 |   |
| Effect of  exchange rate changes on cash                                    |       | 24                               |       | 86 |   |
| Net decrease in  cash and cash equivalents                                  |       | (5,321                           | )          | (32,227 | ) |
| Cash and cash  equivalents, beginning of period                             |       | 24,053                           |       | 69,592 |   |
| Cash and cash  equivalents, end of period                                   |       | $                                | 18,732     |   | $ | 37,365 |   |
|                                                                        |       |                             |       |   |   |
| Supplemental  non-cash disclosure:                                          |       |                             |       |   |   |
| Net assets acquired in  conjunction with MTI step acquisition (see Note 6)  |       | $                                | —     |   | $ | 95,438 |   |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

3

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**ev3Inc.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**                 Description of Business

ev3Inc. (“we,” “our” or “us”) is a global medical device company focused oncatheter-based technologies for the endovascular treatment of vascular diseasesand disorders.  We develop, manufactureand/or market a wide range of products that include stents, embolic protectiondevices, thrombectomy devices, balloon angioplasty catheters, foreign objectretrieval devices, guidewires, embolic coils, liquid embolics, microcathetersand occlusion balloon systems.  We marketour products in the United States, Europe and Canada through a direct salesforce, and through distributors in certain other international markets.

**2.**                 Basis of Presentation

Theaccompanying unaudited consolidated financial statements have been prepared byus in accordance with accounting principles generally accepted in the UnitedStates of America (U.S.) for interim financial information and pursuant to theinstructions to Form 10-Q and Article 10 of Regulation S-X of theSecurities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal, recurring adjustments)considered necessary for a fair presentation have been included.  The results of operations for any interimperiod may not be indicative of results for the full year.  These unaudited consolidated financialstatements and notes should be read in conjunction with the auditedconsolidated financial statements and the notes thereto included in our annualreport on Form 10-K for the year ended December 31, 2006.

Wewere formed as ev3 LLC in September 2003 to hold the ownership interestsof two companies: ev3 Endovascular, Inc. (“Endovascular”) and MicroInvestment, LLC (“MII”), a holding company that owned a controlling interest inMicro Therapeutics, Inc. (“MTI”) at the time of formation. At the time ofev3 LLC’s formation, MTI was a publicly traded operating company. ev3 LLC’smajority equity holder, Warburg, Pincus Equity Partners, L.P. and certain ofits affiliates (“Warburg Pincus”), owned a majority, controlling interest inboth Endovascular and MII at the time of ev3 LLC’s formation. In accordancewith Financial Accounting Standards Board Statement (“SFAS”) 141, “Business Combinations” and FinancialTechnical Bulletin (“FTB”) 85-5, “Issuesrelated to Accounting for Business Combinations,” ev3 LLC accounted forthe transaction as a combination of entities under common control. Thecombination was accounted for on a historical cost basis as the ownershipinterests in the combining companies were substantially the same before andafter the transaction. On January 28, 2005, we were formed as a subsidiaryof ev3 LLC. Immediately prior to the consummation of our initial publicoffering on June 21, 2005, ev3 LLC was merged with and into us, and webecame the holding company for all of ev3 LLC’s subsidiaries.

OnMay 26, 2005, Warburg Pincus and The Vertical Group, L.P. and certain ofits affiliates (“Vertical”) contributed shares of MTI’s common stock to ev3 LLCin exchange for common membership units. In accordance with SFAS 141, thecontribution of the shares by Warburg Pincus has been accounted for as atransfer of assets between entities under common control, resulting in theretention of historical based accounting. These consolidated financialstatements give effect to the contribution of MTI shares owned by WarburgPincus as though such contribution occurred in 2003 and 2004 when WarburgPincus acquired its interest in MTI. The contribution of the MTI shares byVertical has been accounted for under the purchase method of accounting on thecontribution date.

AtDecember 31, 2005, there was a minority interest of approximately 30% inMTI. As described in Note 6, on January 6, 2006, we acquired theoutstanding shares of MTI that we did not already own through a merger of MIIwith and into MTI. MTI was the surviving entity and, as a result of thismerger, became our wholly owned subsidiary. MTI is now known as ev3 Neurovascular. All significant intercompanyaccounts and transactions have been eliminated in consolidation.

OnJanuary 1, 2006, we adopted the provisions of Statement of Financial AccountingStandards No. 151, “Inventory Costs an amendment of ARB No. 43, Chapter 4.”  This Statement amends the guidance in ARB No.43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormalamounts of idle facility expense, freight, handling costs, and wasted material(spoilage).  During first quarter 2006, we began production of a newproduct line.  We incurred approximately$300 thousand of abnormal scrap related to this new product line in the threemonths ended April 2, 2006, which was 

4

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requiredto be charged to expense in that period and is included in our reported cost ofgoods sold for the three months ended April 1, 2006.

Weoperate on a manufacturing calendar with our fiscal year ending onDecember 31.  Each quarter is 13weeks, consisting of one five-week and two four-week periods.  Accordingly, the first fiscal quarters of2007 and 2006 ended on April 1 and April 2, respectively.

**3.**                 Stock-Based Compensation

Wehave several stock-based compensation plans under which stock options and otherequity incentive awards have been granted. Under the ev3 Inc. Amended and Restated 2005 Incentive Stock Plan,eligible employees, outside directors and consultants may be awarded options,stock grants, stock units or stock appreciation rights.  The terms and conditions of an option, stockgrant, stock unit or stock appreciation right (including any vesting orforfeiture conditions) are set forth in the certificate evidencing the grant.  Subject to adjustment as provided in theplan, 6,000,000 shares of our common stock are available for issuance under theplan.  Our board of directors, uponrecommendation of the compensation committee and subject to approval by ourstockholders at our 2006 Annual Meeting to be held May 15, 2007, approved an amendmentto the plan to increase the number of shares of our common stock available forissuance under the plan by 2,000,000 shares to a total of 8,000,000 shares.

Options,other than those granted to outside consultants, generally vest over afour-year period and expire within a period of not more than 10 years from thedate of grant. Vested options generally expire 90 days after termination ofemployment. Options granted to outside consultants generally vest over the termof their consulting contract and generally expire 90 days after termination ofthe consulting relationship. The exercise price per share for each option isset by the board of directors or the compensation committee at the time ofgrant and pursuant to the terms of the plan may not be less than the fairmarket value per share on the grant date.

Inaddition to our 2005 Incentive Stock Plan, we maintain the ev3 Inc. EmployeeStock Purchase Plan (“ESPP”).  Themaximum number of shares of our common stock available for issuance under theESPP is 750,000 shares, subject to adjustment as provided in the ESPP. The ESPPprovides for six-month offering periods beginning on January 1 and July 1 ofeach year.  The first offering period was commenced on January 1, 2007.  The purchase price of the shares will be 85%of the lower of the fair market value of our common stock at the beginning orend of the offering period. This discount may not exceed the maximum discountrate permitted for plans of this type under Section 423 of the Internal RevenueCode of 1986, as amended.   The ESPPis compensatory for financial reporting purposes and approximately $165thousand of compensation expense was recorded during the three months endedApril 1, 2007.

OnJanuary 1, 2006, we adopted the provisions of Statement of FinancialAccounting Standards No. 123(R), “Share-Based Payment” (SFAS 123(R)) using themodified prospective method.  SFAS 123(R)requires companies to measure and recognize the cost of employee servicesreceived in exchange for awards of equity instruments based on the grant datefair value of those awards.  Compensationcost under SFAS 123(R) is recognized ratably using the straight-lineattribution method over the expected vesting period, which is considered to be therequisite service period.  In addition,pursuant to SFAS 123(R), we are required to estimate the amount of expectedforfeitures when calculating the compensation costs, instead of accounting forforfeitures as incurred, which was our previous method. All of our optionspreviously awarded were classified as equity instruments and continue tomaintain their equity classification under SFAS 123(R).

Thefair value of options are estimated at the date of grant using theBlack-Scholes option pricing model with the assumptions listed below.  Risk free interest rate is based on U.S.Treasury rates appropriate for the expected term.  Expected volatility is based on a combinationof historical factors related to our common stock since our June 2005 initialpublic offering and the volatility rates of a set of guideline companies.  The guideline companies consist of public andrecently public medical technology companies. Dividend yield is zero, as we do not expect to declare any dividends inthe foreseeable future.  The expectedterm is based on the weighted average time between grant and employeeexercise.  The fair value of stockgranted to employees is based upon the closing market value of our common stockon the date of grant.
| Three Months Ended | ** ** | **April 1, 2007** | ** ** | **April 2, 2006** | ** ** |
|------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Risk free  interest rate     |       | 4.8                         | %          | 4.3                         | %          |
| Expected  dividend yield     |       | 0.0                         | %          | 0.0                         | %          |
| Expected  volatility         |       | 45.3                        | %          | 50.0                        | %          |
| Expected option term         |       | 3.85 years                  |       | 4 years                     |       |

 

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*A summary of option activity for all plans during thethree months ended April 1, 2007 is as follows:*
|                                       | ** ** | **Awarded Shares  Outstanding** | ** ** | **Weighted-  Average  Exercise Price Per  Share** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------|------------|
| Balance at  January 1, 2007      |       | 5,359,248                            |       | $                                                           | 12.47      |                            |       |   |
| Granted (1)                           |       | 828,016                              |       | $                                                           | 17.81      |                            |       |   |
| Exercised                             |       | (244,824                             | )          | $                                                           | 10.34      |                            |       |   |
| Forfeited                             |       | (136,659                             | )          | $                                                           | 13.68      |                            |       |   |
| Expired                               |       | (20,974                              | )          | $                                                           | 20.82      |                            |       |   |
| Balance at April  1, 2007             |       | 5,784,807                            |       | $                                                           | 13.26      |                            | $          | 38,083 |   |
| Options exercisable at  April 1, 2007 |       | 2,788,111                            |       | $                                                           | 11.48      |                            | $          | 23,756 |   |

 

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(1)             The weighted averagefair value for options granted was $7.18.

As of April 1, 2007, thetotal compensation cost for nonvested options not yet recognized in ourstatements of operations was $20.3 million, net of estimated forfeitures. Thisamount is expected to be recognized over a weighted average period of 2.6 years.

The intrinsic value of astock option award is the amount by which the fair market value of theunderlying stock exceeds the exercise price of the award. The total intrinsicvalue of options exercised during the three months ended April 1, 2007 was $2.1million.

*A summary of restricted stock award activity for allplans during the three months ended April 1, 2007 is as follows:*
|                                       | ** ** | **Awarded  Shares  Outstanding** | ** ** | **Weighted-  Average  Grant Date Fair  Value** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|----------------------------------------------------------|------------|
| Nonvested  balance at January 1, 2007 |       | 217,774                          |       | $                                                        | 15.42      |   |
| Granted                               |       | 494,391                          |       | $                                                        | 17.67      |   |
| Vested                                |       | —                           |       | —                                                   |       |
| Forfeited                             |       | (15,771                          | )          | $                                                        | 17.67      |   |
| Nonvested balance at  April 1, 2007   |       | 696,394                          |       | $                                                        | 16.87      |   |

 

Thevalue of these shares of restricted stock was measured at the closing marketprice of our common stock on the grant date. The unamortized compensationexpense for these awards was $11.4 million as of April 1, 2007, which will berecognized over the remaining weighted average vesting period of approximately3.3 years.

**4.**                 New Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, “Fair Value Measurement.”  Thestandard provides guidance for using fair value to measure assets andliabilities.  SFAS 157 clarifies the principle that fair value should bebased on the assumptions market participants would use when pricing an asset orliability and establishes a fair value hierarchy that prioritizes theinformation used to develop those assumptions. Under the standard, fair valuemeasurements would be separately disclosed by level within the fair valuehierarchy. The statement is effective for us beginning in 2008; however, earlyadoption is permitted.  We have not yet determined the impact, if any,that the implementation of SFAS 157 will have on our results of operations andfinancial condition.

