**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**








**FORM
      10-Q**





**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the quarterly period ended September 30, 2007**




** ̈**
            **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: 000-51362**







**ALSIUS
      CORPORATION**


**(Exact
      name of registrant as specified in its charter)**





**Delaware**
            **20-2620798****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            **(I.R.S.
                Employer**
              **Identification
                No.)**




**15770
      Laguna Canyon Road  Suite 150**


**Irvine,
      California  92618**


**(Address
      of principal executive offices) (Zip Code)**




**(949)
      453-0150**


**(Registrant’s
      telephone number, including area code)**







Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the registrant
      was required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.    Yes  x    No   ̈




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




Large
      accelerated Filer   ̈                                         
Accelerated filer   ̈                                          
        Non-accelerated filer  x




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




As
      of
      October 31, 2007, 18,253,500 shares of the registrant’s common stock were
      outstanding.









**ALSIUS
      CORPORATION**


**INDEX**




**Page****PART I**
            **FINANCIAL
                INFORMATION****ITEM 1.**
            **CONDENSED
                CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**Condensed
                Consolidated  Balance Sheets as of September 30, 2007 and
                December 31, 2006
            3Condensed
                Consolidated Statements of Operations for the three and nine months
                ended
                September 30, 2007 and September 30, 2006
            4Condensed
                Consolidated Statement of Shareholders’ Deficit for the nine months ended
                September 30, 2007
            5Condensed
                Consolidated Statements of Cash Flows for the nine months ended September
                30, 2007 and September 30, 2006
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            7**ITEM 2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**
            26**ITEM 3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
            36**ITEM 4.**
            **CONTROLS
                AND PROCEDURES**
            37**PART II**
            **OTHER
                INFORMATION****ITEM 1.**
            **LEGAL
                PROCEEDINGS**
            37**ITEM 1A.**
            **RISK
                FACTORS**
            37**ITEM 2**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**
            39**ITEM 3**
            **DEFAULTS
                UPON SENIOR SECURITIES**
            39**ITEM 4**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS**
            39**ITEM 5**
            **OTHER
                INFORMATION**
            39**ITEM 6.**
            **EXHIBITS**
            39**SIGNATURES**
            40


-2-


**ITEM
      I.   FINANCIAL INFORMATON**


**ALSIUS
      CORPORATION**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Unaudited,
      in thousands, except share data)**






**September
                30,**
              **2007**
            
            
            **December
                31,**
              **2006****ASSETS**Current
                Assets:Cash
                and cash
                equivalents
            
            $
            29,495
            
            
            $
            647Accounts
                receivable, net of
                allowances of $17 and $13
            
            
            2,012
            
            
            
            1,517Inventories
            
            
            5,562
            
            
            
            2,368Prepaid
                expenses
            
            
            409
            
            
            
            189Total
                current
                assets
            
            
            37,478
            
            
            
            4,721Property
                and equipment, net
            
            
            701
            
            
            
            360Evaluation
                equipment, net
            
            
            701
            
            
            
            636Other
                assets
            
            
            314
            
            
            
            523TOTAL
            
            $
            39,194
            
            
            $
            6,240**LIABILITIES
                AND SHAREHOLDERS’ EQUITY (DEFICIT)**Current
                Liabilities:Accounts
                payable
            
            $
            1,391
            
            
            $
            2,361Accrued
                liabilities
            
            
            1,562
            
            
            
            1,785Current
                portion of promissory
                notes
            
            
            3,200
            
            
            
            9,318Current
                portion of capital lease
                obligation
            
            
            25
            
            
            
            20Total
                current
                liabilities
            
            
            6,178
            
            
            
            13,484Long-term
                debt—less current portion
            
            
            4,332
            
            
            
            1,343Warrant
                liabilities and embedded derivatives
            
            
            —
            
            
            
            5,030Capital
                lease obligation
            
            
            89
            
            
            
            95Total
                liabilities
            
            
            10,599
            
            
            
            19,952Commitments
                and Contingencies (Note 12)Redeemable
                convertible preferred stock
            
            
            —
            
            
            
            46,643Shareholders’
                Equity (Deficit):Preferred  stock,
                $0.0001 par value—1,000,000 shares authorized; no shares issued or
                outstanding at September 30, 2007 and December 31,
                2006
            
            
            —
            
            
            
            —Common
                stock, $0.0001 par value—75,000,000 shares authorized; 18,253,500
                shares issued and outstanding at September 30, 2007
            
            
            2
            
            
            
            —Common
                stock, no par value—20,000,000 shares authorized; 78,942
                shares issued and outstanding at December 31, 2006
            
            
            —
            
            
            
            16,430Additional
                paid-in capital
            
            
            121,155
            
            
            
            —Deferred
                stock-based compensation
            
            
            —
            
            
            
            (793
            )Accumulated
                deficit
            
            
            (92,562
            )
            
            
            (75,992
            )Total
                shareholders’ equity
                (deficit)
            
            
            28,595
            
            
            
            (60,355
            )TOTAL
            
            $
            39,194
            
            
            $
            6,240






See
      accompanying notes.


-3-




**ALSIUS
      CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited,
      in thousands, except share and per share data)**






**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenue
            
            $
            1,880
            
            
            $
            1,772
            
            
            $
            6,405
            
            
            $
            4,021Cost
                of revenue*
            
            
            1,272
            
            
            
            1,516
            
            
            
            5,386
            
            
            
            4,533Gross
                margin
            
            
            608
            
            
            
            256
            
            
            
            1,019
            
            
            
            (512
            )Operating
                expenses *:Research
                and
                development
            
            
            1,002
            
            
            
            690
            
            
            
            2,595
            
            
            
            2,080Sales
                and
                marketing
            
            
            2,723
            
            
            
            1,346
            
            
            
            7,755
            
            
            
            4,027General
                and
                administrative
            
            
            2,104
            
            
            
            638
            
            
            
            3,825
            
            
            
            3,443Total
                operating
                expenses
            
            
            5,829
            
            
            
            2,674
            
            
            
            14,175
            
            
            
            9,550Loss
                from operations
            
            
            (5,221
            )
            
            
            (2,418
            )
            
            
            (13,156
            )
            
            
            (10,062
            )Interest
                and dividend income
            
            
            385
            
            
            
            13
            
            
            
            438
            
            
            
            72Interest
                expense
            
            
            (418
            )
            
            
            (586
            )
            
            
            (3,773
            )
            
            
            (1,098
            )Other
                income (expense)
            
            
            2
            
            
            
            (1,585
            )
            
            
            (79
            )
            
            
            (1,663
            )Net
                loss
            
            $
            (5,252
            )
            
            $
            (4,576
            )
            
            $
            (16,570
            )
            
            $
            (12,751
            )Net
                loss per share- basic and diluted
            
            $
            (0.29
            )
            
            $
            (0.42
            )
            
            $
            (1.21
            )
            
            $
            (1.16
            )Weighted
                average shares outstanding-basic and diluted
            
            
            18,297
            
            
            
            10,974
            
            
            
            13,735
            
            
            
            10,974




*
      Stock-based compensation is included in the above amounts as
      follows:





Cost
                of revenue
            
            $
            129
            
            
            $
            5
            
            
            $
            139
            
            
            $
            17Research
                and development
            
            
            333
            
            
            
            12
            
            
            
            357
            
            
            
            36Sales
                and marketing
            
            
            544
            
            
            
            (14
            )
            
            
            628
            
            
            
            103General
                and administrative
            
            
            890
            
            
            
            39
            
            
            
            1,001
            
            
            
            283Total
            
            $
            1,896
            
            
            $
            42
            
            
            $
            2,125
            
            
            $
            439







See
      accompanying notes.


-4-





**ALSIUS
      CORPORATION**


**CONSOLIDATED
      STATEMENT OF SHAREHOLDERS’ DEFICIT**






**Common
                Stock****Shares**
            
            
            **Amount**
            
            
            **Additional**
              **Paid
                In****Capital**
            
            
            **Deferred
                Stock-Based Compensation**
            
            
            **Accumulated
                Deficit**
            
            
            **Total**Balances
                as of December 31, 2006
            
            
            78,942
            
            
            $
            16,430
            
            
            $
            —
            
            
            $
            (793
            )
            
            $
            (75,992
            )
            
            $
            (60,355
            )Amortization
                of stock-based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            141
            
            
            
            
            
            
            
            141Stock-based
                compensation
            
            
            
            
            
            
            88
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            88Conversion
                of preferred stock into Merger Shares
            
            
            4,902,527
            
            
            
            1
            
            
            
            46,669
            
            
            
            
            
            
            
            
            
            
            
            46,670Conversion
                of Bridge Notes and accrued interest into Merger Shares
            
            
            3,097,473
            
            
            
            
            
            
            
            17,036
            
            
            
            
            
            
            
            
            
            
            
            17,036Elimination
                of Alsius historical equity accounts
            
            
            (78,942
            )
            
            
            (16,518
            )
            
            
            15,866
            
            
            
            652
            
            
            
            
            
            
            
            —Equity
                effects of reverse merger
            
            
            10,974,100
            
            
            
            1
            
            
            
            38,944
            
            
            
            
            
            
            
            
            
            
            
            38,945Reclassification
                of warrant liability to equity
            
            
            
            
            
            
            
            
            
            
            215
            
            
            
            
            
            
            
            
            
            
            
            215Common
                stock warrant repurchase program
            
            
            
            
            
            
            
            
            
            
            (894)
            
            
            
            
            
            
            
            
            
            
            
            (894)Redemption
                of redeemable common stock
            
            
            (720,600)
            
            
            
            
            
            
            
            (4,078)
            
            
            
            
            
            
            
            
            
            
            
            (4,078)Reclassification
                of unredeemed common stock
            
            
            
            
            
            
            
            
            
            
            5,501
            
            
            
            
            
            
            
            
            
            
            
            5,501Stock-based
                compensation (SFAS 123R)
            
            
            
            
            
            
            
            
            
            
            1,896
            
            
            
            
            
            
            
            
            
            
            
            1,896Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (16,570
            )
            
            
            (16,570
            )Balances
                as of September 30, 2007
            
            
            18,253,500
            
            
            $
            2
            
            
            $
            121,155
            
            
            $
            —
            
            
            $
            (92,562
            )
            
            $
            28,595






See
      accompanying notes.