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**5.**                 Liquidity and Capital Resources

Sinceinception, we have generated significant operating losses. Historically, ourliquidity needs have been met through a series of preferred investments and bydemand notes payable issued to Warburg Pincus and Vertical.  On June 21, 2005, we completed aninitial public offering in which we sold 11,765,000 shares of our common stockat $14.00 per share for net cash proceeds of $152.7 million, net ofunderwriting discounts and other offering costs.  Immediately prior to the consummation of theoffering, ev3 LLC merged with and into ev3 Inc. and 24,040,718 Class Apreferred membership units, 41,077,336 Class B preferred membership units,and 18,799,962 common membership units of ev3 LLC were converted into 83,918,016shares of common stock of ev3 Inc. (on a pre-split basis).  Immediately thereafter, we completed aone-for-six reverse stock split whereby the 83,918,016 shares of common stockwere converted into 13,986,350 shares of common stock.  Prior to the consummation of the offering,and subsequent to the reverse stock split, we also issued 21,964,815 and1,194,489 shares of common stock to Warburg Pincus and Vertical, respectively,in exchange for their contribution of $324.2 million aggregate principal amountof demand notes and accrued and unpaid interest thereon.  The remaining balance of the accrued andunpaid interest on the demand notes, totaling $36.5 million, was repaid usingproceeds from the offering.  OnJuly 20, 2005, we sold an additional 205,800 shares of common stockpursuant to the over-allotment option granted to the underwriters in connectionwith the initial public offering.  Ournet proceeds from this sale totaled $2.2 million, after deducting underwritingdiscounts and other offering expenses. The total net cash proceeds we receivedfrom our initial public offering were $154.9 million.

OnJune 28, 2006, our operating subsidiaries, ev3 Endovascular, Inc., ev3International, Inc. and Micro Therapeutics, Inc. (collectively, the “Borrowers”),entered into a Loan and Security Agreement (“Loan Agreement”) with SiliconValley Bank (“SVB”), consisting of a two-year $30.0 million revolving line ofcredit and a 48-month $7.5 million equipment financing line.  Pursuant to the terms of the Loan Agreement,and subject to specified reserves, we may borrow under the revolving line ofcredit up to $12 million without any borrowing base limitations. Aggregateborrowings under the revolving line of credit that exceed $12 million willsubject the revolving line to borrowing base limitations.  These limitations allow us to borrow, subjectto specified reserves, up to 80% of eligible domestic and foreign accountsreceivables plus up to 30% of eligible inventory.  Additionally, borrowings against the eligibleinventory may not exceed the lesser of 33% of the amount advanced againstaccounts receivable or $7.5 million. Borrowings under the revolving line bear interest at a variable rateequal to SVB’s prime rate.  Borrowingsunder the equipment financing bear interest at a variable rate equal to SVB’sprime rate plus 1.0%.  Accrued intereston any outstanding balance under the revolving line is payable monthly inarrears.  Amounts outstanding under theequipment financing as of December 31, 2006 will be payable in 42 consecutive equalmonthly installments of principal, beginning on January 31, 2007.

OnMarch 15, 2007, we entered into an amendment to our existing Loan Agreementwith SVB.  The amendment added anadditional $5 million of equipment financing, increasing the total availableequipment financing to $12.5 million. The additional $5 million of equipment financing will have a four-yearmaturity and bear interest at a variable rate equal to SVB’s prime rate plus1.0%.  The additional borrowing under theamendment to the equipment financing will be payable in 42 consecutive equalmonthly installments of principal, beginning on September 30, 2007.  As of April 1, 2007, we had $12.0 million inoutstanding borrowings under the equipment financing, as amended, and nooutstanding borrowings under the revolving line of credit; however, we hadapproximately $2 million of outstanding letters of credit issued by SVB, whichreduces the amount available under our revolving line of credit toapproximately $28 million.

OnApril 19, 2007, subsequent to the end of our fiscal first quarter, we completeda secondary offering issuing 2,500,000 shares of our common stock whichgenerated approximately $43.5 million in net proceeds.  We expect to use the net proceeds for generalcorporate purposes.

Ourfuture liquidity and capital requirements will be influenced by numerousfactors, including clinical research and product development programs, workingcapital to support our sales growth, receipt of and time required to obtainregulatory clearances and approvals, sales and marketing programs and theacceptance of our products in the marketplace. We believe that our current resources, together with funds availableunder our revolving line of credit, are sufficient to cover our liquidityrequirements through at least the next 12 months.  However, there is no assurance thatadditional funding will not be needed. Further, if additional funding wereneeded, there is no assurance that such funding will be available to us or oursubsidiaries on acceptable terms, or at all. If we require additional working capital but are not able to raiseadditional funds, we may be required to significantly curtail or cease ongoingoperations.

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*The following summarizes the changes in stockholders’ equity(dollars in thousands) since December 31, 2006:*
| ** **                                                     | ** ** | **Common Stock** | ** ** | **Additional  Paid in** | ** ** | **Accumulated** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Total  Stockholders’** | ** **   |
|----------------------------------------------------------------|------------|-----------------------|------------|------------------------------|------------|-----------------|------------|---------------------------------------|------------|-------------------------------|--------------|
| ** **                                                     | ** ** | **Shares**            | ** ** | **Amount**                   | ** ** | **Capital**     | ** ** | **Deficit**                           | ** ** | **Income (Loss)**        | ** **   | **Equity** | ** ** |
| **Balance  December 31, 2006**                                 | ** ** | **57,594,742**        | ** ** | **$**                        | **576**    | ** **      | **$**      | **919,221**                           | ** ** | **$**                         | **(614,578** | **)** | **$** | **15** | ** ** | **$** | **305,234** | ** ** |
| Cumulative  effect of adoption of  FIN 48                      |       | —                |       | —                       |       | —          |       | (716                                  | )          | —                        |         | (716 | ) |
| **Adjusted  Balance December  31, 2006**                       | ** ** | **57,594,742**        | ** ** | **$**                        | **576**    | ** **      | **$**      | **919,221**                           | ** ** | **$**                         | **(615,294** | **)** | **$** | **15** | ** ** | **$** | **304,518** | ** ** |
| Compensation expense on equity awards and stock  purchase plan |       | —                |       | —                       |       | 2,199           |       | —                                |       | —                        |         | 2,199 |   |
| Exercise of options                                            |       | 244,824               |       | 2                            |       | 2,529           |       | —                                |       | —                        |         | 2,531 |   |
| Restricted stock grants                                        |       | 404,222               |       | 4                            |       | (4              | )          |                                  |       |                          |         | — |   |
| Comprehensive (loss):                                          |       |                  |       |                         |       |            |       |                                  |       |                          |         |   |   |
| Net loss                                                       |       |                  |       |                         |       |            |       | (9,494                                | )          | —                        |         | (9,494 | ) |
| Cumulative translation adjustment                              |       |                  |       |                         |       |            |       | —                                |       | (72                           | )            | (72 | ) |
| Comprehensive (loss)                                           |       | —                |       | —                       |       | —          |       | —                                |       | —                        |         | (9,566 | ) |
| **Balance April 1, 2007**                                      | ** ** | **58,243,788**        | ** ** | **$**                        | **582**    | ** **      | **$**      | **923,945**                           | ** ** | **$**                         | **(624,788** | **)** | **$** | **(57** | **)** | **$** | **299,682** | ** ** |

 

**6.**                 MTI Step Acquisition

OnJanuary 6, 2006, we completed the acquisition of the outstanding shares ofMTI that we did not already own through the merger of MII with and into MTI,with MTI continuing as the surviving corporation and a wholly owned subsidiaryof ev3 Inc. As a result of the merger, each share of common stock of MTIoutstanding at the effective time of the merger was automatically convertedinto the right to receive 0.476289 of a share of our common stock (the “ExchangeRatio”) and cash in lieu of any fractional share of our common stock. We issuedapproximately 7.0 million new shares of our common stock to MTI’s publicstockholders in the merger.  Fair valueof the shares issued was measured as the average closing price per share of ourstock on the NASDAQ National Market System for the five day trading periodcentered around the date that the terms of the acquisition were agreed to andannounced.  In addition, each outstandingoption to purchase shares of MTI common stock was converted into an option topurchase shares of our common stock on the same terms and conditions (includingvesting) as were applicable under such MTI option. The exercise price andnumber of shares for which each such MTI option is (or will become) exercisablewas adjusted based on the Exchange Ratio.  The fair value of the replacement stock options was estimated at theclosing date.  The unvested portion ofthe replacement stock options will be recognized as compensation expense overthe remaining service period.

Theinvestment was accounted for using the step acquisition method prescribed byARB 51, Consolidated Financial Statements. Step acquisition accountingrequires the allocation of the excess purchase price to the fair value of netassets acquired. The excess purchase price is determined as the differencebetween the cash paid and the historical book value of the interest in net assetsacquired.  The effects of the acquisitiondo not materially change our results of operations.  Therefore, pro forma disclosures are notincluded.

*The following table presentsthe purchase price for the acquisition (in thousands) on January 6, 2006:*
|                                                    | ** ** | **2006** | ** ** |
|----------------------------------------------------|------------|----------|------------|
| Fair value of  shares/options issued               |       | $        | 95,438     |   |
| Interest  acquired in historical book value of MTI |       | (12,850  | )          |
| Excess purchase price  over historical book values |       | $        | 82,588     |   |

 

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*The following summarizes theallocation of the excess purchase price over historical book values (inthousands) arising from the acquisition:*
|                                               | ** ** | **2006** | ** ** |
|-----------------------------------------------|------------|----------|------------|
| Inventory                                     |       | $        | 668        |   |
| Developed  technology                         |       | 15,548   |       |
| Customer  relationships                       |       | 9,964    |       |
| Trademarks and  tradenames                    |       | 2,029    |       |
| Acquired  in-process research and development |       | 1,786    |       |
| Goodwill                                      |       | 54,605   |       |
| Accrued  liabilities                          |       | (2,012   | )          |
| Total                                         |       | $        | 82,588     |   |

 

Theweighted average life of the acquired intangibles, excluding goodwill, wasseven years.  The acquired in-processresearch and development charge was estimated considering an appraisal andrepresents the estimated fair value of the in-process projects at the date ofacquisition of the MTI shares.  As of theacquisition date, the in-process projects had not yet reached technologicalfeasibility and had no alternative use. The primary basis for determining technological feasibility of theseprojects is obtaining regulatory approval to market the products.  Accordingly, the value attributable to theseprojects, which had yet to obtain regulatory approval, was expensed inconjunction with the acquisition.  If theprojects are not successful, or completed in a timely manner, we may notrealize the financial benefits expected from these projects.

The income approach was used to determine the fair value of the acquiredin-process research and development. This approach establishes fair value by estimating the after-tax cashflows attributable to any in-process project over its useful life and thendiscounting these after-tax cash flows back to the present value.  The costs to complete each project were basedon estimated direct project expenses as well as the remaining labor hours andrelated overhead costs.  In arriving atthe value of acquired in-process research and development projects, weconsidered the project’s stage of completion, the complexity of the work to becompleted, the costs already incurred, the remaining costs to complete theproject, the contribution of core technologies, the expected introduction dateand the estimated useful life of the technology.  The discount rate used to arrive at thepresent value of acquired in-process research and development as of theacquisition date was based on the time value of money and medical technologyinvestment risk factors.  The discountrate used was approximately 14%.  Webelieve that the estimated acquired in-process research and development amountdetermined represents the fair value at the date of acquisition and does notexceed the amount a third party would pay for the project.

**7.**                    Short-Term Investments

Short-terminvestments consist of debt securities, which have investment grade creditratings.  The debt securities areclassified and accounted for as available-for-sale and are reported at fairvalue with unrealized gains and losses excluded from earnings and reported inother comprehensive income.  Managementdetermines the appropriate classification of its investments in securities atthe time of purchase and reevaluates such determination at each balance sheetdate.  The short-term investments consistof floating rate taxable municipal bonds with maturities from 2019 to2036.  We have the option to put thebonds to the remarketing agent who is obligated to repurchase the bonds at par.  As of April 1, 2007, our cost approximatedfair value related to these investments.

**8.**                 Inventories

*Inventory consists of the following (in thousands):*
|                    | ** ** | **April 1, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Raw materials      |       | $                           | 7,954      |                            | $          | 7,100 |   |
| Work in-progress   |       | 3,264                       |       | 3,271                           |       |
| Finished goods     |       | 40,051                      |       | 36,478                          |       |
|               |       | 51,269                      |       | 46,849                          |       |
| Inventory  reserve |       | (5,070                      | )          | (4,725                          | )          |
| Inventory, net     |       | $                           | 46,199     |                            | $          | 42,124 |   |

 

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**9.**                 Property and Equipment, Net

*Property and equipment consists of the following (inthousands):*
|                                            | ** ** | **April 1, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Machinery and  equipment                   |       | $                           | 21,539     |                            | $          | 20,472 |   |
| Office furniture  and equipment            |       | 12,049                      |       | 11,440                          |       |
| Leasehold  improvements                    |       | 9,725                       |       | 9,750                           |       |
| Construction in  progress                  |       | 2,112                       |       | 2,040                           |       |
|                                       |       | 45,425                      |       | 43,702                          |       |
| Less:                                      |       |                        |       |                            |       |
| Accumulated  depreciation and amortization |       | (21,285                     | )          | (19,630                         | )          |
| Property and equipment,  net               |       | $                           | 24,140     |                            | $          | 24,072 |   |

 

Totaldepreciation expense for property and equipment was $1.8 million and $1.3million for the three months ended April 1, 2007 and April 2, 2006,respectively.