-5-




**ALSIUS
      CORPRATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited,
      in thousands)**






**Nine
                Months Ended September 30,****2007**
            
            
            **2006**Cash
                Flows From Operating Activities:Net
                loss
            
            $
            (16,570
            )
            
            $
            (12,751
            )Adjustments
                to reconcile net
                loss to net cash used in operating activities:Depreciation
                and
                amortization
            
            
            308
            
            
            
            278Stock-based
                compensation
            
            
            2,125
            
            
            
            439Loss
                on disposal of
                assets
            
            
            2
            
            
            
            —Increase
                (decrease) in fair value
                of warrant liabilities and embedded derivatives
            
            
            (38
            )
            
            
            1,661Amortization
                of discounts on
                promissory notes
            
            
            2,647
            
            
            
            559Amortization
                of debt issuance
                costs
            
            
            50
            
            
            
            41Bad
                debt expense
            
            
            4
            
            
            
            —Changes
                in operating assets and
                liabilities, net of effects of merger:Accounts
                receivable
            
            
            (499
            )
            
            
            (131
            )Inventories
            
            
            (3,194
            )
            
            
            (234
            )Prepaid
                expenses
            
            
            (122
            )
            
            
            (47
            )Other
                assets
            
            
            153
            
            
            
            (232
            )Accounts
                payable
            
            
            (2,058
            )
            
            
            624Accrued
                liabilities
            
            
            (4,091
            )
            
            
            784Net
                cash used in operating
                activities
            
            
            (21,283
            )
            
            
            (9,009
            )Cash
                Flows From Investing Activities:Cash
                paid for property and
                equipment
            
            
            (459
            )
            
            
            (59
            )Cash
                paid for evaluation
                equipment
            
            
            (231
            )
            
            
            (140
            )Net
                cash used in investing
                activities
            
            
            (690
            )
            
            
            (199
            )Cash
                Flows From Financing Activities:Cash
                acquired in the
                merger
            
            
            50,000
            
            
            
            —Proceeds
                from exercise of
                common stock options
            
            
            —
            
            
            
            7Payment
                of debt issuance
                costs
            
            
            (347
            )
            
            
            —Common
                stock warrant repurchases
            
            
            (894
            )
            
            
            —Cash
                paid for redemption of redeemable common stock
            
            
            (4,078
            )
            
            
            —Proceeds
                from issuance of
                promissory notes, net
            
            
            13,030
            
            
            
            6,138Principal
                payments under
                promissory notes
            
            
            (6,875
            )
            
            
            (1,135
            )Principal
                payments under
                capital lease obligations
            
            
            (15
            )
            
            
            (4
            )Net
                cash provided
                by  financing activities
            
            
            50,821
            
            
            
            5,006Net
                increase (decrease) in cash and cash equivalents
            
            
            28,848
            
            
            
            (4,202
            )Cash
                and cash
                equivalents—beginning of period
            
            
            647
            
            
            
            5,309Cash
                and cash equivalents—end
                of period
            
            $
            29,495
            
            
            $
            1,107Supplemental
                Disclosure of Cash Flow Information:Cash
                paid for income
                taxes
            
            $
            85
            
            
            $
            1Cash
                paid for
                interest
            
            $
            641
            
            
            $
            332Bridge
                Notes and accrued
                interest converted to common stock
            
            $
            17,036
            
            
            $
            —Reclassification
                of unredeemed redeemable common stock
            
            $
            1,423
            
            
            $
            —Property
                and equipment acquired
                included in accounts payable
            
            $
            6
            
            
            $
            —Equipment
                acquired under
                capital leases
            
            $
            14
            
            
            $
            106






See
      accompanying notes.


-6-





**ALSIUS
      CORPORATION**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      thousands, except share and per share data)**




**1.**
            **THE
                COMPANY AND BASIS OF
                PRESENTATION**




On
      June
      21, 2007, Alsius Corporation, a Delaware corporation (the “Registrant”),
      formerly Ithaka Acquisition Corp. (“Ithaka”), completed its acquisition of
      Alsius Corporation, a California corporation (“Alsius Medical”), through a
      merger of a wholly owned merger subsidiary with and into Alsius
      Medical.   Ithaka was a publicly traded blank check company
      formed in 2005 to effect a merger, capital stock exchange or asset acquisition
      with an unidentified operating business in the healthcare
      industry.  In the merger, Alsius Medical became a wholly owned
      subsidiary of the Registrant. The Registrant concurrently changed its name
      to
      Alsius Corporation, and Alsius Medical changed its name to Alsius Medical
      Corporation.  The Registrant is now a holding company called Alsius
      Corporation operating through its wholly owned subsidiary Alsius Medical
      Corporation.  The Registrant and its operating subsidiary are referred
      to collectively as “Alsius,” “we,” “us,” and the “Company”.  The
      Registrant’s common stock trades on NASDAQ under the symbol
“ALUS”.  See Note 3 for further details on the merger.  For
      accounting purposes, the merger was treated as a reverse acquisition with Alsius
      Medical being the accounting acquirer, and in connection therewith, the
      Company’s historical financial statements reflect those of Alsius
      Medical.




Alsius
      Medical was incorporated in December 1991. In June 2001, a branch office, Alsius
      Service Center, in Wateringen, The Netherlands, was established to provide
      field
      support for its products in Europe. Alsius Medical develops, manufactures,
      markets and sells, proprietary catheter-based products for rapid cooling and
      temperature control of patients with severe neuronal injury, including those
      who
      have suffered stroke, traumatic brain injury and cardiac arrest. In August
      2003,
      Alsius Medical received United States Food and Drug Administration (“FDA”)
      clearance to market its CoolGard® 3000 Thermal
      Regulation System (the “CoolGard system”) and Cool Line® catheter
      for use in
      fever control. In addition, in October 2003, Alsius Medical received FDA
      clearance to market its IcyTM and FortiusTM
      catheters in
      combination with the CoolGard® 3000 Thermal
      Regulation System for use in normothermia in cardiac surgery and
      hypothermia in neuro surgery.  Alsius Medical began to market and sell
      its products in the United States during the year ended
      December 31, 2004.




*Interim
      Reporting*




The
      accompanying unaudited condensed financial statements have been prepared by
      the
      Company in accordance with accounting principles generally accepted in the
      United States of America and with the instructions to Form 10-Q and Article
      10
      of Regulation S-X of the Securities and Exchange Commission
      (“SEC”).  Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements.  In the opinion of management, the accompanying
      unaudited condensed consolidated financial statements reflect all adjustments,
      which include only normal recurring adjustments, necessary to fairly state
      the
      Company’s financial position, results of operations, and cash flows. The results
      of operations for interim periods are not necessarily indicative of future
      results that may be expected for a full year.   These statements
      should be read in conjunction with the consolidated financial statements and
      notes thereto included in the Definitive Proxy Statement on Schedule 14-A filed
      with the SEC on June 8, 2007.




**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**




*Principles
      of Consolidation*




The
      condensed consolidated financial statements include the accounts of the Company
      and its wholly-owned subsidiaries.  All intercompany accounts and
      transactions have been eliminated in consolidation.  The results of
      Ithaka are included in the condensed consolidated financial statements since
      the
      date of the merger.




*Management
      Estimates*




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      certain estimates and assumptions. These affect the reported amounts of assets
      and liabilities and disclosure of contingent assets or liabilities at the date
      of the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates.
      Management has identified revenue, the allowance for doubtful accounts,
      inventory valuation, warranty reserve and the fair value of its preferred and
      common stock as areas where significant estimates and assumptions have been
      made
      in preparing the financial statements. The Company also evaluates the need
      for
      the deferred income tax valuation allowance.


-7-





*Fair
      Value of Financial Instruments*




Financial
      instruments consist of cash and cash equivalents, accounts receivable, accounts
      payable and accrued liabilities. These instruments approximate fair value
      because of their short maturity. The carrying value of the promissory notes
      is
      considered to approximate fair value due to its short maturity and interest
      rate
      that approximates current rates.




*Foreign
      Currency Remeasurement*




The
      functional currency of the Company’s branch located in The Netherlands is the
      U.S. dollar. Its local currency statements are translated into
      U.S. dollars using the current exchange rate for monetary assets and
      liabilities and the historical exchange rate for nonmonetary assets and
      liabilities. Revenues and expenses are translated using the average exchange
      rate for the period, except items related to nonmonetary assets and liabilities,
      which are translated using historical exchange rates. All remeasurement gains
      and losses are included in determining net loss.





*Comprehensive
      Loss*




Comprehensive
      loss encompasses the change in equity from transactions and other events and
      circumstances from non-owner sources and the Company’s net loss. There was no
      difference between comprehensive loss and net loss for all periods
      presented.




*Cash
      Equivalents*




The
      Company considers all highly liquid investments that mature within 90 days
      from the date of purchase to be cash equivalents. At September 30, 2007, cash
      equivalents consisted of money market funds of $29.3 million.  At
      December 31, 2006, cash equivalents consisted of money market funds and treasury
      bills of $157.  The Company classified its treasury bills as held to
      maturity and recorded them at amortized cost, which approximated fair value.
      Cost is determined using the specific identification method.




*Concentration
      of Risk*




The
      Company maintains its cash accounts in a commercial bank. At December 31,
      2006 and September 30, 2007, cash on deposit was in excess of the federally
      insured limit of $100.




Customers
      that account for greater than 10 percent of revenue or accounts receivable
      are
      provided below.