**10.**          Goodwill and Other Intangible Assets

*There have been no changes in the carrying amount ofgoodwill by operating segment in the three months ended April 1, 2007.  The balance at April 1, 2007 is as follows(in thousands):*
|                              | ** ** | **Cardio  Peripheral** | ** ** | **Neurovascular** | ** ** | **Total** | ** ** |
|------------------------------|------------|------------------------|------------|-------------------|------------|-----------|------------|
| Balance as of  April 1, 2007 |       | $                      | 71,307     |              | $          | 77,754    |       | $ | 149,061 |   |
|                              |            |                        |            |                   |            |           |            |  |  |  |

 

*Other intangible assets consist of the following (inthousands):*
|                            | ** ** | **Weighted**                                   | ** ** | **April 1, 2007** | ** ** | **December 31, 2006** | ** ** |
|----------------------------|------------|------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **Average  Useful Life  (in years)** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization**   | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
| Patents and  licenses      |       | 5.0                                            |       | $                           | 12,064     |                            | $          | (4,241 | ) | $ | 7,823 |   | $ | 11,435 |   | $ | (4,009 | ) | $ | 7,426 |   |
| Developed  technology      |       | 6.0                                            |       | 63,616                      |       | (42,046                         | )          | 21,570 |   | 63,616 |   | (40,119 | ) | 23,497 |   |
| Trademarks and  tradenames |       | 7.0                                            |       | 5,122                       |       | (2,801                          | )          | 2,321 |   | 5,122 |   | (2,634 | ) | 2,488 |   |
| Customer  relationships    |       | 5.0                                            |       | 16,094                      |       | (10,318                         | )          | 5,776 |   | 16,094 |   | (9,491 | ) | 6,603 |   |
| Distribution  rights       |       | 2.5                                            |       | 9,274                       |       | (927                            | )          | 8,347 |   | — |   | — |   | — |   |
| Other intangible assets    |       |                                           |       | $                           | 106,170    |                            | $          | (60,333 | ) | $ | 45,837 |   | $ | 96,267 |   | $ | (56,253 | ) | $ | 40,014 |   |

 

Intangibleassets are amortized using methods which approximate the benefit provided bythe utilization of the assets.  Patentsand licenses, developed technology and trademarks and tradenames are amortizedon a straight line basis.  Customerrelationships are amortized using accelerated methods.  We continually evaluate the amortizationperiod and carrying basis of intangible assets to determine whether events andcircumstances warrant a revised estimated useful life or reduction in value.

OnFebruary 15, 2007, we executed a new distribution agreement with InvatecTechnology Center GmbH appointing us as a non-exclusive distributor of certainof Invatec’s products for the United States and Puerto Rico (the “DistributionAgreement”).  In connection with theexecution of the Distribution Agreement, we paid Invatec $9.3 million for thedistribution rights that will be accounted for as an intangible asset andamortized over the term of the agreement. This payment was comprised of a onetime sign-up fee of $6.5 million paid in cash and retainage by Invatec of theremaining unamortized portion of the recoverable sign-up fee from our previousagreement with Invatec of $2.8 million as additional consideration. The term ofthe Distribution Agreement extends until December 31, 2008 and we arepermitted to continue to sell our inventory of Invatec products for a period ofup to six months after the termination of the Distribution Agreement.

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Totalamortization of other intangible assets was $4.1 million and $4.2 million forthe three months ended April 1, 2007, and April 2, 2006, respectively.  The estimated amortization expense (inclusiveof amortization expense already recorded for the three months ended April 1,2007) for the next five years ending December 31 is as follows (inthousands):
| 2007 |   | $      | 15,069 |   |
|------|--------|--------|--------|--------|
| 2008 |   | 11,485 |   |
| 2009 |   | 6,899  |   |
| 2010 |   | 3,901  |   |
| 2011 |   | 2,487  |   |

 

**12.**          Accrued Liabilities

*Accrued liabilities consist of the following (in thousands):*
|                                | ** ** | **April 1, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Accrued  professional services |       | $                           | 4,586      |                            | $          | 1,900 |   |
| Accrued clinical  studies      |       | 289                         |       | 359                             |       |
| Office closure                 |       | 316                         |       | 345                             |       |
| Accrued other                  |       | 7,763                       |       | 7,498                           |       |
| Total accrued  liabilities     |       | $                           | 12,954     |                            | $          | 10,102 |   |

 

**13.**          Long-Term Debt

*Long-term debt consists of the following (in thousands):*
|                       | ** ** | **April 1, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Equipment term  loan  |       | $                           | 11,964     |                            | $          | 7,500 |   |
| Less: current portion |       | (2,976                      | )          | (2,143                          | )          |
| Total long-term  debt |       | $                           | 8,988      |                            | $          | 5,357 |   |

 

OnJune 28, 2006, our operating subsidiaries, ev3 Endovascular, Inc., ev3International, Inc. and Micro Therapeutics, Inc., entered into a Loan andSecurity Agreement, with Silicon Valley Bank, or SVB, consisting of a two-year$30.0 million revolving line of credit and a 48-month $7.5 million equipmentfinancing line.  Borrowings under therevolving line bear interest at a variable rate equal to SVB’s prime rate.  Borrowings under the equipment financing bearinterest at a variable rate equal to SVB’s prime rate plus 1.0%. Accruedinterest on any outstanding balance under the revolving line is payable monthlyin arrears.  Amounts outstanding underthe equipment financing as of December 31, 2006 will be payable in 42 consecutiveequal monthly installments of principal, beginning on January 31, 2007.  On March 15, 2007, we entered into anamendment to our existing Loan Agreement with SVB.  The amendment added an additional $5 millionof equipment financing, increasing the total available equipment financing to$12.5 million.  The additional $5 millionof equipment financing will have a four-year maturity and bear interest at avariable rate equal to SVB’s prime rate plus 1.0%.  The additional borrowing under the amendmentto the equipment financing will be payable in 42 consecutive equal monthlyinstallments of principal, beginning on September 30, 2007.

*Annual maturities of our long-term debt are as follows (inthousands):*

| 2007  |   | $     | 2,976  |   |
|-------|--------|-------|--------|--------|
| 2008  |   | 3,571 |   |
| 2009  |   | 3,571 |   |
| 2010  |   | 1,846 |   |
| Total |   | $     | 11,964 |   |

 

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**14.**          Interest (Income) Expense

*Interest (income) expense consists of the following (inthousands):*
|                                       | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **April 1, 2007**      | ** ** | **April 2, 2006** | ** ** |
| Interest expense                      |       | $                                | 275        |   | $ | 34 |   |
| Interest  (income)                    |       | (384                             | )          | (733 | ) |
| Total interest  (income) expense, net |       | $                                | (109       | ) | $ | (699 | ) |

 

**15.**          Other Comprehensive Income (Loss)

*The following table provides a reconciliation of net loss tocomprehensive loss (in thousands):*
|                                          | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **April 1, 2007**      | ** ** | **April 2, 2006** | ** ** |
| Net loss                                 |       | $                                | (9,494     | ) | $ | (24,501 | ) |
| Changes in  foreign currency translation |       | (72                              | )          | 92 |   |
| Total  comprehensive loss                |       | $                                | (9,566     | ) | $ | (24,409 | ) |

 

**16.**          Income Taxes

OnJanuary 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(FIN 48) an interpretation of FASB Statement No. 109.  FIN 48 clarifieswhen tax benefits should be recorded in financial statements, requires certaindisclosures of uncertain tax matters and indicates how any tax reserves shouldbe classified in a balance sheet. The provisions of FIN 48 are applied to all tax positions upon initialadoption, with the cumulative effect adjustment reported as an adjustment tothe opening balance of retained earnings. Upon adoption of FIN 48, we recorded a $716 thousand liability foruncertain tax positions as an adjustment to the 2007 opening balance ofretained earnings.

Asof the date of adoption, the total amount of unrecognized tax benefits was $4.7million, of which approximately $872 thousand would affect our effectiveincome tax rate if recognized.  Werecognize interest and penalties related to uncertain tax positions as incometax expense.  As of January 1, 2007, accrued interest and penalties related touncertain tax positions totaled approximately $216 thousand and did not materially change during the quarter endedApril 1, 2007.

Managementbelieves it is reasonably possible that the total amount of unrecognized taxbenefits will decrease between $160 thousand and $501 thousand due to theclosure of the tax examinations in foreign jurisdictions within the next 12months.

We or one of oursubsidiaries file income tax returns in the U.S. Federal jurisdiction and invarious U.S. State and foreign jurisdictions.  With few exceptions, we aresubject to U.S. Federal or state and local income tax examinations by taxauthorities for years after 1995, and for years after 2002 in foreignjurisdictions.

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**17.**          Commitments and Contingencies

*Letters of Credit*

Asof April 1, 2007, we had $2.8 million of outstanding letters of credit, ofwhich approximately $800 thousand were collateralized by restricted cash and$2.0 million were backed by our revolving line of credit.

*Earn-Out Contingencies*

Underthe terms of the stock purchase agreement we entered into in connection withour acquisition of Dendron in September 2000, we may be required to makeadditional payments which are contingent upon Dendron products achievingcertain revenue targets between 2003 and 2008. In 2003, the $4.0 millionrevenue target for sales of Dendron products during 2003 was met. Accordingly,an additional payment to the former Dendron stockholders of $3.75 million wasmade in 2004. In 2004, the $5.0 million revenue target for sales of Dendronproducts during 2004 was met. Accordingly, a payment to the former Dendronstockholders of $3.75 million was accrued in 2004 and was paid during thesecond quarter 2005. We may be required to make a final payment of $7.5million, which is contingent upon Dendron products achieving annual revenues of$25 million in any year during the period between 2003 and 2008. Any such finalpayment would be due in the year following the year of target achievement.

*Contingencies*

Weare from time to time subject to, and are presently involved in, litigation orother legal proceedings.

In September 2000, Dendron,which was acquired by MTI in 2002, was named as the defendant in three patentinfringement lawsuits brought by the Regents of the University of California,as the plaintiff, in the District Court (Landgericht) in Dusseldorf, Germany.The complaints requested a judgment that Dendron’s EDC I coil device infringedthree European patents held by the plaintiff and asked for relief in the formof an injunction that would prevent Dendron from producing and selling thedevices, as well as an award of damages caused by Dendron’s allegedinfringement, and other costs, disbursements and attorneys’ fees. In August2001, the court issued a written decision that EDC I coil devices did infringethe plaintiff’s patents, enjoined Dendron from producing and selling thedevices, and requested that Dendron disclose the individual products’ costs asthe basis for awarding damages. In September 2001, Dendron appealed thedecision. In addition, Dendron instituted challenges to the validity of each ofthese patents by filing opposition proceedings with the European Patent Office,or EPO, against one of the patents (MTI joined Dendron in this action inconnection with its acquisition of Dendron), and by filing nullity proceedingswith the German Federal Patents Court against the German component of the othertwo patents. The opposition proceedings with the EPO on the one patent arecomplete, and the EPO has rejected the opposition and has upheld the validityof the one patent. Dendron retains the right to file a nullity action inGermany against the patent. All three appeal proceedings are currently stayedon the basis of the validity challenges brought by Dendron.

On July 4, 2001, theUniversity of California filed another suit against Dendron alleging that theEDC I coil device infringed another European patent held by the plaintiff. Thecomplaint was filed in the District Court of Dusseldorf, Germany seekingadditional monetary and injunctive relief. In April 2002, the court found thatEDC I coil devices did infringe the plaintiff’s patent. The patent involved isthe same patent that was involved in the case before the English Patents Courtdiscussed below and that was ruled by a Dutch court to be invalid, also asdiscussed below. The opposition proceedings on the patent are complete, and theEPO has rejected the opposition and has upheld the validity of the patent.

Dendron has now filed adomestic German nullity action against that patent.  A hearing has been scheduled in the GermanFederal Patent Court in October 2007. The infringement case is under appeal.The appeal has been stayed pending the outcome of the nullity action filedagainst the patent.

An accrual for the mattersdiscussed above was included in the balance sheet of Dendron as of the date ofits acquisition by MTI. As of April 1, 2007 approximately $887 thousand wasrecorded in accrued liabilities in our consolidated financial statementsincluded in this report. Dendron ceased all activities with respect to the EDCI coil device prior to MTI’s October 2002 acquisition of Dendron.

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Concurrent with MTI’sacquisition of Dendron, MTI initiated a series of legal actions related to ourSapphire coils in the Netherlands and the United Kingdom, which included across-border action that was heard by a Dutch court, as further describedbelow. The primary purpose of these actions was to assert both invalidity andnon-infringement by MTI of certain patents held by others. The range of patentsat issue are held by the Regents of the University of California, with BostonScientific Corporation subsidiaries named as exclusive licensees, collectivelyreferred to as the “patent holders,” related to detachable coils and certaindelivery catheters.