**Three
                Months Ended September 30,**
            
            
            **Nine
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Revenue**
            
            
            **Percent**
              **of**
              **Total**
              **Revenue**
            
            
            **Revenue**
            
            
            **Percent**
              **of**
              **Total**
              **Revenue**
            
            
            **Revenue**
            
            
            **Percent**
              **of**
              **Total**
              **Revenue**
            
            
            **Revenue**
            
            
            **Percent**
              **of**
              **Total**
              **Revenue**Customer A
            
            $
            55
            
            
            
            3%
            
            
            $
            312
            
            
            
            18%
            
            
            $
            308
            
            
            
            5%
            
            
            $
            911
            
            
            
            23%Customer B
            
            
            275
            
            
            
            15
            
            
            
            —
            
            
            
            —
            
            
            
            1,098
            
            
            
            17
            
            
            
            —
            
            
            
            —Customer C
            
            
            1
            
            
            
            —
            
            
            
            209
            
            
            
            12
            
            
            
            407
            
            
            
            6
            
            
            
            236
            
            
            
            6




**As
                of December 31, 2006**
            
            
            **As
                of December 31, 2006****Receivable**
              **Balance**
            
            
            **Percent**
              **of**
              **Total**
              **Receivables**
            
            
            **Receivable**
              **Balance**
            
            
            **Percent**
              **of**
              **Total**
              **Receivables**Customer A
            
            $
            62
            
            
            
            3%
            
            
            $
            537
            
            
            
            35%Customer B
            
            
            676
            
            
            
            34
            
            
            
            —
            
            
            
            —Customer C
            
            
            159
            
            
            
            8
            
            
            
            111
            
            
            
            7


-8-


Many
      of
      the components and materials used in the Company’s products are manufactured by
      a limited number of suppliers. Any supply interruption or an increase in demand
      beyond the suppliers’ capabilities could have an adverse impact on the Company’s
      business. There is one supplier for a key component used in the Company’s
      CoolGard and Thermogard systems, and one supplier for a key component used
      in
      the Company’s catheters. Management believes it can identify alternative
      sources, if necessary, but it is possible such sources may not be identified
      in
      sufficient time to avoid an adverse impact on its business.




*Accounts
      Receivable*




Accounts
      receivable are recorded at the invoiced amount and do not bear interest. The
      Company maintains allowances for doubtful accounts for estimated losses
      resulting from the inability of its customers to make required payments. The
      Company specifically analyzes accounts receivable and historical bad debts,
      customer credit, current economic trends and changes in customer payment trends
      when evaluating the adequacy of the allowance for doubtful accounts. Account
      balances are charged-off against the allowance when it is probable the
      receivable will not be recovered.




The
      changes in the allowance for doubtful accounts is provided below.





**For
                the Nine Months Ended**
              **September
                30,**
            
            
            **For
                the Year Ended**
              **December
                31,****2007**
            
            
            **2006**Beginning
                balance
            
            $
            13
            
            
            $
            27Provision
                for bad debt
            
            
            4
            
            
            
            2Write-offs,
                net of recoveries
            
            
            —
            
            
            
            (16
            )Ending
                balance
            
            $
            17
            
            
            $
            13






*Inventories*




Inventories
      are comprised of raw materials, work-in-process and finished goods, and are
      stated at the lower of cost or market. Cost is determined by the weighted
      average method. The Company records a provision for excess and obsolete
      inventory based on historical usage and future product demand. Once established,
      the write-downs of inventories for excess and obsolete inventory are considered
      permanent adjustments to the cost basis of the inventories.




*Long-lived
      Assets*




Long-lived
      assets are reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable. The
      Company evaluates potential impairment by comparing the carrying amount of
      the
      asset with the estimated undiscounted future cash flows associated with the
      use
      of the asset and its eventual disposition. Should the review indicate that
      the
      asset is not recoverable, the Company’s carrying value of the asset would be
      reduced to its estimated fair value, which is measured by future discounted
      cash
      flows. As of September 30, 2007, there have been no such
      impairments.




*Property
      and Equipment*




Property
      and equipment, including assets under capital leases, are carried at cost less
      accumulated depreciation and amortization. Depreciation and amortization are
      recorded on a straight-line basis over the estimated useful lives of the
      respective assets as follows:




Machinery
                and equipment
            3
                to 5 yearsComputer
                equipment
            3 yearsFurniture
                and fixtures
            5 yearsLeasehold
                improvements
            Shorter
                of the useful life of the improvements or the lease
                term




-9-


Leasehold
      improvements are amortized over the life of the remaining lease term.
      Expenditures for major renewals and betterments are capitalized, while minor
      replacements, maintenance and repairs, which do not extend the asset lives,
      are
      charged to operations as incurred. Upon sale or disposition, the cost and
      related accumulated depreciation and amortization are removed from the accounts
      and any gain or loss is included in operations.





*Evaluation
      Equipment*




Evaluation
      equipment consists of CoolGard and Thermogard systems placed at hospitals under
      the Company’s equipment loan agreements and are depreciated using the
      straight-line method over their estimated economic life of five years. As of
      December 31, 2006 and September 30, 2007 the cost of evaluation equipment
      was $998 and $1,155 and accumulated depreciation was $362 and $454,
      respectively. For the three and nine months ended September 30, 2006 and 2007,
      $52, $55, $166, and $165, respectively, was recorded as a component of cost
      of
      revenue for the amortization of the equipment.




*Stock-Based
      Compensation*




Effective
      January 1, 2006 the Company adopted Statement of Financial Accounting
      Standards (“SFAS”) No. 123(R), *Share-Based Payments*, which revises
      SFAS No. 123, *Accounting for Stock-Based Compensation*issued
      in 1995. Prior to the adoption of SFAS 123(R) the Company accounted for
      stock-based employee compensation arrangements using the intrinsic value method
      in accordance with the provisions and related interpretations of Accounting
      Principles Board Opinion No. 25, *Accounting for Stock Issued to
      Employees*(“APB No. 25”). The Company adopted SFAS 123(R)
      applying the “prospective transition method” under which it continues to account
      for nonvested equity awards outstanding at the date of adoption of
      SFAS 123(R) in the same manner as they had been accounted for prior to
      adoption, that is, it would continue to apply APB No. 25 in future periods
      to equity awards outstanding at the date it adopted
      SFAS 123(R).




As
      of
      December 31, 2006 there was $255 of unrecognized compensation cost related
      to
      nonvested share-based compensation arrangements granted under share-based
      compensation plans using the fair value method of SFAS 123(R). As of December
      31, 2006, the cost was expected to be recognized over a weighted-average period
      of 3.05 years, using the graded vested attribution method.   In
      the merger effective on June 21, 2007 (Note 3), due to the liquidation
      preferences of the Company’s redeemable convertible preferred stock and the
      terms and conditions of the Company’s Bridge Notes, all outstanding stock
      options of the Company were cancelled, therefore any unrecognized compensation
      related to nonvested share-based compensation arrangements was
      cancelled.  Compensation cost of $88 was recognized for the period
      ended September 30, 2007 (for the period prior to June 21, 2007, the date of
      the
      merger).  There were no stock option grants in the six months ended
      June 30, 2007 nor in the period from the close of the merger, June 21, 2007
      to
      June 30, 2007.  See Note 7 regarding stock option grants in the
      quarter ended September 30, 2007.




Calculating
      stock-based compensation expense requires the input of highly subjective
      assumptions, including the expected term of the stock-based awards, stock price
      volatility, and pre-vesting option forfeitures. The estimate of expected term
      of
      options granted was determined by analyzing historical data on employees’ stock
      option exercises. Prior to the merger with Ithaka in June 2007, the Company
      was
      a private entity with no historical data on volatility of its
      stock.  Therefore, the expected volatility used was based on
      volatility of similar entities (referred to as “guideline companies”). In
      evaluating similarity, the Company considered factors such as industry, stage
      of
      life cycle, size, and financial leverage. The assumptions used in calculating
      the fair value of stock-based awards represent the Company’s best estimates, but
      these estimates involve inherent uncertainties and the application of management
      judgment. As a result, if factors change and the Company uses different
      assumptions, stock-based compensation expense could be materially different
      in
      the future. In addition, the Company is required to estimate the expected
      forfeiture rate and only recognize expense for those shares expected to vest.
      The Company estimates the forfeiture rate based on historical experience of
      its
      stock-based awards that are granted, exercised and cancelled. If its actual
      forfeiture rate is materially different from its estimate, the stock-based
      compensation expense could be significantly different from what it has recorded
      in the current period.




The
      risk-free rate for periods within the contractual life of the option is based
      on
      United States treasury yield for a term consistent with the expected life of
      the
      stock option in effect at the time of grant. The Company has never declared
      or
      paid any cash dividends and does not presently plan to pay cash dividends in
      the
      foreseeable future. Prior to the adoption of SFAS 123(R), the Company did
      not record any tax benefits resulting from the exercise of options due to
      uncertainty surrounding the timing of realizing the benefits of its deferred
      tax
      assets in future periods. The Company has elected to use the graded vesting
      attribution approach to record compensation expense. Shares of common stock
      issued upon exercise of stock options will be from previously unissued
      shares.


-10-


The
      weighted-average fair value per share of the options granted was $3.98 for
      the
      year ended December 31, 2006, and was $3.35 for the three and nine months
      ended September 30, 2007. The fair value of the stock options at the date of
      grant was estimated using the Black-Scholes option-pricing model with the
      following assumptions:




**Three
                and Nine**
              **Months
                Ended**
              **September
                30, 2007**
            
            
            **Year
                Ended**
              **December
                31, 2006**Dividend
                Yield
            
            
            0.00%
            
            
            
            0.00%Volatility
            
            
            67%
            
            
            
            61%Weighted-average
                risk-free interest rate
            
            
            4.92%
            
            
            
            4.82%Expected
                life
            
            6.0-6.25
                years
            
            
            5.61-5.88
                years





The
      Company accounts for equity instruments issued to nonemployees in accordance
      with the provisions of Emerging Issues Task Force No. 96-18, *Accounting
      for Equity Instruments that are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services*(“EITF 96-18”). Under EITF
      96-18, stock option awards issued to nonemployees are accounted for at fair
      value using the Black-Scholes option pricing model. Management believes the
      fair
      value of the stock options is more reliably measurable than the fair value
      of
      services received. The fair value of each nonemployee stock award is remeasured
      each period until a commitment date is reached, which is the vesting date,
      using
      the attribution method in FASB Interpretation No. 28, *Accounting for
      Stock Appreciation Rights and Other Variable Stock Option or Award Plans.*For nonemployee awards, deferred stock-based compensation is not reflected
      in shareholders’ deficit until a commitment date is reached.




SFAS 123
      was replaced by SFAS 123(R); accordingly, the Company no longer follows
      SFAS 123 when accounting for nonemployee stock option, but continues to
      apply the principles of EITF 96-18. When specific guidance does not exist
      in EITF 96-18 for nonemployee stock options, the Company follows the
      principles of SFAS 123(R). There was no impact to the financial statements
      for nonemployee stock options as a result of the adoption of SFAS
      123(R).




*Revenue
      Recognition*




The
      Company sells its products domestically to customers through its direct sales
      force, and internationally through distributors. Revenue is recognized in
      accordance with SEC Staff Accounting Bulletin No. 104, *Revenue
      Recognition,*which requires that four basic criteria must be met before
      revenue can be recognized: (1) persuasive evidence of an arrangement
      exists; (2) delivery has occurred and title and the risks and rewards of
      ownership have been transferred to the customer or services have been rendered;
      (3) the price is fixed or determinable; and (4) collectibility is
      reasonably assured. Price protection, stock rotation rights and sales incentive
      programs are not offered to customers.




The
      Company evaluates whether the separate deliverables in its arrangements can
      be
      unbundled. Sales of the CoolGard and Thermogard systems domestically to
      hospitals include separate deliverables consisting of the product, disposables
      used with the CoolGard and Thermogard system, installation and training. For
      these sales, the Company applies the residual value method in accordance with
      EITF 00-21, *Revenue Arrangements with Multiple Deliverables,*which
      requires the allocation of the total arrangement consideration less the fair
      value of the undelivered elements, which consist of installation and training,
      to the delivered elements. As of  December 31, 2006 and September 30,
      2007 there were minimal amounts attributed to the undelivered elements.
      Installation and training are not included in arrangements with sales to
      distributors.




Explicit
      return rights are not offered to customers; however, the Company may accept
      returns in limited circumstances. The amount of returns through September 30,
      2007 have been minimal. A sales return allowance has not been established since
      management believes returns will be insignificant.




The
      Company enters into equipment loan agreements with certain customers whereby
      the
      CoolGard or Thermogard system is placed at the customer’s site for their
      evaluation and use. During this time, the customer purchases disposables. The
      Company accounts for these arrangements in accordance with
      SFAS No. 13, *Accounting for Leases*, and has classified these
      arrangements as operating leases. The consideration for the rental portion
      of
      the arrangement is considered to be contingent and is recorded when earned,
      which is when the disposables are recognized as revenue. The amount of revenue
      attributable to the lease element of these arrangements was less than 10% of
      the
      Company’s total revenue for all periods presented. The CoolGard or Thermogard
      system is classified as evaluation equipment and is depreciated over its
      estimated economic life of five years with depreciation included as a component
      of cost of revenue.


-11-


During
      2005, the Company began to offer extended warranty contracts, which are
      separately sold to non-distributor customers. Revenue is recorded on a
      straight-line basis over the period of the contract, which is generally one
      year. The amount of deferred revenue as of December 31, 2006, and September
      30, 2007 was minimal.




*Product
      Warranty*




The
      Company provides a 12 month warranty from the date of purchase for domestic
      customers and a 15 month warranty from the date of purchase for
      distributors on its CoolGard and Thermogard systems, which covers parts, labor
      and shipping costs. The Company will also accept returns for disposables with
      defects one year from the date of purchase for domestic customers and the
      shorter of two years or the expiration date of the disposables for distributors.
      Warranty costs are estimated at the time of sale based on historical experience.
      Estimated warranty expenses are recorded as an accrued liability, with a
      corresponding provision to cost of revenue.




Changes
      in the Company’s product warranty liability were as follows:





**For
                the Nine Months Ended September 30,**
            
            
            **For
                the Year Ended December 31,****2007**
            
            
            **2006**Beginning
                balance
            
            $
            156
            
            
            $
            202Provision
                for estimated warranty costs
            
            
            29
            
            
            
            185Change
                in estimate
            
            
            (39
            )
            
            
            —Warranty
                expenditures
            
            
            (58
            )
            
            
            (231
            )Ending
                balance
            
            $
            88
            
            
            $
            156




*Shipping
      and Handling*




Charges
      to customers for shipping and handling are included as a component of revenue.
      Shipping and handling costs are expensed as incurred and recorded as a component
      of cost of revenue.




*Research
      and Development*




Research
      and development expenses consist of engineering personnel salaries and benefits,
      prototype supplies, and consulting fees related to product development. Research
      and development costs are expensed as incurred.




*Advertising*




Advertising
      costs are expensed as incurred. Included in sales and marketing expense for
      the
      three and nine months ended September 30, 2006 and 2007 was $38, $88, $158,
      and
      $452, respectively.




*Income
      Taxes*




Effective
      January 1, 2007, the Company adopted FASB Interpretation No. 48 (“FIN
      48”), *Accounting for Uncertainty in Income Taxes*, which clarifies the
      accounting for uncertainty in income taxes recognized in the financial
      statements in accordance with FASB Statement No. 109, *Accounting for
      Income Taxes*. FIN 48 provides guidance on the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosures, and
      transition. In accordance with FIN 48, a tax position is a position in a
      previously filed tax return or a position expected to be taken in a future
      tax
      filing that is reflected in measuring current or deferred income tax assets
      and
      liabilities. Tax positions are recognized only when it is more likely than
      not
      (likelihood of greater than 50%), based on technical merits, that the position
      will be sustained upon examination. Tax positions that meet the more likely
      than
      not threshold should be measured using a probability weighted approach as the
      largest amount of tax benefit that is greater than 50% likely of being realized
      upon settlement. The adoption of FIN 48 did not have a material impact on the
      Company’s financial position, results of operations or cash
      flows.


-12-


The
      Company has elected to recognize interest and penalties with respect to
      unrecognized tax benefits in income tax expense. The Company has identified
      no uncertain tax position for which it is reasonably possible that the total
      amount of unrecognized tax benefits will significantly increase or decrease
      within 12 months.




The
      Company is subject to taxation in the U.S. and various state jurisdictions.
      The
      Company is no longer subject to U.S. federal or state examinations by tax
      authorities for years before 2003.




At
      December 31, 2006, the Company had both federal and state net operating
      loss (“NOL”) carryforwards of approximately $56,286 and $52,715, respectively.
      The net operating loss carryforwards for federal purposes begin to expire in
      2007, and the net operating loss carryforwards for state purposes began expiring
      in 2006. Due to uncertainties surrounding the Company’s ability to generate
      future taxable income to realize these assets, a full valuation allowance has
      been established to offset the net deferred tax assets.  In addition,
      the Company has $15,000 of federal net operating losses from a prior acquisition
      that are subject to limitation under Section 1503 of the Internal Revenue
      Code.  The related deferred tax asset has a full valuation allowance
      as well.





Utilization
      of the NOL carryforwards may be subject to a substantial annual limitation
      due
      to ownership change limitations that may have occurred or that could occur
      in
      the future, as required by Section 382 of the Internal Revenue Code of
      1986, as amended (the “Code”), as well as similar state provisions. These
      ownership changes may limit the amount of NOL carryforwards that can be utilized
      annually to offset future taxable income and tax, respectively. In general,
      an
“ownership change” as defined by Section 382 of the Code results from a
      transaction or series of transactions over a three-year period resulting in
      an
      ownership change of more than 50 percentage points of the outstanding stock
      of a
      company by certain stockholders or public groups. Since the Company’s formation,
      capital has been raised through the issuance of capital stock on several
      occasions which, combined with the purchasing stockholders’ subsequent
      disposition of those shares, may have resulted in such an ownership change,
      or
      could result in an ownership change in the future upon subsequent
      disposition.




The
      Company is currently investigating the impact on whether an ownership change
      has
      occurred with the consummation of the merger in June 2007 or whether there
      have
      been multiple ownership changes since its formation.  There may be
      additional such ownership changes in the future. If the Company has experienced
      an ownership change at any time since its formation, utilization of the NOL
      carryforwards would be subject to an annual limitation under Section 382 of
      the Code, which is determined by first multiplying the value of the Company’s
      stock at the time of the ownership change by the applicable long-term,
      tax-exempt rate, and then could be subject to additional adjustments, as
      required. Any limitation may result in expiration of a portion of the NOL
      carryforwards before utilization.




*New
      Accounting Pronouncements*




In
      February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities* (“SFAS No. 159”), which
      provides reporting entities an option to report selected financial assets,
      including investment securities designated as available for sale, and
      liabilities, including most insurance contracts, at fair value. SFAS
      No. 159 establishes presentation and disclosure requirements designed to
      facilitate comparisons between companies that choose different measurement
      attributes for similar types of assets and liabilities. The standard also
      requires additional information to aid financial statement users’ understanding
      of a reporting entity’s choice to use fair value on its earnings and also
      requires entities to display on the face of the balance sheet the fair value
      of
      those assets and liabilities for which the reporting entity has chosen to
      measure at fair value. SFAS No. 159 is effective as of the beginning of a
      reporting entity’s first fiscal year beginning after November 15, 2007. The
      Company is currently assessing the impact, if any, of adopting SFAS No. 159
      on its financial position, results of operations and cash flows.




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value
      Measurements*. SFAS No. 157 establishes a single authoritative
      definition of fair value, sets out a framework for measuring fair value, and
      requires additional disclosures about fair value measurements. SFAS No. 157
      applies only to fair value measurements that are already required or permitted
      by other accounting standards. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007, and the Company does not expect that the
      adoption of this statement will have a material impact on its financial
      condition, results of operations, or cash flows.




In
      June
      2006, the Emerging Issues Task Force issued EITF 06-3, *How Taxes Collected
      from Customers and Remitted to Governmental Authorities Should Be Presented
      in
      the Income Statement (That Is, Gross versus Net Presentation)* (“EITF
      06-03”) to clarify diversity in practice on the presentation of different types
      of taxes in the financial statements. The Task Force concluded that, for taxes
      within the scope of the issue, a company may adopt a policy of presenting taxes
      either gross within revenue or net. That is, it may include charges to customers
      for taxes within revenues and the charge for the taxes from the taxing authority
      within cost of sales, or alternatively, it may net the charge to the customer
      and the charge from the taxing authority. If taxes subject to this Issue are
      significant, a company is required to disclose its accounting policy for
      presenting taxes and the amounts of such taxes that are recognized on a gross
      basis. The guidance in this consensus is effective for the first interim
      reporting period beginning after December 15, 2006. The adoption of EITF
      06-3 using the gross method of presenting taxes within revenue did not have
      a
      material impact on the Company’s financial position, results of operations and
      cash flows.