In October 2003, the Dutchcourt ruled the three patents at issue related to detachable coils are validand that our Sapphire coils do infringe such patents. The Dutch court alsoruled that the patent holders’ patent at issue related to the delivery catheterwas invalid. Pursuant to the court’s ruling, we have been enjoined by thepatent holders from engaging in infringing activities related to our Sapphirecoils in most countries within the European Union, and may be liable forthen-unspecified monetary damages for our activities since September 27, 2002.In February 2005, we received an initial claim from the patent holders withrespect to monetary damages, amounting to €3.6 million, or approximately $4.8****million as of April 1, 2007, with which we disagree. Courthearings will be held regarding these claims. We have filed an appeal with theDutch court, and believe that since the date of injunction in each separatecountry we are in compliance with the Dutch court’s injunction. On September 5,2006, we received a letter from the patent holders’ counsel stating that,pursuant to a recent decision in the European Court dated July 13, 2006, theyare no longer enforcing the injunction outside of The Netherlands. A decisionon the appeal is expected in the second half of 2007. The patent holders haverequested a delay in the hearing on claims damages until a decision on theappeal has been rendered. Because we believe that we have valid legal groundsfor appeal, we have determined that a loss is not probable at this time as definedby SFAS 5, “Accounting for Contingencies.” However, there can be no assurancethat the ultimate resolution of this matter will not result in a materialadverse effect on our business, financial condition or results of operations.

In January 2003, we initiateda legal action in the English Patents Court seeking a declaration that a patentheld by the patent holders related to delivery catheters was invalid, and thatour products did not infringe this patent. The patent in question was the U.K.designation of the same patent that was found by the Dutch court in October2003 to be invalid, as discussed above. The patent holders counterclaimed foralleged infringement by us. In February 2005, the court approved an interimsettlement between the parties under which the patent holders were required tosurrender such patent to the U.K. Comptroller of Patents, and to pay our costsassociated with the legal action, including interest. As a result, the patentwas surrendered and we received interim payments from the patent holdersaggregating £500 thousand (equivalent to approximately $900 thousand based onthe dates of receipt), which we recorded as a reduction of litigation expenseupon receipt of such funds during the first quarter 2005. The parties initiatedproceedings before a costs judge regarding payment by the patent holders of theremaining costs incurred by us in such litigation. We have reached a finalsettlement with the patent holders and on October 31, 2006, received the finalpayment of £600 thousand (equivalent to approximately $1.1 million), which werecorded as a reduction of litigation expense in the fourth quarter of 2006. Asa result of the settlement, we anticipate that we will no longer be involved inlitigation on this matter in the United Kingdom, although no assurance can begiven that no other litigation involving us may arise in the United Kingdom.

In the United States,concurrent with the FDA’s marketing clearance of our Sapphire line of emboliccoils received in July 2003, we, through our subsidiary MTI, initiated adeclaratory judgment action against the patent holders in the United StatesDistrict Court for the Western District of Wisconsin. The action includedassertions of non-infringement by us and invalidity of a range of patents heldby the patent holders related to detachable coils and certain deliverycatheters. In October 2003, the court dismissed our actions for proceduralreasons without prejudice and without decision as to the merits of the parties’positions. In December 2003, the University of California filed an actionagainst us in the United States District Court for the Northern District ofCalifornia alleging infringement by us with respect to a range of patents heldby the University of California related to detachable coils and certaindelivery systems. We filed a counterclaim against the University of Californiaasserting non-infringement by us, invalidity of the patents and inequitableconduct in the procurement of certain patents. In addition, we filed a claimagainst the University of California and Boston Scientific Corporation forviolation of federal antitrust laws, with the result that the court hassubsequently decided to add Boston Scientific as a party to the litigation.Motions for summary judgment made by all parties, have been denied by thecourt. A trial date has been set for October 2007.  In addition, there are various relatedactions, such as requests for re-examination and reissues, pending from time totime in the U.S. Patent and Trademark Office that may or may not have amaterial effect on these actions. We cannot estimate the possible loss or rangeof loss, if any, associated with the resolution of these matters. There can beno assurance that the ultimate resolution of these matters will not result in amaterial adverse effect on our business, financial condition or results ofoperations.

On March 30, 2005, we wereserved with a complaint by Boston Scientific Corporation and one of itsaffiliates which claims that some of our products, including our SpideRXEmbolic Protection Device, infringe certain of Boston

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Scientific’s patents. Thisaction was brought in the United States District Court for the District ofMinnesota. Subsequently, we added counterclaims for infringement of three ofour patents, Boston Scientific has added two patents into its claims, as wellas a claim against us for misappropriation of trade secrets. We intend tovigorously defend and prosecute respectively the claims in this action. Becausethese matters are in early stages and because of the complexity of the case, wecannot estimate the possible loss or range of loss, if any, associated withtheir resolution. However, there can be no assurance that the ultimateresolution of these matters will not result in a material adverse effect on ourbusiness, financial condition or results of operations.

The acquisition agreementrelating to our acquisition of Appriva Medical, Inc. contains four milestonesto which payments relate. The first milestone was required by its terms to beachieved by January 1, 2005 in order to trigger a payment equal to $50 million.We have determined that the first milestone was not achieved by January 1, 2005and that the first milestone is not payable. On May 20, 2005, Michael Lesh, asan individual seller of Appriva stock and purporting to represent certain othersellers of Appriva stock, filed a complaint in the Superior Court of the Stateof Delaware with individually specified damages aggregating $70 million andother unspecified damages for several allegations, including that we, alongwith other defendants, breached the acquisition agreement and an impliedcovenant of good faith and fair dealing by willfully failing to take the stepsnecessary to meet the first milestone under the agreement, and thereby alsofailing to meet certain other milestones, and further that one milestone wasactually met. The complaint also alleges fraud, negligent misrepresentation andviolation of state securities laws in connection with the negotiation of theacquisition agreement. We believe these allegations are without merit andintend to vigorously defend this action. We filed a motion to dismiss thecomplaint, which the court granted in June 2006 on standing grounds. Theplaintiff filed a petition for reargument, which was denied on October 31,2006. On November 29, 2006, the plaintiff filed a notice of appeal of thetrial court’s decision granting our motion to dismiss.  Briefing of plaintiff’s appeal was completedin early March 2007, while oral argument of the appeal has not yet beenscheduled.

On or about November 21,2005, a second lawsuit was filed in Delaware Superior Court relating to theacquisition of Appriva Medical, Inc. The named plaintiff is Appriva ShareholderLitigation Company, LLC, which according to the complaint was formed for thepurpose of pursuing claims against us. The complaint alleges that Erik van derBurg and three unidentified institutional investors have assigned their claimsas former shareholders of Appriva to Appriva Shareholder Litigation Company,LLC. The complaint alleges specified damages in the form of the secondmilestone payment ($25 million), which is claimed to be due and payable, andfurther alleges unspecified damages to be proven at trial. The complaintalleges the following claims: misrepresentation, breach of contract, breach ofthe implied covenant of good faith and fair dealing and declaratory relief. Webelieve these allegations and claims are without merit and intend to vigorouslydefend this action. We filed a motion to dismiss the complaint. On August 24,2006, the trial court converted our motion to dismiss into a motion for summaryjudgment, which motion was granted. The trial court ruled that ApprivaShareholder Litigation Company, LLC did not have standing. The trial court didnot address the merits of the claims. Appriva Shareholder Litigation Company,LLC has filed a notice of appeal of the trial court’s ruling.  The Delaware Supreme Court heard oralarguments on January 16, 2007, but has yet to issue a decision.

Because both of these Apprivaacquisition related matters are in early stages, we cannot estimate thepossible loss or range of loss, if any, associated with their resolution.However, there can be no assurance that the ultimate resolution of thesematters will not result in a material adverse effect on our business, financialcondition or results of operations.

On October 11, 2005, apurported stockholder class action lawsuit purportedly on behalf of MTI’sminority stockholders was filed in the Delaware Court of Chancery against MTI,MTI’s directors and us challenging our exchange offer with MTI. The complaintalleged the then-proposed transaction constituted a breach of defendants’fiduciary duties. The complaint sought an injunction preventing the completionof the transaction with MTI or, if the transaction were to be completed,rescission of the transaction or rescissory damages, unspecified damages, costsand attorneys’ fees and expenses. On January 6, 2006, we completed anacquisition of the publicly held shares of MTI through a merger transaction. Webelieve this lawsuit is without merit and plan to defend it vigorously if theplaintiff decides to pursue it. However, there can be no assurance that theultimate resolution of this matter will not result in a material adverse effecton our business, financial condition or results of operations.

**18.**             Segmentand Geographic Information

Wereport and manage our operations in two reportable business segments based onsimilarities in the products sold, customer base and distribution system. Thecardio peripheral operating segment includes cardiovascular products which areused to treat coronary artery disease, atrial fibrillation and other disordersin the heart and peripheral vascular products which are used to treat vasculardisease in the legs, kidney (or renal), neck (or carotid), and generally allvascular diseases

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otherthan in the brain or the heart. The neurovascular operating segment includesproducts that are used to treat vascular disease and disorders in the brain,including aneurysms and arterial-venous malformations. Management measuressegment profitability on the basis of gross profit calculated as net sales lesscost of goods sold excluding amortization of intangible assets. Other operatingexpenses are not allocated to individual operating segments for internaldecision making activities.

*The following is segment information (in thousands):*
|                                                   | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **April 1, 2007**      | ** ** | **April 2, 2006** | ** ** |
| ** **                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Net  sales**                                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Cardio  Peripheral:**                           | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Stents                                            |       | $                                | 19,806     |   | $ | 13,046 |   |
| Thrombectomy and embolic protection          |       | 6,218                            |       | 4,037 |   |
| Procedural support and other                 |       | $                                | 10,467     |   | 8,249 |   |
| Total Cardio Peripheral                           |       | $                                | 36,491     |   | $ | 25,332 |   |
| **Neurovascular:**                                | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Embolic products                                  |       | 12,926                           |       | 7,383 |   |
| Neuro access and delivery products and other |       | 12,082                           |       | 9,522 |   |
| Total Neurovascular                               |       | $                                | 25,008     |   | $ | 16,905 |   |
|                                              |       |                             |       |   |   |
| Total net sales                                   |       | $                                | 61,499     |   | $ | 42,237 |   |
|                                              |       |                             |       |   |   |
| **Gross  profit**                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cardio Peripheral                                 |       | $                                | 21,962     |   | $ | 12,927 |   |
| Neurovascular                                     |       | 19,080                           |       | 12,822 |   |
| Total                                             |       | $                                | 41,042     |   | $ | 25,749 |   |
|                                              |       |                             |       |   |   |
| Gross profit                                      |       | $                                | 41,042     |   | $ | 25,749 |   |
| Operating  expense                                |       | 50,686                           |       | 50,834 |   |
| Loss from operations                              |       | $                                | (9,644     | ) | $ | (25,085 | ) |

 
|                       | ** ** | **April 1, 2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Total assets** |       |                        |       |                        |       |
| Cardio Peripheral     |       | $                           | 202,659    |                        | $          | 209,414 |   |
| Neurovascular         |       | 149,877                     |       | 143,412                     |       |
| Total                 |       | $                           | 352,536    |                        | $          | 352,826 |   |

 

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*The following table presents net sales and long-livedassets by geographic area (in thousands):*
|                      | ** ** | **Three Months Ended** | ** ** |
|----------------------|------------|----------------------------------|------------|
| ** **           | ** ** | **April 1, 2007**      | ** ** | **April 2, 2006** | ** ** |
| **Geographic  Data** |       |                             |       |   |   |
| **Net  Sales**       |       |                             |       |   |   |
| United States        |       | $                                | 35,140     |   | $ | 24,774 |   |
| International        |       | 26,359                           |       | 17,463 |   |
| Total net sales      |       | $                                | 61,499     |   | $ | 42,237 |   |

 
|                          | ** ** | **April 1, 2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Long-lived  Assets**   |       |                        |       |                        |       |
| United States            |       | $                           | 23,563     |                        | $          | 23,422 |   |
| International            |       | 577                         |       | 650                         |       |
| Total long-lived  assets |       | $                           | 24,140     |                        | $          | 24,072 |   |

 

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

ThisManagement’s Discussion and Analysis provides material historical andprospective disclosures intended to enable investors and other users to assessour results of operations and financial condition. Statements that are nothistorical are forward-looking and involve risks and uncertainties discussedunder the heading “Forward-Looking Statements” below. The following discussionof our results of operations and financial condition should be read inconjunction with our consolidated financial statements and related notesthereto included elsewhere in this report.