-13-





**3.**
            **MERGER
                WITH ITHAKA**




On
      June
      21, 2007, Ithaka’s stockholders approved the merger of Alsius Medical with and
      into Ithaka’s wholly owned merger subsidiary.  The merger
      consideration consisted of 8,000,000 shares of Ithaka’s common stock (the
“Merger Shares”) in exchange for all of the issued and outstanding equity
      securities of Alsius Medical and repayment of all unsecured convertible
      promissory notes in accordance with their terms.  Alsius Medical’s
      shareholders also have the right to receive up to an aggregate of 6,000,000
      additional performance shares (the “Milestone Shares”) if the combined company
      meets certain revenue targets in fiscal years 2007 through
      2009.  Additionally, Ithaka agreed to fund bonuses totaling $3,000 to
      management, employees, two non-employee directors and certain consultants of
      Alsius Medical.  Because of the liquidation preferences in Alsius
      Medical’s Series A-F redeemable convertible preferred stock and the terms and
      conditions of the unsecured convertible promissory notes, the allocation of
      the
      Merger Shares resulted in the holders of the promissory notes and Series F
      preferred stock getting their pro rata share, and the holders of the other
      equity instruments (Series A-E, common stock, and common stock options) did
      not
      receive any Merger Shares.  In addition, due to the underlying terms
      and conditions of the Series F preferred stock warrants at the time of the
      merger (a qualifying sale), all Series F preferred stock warrants were cancelled
      (Note 8), and all existing Alsius Medical equity instruments were cancelled
      (Note 6).





Holders
      of 972,100 shares of Ithaka’s common stock voted against the merger and elected
      to convert their shares into a pro rata portion of Ithaka’s trust fund
      (approximately $5.66 per share or an aggregate of approximately $5,501). This
      redeemable common stock was accounted for as mezzanine equity as it was
      uncertain whether such amounts would ultimately be redeemed in cash or remain
      as
      outstanding common stock of the Registrant.  The conversion rights
      required the holder of the stock to deliver its stock certificate to the
      Registrant’s transfer agent by August 15, 2007 in order to receive the applicable
      cash payment. If not executed by August 15, 2007, the stockholder forfeited
      its
      right to receive cash payment for the shares.  Through September 30,
      2007, the Registrant redeemed $4,078 (720,600 shares) of the redeemable common
      stock, and has reclassified $1,423 (251,500 shares) into common stock as the
      timeframe for a holder of redeemable common stock to tender his shares for
      cash
      has expired.




Additionally,
      as part of consideration paid at the close of the merger, Ithaka agreed to
      fund
      bonus payments to the management, employees, two non-employee directors and
      certain consultants of Alsius Medical totaling $3,000.  The merger
      agreement entitles these individuals to receive an additional amount of up
      to
      $2,000 upon the achievement of the above mentioned revenue targets in fiscal
      years 2007 through 2009.  The $3,000 has been accounted for as part of
      the purchase price.  Future payments will be expensed as
      earned.




The
      merger was accounted for under the purchase method of accounting as a reverse
      acquisition, with Alsius Medical as the accounting acquirer, and therefore
      this
      transaction is, in substance, a capital transaction.  For accounting
      purposes, the merger has been treated as the equivalent of Alsius Medical
      issuing stock for the net assets of Ithaka, accompanied by a
      recapitalization.  The net assets of Ithaka are stated at their fair
      values, which are considered to approximate historical cost, with no goodwill
      or
      other intangible assets recorded.  The accumulated deficit of Alsius
      Medical is carried forward after the merger and the operations prior to the
      merger are those of Alsius Medical.  The results of operations of
      Ithaka are included in the accompanying condensed consolidated financial
      statements commencing June 22, 2007.




The
      purchase price allocation is as follows:




Cash
                and cash equivalents
            
            $
            50,000Prepaid
                expenses
            
            
            98Accounts
                payable
            
            
            (1,082
            )Accrued
                liabilities
            
            
            (126
            )Redeemable
                common stock
            
            
            (5,501
            )Management
                bonuses
            
            
            (3,000
            )Transaction
                costs
            
            
            (1,444
            )Net
                assets acquired
            
            $
            38,945





The
      Milestone Shares and the additional $2,000 in management bonuses have not been
      included in the above purchase price allocation.  If the revenue
      targets are achieved and the Milestone Shares are issued and/or the management
      bonuses are paid, the fair value of the consideration will be recorded as an
      additional capital adjustment.


-14-


*Pro
      Forma Results of Operations*




The
      accompanying unaudited condensed consolidated results of operations only reflect
      the operating results of Ithaka following the date of the
      merger.  Following are the pro forma unaudited results of operations
      of the Company for the three and nine months ended September 30, 2006 and the
      nine months ended September 30, 2007 assuming the merger occurred at the
      beginning of the period.  Results for the three months ended September
      30, 2007 reflect actual operating results.





**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenue
            
            $
            1,880
            
            
            $
            1,772
            
            
            $
            6,405
            
            
            $
            4,021Loss
                from operations
            
            
            (5,221
            )
            
            
            (2,620
            )
            
            
            (13,820
            )
            
            
            (10,495
            )Net
                loss
            
            
            (5,252
            )
            
            
            (4,458
            )
            
            
            (16,489
            )
            
            
            (12,255
            )Net
                loss per share- basic and diluted
            
            
            (0.29
            )
            
            
            (0.23
            )
            
            
            (0.88
            )
            
            
            (0.65
            )




**4.**
            **SUPPLEMENTAL
                CONSOLIDATED FINANCIAL STATEMENT
                INFORMATION**




Inventories
      consist of the following:




**September
                30,**
              **2007**
            
            
            **December 31,**
              **2006**Raw
                materials
            
            $
            2,435
            
            
            $
            1,418Work-in-process
            
            
            1,819
            
            
            
            727Finished
                goods
            
            
            1,308
            
            
            
            223$
            5,562
            
            
            $
            2,368




Accrued
      liabilities consist of the following:




**September
                30,**
              **2007**
            
            
            **December 31,**
              **2006**Bonus
            
            $
            114
            
            
            $
            602Inventory
            
            
            69
            
            
            
            18Vacation
            
            
            298
            
            
            
            250Warranty
            
            
            88
            
            
            
            156Interest
            
            
            78
            
            
            
            358Professional
                services
            
            
            328
            
            
            
            118Payroll
                and related
            
            
            99
            
            
            
            43Commission
            
            
            90
            
            
            
            118Royalties
            
            
            28
            
            
            
            43Travel
            
            
            203
            
            
            
            —Other
            
            
            167
            
            
            
            79$
            1,562
            
            
            $
            1,785




There
      was no redeemable convertible
      preferred stock authorized, issued or outstanding at September 30, 2007 (Notes
      3
      and 6).Redeemable
      convertible preferred stock at December 31, 2006 was as
      follows:





(Dol(Dollars
                in thousands)
            
            Authorized
                Shares
            
            
            Shares
                Outstanding
            
            
            Carrying
              Value
            
            
            Liquidation
                ValueSeries
                A
            
            
            718
            
            
            
            718
            
            
            $
            64
            
            
            $
            81Series
                B
            
            
            148
            
            
            
            148
            
            
            $
            74
            
            
            $
            74Series
                C-D
            
            
            1,582,546
            
            
            
            1,582,026
            
            
            $
            902
            
            
            $
            15,820Series
                E
            
            
            1,422,435
            
            
            
            1,422,435
            
            
            $
            21,056
            
            
            $
            21,337Series
                F
            
            
            8,344,600
            
            
            
            8,319,141
            
            
            $
            24,547
            
            
            $
            74,872





-15-


Other
      income (expense) consists of the following:




**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Foreign
                currency remeasurement
            
            $
            2
            
            
            $
            (6
            )
            
            $
            (5
            )
            
            $
            (2
            )Increase
                in fair value of loan premium liabilities (Note 5)
            
            
            —
            
            
            
            (1,942
            )
            
            
            (474
            )
            
            
            (1,944
            )Decrease
                in fair value of warrant liabilities
            
            
            —
            
            
            
            364
            
            
            
            512
            
            
            
            283Prepayment
                penalty on secured promissory note (Note 5)
            
            
            —
            
            
            
            —
            
            
            
            (113
            )
            
            
            —Other
            
            
            —
            
            
            
            —
            
            
            
            1
            
            
            
            —$
            2
            
            
            $
            (1,584
            )
            
            $
            (79
            )
            
            $
            (1,663
            )




**5.**
            **PROMISSORY
                NOTES**




The
      components of promissory notes were as follows:





**September
                30, 2007**
            
            
            **December 31,**
              **2006**Secured
                Promissory Note, net of discount of $60
            
            $
            —
            
            
            $
            3,0482006
                Bridge Notes, net of discount of $1,513
            
            
            —
            
            
            
            7,613Senior
                Secured Credit Facility, net of discount of $201
            
            
            7,532
            
            
            
            —7,532
            
            
            
            10,661Less:
                current portion
            
            
            (3,200
            )
            
            
            (9,318
            )Long-term
                portion
            
            $
            4,332
            
            
            $
            1,343




*Secured
      Promissory Note*




In
      May
      2005, the Company entered into a $5,000 secured promissory note with a financing
      company that requires interest only payments of $44 for the first three months
      and interest and principal payments of $163 for each month thereafter through
      September 2008. In conjunction with the secured promissory note, the Company
      issued a warrant exercisable into 116,667 shares of Series F preferred
      stock at an exercise price of $3.00 per share. The Series F preferred
      stock is redeemable; accordingly, the proceeds from the promissory note were
      first allocated to the $188 estimated fair value of the warrant with the $4,812
      remaining balance allocated to the promissory note (Note 8). The secured
      promissory note has an effective interest rate of 13.29% and is collateralized
      by substantially all of the Company’s assets.