**Overview**

We are a leading globalmedical device company focused on catheter-based technologies for theendovascular treatment of vascular diseases and disorders.  Ourname signifies our commitment to, and engagement in, the peripheral vascular,neurovascular and cardiovascular markets and the physician specialties thatserve them.  Our broad product portfoliois focused on applications that we estimate represent an addressable worldwideendovascular market opportunity of approximately $3.2 billion in 2005****and up to $7.0 billion by the end of 2010.We sell over 100 products consisting of over 1,000 styles and sizes inmore than 60 countries through a direct sales force in the United States,Canada, Europe and other countries and distributors in selected otherinternational markets.

We believe the overall marketfor endovascular devices will grow as the demand for minimally invasivetreatment of vascular diseases and disorders continues to increase. We intendto capitalize on this market opportunity by the continued introduction of newproducts. We expect to originate these new products primarily through ourinternal research and development and clinical efforts, but we may supplementthem with acquisitions or other external collaborations. Additionally, ourgrowth has been, and will continue to be, impacted by our expansion into newgeographic markets and the expansion of our direct sales organization inexisting geographic markets.

On January 6, 2006, wecompleted the acquisition of the outstanding shares of MTI that we did notalready own through the merger of MII with and into MTI, with MTI continuing asthe surviving corporation and a wholly owned subsidiary of ev3 Inc. As a resultof the merger, each share of common stock of MTI outstanding at the effectivetime of the merger was automatically converted into the right to receive0.476289 of a share of our common stock (the “Exchange Ratio”) and cash in lieuof any fractional share of our common stock. We issued approximately 7.0million new shares of our common stock to MTI’s public stockholders in themerger.

We report and manage ouroperations in two reportable business segments based on similarities in theproducts sold, customer base and distribution system. Our cardio peripheralsegment contains products that are used in both peripheral vascular andcardiovascular procedures by radiologists, vascular surgeons and cardiologists.Our neurovascular segment contains products that are used primarily byneuroradiologists and neuro surgeons. Our sales activities and operations arealigned closely with our business segments. We generally have dedicated cardioperipheral sales teams in the United States and Europe that target customerswho often perform procedures in both anatomic areas (cardiovascular andperipheral vascular). We generally have separate, dedicated neurovascular salesteams in the United States and Europe that are specifically focused on ourneurovascular business customer base.

We have corporateinfrastructure and direct sales capabilities in the United States, Canada,Europe and other countries and have established distribution relationships inselected other international markets. Beginning October 1, 2006, we establisheda distribution arrangement with Medtronic International Trading Inc. - JapanBranch, a subsidiary of Medtronic, Inc., pursuant to which Medtronicdistributes all of our products in Japan. As a result of this new arrangement,we ceased our direct sales operations in Japan. Our corporate headquarters andour manufacturing, research and development, and U.S. sales operations for ourperipheral vascular and cardiovascular product lines are located in Plymouth,Minnesota. Our manufacturing, research and development, and U.S. salesoperations for our neurovascular product lines are located in Irvine,California. Outside of the United States, our primary office is in Paris,France. Approximately 43% of our net sales during the three months ended April1, 2007 were generated outside of the United States. As a result, we aresensitive to risks related to fluctuation in exchange rates and other risksassociated with international operations which could affect our businessresults. Changes in foreign currency exchange rates had a positive impact ofapproximately $1.4 million on our first quarter 2007 net sales as compared toour first quarter 2006 net sales.

Since our inception, we havefocused on building our U.S. and international direct sales and marketinginfrastructure that includes a worldwide sales force of approximately 250 salesprofessionals as of April 1, 2007 in the United States, Canada and Europe. Ourdirect sales representatives accounted for approximately 84% and 89% of our netsales during the first quarter of 2007 and 2006, respectively, with the balancegenerated by independent distributors. In order to drive sales

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growth, we have investedheavily throughout our history in new product development, clinical trials toobtain regulatory approvals and the expansion of our global distributionsystem. As a result, our cumulative costs and expenses have significantlyexceeded our net sales, resulting in an accumulated deficit of $624.8 millionat April 1, 2007. Consequently, we have financed our operations through debtand equity offerings. We expect to continue to generate operating losses for atleast the next 9 months.

Ourcash, cash equivalents and short-term investments available to fund our currentoperations were $26.6 million at April 1, 2007. On April 19, 2007, subsequentto the end of our fiscal first quarter, we completed a secondary offeringissuing 2,500,000 shares of our common stock which generated approximately$43.5 million in net proceeds.  We expectto use the net proceeds for general corporate purposes.

On June 28, 2006, ouroperating subsidiaries, ev3 Endovascular, Inc., ev3 International, Inc. andMicro Therapeutics, Inc., entered into a Loan and Security Agreement withSilicon Valley Bank, consisting of a two-year $30.0 million revolving line ofcredit and a 48-month $7.5 million equipment financing line.  On March 15, 2007, we entered into anamendment to our existing Loan Agreement with SVB.  The amendment added an additional $5 millionline of equipment financing, increasing the total available equipment financingto $12.5 million.  The additional $5million of equipment financing will have a four-year maturity and bear interestat a variable rate equal to SVB’s prime rate plus 1.0%.  The additional borrowing under the amendmentto the equipment financing will be payable in 42 consecutive equal monthlyinstallments of principal, beginning on September 30, 2007.  As of April 1, 2007, we had $12.0 million inoutstanding borrowings under the equipment financing and no outstandingborrowings under the revolving line of credit; however, we had  approximately $2 million of outstandingletters of credit issued by SVB, which reduces the amount available under ourrevolving line of credit to approximately $28 million.

We believe our cash, cashequivalents, short-term investments and funds available under our revolvingline of credit will be sufficient to meet our liquidity requirements through atleast the next twelve months.

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**Results of Operations**

Thefollowing table sets forth, for the periods indicated, our results ofoperations expressed as dollar amounts (dollars in thousands, except per shareamounts), and the changes between the specified periods expressed as percentincreases or decreases:
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Percent**                 | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **April 1, 2007**      | ** ** | **April 2, 2006** | ** ** | **Change** | ** ** |
| **Results of Operations:**                     |       |                             |       |                        |       |   |   |
| Net sales                                      |       | $                                | 61,499     |                        | $          | 42,237 |   | 45.6 | % |
| Operating  expenses:                           |       |                             |       |                        |       |   |   |
| Cost of goods  sold (a)                        |       | 20,457                           |       | 16,488                      |       | 24.1 | % |
| Sales, general  and administrative (a)         |       | 39,137                           |       | 37,861                      |       | 3.4 | % |
| Research and  development (a)                  |       | 7,433                            |       | 6,774                       |       | 9.7 | % |
| Amortization of  intangible assets             |       | 4,100                            |       | 4,243                       |       | (3.4 | )% |
| Loss on sale of  assets, net                   |       | 16                               |       | 170                         |       | (90.6 | )% |
| Acquired  in-process research and development  |       | —                           |       | 1,786                       |       | NM |   |
| Total operating  expenses                      |       | 71,143                           |       | 67,322                      |       | 5.7 | % |
| Loss from operations                           |       | (9,644                           | )          | (25,085                     | )          | (61.6 | )% |
| Other income:                                  |       |                             |       |                        |       |   |   |
| Interest income,  net                          |       | (109                             | )          | (699                        | )          | (84.4 | )% |
| Other income,  net                             |       | (317                             | )          | (54                         | )          | NM |   |
| Loss before income  taxes                      |       | (9,218                           | )          | (24,332                     | )          | (62.1 | )% |
| Income tax  expense                            |       | 276                              |       | 169                         |       | 63.3 | % |
| Net loss                                       |       | $                                | (9,494     | )                           | $          | (24,501 | ) | (61.3 | )% |
| Net loss per common  share (basic and diluted) |       | $                                | (0.17      | )                           | $          | (0.44 | ) |   |   |
| Weighted average common shares outstanding     |       | 57,514,255                       |       | 55,944,925                  |       |   |   |

 

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(a)          Includes stock-based compensation charges of:
| Cost of goods sold                |   | $     | 158    |   | $      | 214    |   |   |   |
|-----------------------------------|--------|-------|--------|--------|--------|--------|--------|--------|--------|
| Sales, general and administrative |   | 1,859 |   | 1,366  |   |   |   |
| Research and development          |   | 182   |   | 214    |   |   |   |
|                              |   | $     | 2,199  |   | $      | 1,794  |   |   |   |

 

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The following tables set forth, for the periodsindicated, our net sales by segment and geography expressed as dollar amounts(in thousands) and the changes in net sales between the specified periodsexpressed as percentages:
| ** **                                    | ** ** | **Three Months Ended** | ** ** | ** **              | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **April 1,  2007**          | ** ** | **April 2,  2006** | ** ** | **Percent  Change** | ** ** |
| **NET SALES BY SEGMENT****:**  |       |                             |       |                    |       |   |   |
| **Cardio Peripheral:**                        |       |                             |       |                    |       |   |   |
| Stents                                        |       | $                                | 19,806     |                    | $          | 13,046 |   | 51.8 | % |
| Thrombectomy and  embolic protection          |       | 6,218                            |       | 4,037                   |       | 54.0 | % |
| Procedural  support and other                 |       | 10,467                           |       | 8,249                   |       | 26.9 | % |
| Total Cardio  Peripheral                      |       | $                                | 36,491     |                    | $          | 25,332 |   | 44.1 | % |
|                                          |       |                             |       |                    |       |   |   |
| **Neurovascular:**                            |       |                             |       |                    |       |   |   |
| Embolic products                              |       | 12,926                           |       | 7,383                   |       | 75.1 | % |
| Neuro access and  delivery products and other |       | 12,082                           |       | 9,522                   |       | 26.9 | % |
| Total  Neurovascular                          |       | $                                | 25,008     |                    | $          | 16,905 |   | 47.9 | % |
|                                          |       |                             |       |                    |       |   |   |
| Total                                         |       | $                                | 61,499     |                    | $          | 42,237 |   | 45.6 | % |

 
| ** **                      | ** ** | **Three Months Ended** | ** ** | ** **              | ** ** |
|---------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                      | ** ** | **April 1,  2007**          | ** ** | **April 2,  2006** | ** ** | **Percent  Change** | ** ** |
| **NET SALES BY GEOGRAPHY:**     |       |                             |       |                    |       |   |   |
| United States                   |       | $                                | 35,140     |                    | $          | 24,774 |   | 41.8 | % |
| International                   |       |                             |       |                    |       |   |   |
| Before foreign  exchange impact |       | 24,991                           |       | 17,463                  |       | 43.1 | % |
| Foreign exchange  impact        |       | 1,368                            |       | —                  |       | — |   |
| Total                           |       | 26,359                           |       | 17,463                  |       | 50.9 | % |
| Total                           |       | $                                | 61,499     |                    | $          | 42,237 |   | 45.6 | % |

 

***Comparison of the Three Months EndedApril 1, 2007 to the Three Months Ended April 2, 2006***

*Net sales*.  Net sales increased 46% to$61.5 million in the three months ended April 1, 2007 compared to $42.2 millionin the three months ended April 2, 2006, primarily as a result of continuedimprovements in sales force productivity and increased market penetration ofproducts introduced during the past 24 months.

*Net sales of cardio peripheral products*.  Netsales of cardio peripheral products increased 44% to $36.5 million in the threemonths ended April 1, 2007 compared to $25.3 million in the three months endedApril 2, 2006.  This sales growth wasprimarily the result of sales growth in our stent products and sales of ourSpideRX Embolic Protection Device.  Netsales in our stent product line increased 52% to $19.8 million in the threemonths ended April 1, 2007 compared to $13.1 million in the three months endedApril 2, 2006.  This increase isattributable to increased market penetration of the EverFlex, Protégé GPS,Protégé RX Carotid Stent, Primus and ParaMount Mini families of stents,partially offset by sales declines in older generation products.  Net sales of our thrombectomy and embolicprotection devices increased 54% to $6.2 million in the three months endedApril 1, 2007 compared to $4.0 million in the same period of 2006, largely dueto increased market penetration of the SpideRX, partially offset by salesdeclines in older generation products. Net sales of our procedural support and other products increased 27% to$10.5 million in the three months ended April 1, 2007 compared to $8.2 millionin the three months ended April 2, 2006, largely due to the increased marketpenetration of PTA balloon catheters in the United States.  We expect cardio peripheral net sales toincrease during the remainder of 2007 as a result of new product introductionsand continued market penetration of products released during the past 24months.

*Net sales of neurovascular products*.  Netsales of our neurovascular products increased 48% to $25.0 million in the threemonths ended April 1, 2007 compared to $16.9 million in the three months endedApril 2, 2006, primarily as a result of increased penetration of existingproducts and sales growth in virtually all of our neurovascular access anddelivery products. Net sales of our embolic products increased 75% to $12.9million in the three months ended April 1, 2007 compared to $7.4 million in thesame period of 2006, primarily due to increased market penetration of our Nexuscoil and Onyx Liquid Embolic System for the treatment of brain arterial-venousmalformations, partially offset by sales declines in older generationproducts.  Sales of our neuro access anddelivery products and other increased 27% to $12.1 million in the three monthsended April 1, 2007 compared to $9.5 million in the same period in 2006,largely as a result of volume increases across virtually all productlines.  We expect our neurovascular netsales to increase during the remainder of

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2007as a result of market growth, continued market penetration of products releasedduring the past 24 month and the introduction of new products.

*Net sales by geography*.  Netsales in the United States increased 42% to $35.1 million in the three monthsended April 1, 2007 compared to $24.8 million in the three months ended April2, 2006. International net sales increased 51% to $26.4 million in the threemonths ended April 1, 2007 compared to $17.4 million in the three months endedApril 2, 2006 and represented 43% and 41% of our total net sales during thethree months ended April 1, 2007 and April 2, 2006, respectively.  This growth was driven in part by an increasein market penetration within our historical international markets as well ascontinued expansion into several new or emerging markets in various Pacific Rimcountries.  Our international net salesin the three months ended April 1, 2007 includes a favorable currency impact ofapproximately $1.4 million principally resulting from the relationship of theEuro to the U.S. dollar in comparison with the year-ago quarter.

*Cost of goods sold*.  As a percentage of net sales,cost of goods sold decreased to 33.3% of net sales in the three months endedApril 1, 2007 compared to 39.0% of net sales in the three months ended April 2,2006.  This decrease was primarilyattributable to our continued growth in sales volume, ongoing investments inin-house manufacturing capabilities and cost savings achieved related to ourimplementation and use of lean manufacturing concepts.  In our cardio peripheral segment, cost ofgoods sold as a percent of net sales decreased to 39.8% in the three monthsended April 1, 2007 compared to 49.0% in the three months ended April 2, 2006primarily attributable to on-going investments in in-house manufacturingcapabilities and increased sales volume. In our neurovascular segment, cost of goods sold as a percent of netsales decreased to 23.7% in the three months ended April 1, 2007 compared to24.2% in the three months ended April 2, 2006 primarily attributable toincreased production volumes and on-going cost savings programs. Weexpect cost of goods sold as a percentage of net sales to continue to declineduring 2007 due to higher volume in our manufacturing facilities and efficiencyimprovements from manufacturing initiatives, offset in part by royalty paymentsrequired under the license agreement with Medtronic and anticipated conversioncosts associated with new product launches occurring during 2007.

*Sales,general and administrative expense*.  Sales, general and administrative expensesincreased 3.4% to $39.1 million in the three months ended April 1, 2007compared to $37.9 million in the three months ended April 2, 2006.  The increase was partially due to theunfavorable impact of foreign currency on international related operatingexpenses of $830 thousand, increases in selling and distribution expenses inEurope, a $650 thousand increase in hiring related and a $490 thousand increasein non-cash stock-based compensation costs and costs partially offset byacquisition related expenses that occurred in three months ended April 2, 2006that did not recur in the three months ended April 1, 2007.  Although sales, general and administrativeexpenses increased in absolute dollars, as a percentage of net sales, sales,general and administrative expenses decreased to 63.6% of net sales in thethree months ended April 1, 2007 compared to 89.6% of net sales in the threemonths ended April 2, 2006.  We expectsales, general and administrative expenses, excluding litigation relatedcharges, for the remaining quarters of 2007 to increase in total when comparedto 2006 but continue to decline as a percentage of net sales as we believe thatour current infrastructure can support a higher level of sales.

*Research and development*. Research and development expense increased 9.7% to $7.4 million in thethree months ended April 1, 2007 compared to $6.8 million in the three monthsended April 2, 2006.  This increase wasdue to increased spending on clinical trials. We expect research and development expenses to increase during the yearas we continue to invest in as many as six clinical trials.

*Amortization of intangible assets*. Amortization of intangible assets decreased 3.4% to $4.1 million in thethree months ended April 1, 2007 compared to $4.2 million in the three monthsended April 2, 2006 primarily due to certain intangible assets becoming fullyamortized, substantially offset by the amortization of the recently acquiredInvatec distribution rights intangible asset (see Note 10).  We expect amortization of intangible assetsfor the remaining quarters of 2007 to remain consistent to slightly decliningwhen compared with first quarter 2007 levels.

*Interest income, net*.  Netinterest income was $109 thousand in the three months ended April 1, 2007compared to $699 thousand in the three months ended April 2, 2006.  This decrease was due primarily to areduction in our average cash equivalents and short-term investment balances inthe first quarter 2007 as compared to the same period in 2006.  We also incurred interest charges on ouroutstanding borrowings under our equipment financing. See Note 13  to the consolidated financial statementsincluded elsewhere in this report.

*Other income, net*.  Other income was $317 thousandin the three months ended April 1, 2007 compared to $54 thousand in the threemonths ended April 2, 2006.  The other(income) expense in the three months ended April 1, 2007 and April 2, 2006 wasprimarily due to foreign exchange gains and losses.

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*Income tax expense*.  We incurred modest levels ofincome tax expense in the three months ended April 1, 2007 and April 2, 2006related to certain European sales offices. We recorded no provision or benefit for U.S. income taxes in eitherof the three month periods ended April 1, 2007 or April 2, 2006 due to ourhistory of operating losses.  We adoptedFIN 48, “*Accounting for Uncertainty in Income Taxes*”on January 1, 2007.  See Note 16 to theconsolidated financial statements included elsewhere in this report.

**Liquidity and CapitalResources**
| Balance Sheet Data    | ** ** | **April 1,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **(in thousands)** | ** ** |
| Cash and cash  equivalents      |       | $                       | 18,732     |                        | $          | 24,053 |   |
| Short-term investments          |       | 7,900                   |       | 14,700                      |       |
| Total current assets            |       | 131,461                 |       | 135,845                     |       |
| Total assets                    |       | 352,536                 |       | 352,826                     |       |
| Total current  liabilities      |       | 42,753                  |       | 41,767                      |       |
| Total liabilities               |       | 52,854                  |       | 47,592                      |       |
| Total stockholders’ equity |       | 299,682                 |       | 305,234                     |       |
|                                 |            |                         |            |                             |            |  |  |

 

*Financing history.*  We havegenerated significant operating losses since our inception.  These operating losses, including cumulativenon-cash charges for acquired in-process research and development of $128.7million, have resulted in an accumulated deficit of $624.8 million as of April1, 2007. We completed an initial public offering of our common stock onJune 21, 2005 in which we sold 11,765,000 shares of our common stock at$14.00 per share, resulting in net proceeds to us of approximately $152.7million, after deducting underwriting discounts and commissions and offeringexpenses.  We used $36.5 million of thesenet proceeds to repay a portion of the accrued and unpaid interest on certaindemand notes held by Warburg Pincus and Vertical.  In addition, on July 20, 2005, we sold205,800 shares of common stock pursuant to an over-allotment option granted tothe underwriters which resulted in net proceeds to us of $2.2 million, afterdeducting underwriting discounts and commissions and offering expenses.  We invested the remaining portion of the netproceeds in short-term, investment-grade, interest-bearing securities.  We have used these funds for generalcorporate purposes since our initial public offering and expect to continue todo so.  See Part II, Item 2 under theheading “Use of Proceeds” included elsewhere in this report.

OnApril 19, 2007, subsequent to the end of our fiscal first quarter, we completeda secondary offering issuing 2,500,000 shares of our common stock whichgenerated approximately $43.5 million in net proceeds.  We expect to use the net proceeds for generalcorporate purposes.

*Cash, cash equivalents and short-term investments.*Our cash, cash equivalents and short-terminvestments available to fund current operations totaled approximately $26.6million at April 1, 2007, a decrease of $12.1 million from December 31,2006.  We expect to continue to use cashto fund our operations for the remainder of 2007

*Credit facility.*  On June28, 2006, our operating subsidiaries, ev3 Endovascular, Inc., ev3International, Inc. and Micro Therapeutics, Inc., which we refer to as the “borrowers”,entered into a Loan and Security Agreement, which we refer to as the loanagreement, with Silicon Valley Bank, or SVB, consisting of a two-year $30.0million revolving line of credit and a 48-month $7.5 million equipmentfinancing line.  Pursuant to the terms ofthe loan agreement and subject to specified reserves, we may borrow under therevolving line of credit up to $12 million without any borrowing baselimitations. Aggregate borrowings under the revolving line of credit thatexceed $12 million will subject the revolving line to borrowing baselimitations.  These limitations allow usto borrow, subject to specified reserves up to 80% of eligible domestic andforeign accounts receivables plus up to 30% of eligible inventory.  Additionally, borrowings against the eligibleinventory may not exceed the lesser of 33% of the amount advanced againstaccounts receivable or $7.5 million. Borrowings under the revolving line bear interest at a variable rateequal to SVB’s prime rate.  Borrowingsunder the equipment financing bear interest at a variable rate equal to SVB’sprime rate plus 1.0%. Accrued interest on any outstanding balance under therevolving line is payable monthly in arrears. Amounts outstanding under the equipment financing as of December 31,2006 will be payable in 42 consecutive equal monthly installments of principal,beginning on January 31, 2007. On March 15, 2007, we entered into an amendmentto our existing Loan Agreement with SVB. The amendment added an additional $5 million of equipment financing,increasing the total available equipment financing to $12.5 million.  The additional $5 million of equipmentfinancing will have a four-year maturity and bear interest at a variable rateequal to SVB’s prime rate plus 1.0%.  Theadditional borrowing under the amendment to the equipment financing will bepayable in 42 consecutive equal monthly installments of principal, beginning onSeptember 30, 2007.  As

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ofApril 1, 2007, we had $12.0 million in outstanding borrowings under theequipment financing, as amended, and no outstanding borrowings under therevolving line of credit; however, we had approximately $2 million ofoutstanding letters of credit issued by SVB, which reduces the amount availableunder our revolving line of credit to approximately $28 million.

Boththe revolving line of credit and equipment financing are secured by a firstpriority security interest in substantially all of our assets, excludingintellectual property, which is subject to a negative pledge, and areguaranteed by ev3 Inc. and all of our domestic direct and indirectsubsidiaries. The loan agreement requires the borrowers to maintain a specifiedliquidity ratio and a tangible net worth level. The loan agreement imposes certain limitations on the borrowers, theirsubsidiaries and ev3 Inc., including without limitation, on their ability to:(i) transfer all or any part of their business or properties; (ii) permit orsuffer a change in control; (iii) merge or consolidate, or acquire any entity;(iv) engage in any material new line of business; (v) incur additionalindebtedness or liens with respect to any of their properties; (vi) paydividends or make any other distribution on or purchase of, any of theircapital stock; (vii) make investments in other companies; or (viii) engage inrelated party transactions, subject in each case to certain exceptions andlimitations.  The loan agreement requiresus to maintain on deposit or invested with SVB or its affiliates the lesser of$15.0 million or 50% of our aggregate cash and cash equivalents.  The borrowers are required to pay customaryfees with respect to the facility, including a fee on the average unusedportion of the revolving line.

The loan agreement containscustomary events of default, including the failure to make required payments,the failure to comply with certain covenants or other agreements, theoccurrence of a material adverse change, failure to pay certain otherindebtedness and certain events of bankruptcy or insolvency. Upon theoccurrence and continuation of an event of default, amounts due under the loanagreement may be accelerated.

Webelieve our cash, cash equivalents, short-term investments and funds availableunder our revolving line of credit will be sufficient to meet our liquidityrequirements through at least the next 12 months.

*Operating activities.*  Cashused in operations during the three months ended April 1, 2007 was $10.8million compared to $23.5 million during the three months ended April 2, 2006,reflecting primarily our net loss and increased working capital requirementsduring the periods.  During the threemonths ended April 1, 2007, our net loss included approximately $8.1 million ofnon-cash charges for depreciation and amortization and stock-based compensationexpense as compared with $7.3 million in the first quarter of 2006.  During the first quarter 2006 we alsoincurred $1.8 million of acquired in-process research and development expensethat did not recur in the three months ended April 1, 2007. We expect that ouroperations will continue to use cash during the remainder of 2007.