In
      February 2007, the secured promissory note was paid in full.   In
      June 2007, prior to the merger (Note 3), the warrant to purchase Series F
      preferred stock was exercised on a cashless basis for 8,308 shares of Series
      F
      preferred stock.





*2006
      Bridge Notes*





In
      June
      2007, in connection with the merger (Note 3), and in accordance with the terms
      of the instruments as described below, the outstanding principal amount of
      the
      2006 Bridge Notes ($10,656), related accrued interest ($702) and the 150% Loan
      Premium ($5,679), totaling $17,036, was converted into 3,097,473 shares of
      common stock at $5.50 per share, the fair value of the common stock on the
      date
      of the merger. The warrants associated with these 2006 Bridge Notes were
      cancelled in the merger in accordance with their existing terms and
      conditions.




Following
      are the specific terms of the 2006 Bridge Notes, the warrants issued with the
      2006 Bridge Notes and the fair value allocations recorded in the accompanying
      consolidated financial statements through the date of the conversion, June
      21,
      2007.


-16-


On
      April 13, 2006, the Company issued unsecured convertible promissory notes
      for an aggregate amount of $4,214 from existing shareholders with an interest
      rate of 8% (the “April 2006 Bridge Notes”), and on August 18, 2006, the
      Company issued unsecured convertible promissory notes for an aggregate amount
      of
      $1,941 (the “August Bridge Notes”) under the same terms as the April 2006 Bridge
      Notes. In October 2006, the Company entered into an agreement that provided
      for
      borrowings of $2,500, with the commitment amount eligible to be increased by
      an
      additional $2,000 upon the unanimous consent of the Company’s board of
      directors. Under these terms, the Company borrowed $1,000 on October 13,
      2006 (the “October 2006 Bridge Notes”), $1,000 on November 15, 2006 (the
“November 2006 Bridge Notes”), $970 on December 15, 2006 (the “December
      2006 Bridge Notes”), $1,000 on January 12, 2007 (the “January 2007 Bridge
      Notes”), and $500 on February 2, 2007 (the “February 2007 Bridge Notes”)
      (collectively, the “2006 Bridge Notes”). Maturity was the earlier of
      August 31, 2007, an event of default, or the closing of a sale transaction
      as defined in the agreement. Principal and accrued interest converted
      automatically into unregistered shares of common stock upon the closing of
      an
      initial public offering, or into shares of Series F preferred stock at
      $3.00 per share if an initial public offering did not close by August 31,
      2007. Automatic conversion of the principal and accrued interest into shares
      of
      Series F preferred stock was also provided upon closing of an equity financing
      arrangement. Upon conversion in an initial public offering, the principal amount
      of the 2006 Bridge Notes and accrued interest would convert into the number
      of
      shares of common stock that resulted by dividing eighty percent of the initial
      public offering price into the total principal and accrued interest then
      outstanding.




In
      conjunction with the 2006 Bridge Notes, the Company issued warrants exercisable
      into common stock at a price per share equal to the public offering price in
      the
      event an initial public offering was completed by August 31, 2007. The
      number of shares into which the warrants are convertible was equal to twenty
      percent of principal amount of the notes divided by the initial public offering
      stock price. In the event an initial public offering was not completed by
      August 31, 2007, the warrants were convertible into shares of Series F
      preferred stock. The number of shares of Series F preferred stock would
      equal twenty percent of the principal amounts of the notes divided by
      $3.00.




At
      the
      time of the issuance of the 2006 Bridge Notes, an initial public offering was
      not a certain event and the warrants were convertible into preferred stock
      that
      was classified as mezzanine equity. Accordingly, at their issue dates, the
      warrants were recorded as liabilities under FSP 150-5, *Issuer’s Accounting
      under FASB Statement No. 150 for Freestanding Warrants and Other Similar
      Instruments on Shares that are Redeemable,*based on their estimated fair
      values at issuance. Subsequent changes in the fair values were recorded as
      non-operating income (loss). See Note 9 for the fair value assumptions of these
      warrants.




The
      2006
      Bridge Notes also provided for a payment equal to 150% of the principal and
      accrued interest in the event there is a sale transaction, which is defined
      as
      the sale of all or substantially all of the assets of the Company or when there
      is a change in control (Note 3). This provision was determined to be an embedded
      derivative (the “Loan Premium”) that required bifurcation and separate
      measurement apart from the notes. The value of the Loan Premium liability was
      recorded based on its estimated fair value at issuance. Subsequent changes
      in
      the fair values were recorded as non-operating income (loss). The remaining
      proceeds were allocated to the 2006 Bridge Notes.




The
      allocation of the proceeds to the fair value of the warrants and Loan Premiums
      resulted in the 2006 Bridge Notes being recorded at discounts to their face
      amounts. These discounts were amortized to interest expense using the effective
      interest method through the expected term of the notes. The activity for the
      warrants and Loan Premiums is presented below.





**April**
              **2006**
            
            
            **August**
              **2006**
            
            
            **October**
              **2006**
            
            
            **November**
              **2006**
            
            
            **December**
              **2006**
            
            
            **January**
              **2007**
            
            
            **February**
              **2007**Estimated
                fair value on issuance date for Loan Premium (embedded
                derivative)
            
            $
            104
            
            
            $
            820
            
            
            $
            475
            
            
            $
            475
            
            
            $
            461
            
            
            $
            475
            
            
            $
            238Estimated
                fair value on issuance date of the warrant
            
            $
            332
            
            
            $
            —
            
            
            $
            3
            
            
            $
            3
            
            
            $
            3
            
            
            $
            3
            
            
            $
            1Remaining
                proceeds allocated to 2006 Bridge Notes
            
            $
            3,778
            
            
            $
            1,121
            
            
            $
            522
            
            
            $
            522
            
            
            $
            536
            
            
            $
            522
            
            
            $
            261Effective
                interest rate
            
            
            10.19
            %
            
            
            34.82
            %
            
            
            50.27
            %
            
            
            60.03
            %
            
            
            71.16
            %
            
            
            100.36
            %
            
            
            136.09
            %




-17-


*Senior
      Secured Credit Facility*




On
      February 22, 2007, and amended on May 11, 2007, the Company entered into a
      senior secured credit facility with Merrill Lynch Capital consisting of an
      $10,000 term loan (the “Term Loan”) with an interest rate of one month LIBOR
      plus 6.50%. Approximately $3,000 of the total amount borrowed was used to repay
      in full the Company’s secured promissory note issued in May 2005.  At
      September 30, 2007, $7,733 of the Term Loan was outstanding. The Term Loan
      requires interest only payments for the first six months and interest and
      principal payments for each month thereafter through February 2010.




In
      connection with the issuance of the Term Loan in February 2007, the Company
      issued a warrant to Merrill Lynch Capital with a contractual term of 10 years.
      If the contemplated merger between the Company and Ithaka (Note 3) was not
      completed before August 24, 2007, then on or after August 24, 2007,
      the warrant would have been exercised into 80,000 shares of Series F
      preferred stock of the Company at an exercise price of $3.00 per share unless
      prior to August 24, 2007, the Company issued a new series of preferred
      stock. If a new series of preferred stock was issued, the warrant would have
      been exercisable into the new series of preferred stock. The number of shares
      would have been determined by dividing $240 by the lowest share price paid
      for
      the new series of preferred stock. The $206 estimated fair value of the warrants
      issued in February 2007 was recorded as a liability, resulting in a discount
      to
      the Term Loan at issuance. The discount is being amortized to interest expense
      using the effective interest method over the term of the Term
      Loan.   The $206 estimated fair value of the warrants was
      recorded as a liability, resulting in a discount to the Term Loan at
      issuance.




In
      connection with the close of the merger in June 2007, a measurement date for
      this warrant was achieved, and the warrant issued to Merrill Lynch Capital
      became exercisable into 43,716 shares of common stock at an exercise price
      of
      $5.49 per share.   As the warrant is now exercisable into common
      stock, the fair value of the warrant as of the date of the merger was
      reclassified from a liability to equity.





*Unsecured
      Promissory Note*





On
      June
      12, 2007, the Company entered into a $1,500 unsecured promissory note with
      a
      financing company, Cheyne Capital, a shareholder of Ithaka.  Interest
      accrued at the simple rate of 15% per annum and was payable
      monthly.  The maturity date of this note was March 31, 2008, and can
      be repaid earlier without penalty.  All amounts due under this
      unsecured promissory note were subordinated to the Senior Secured Credit
      Facility.  The Company paid a 7.5% fee on the $1,500 in borrowings,
      and such fee was recorded as a prepaid expense.  The prepaid was being
      amortized to interest expense using the effective interest method over the
      term
      of the unsecured promissory note.  This note was repaid in full in
      July 2007.





As
      of
      September 30, 2007, principal payments for long-term debt are as
      follows:





YeYear
                ending December 31,2007
                (remainder)
            
            $
            8002008
            
            
            3,2002009
            
            
            3,2002010
            
            
            533$
            7,733








**6. AUTHORIZED
      CAPITAL STOCK**





Concurrent
      with the close of the merger in June 2007, all outstanding shares of Alsius
      Medical’s Series A-F redeemable convertible preferred stock were exchanged for
      the Merger Shares (Note 3) or the potential right to receive Merger Shares,
      and
      concurrently canceled.  There are no authorized or outstanding shares
      of Series A-F redeemable convertible preferred stock at September 30,
      2007.





The
      Registrant’s authorized capital now consists of 1,000,000 shares of $0.0001 par
      value preferred stock and 75,000,000 shares of $0.0001 par value common
      stock.   The designations, voting and other rights and
      preferences of the preferred stock may be determined from time to time by the
      Board of Directors.