*Investing activities. *Cash used ininvesting activities was $1.5 million and $10.0 million during the three monthsended April 1, 2007 and April 2, 2006, respectively. During the first quarterof 2007 we purchased $1.9 million of property and equipment and $6.5 million ofdistribution rights related our agreement with Invatec.  We also received $6.8 million in proceedsfrom the sale of short-term investments. During the first quarter of 2006, wepurchased $6.7 million of short-term investments and $2.7 million of propertyand equipment.  Historically, our capitalexpenditures have consisted of purchased manufacturing equipment, research andtesting equipment, computer systems and office furniture and equipment.  We expect to continue to make investments inproperty and equipment and to incur approximately an additional $13.5 millionin capital expenditures during the balance of 2007.

*Financing activities. *Cash providedby financing activities was $7.0 million during the three months ended April 1,2007, generated primarily from proceeds of stock option exercises and proceedsfrom borrowings under our amended equipment term loan with Silicon ValleyBank.  During the first quarter of 2006,cash provided by financing activities was $1.2 million and was generatedprimarily from proceeds of stock option exercises.

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*Contractual cashobligations.*   The following is an updated tableof our contractual cash obligations and commercial commitments incorporatingrevisions in our distribution arrangement with Invatec and the increase in ourequipment financing with Silicon Valley Bank (see Note 13 to consolidatedfinancial statements included elsewhere in this report):
| ** **              | ** ** | **Payments Due by Period** | ** ** |
|-------------------------|------------|-------------------------------------------|------------|
| ** **              | ** ** | **Total**                                 | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
| ** **              | ** ** | **(dollars in thousand)**       | ** ** |
| Notes Payable           |       | $                                         | 11,964     |   | $ | 2,976 |   | $ | 7,143 |   | $ | 1,845 |   | $ | — |   |
| Purchase commitments(1) |       | 24,021                                    |       | 10,409 |   | 13,612 |   | — |   | — |   |
| Operating leases(2)     |       | 11,546                                    |       | 3,844 |   | 5,972 |   | 1,730 |   | — |   |
| Total                   |       | $                                         | 47,531     |   | $ | 17,229 |   | $ | 26,727 |   | $ | 3,575 |   | $ | — |   |

 

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(1)             Representscommitments for minimum inventory purchases related to our distributionagreement with Invatec. We do not have any other significant purchaseobligations for the delivery of goods or services or other commercialcommitments. These payments are denominated in Euros and were translated in thetables above based on the respective U.S. dollar exchange rate at April 1,2007.

(2)             The amounts reflectedin the table above for operating leases represent future minimum lease paymentsunder non-cancelable operating leases primarily for certain office space,warehouse space, computers and vehicles. Portions of these payments aredenominated in foreign currencies and were translated in the tables above basedon their respective U.S. dollar exchange rates at April 1, 2007. These futurepayments are subject to foreign currency exchange rate risk. In accordance withU.S. generally accepted accounting principles, or GAAP, our operating leasesare not recognized in our consolidated balance sheet.

*Other liquidity information. *The acquisitionagreements relating to our purchase of Appriva Medical, Inc. and DendronGmbH require us to make additional payments to the sellers of these businessesif certain milestones related to regulatory steps in the productcommercialization process are achieved. The potential milestone payments total $175.0 million and $15.0 millionwith respect to the Appriva and Dendron acquisitions, respectively, during theperiod of 2003 to 2009.  We havedetermined that the first milestone with respect to the Appriva agreement wasnot achieved by the January 1, 2005 milestone date and that the firstmilestone is not payable.  OnSeptember 27, 2005, we announced that we had decided to discontinue thedevelopment and commercialization of our PLAATO device, which is the technologywe acquired in the Appriva transaction. Although we recently had obtained conditional approval from the FDA foran Investigational Device Exemption (“IDE”) clinical trial for the PLAATOdevice, we determined that, due to the time, cost and risk of enrollment, thetrial design ultimately mandated by the FDA was not commercially feasible forus at such time.  We continue to keep allof our options open with regard to the future of the PLAATO technology, whichmay include a sale or licensing of the technology to third parties.  Under the terms of the stock purchaseagreement we entered into in connection with our acquisition of Dendron, we maybe required to make additional payments which are contingent upon Dendronproducts achieving certain revenue targets between 2003 and 2008. In 2003, the $4.0million revenue target for sales of Dendron products during 2003 was met.  Accordingly, an additional payment to theformer Dendron stockholders of $3.75 million was made in 2004.  In 2004, the $5.0 million revenue target forsales of Dendron products during 2004 was met. Accordingly, a payment to theformer Dendron stockholders of $3.75 million was accrued in 2004 and was paidduring the second quarter 2005.  We maybe required to make a final payment of $7.5 million, which is contingent uponDendron products achieving annual revenues of $25 million in any year duringthe period between 2003 and 2008.  Anysuch final payment would be due in the year following the year of targetachievement.

Ourfuture liquidity and capital requirements will be influenced by numerousfactors, including extent and duration of future operating losses, the leveland timing of future sales and expenditures, the results and scope of ongoingresearch and product development programs, working capital to support our salesgrowth, receipt of and time required to obtain regulatory clearances andapprovals, sales and marketing programs, continuing acceptance of our productsin the marketplace, competing technologies, market and regulatory developments,and the future course of intellectual property litigation.  We believe that the resources generated fromour initial public offering, together with funds available under our revolvingcredit facility and our recently completed secondary stock offering, aresufficient to meet our liquidity requirements through at least the next 12months. In the event that we require additional working capital to fund futureoperations and any future acquisitions, we may negotiate a financingarrangement with an independent institutional lender, sell notes to public orprivate investors or sell additional shares of stock or other equitysecurities.  There is no assurance thatany financing transaction will be available on terms acceptable to us, or atall, or that any financing transaction will not be dilutive to our currentstockholders.  If we require additionalworking capital, but are not able to raise additional

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funds,we may be required to significantly curtail or cease ongoing operations.  From time to time, we may also sell a giventechnology or intellectual property having a development timeline ordevelopment cost that is inconsistent with our investment horizon or which doesnot adequately complement our existing product portfolio.  See Note 5 and Note 17 to our consolidatedfinancial statements included elsewhere in this report.

*CreditRisk.*  At April 1,2007, our accounts receivable balance was $49.4 million, compared to $45.1million at December 31, 2006.  We monitorthe creditworthiness of our customers to which we grant credit terms in the normalcourse of business.  We believe thatconcentrations of credit risk with respect to our accounts receivable arelimited due to the large number of customers and their dispersion across manygeographic areas.  However, a significantamount of our accounts receivable are with national healthcare systems in manycountries.  Although we do not currentlyforesee a credit risk associated with these receivables, repayment depends uponthe financial stability of the economies of those countries.  As of April 1, 2007, no customer representedmore than 10% of our outstanding accounts receivable.  From time to time we offer certaindistributors in foreign markets who meet our credit standards extended paymentterms, which may result in a longer collection period and reduce cash flow fromoperations.  Subsequent to our initialpublic offering in June of 2005, we have not experienced significant losseswith respect to the collection of accounts receivable from groups of customersor any particular geographic area nor experienced any material cash flowreductions as a result of offering extended payment terms.

**Critical Accounting Policiesand Estimates**

**Therehave been no material changes to our critical accounting policies and estimatesfrom the information provided in Item 7, “Management’s Discussion and Analysisof Financial Condition and Results of Operations”, included in our 10-K for theyear ended December 31, 2006, except as follows:**

***Accounting for Income Taxes***

Weaccount for uncertain tax positions in accordance with FASB Interpretation No.48 “Accounting for Uncertainty inIncome Taxes” (FIN 48) an interpretation of FASB Statement No. 109. Aspart of the process of preparing our consolidated financial statements, we arerequired to determine our income taxes in each of the jurisdictions in which weoperate.  This process involvesestimating our actual current tax expense together with assessing temporarydifferences resulting from recognition of items for income tax and accountingpurposes.  These differences result indeferred tax assets and liabilities, which are included on our consolidatedbalance sheets.  We must then assess thelikelihood that our deferred tax assets will be recovered from future taxableincome and, to the extent we believe that recovery is not likely, we mustestablish a valuation allowance.  To theextent we establish a valuation allowance or increase this allowance in aperiod, we must reflect this increase as an expense within the tax provision inour consolidated statement of operations.

Theapplication of income tax law is inherently complex.  Laws and regulations in this area arevoluminous and are often ambiguous.  Assuch, we are required to make many subjective assumptions and judgmentsregarding our income tax exposures. Interpretations of and guidance surrounding income tax laws andregulations change over time.  Management’sjudgment is required in determining our uncertain tax provisions, our provisionfor income taxes, our deferred tax assets and liabilities and any valuationallowance recorded against our net deferred tax assets.  As such, changes in our subjectiveassumptions and judgments can materially affect amounts recognized in ourconsolidated financial statements.  Wewill continue to monitor the realizability of our deferred tax assets andadjust the valuation allowance accordingly. We have recorded a full valuation allowance on our net deferred taxasset as of April 1, 2007 and December 31, 2006.  See Note 16 to the consolidated financialstatements for additional detail on our uncertain tax positions.

**Seasonality**

Ourbusiness is seasonal in nature. Historically, demand for our products has been the highest in our fourthfiscal quarter.  We traditionallyexperience lower sales volumes in our third fiscal quarter than throughout therest of the year as a result of the European holiday schedule during the summermonths.

**Off-Balance SheetArrangements**

Wedo not have any off-balance sheet arrangements, as defined by therules and regulations of the SEC, that have or are reasonably likely tohave a material effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources.  As aresult, we are not materially exposed to any financing, liquidity, market orcredit risk that could arise if we had engaged in these arrangements.

**Recent Accounting Pronouncements**

On January 1, 2007, weadopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(FIN 48). FIN 48 clarifies when tax benefits should be recorded in financialstatements, requires certain disclosures of uncertain tax matters and indicateshow any tax reserves should be classified in a balance sheet.  As a result of the implementation of thisstandard, we recorded a charge of $716 thousand against beginning retainedearnings.

In September 2006, the FASBissued SFAS 157, “Fair Value Measurement.” This standard provides guidance on using fair value to measure assetsand liabilities.  SFAS 157 clarifies theprinciple that fair value should be based on the assumptions marketparticipants would use when pricing an asset or liability and establishes afair value hierarchy that prioritizes the information used to develop thoseassumptions.  Under the standard, fairvalue measurements would be separately disclosed by level within the fair valuehierarchy.  The statement is effectivefor us beginning in 2008; however, 

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early adoption ispermitted.  We have not yet determinedthe impact, if any, that the implementation of SFAS 157 will have on ourresults of operations and financial condition.

**Forward-Looking Statements**

Thisquarterly report on Form 10-Q contains not only historical information, butalso forward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934 and aresubject to the safe harbor created by those sections.  In addition, we or others on our behalf maymake forward-looking statements from time to time in oral presentations,including telephone conferences and/or web casts open to the public, in pressreleases or reports, on our Internet web site or otherwise.  All statements other than statements ofhistorical facts included in this report or expressed by us orally from time totime that address activities, events or developments that we expect, believe oranticipate will or may occur in the future are forward-looking statementsincluding, in particular, the statements about our plans, objectives,strategies, the outcome of contingencies such as legal proceedings, andprospects regarding, among other things, our financial condition, results ofoperations and business.  We haveidentified some of these forward-looking statements in this report with wordslike “believe,” “may,” “could,” “would,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,”“expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate”or “continue” or the negative of these words or other words and terms ofsimilar meaning.  These forward-lookingstatements may be contained in the notes to our consolidated financialstatements and elsewhere in this report, including under the heading “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on currentexpectations about future events affecting us and are subject to uncertaintiesand factors that affect all businesses operating in a global market as well asmatters specific to us.  Theseuncertainties and factors are difficult to predict and many of them are beyondour control. The following are some of the uncertainties and factors known tous that could cause our actual results to differ materially from what we haveanticipated in our forward-looking statements:

·                  Historyof operating losses and negative cash flow;

·                  Lackof market acceptance of new products;

·                  Delaysin product introduction;

·                  Exposureto assertions of intellectual property claims and failure to protect ourintellectual property;

·                  Effectsof litigation, including threatened or pending litigation, on matters relatingto patent infringement, employment, and commercial disputes;

·                  Failureof our business strategy, which relies on assumptions about the market for ourproducts;

·                  Failureto obtain additional capital when needed or on acceptable terms;

·                  Disruptionin our ability to manufacture our products or the ability of our key suppliersto provide us products or components or raw materials for products resulting inour inability to supply market demand for our products;

·                  Increasesin prices for raw materials;

·                  Failureto retain senior management or replace lost senior management;

·                  Employeeslowdowns, strikes or similar actions;

·                  Significantand unexpected claims under our EverFlex self-expanding stent worldwidefracture-free guarantee program in excess of our reserves;

·                  Failureto integrate effectively newly acquired operations;