-18-


The
      number of shares of common stock of the Registrant that have been reserved
      for
      issuance as of September 30, 2007:





StocStock
                options (Note 7)
            
            
            3,275,000Common
                stock warrants (Notes 5, 7 and 9 )
            
            
            17,454,71620,729,716




**7.**
            **STOCK
                OPTIONS**




*1992
      Plan*




The
      1992
      Incentive Stock Plan (the “1992 Plan”) provided for the grant of options and
      stock purchase rights to purchase up to a maximum of 11,000 shares of
      Alsius Medical’s common stock to employees, officers, consultants and directors.
      The 1992 Plan included incentive stock options (“ISOs”), nonqualified stock
      options (“NSOs”) and stock purchase rights. The right to exercise ISOs and NSOs
      and stock purchase rights vested at a rate in accordance with the individual
      stock option agreements, which has been immediate to four years for employees
      and three to four years for non-employees. Options expire within a period of
      not
      more than 10 years from the date of grant. ISOs granted to an employee who,
      at
      the time the option is granted, owns stock representing more than 10% of the
      voting power of all classes of stock of the Company, expire within a period
      of
      not more than five years from the date of grant. Options expire between thirty
      and ninety days after termination of employment depending on the circumstances.
      The 1992 Plan ended in 2002 and no further options have been
      granted.   All options outstanding under the 1992 Plan were
      canceled in the merger effective June 21, 2007.




A
      summary
      of option activity under the 1992 Plan is as follows:




**Shares
                Under Option****Employee**
            
            
            **Non-employee**
            
            
            **Total**
            
            
            **Weighted**
              **Average**
              **Exercise Price**
              **Per
                Share**
            
            
            **Weighted**
              **Average**
              **Contractual**
              **Life
                (Years)**
            
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at December 31, 2006
            
            
            5,550
            
            
            
            619
            
            
            
            6,169
            
            
            $
            249Forfeited
            
            
            (1,276
            )
            
            
            (30
            )
            
            
            (1,306
            )
            
            
            50Canceled
                in the merger
            
            
            (4,274
            )
            
            
            (589
            )
            
            
            (4,863
            )
            
            
            249Outstanding
                at September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Exercisable
                at September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Vested
                and expected to vest as of September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —





*2004
      Plan*




The
      2004
      Stock Incentive Plan (the “2004 Plan”) provided for the grant of options and
      stock purchase rights to purchase up to a maximum of 2,100,000 shares of
      Alsius Medical’s common stock to employees, officers, consultants and directors.
      The 2004 Plan included ISOs, NSOs and stock purchase rights. For ISOs and NSOs,
      the exercise price per share shall be no less than 110% of the fair market
      value
      per share on the date of grant for an individual who, at the time of grant,
      owns
      stock representing more than 10% of the voting power of all classes of stock
      of
      Alsius Medical. The right to exercise ISOs and NSOs and stock purchase rights
      vests at a rate in accordance with the individual stock option agreements,
      which
      has been immediate to four years for employees, and immediate to three years
      for
      non-employees. Options expire within a period of not more than 10 years from
      the
      date of grant. ISOs granted to an employee who, at the time the option is
      granted, owns stock representing more than 10% of the voting power of all
      classes of stock of Alsius Medical, expire within a period of not more than
      five
      years from the date of grant. Options expire between thirty days and six months
      after termination of employment depending on the circumstances. No stock
      purchase rights have been granted through the merger.  All options
      outstanding under the 2004 Plan were canceled in the merger effective June
      21,
      2007.





-19-


A
      summary
      of option activity under the 2004 Plan is as follows:




**Shares
                Under Option****Employee**
            
            
            **Non-employee**
            
            
            **Total**
            
            
            **Weighted**
              **Average**
              **Exercise Price**
              **Per
                Share**
            
            
            **Weighted**
              **Average**
              **Contractual**
              **Life
                (Years)**
            
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at December 31, 2006
            
            
            1,683,624
            
            
            
            164,138
            
            
            
            1,847,762
            
            
            $
            0.30
            
            
            
            7.7Forfeited
            
            
            (9,877
            )
            
            
            —
            
            
            
            (9,877
            )
            
            
            0.30
            
            
            
            7.7Canceled
                in the merger
            
            
            (1,673,747
            )
            
            
            (164,138
            )
            
            
            (1,837,885
            )
            
            
            0.30
            
            
            
            7.7Outstanding
                at September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Exercisable
                at September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Vested
                and expected to vest as of September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —




*2006
      Plan*




In
      connection with the merger, the Company adopted the new 2006 Equity Incentive
      Plan (the “2006 Plan”).  The 2006 Plan provides for the grant of
      options to purchase up to a maximum of 2,850,000 shares of the Company’s common
      stock to employees, officers, consultants and directors.   The
      number of shares reserved for issuance under the 2006 Plan will be increased
      on
      the first day of each fiscal year from 2008 through 2016 to 3% of the fully
      diluted shares of common stock outstanding on the last day of the immediately
      preceding fiscal year; provided, however, that the percentage shall be reduced
      to 2% from and after the time when the Company calls its warrants for redemption
      (Note 9).  The 2006 Plan includes ISOs and NSOs. For ISOs and NSOs,
      the exercise price per share shall be no less than 110% of the fair market
      value
      per share on the date of grant for an individual who, at the time of grant,
      owns
      stock representing more than 10% of the voting power of all classes of stock
      of
      the Company. The right to exercise ISOs and NSOs vests at a rate in accordance
      with the individual stock option agreements, which has been immediate to four
      years for employees, and immediate to three years for non-employees. Options
      expire within a period of not more than 10 years from the date of grant. ISOs
      granted to an employee who, at the time the option is granted, owns stock
      representing more than 10% of the voting power of all classes of stock of the
      Company, expire within a period of not more than five years from the date of
      grant. Options expire between thirty days and six months after termination
      of
      employment depending on the circumstances.





A
      summary
      of option activity under the 2006 Plan is as follows:




**Shares
                Under Option****Employee**
            
            
            **Non-employee**
            
            
            **Total**
            
            
            **Weighted**
              **Average**
              **Exercise Price**
              **Per
                Share**
            
            
            **Weighted**
              **Average**
              **Contractual**
              **Life
                (Years)**
            
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at December 31, 2006
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            —Granted
            
            
            2,667,850
            
            
            
            12,000
            
            
            
            2,679,850
            
            
            
            5.10Forfeited
              Exercised
            
            
            (4,000)
              —
            
            
            
            —
              —
            
            
            
            (4,000)
              —
            
            
            
            5.02
              —Outstanding
                at September 30, 2007
            
            
            2,663,850
            
            
            
            12,000
            
            
            
            2,675,850
            
            
            
            —
            
            
            
            9.8
            
            
            $
            2,676,180Exercisable
                at September 30, 2007
            
            
            11,000
            
            
            
            —
            
            
            
            11,000
            
            
            
            5.10
            
            
            
            9.8
            
            
            $
            11,000Vested
                and expected to vest as of September 30, 2007
            
            
            2,424,104
            
            
            
            12,000
            
            
            
            2,436,104
            
            
            
            5.10
            
            
            
            —
            
            
            $
            2,436,404




*IPO
      Option*




In
      Ithaka’s initial public offering in August 2005, an option was issued to the
      underwriter of the initial public offering (the “IPO Option”) to purchase
      425,000 units at an exercise price of $7.50 per unit.  A unit consists
      of one share of common stock and two redeemable common stock purchase
      warrants.  Ithaka accounted for the fair value of the IPO Option as an
      expense of its offering resulting in a charge directly to stockholders’
equity.  As of September 30, 2007, the IPO Option is outstanding and
      exercisable.


-20-


The
      IPO
      Option may be exercised for cash or on a “cashless” basis, at the holder’s
      option, such that the holder may use the appreciated value of the Option (the
      difference between the exercise prices of the Option and the underlying warrants
      and the market price of the units and underlying securities) to exercise the
      option without the payment of any cash. The unit purchase option agreement
      governing the IPO Option, as amended, states that the option may expire
      unexercised or unredeemed and expire worthless if there is no effective
      registration statement and states that in no event would Ithaka be obligated
      to
      pay cash or otherwise “net cash settle” the Option or the Warrants underlying
      the Option.




**8.**
            **SERIES
                F PREFERRED STOCK WARRANTS**




In
      May 2005, the Company issued a warrant exercisable into 116,667 shares
      of Series F preferred stock in connection with the secured promissory note
      at an exercise price of $3.00 per share. The warrant was exercisable over a
      period of eight years. The $188 estimated fair value of the warrant on its
      issuance date was estimated using the Black-Scholes option pricing model with
      the following assumptions: dividend yield of 0%, expected volatility of 40.01%,
      risk free interest rate of 3.93%; and term of eight years. The warrant was
      exercisable either through the cash payment of the exercise price or through
      net
      share settlement at the option of the holder.  Prior to its exercise
      in June 2007, the warrant was carried at its fair value with decreases or
      increases in fair value at each reporting date recorded as other income
      (expense).  The warrant was classified as a liability as it was
      exercisable into redeemable preferred stock.





In
      conjunction with the 2006 Bridge Notes, the Company issued warrants exercisable
      into shares of Series F preferred stock in the event the Company does not
      complete an IPO, or common stock if an IPO is completed. The fair value of
      the
      warrants on their issuance dates was estimated using the Black-Scholes option
      pricing model as follows:




**April**
              **2006**
            
            
            **August**
              **2006**
            
            
            **October**
              **2006**
            
            
            **November**
              **2006**
            
            
            **December**
              **2006**
            
            
            **January**
              **2007**
            
            
            **February**
              **2007**Estimated fair value on issuance
                date
            
            $
            332
            
            
            $
            —
            
            
            $
            3
            
            
            $
            3
            
            
            $
            3
            
            
            $
            3
            
            
            $
            1Dividend
                yield
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %Expected
                volatility
            
            
            58
            %
            
            
            59
            %
            
            
            60
            %
            
            
            60
            %
            
            
            60
            %
            
            
            60
            %
            
            
            60
            %Risk
                free interest rate
            
            
            4.96
            %
            
            
            5.18
            %
            
            
            4.77
            %
            
            
            4.69
            %
            
            
            4.62
            %
            
            
            4.77
            %
            
            
            4.77
            %Ter
            
            3.72 years
            
            
            3.62 years
            
            
            3.45 years
            
            
            3.37 years
            
            
            3.29 years
            
            
            3.64 years
            
            
            3.58 years




The
      warrants are cancelled in the event of a sales transaction. Based on the
      probability of a sale transaction, the 2006 Bridge Note warrants were estimated
      to have minimal value. The warrants were exercisable either through the cash
      payment of the exercise price or through net share settlement at the option
      of
      the holder.  Prior to their cancellation upon the merger with Ithaka
      in June 2007, the 2006 Bridge Note warrants were carried at their fair value
      with decreases or increases in fair value at each reporting date recorded as
      other income (expense). The warrants were classified as liabilities as they
      were
      exercisable into redeemable preferred stock.