·                  Incurrenceof additional debt, contingent liabilities and expenses in connection withfuture acquisitions;

·                  Failureof our customers or patients to obtain third party reimbursement for theirpurchases of our products;

·                  Consolidationin the healthcare industry could lead to demands for price concessions or tothe exclusion of some suppliers from certain of our markets;

·                  Failureto comply with applicable laws and regulations and to obtain and maintainrequired regulatory approvals for our products in a cost-effective manner or atall;

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·                  Adversechanges in applicable laws or regulations;

·                  Exposureto product liability claims;

·                  Risksinherent in operating internationally and selling and shipping our products andpurchasing our products and components internationally;

·                  Fluctuationsin foreign currency exchange rates and interest rates;

·                  Obligationto make significant milestone payments not currently reflected in our financialstatements;

·                  Relianceon independent sales distributors and sales associates to market and sell ourproducts in certain foreign countries, including most recently our reliance onMedtronic for sales of our products in Japan;

·                  Lossof customers;

·                  Disruptionin the supply of products of Invatec S.r.l. that we distribute or ourrelationship with Invatec;

·                  Dependenceupon a few of our products to generate a large portion of our net sales andexposure if drug-eluting stents become a dominant therapy in the peripheralvascular stent market and we are not able to develop or acquire a drug-elutingstent to market and sell;

·                  Failureto develop innovative and successful new products and technologies;

·                  Highlycompetitive nature of the markets in which we sell our products and theintroduction of competing products;

·                  Inabilityto meet performance enhancement objectives, including efficiency and costreduction strategies;

·                  Relianceon our management information systems for inventory management, distributionand other functions and to maintain our research and development and clinicaldata;

·                  Failureto comply with our covenants under our loan and security agreement with SiliconValley Bank;

·                  Inabilityto use net operating losses to reduce tax liability if we become profitable;

·                  Absenceof expected returns from the amount of intangible assets we have recorded;

·                  Changesin generally accepted accounting principles;

·                  Conditionsand changes in medical device industry or in general economic and businessconditions;

·                  Conflictsof interests due to our ownership structure; or

·                  Ineffectivenessof our internal controls.

Formore information regarding these and other uncertainties and factors that couldcause our actual results to differ materially from what we have anticipated inour forward-looking statements or otherwise could materially adversely affectour business, financial condition or operating results, see our annual reporton Form 10-K for the fiscal year ended December 31, 2006 under the heading “PartI – Item 1A.  Risk Factors” on pages 25through 46 of such report.

Allforward-looking statements included in this report are expressly qualified intheir entirety by the foregoing cautionary statements.  We wish to caution readers not to place unduereliance on any forward-looking statement that speaks only as of the date madeand to recognize that forward-looking statements are predictions of futureresults, which may not occur as anticipated. Actual results could differ materially from those anticipated in theforward-looking statements and from historical results, due to theuncertainties and factors described above, as well as others that we mayconsider immaterial or do not anticipate at this time. Although we believe thatthe expectations reflected in our forward-looking statements are reasonable, wedo not know whether our expectations will prove correct.  Our expectations reflected in ourforward-looking statements can be affected by inaccurate assumptions we mightmake or by known or unknown uncertainties and factors, including thosedescribed above.  The risks anduncertainties described above are not exclusive and further informationconcerning us and our business, including factors that potentially couldmaterially affect our financial results or condition, may emerge from time totime.  We assume no obligation to update,amend or clarify forward-looking statements to reflect actual results or changesin factors or assumptions affecting such forward-looking statements.  We advise you, however, to consult anyfurther disclosures we make on related subjects in our annual reports on Form10-K, quarterly reports on Form 10-Q and current reports on Form 8-K wefile with or furnish to the Securities and Exchange Commission.

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**ITEM 3.****                            ****QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Weare exposed to various market risks, which are potential losses arising fromadverse changes in market rates and prices, such as interest rates and foreignexchange fluctuations.  We may enter intoderivatives or other financial instruments for trading or speculative purposes;however, our policy is to only enter into contracts that can be designated asnormal purchases or sales.

***Interest Rate Risk***

Borrowings under ourrevolving line of credit bear interest at a variable rate equal to SVB’s primerate.  Borrowings under the equipmentfinancing bear interest at a variable rate equal to SVB’s prime rate plus1.0%.  We currently do not use interestrate swaps to mitigate the impact of fluctuations in interest rates.  As of April 1, 2007, we had no borrowingsunder our revolving line of credit and had $12.0 million in borrowings underthe equipment financing.  Based upon thisdebt level, a 10% increase in the interest rate on such borrowings would causeus to incur an increase in interest expense of approximately $111 thousand onan annual basis.

***Foreign Currency ExchangeRate Risk***

Fluctuationsin the rate of exchange between the U.S. dollar and foreign currencies couldadversely affect our financial results. In the three months ended April 1, 2007, approximately 29% of our netsales were denominated in foreign currencies. We expect that foreign currencies will continue to represent a similarlysignificant percentage of our net sales in the future.  Selling, marketing and administrative costsrelated to these sales are largely denominated in the same respective currency,thereby limiting our transaction risk exposure. However, for sales not denominated in U.S. dollars, if there is anincrease in the rate at which a foreign currency is exchanged for U.S. dollars,it will require more of the foreign currency to equal a specified amount ofU.S. dollars than before the rate increase. In such cases and if we price our products in the foreign currency, wewill receive less in U.S. dollars than we did before the rate increase wentinto effect.  If we price our products inU.S. dollars and competitors price their products in local currency, anincrease in the relative strength of the U.S. dollar could result in our pricenot being competitive in a market where business is transacted in the localcurrency.

Approximately75% of our net sales denominated in foreign currencies in the three monthsended April 1, 2007 were derived from European Union countries and weredenominated in the Euro.  Additionally,we have significant intercompany receivables from our foreign subsidiaries,which are denominated in foreign currencies, principally the Euro and theYen.  Our principal exchange rate riskstherefore exist between the U.S. dollar and the Euro and between the U.S.dollar and the Yen.  Fluctuations fromthe beginning to the end of any given reporting period result in theremeasurement of our foreign currency-denominated receivables and payables,generating currency transaction gains or losses that impact our non-operatingincome/expense levels in the respective period and are reported in other(income) expense, net in our consolidated financial statements.  We recorded foreign currency transactiongains of $336 thousand and $54 thousand in the three months ended April 1, 2007and April 2, 2006, respectively, related to the translation of our foreigndenominated net receivables into U.S. dollars. We do not currently hedge our exposure to foreign currency exchange ratefluctuations.  We may, however, hedgesuch exposure to foreign currency exchange rates in the future.

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**ITEM 4.****                            ****CONTROLSAND PROCEDURES**

**Evaluation of DisclosureControls and Procedures**

We maintain disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended) that are designed to reasonablyensure that information required to be disclosed by us in the reports we fileor submit under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized, and reported, within the time periods specified in theSecurities and Exchange Commission’s rules and forms and that such informationis accumulated and communicated to our management, including our principalexecutive and principal financial officers, or persons performing similarfunctions, as appropriate to allow timely decisions regarding requireddisclosure.  In designing and evaluatingour disclosure controls and procedures, we recognize that any controls andprocedures, no matter how well designed and operated can provide onlyreasonable assurance of achieving the desired control objectives and wenecessarily are required to apply our judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

Our management evaluated,with the participation of our Chief Executive Officer and Chief FinancialOfficer, the effectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the period covered in this quarterlyreport on Form 10-Q.  Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective as of the end ofsuch period to provide reasonable assurance that information required to bedisclosed in our Exchange Act reports is recorded, processed, summarized, andreported within the time periods specified in the SEC’s rules and forms, andthat material information relating to our company and our consolidatedsubsidiaries is made known to management, including our Chief Executive Officerand Chief Financial Officer, particularly during the period when our periodicreports are being prepared.

**Changes in Internal ControlOver Financial Reporting**

There was no change in ourinternal control over financial reporting that occurred during our quarterended April 1, 2007 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

**PART II - OTHER INFORMATION**

**ITEM 1.****                            ****LEGALPROCEEDINGS**

A description of our legal proceedings in Note 17 ofour consolidated financial statements included within this report isincorporated herein by reference.

**ITEM 1A.**                    RISK FACTORS

Weare affected by risks specific to us as well as factors that affect allbusinesses operating in a global market. In addition to the other informationset forth in this report, careful consideration should be taken of the factorsdescribed in our annual 

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reporton Form 10-K for the fiscal year ended December 31, 2006 under the heading “PartI – Item 1A. Risk Factors,” which could materially adversely affect our business,financial condition or operating results. There has been no material change in those risk factors.

**ITEM 2.****                            ****UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

**Recent Sales of UnregisteredEquity Securities**

Duringthe three months ended April 1, 2007, we did not issue any shares of our commonstock or other equity securities of ours that were not registered under theSecurities Act of 1933, as amended.

**Use of Proceeds**

On June 15, 2005, our registration statement on Form S-1(Registration No. 333-123851) was declared effective.  Our initial public offering resulted in gross proceeds to us of $167.6million.  Expenses related to the initialpublic offering were as follows: approximately $8.4 million for underwriting discounts and commissionsand approximately $4.2 million for other expenses, for total expenses ofapproximately $12.6 million.  None of theoffering expenses resulted in direct or indirect payments to any of ourdirectors, officers or their associates, to persons owning 10% or more of ourcommon stock or to any of our affiliates. All of the offering expenses were paid to others.

Afterdeduction of offering expenses, we received net proceeds of approximately$154.9 million in our initial public offering, including shares sold by us pursuantto the underwriters’ over-allotment option. As of April 1, 2007, the proceeds from our initial public offering andavailable cash were used as follows: $36.5 million of the net proceeds were used to repay a portion of theaccrued and unpaid interest on the demand notes, $116.9 million for generalcorporate purposes and the remaining net proceeds were invested in short-term,investment-grade, interest bearing securities. We cannot predict whether the proceeds will yield a favorablereturn.  Other than $36.5 million of thenet proceeds used to repay a portion of the accrued and unpaid interest ondemand notes held by Warburg Pincus, which is our majority stockholder, andVertical, which is one of our stockholders, none of the net proceeds from our initialpublic offering have resulted in direct or indirect payments to directors,officers or their associates, to persons who owned 10% or more of our commonstock or to any of our affiliates.

Weexpect to use the remaining $1.5 million in net proceeds from our initialpublic offering for general corporate purposes. Our management has broad discretion as to the use of the netproceeds.  We may use a portion of thenet proceeds for the acquisition of, or investment in, technologies or productsthat complement our business.  Asrequired by Securities and Exchange Commission regulations, we will providefurther detail on our use of the net proceeds from our initial public offeringin future periodic reports.

**Issuer Purchases of EquitySecurities**

Wedid not purchase any shares of our common stock or other equity securities ofours registered pursuant to Section 12 of the Securities Exchange Act of 1934,as amended, during the three months ended April 1, 2007.

**ITEM 3.****                            ****DEFAULTSUPON SENIOR SECURITIES**

Not applicable.

**ITEM 4.****                            ****SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

Not applicable.

**ITEM 5.****                            ****OTHERINFORMATION**

Notapplicable.

**ITEM 6.****                            ****EXHIBITS**

Thefollowing exhibits are being filed or furnished with this quarterly report onForm 10-Q:

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| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                        |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1        |       | First Amendment to Loan and Security Agreement  between Silicon Valley Bank and ev3 Endovascular, Inc., ev3 International,  Inc. and Micro Therapeutics, Inc. dated March 15, 2007 (Incorporated by  reference to Exhibit 10.1 to ev3’s Current Report on Form 8-K as filed with  the Securities and Exchange Commission on March 21, 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**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned, hereuntoduly authorized.
| May 9, 2007 | **ev3 Inc.** |
|-------------|--------------|
|        |         |
|        | By:          | /s/ James M. Corbett |
|        |         | James M. Corbett  President and Chief Executive Officer   (principal executive officer) |
|        |         |   |
|        | By:          | /s/ Patrick D. Spangler |
|        |         | Patrick D. Spangler   Chief Financial Officer and Treasurer   (principal financial and accounting officer) |

 

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**ev3 Inc.**QUARTERLY REPORT ON FORM 10-QEXHIBIT INDEX
| Exhibit No. | ** ** | **Description**                                                                                                                                                                    | ** ** | **Method of Filing**                                                                                                                                                             |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1        |       | First Amendment to Loan and Security Agreement  between Silicon Valley Bank and ev3 Endovascular, Inc., ev3 International,  Inc. and Micro Therapeutics, Inc. dated March 15, 2007 |       | Incorporated by  reference to Exhibit 10.1 to ev3’s Current Report on Form 8-K as filed with  the Securities and Exchange Commission on March 21, 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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