The
      Company estimated the fair value of the warrant issued to Merrill Lynch Capital
      in February 2007 using the Black-Scholes option pricing model and assigned
      a
      probability to each outcome described in Note 5- Senior Secured Credit Facility.
      The fair value of the warrant on its issuance date was determined based on
      the
      following assumptions: dividend yield of 0%, expected volatility of 60%, risk
      free interest rates of 4.67% and 4.68%; and the contractual warrant term. The
      resultant estimated fair value of $206 was initially recorded as a warrant
      liability with decreases or increases in fair value at each reporting date
      recorded as other income (expense). The warrant is exercisable either through
      cash payment of the exercise price or through net share settlement at the option
      of the holder.





There
      are
      no outstanding Series F preferred stock warrants at September 30,
      2007.




**9.**
            **COMMON
                STOCK WARRANTS**




For
      accounting purposes, the Company is treated as having assumed the Registrant’s
      17,698,200 then outstanding redeemable common stock purchase warrants in the
      merger in June 2007. Each warrant entitles the registered holder to purchase
      one
      share of common stock of the Registrant at a price of $5.00 per share, subject
      to adjustment as discussed below. The warrants expire on April 17, 2009.
      The Registrant may call the warrants for redemption if all of the following
      conditions are met:


-21-





•
            
            in
                whole and not in part;




•
            
            at
                a price of $0.01 per warrant at any time after the warrants become
                exercisable;




•
            
            upon
                not less than 30 days’ prior written notice of redemption to each warrant
                holder; and




•
            
            if,
                and only if, the reported last sale price of the common stock equals
                or
                exceeds $8.50 per share for any 20 trading days within a 30 trading
                day
                period ending on the third business day prior to the notice of redemption
                to warrant holders.




The
      exercise price and number of shares of common stock issuable on exercise of
      the
      warrants may be adjusted in certain circumstances including in the event of
      a
      stock dividend, a recapitalization, reorganization, merger or consolidation.
      However, the warrants will not be adjusted for issuances of common stock at
      a
      price below the exercise price.




The
      warrants can be exercised on a cashless basis in connection with any
      redemption.  The warrant holders do not have the rights or privileges
      of holders of common stock and any voting rights until they exercise their
      warrants and receive shares of common stock. After the issuance of shares of
      common stock upon exercise of the warrants, each holder will be entitled to
      one
      vote for each share held of record on all matters to be voted on by
      stockholders.  No warrants will be exercisable and the Registrant will not
      be obligated to issue shares of common stock unless, at the time a holder seeks
      to exercise such warrant, a prospectus relating to the common stock issuable
      upon exercise of the warrants is current and the common stock has been
      registered or qualified or deemed to be exempt under the securities laws of
      the
      state of residence of the holder of the warrants.  The Registrant
      filed a registration statement on Form S-3 to register the shares that may
      be
      issued upon exercise of warrants and the registration statement is currently
      effective to allow the exercise of the warrants.




*IPO
      Warrants*




In
      the
      Registrant’s initial public offering in August 2005, 8,500,000 units were
      sold.  In addition, in September 2005 the Registrant consummated the
      closing of an additional 349,100 units, which were subject to the underwriters’
over-allotment option.  A unit consisted of one share of common stock
      and two redeemable common stock purchase warrants (the “IPO
      Warrants”).  Each IPO Warrant entitles the holder to purchase one
      share of common stock at an exercise price of $5.00 commencing June 21, 2007
      and
      expiring four years from the effective date of the initial public offering.
      As
      of September 30, 2007, 16,561,000 IPO Warrants are outstanding.




The
      IPO
      Warrants are redeemable, at the Registrant’s option, with the prior consent of
      the underwriter of the IPO, at a price of $.01 per IPO Warrant upon 30 days’
notice after the IPO Warrants become exercisable, only in the event that the
      last sale price of the common stock is at least $8.50 per share for any 20
      trading days within a 30 trading day period ending on the third day prior to
      the
      date on which notice of redemption is given. The warrant agreement governing
      the
      IPO Warrants, as amended, states that the warrants may expire unexercised or
      unredeemed and expire worthless if there is no effective registration statement
      and states that in no event would the Registrant be obligated to pay cash or
      other consideration to the holder of warrants or otherwise “net cash settle” any
      warrant exercise.





*Warrant
      Repurchase Program*





On
      August 9, 2007, the Company's board
      of directors authorized a warrant repurchase program for the Company to deploy
      up to $3.0 million to repurchase outstanding warrants from time to time in
      the
      open market, through block trades or otherwise, pursuant to applicable
      securities laws. Through September 30, 2007, the Company repurchased 1,137,200
      warrants for cash of $0.9 million.  The Company has suspended this
      program until further notice.




**10.**
            **INCOME
                TAXES**




The
      Company has a history of continuing operating losses; accordingly, no federal
      income taxes have been incurred. The Company has established a valuation
      allowance against its deferred state or foreign tax assets due to the
      uncertainty surrounding the realization of such assets. Management periodically
      evaluates the recoverability of the deferred tax assets. At such time as it
      is
      determined that it is more likely than not that deferred tax assets are
      realizable, the valuation allowance will be reduced.


-22-


At
      December 31, 2006, the Company had net operating loss carryforwards for
      federal and state purposes of approximately $56,286 and $52,715, respectively.
      The net operating loss carryforwards for federal purposes begin to expire in
      2007, and the net operating loss carryforwards for state purposes began expiring
      in 2006. The Company has research and experimentation credit carryforwards
      for
      federal and state purposes of approximately $1,455 and $1,492, respectively.
      The
      research and experimentation credits begin to expire in 2010 for federal
      purposes and carry forward indefinitely for state purposes. In addition, the
      Company has state manufacturing investment carryforwards of $49, which begin
      to
      expire in 2008.


The
      utilization of net operating loss and tax credit carryforwards may be subject
      to
      substantial limitations due to the ownership change limitations under the
      provisions of Internal Revenue Code Section 382 and similar state
      provisions. Utilization of $15,000 of the federal net operating loss
      carryforwards may also be subject to further limitation under the provisions
      of
      the Internal Revenue Code section 1503. The limitations could result in the
      expiration of the Company’s net operating loss carryforwards and credit
      carryforwards before full utilization.




**11.**
            **NET
                LOSS PER SHARE**




Basic
      loss per share is based on the weighted-average number of shares of common
      stock
      outstanding during the period. Diluted loss per share also includes the effect
      of stock options, warrants and other common stock equivalents outstanding during
      the period. In periods of a net loss position, basic and diluted weighted
      average shares are the same.




The
      merger with Ithaka in June 2007 was, for financial reporting purposes, treated
      as a reverse acquisition and essentially a recapitalization.  Because
      the number of shares outstanding following a reverse acquisition is
      significantly different from the number of shares outstanding prior to the
      combination, the weighted average shares outstanding for purposes of presenting
      net loss per share on a comparative basis has been retroactively restated to
      the
      earliest period presented in order to reflect the effect of the recapitalization
      that occurs in a reverse acquisition.  In effect, the reverse acquisition
      is similar to a stock split for the accounting acquirer, and retroactively
      restating the weighted average shares outstanding is consistent with the
      accounting required by SFAS No. 128, *Earnings Per Share*, for stock
      splits, stock dividends, and reverse stock splits.





Potentially
      dilutive securities that have been excluded from net loss per share computations
      due to the net loss position are:




StocStock
                options (Note 7)
            
            
            3,100,850Common
                stock warrants (Notes 5, 7 and 9 )
            
            
            17,454,71620,555,566




**12.**
            **COMMITMENTS
                AND CONTINGENCIES**




*Operating
      Leases*




The
      Company leases its facility under a noncancelable operating lease which, as
      amended, expires in December 2008 with an option to extend the lease for an
      additional three-year term at market rates. Under the lease, the Company is
      required to pay for insurance, taxes, utilities and building
      maintenance.




The
      Company leases its facility under a noncancelable operating lease for the Alsius
      Service Center in Wateringen, The Netherlands which expires in
      2010.




As
      of
      September 30, 2007, future minimum lease payments on the operating leases are
      as
      follows:




**Year
                Ending December 31,**2007
                (remainder)
            
            $
            832008
            
            
            3422009
            
            
            262010
            
            
            10$
            461




Rent
      expense for the nine months ended September 30, 2007 and 2006 was $306 and
      $285,
      respectively.


-23-


*Capital
      Leases*




As
      of
      September 30, 2007, capital lease payments are due in monthly installments
      through October 2011 for a total of $114.




*401(k)
      Plan*




The
      Company has a 401(k) plan that covers substantially all employees. Employer
      contributions to the plan are at the discretion of the Board of Directors.
      The
      Company elected to make no contributions for each year since the inception
      of
      the plan. The Company paid administrative expenses on behalf of the plan of
      $3
      for the year ended December 31, 2006.




*Indemnifications*




Each
      of
      the Registrant and Alsius Medical indemnifies its directors, and may indemnify
      its officers and other agents, to the maximum extent permitted under the
      Delaware General Corporation Law and the California Corporations Code,
      respectively. The indemnities do not provide for any limitation of the maximum
      potential future payments the Company could be obligated to make. The Company
      has not recorded any liability for these indemnities in the accompanying balance
      sheets.








**13.**
            **SEGMENT
                INFORMATION**





The
      Company operates in a single reporting segment. The following enterprise wide
      disclosure was prepared on a basis consistent with the preparation of the
      financial statements.




The
      Company derives significant revenue from outside the United States. Revenue
      by
      geographic area, based on the customer location, was as follows:




**Three
                Months Ended September 30,**
            
            
            **Nine
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**United
                States
            
            $
            1,076
            
            
            $
            792
            
            
            $
            2,914
            
            
            $
            1,818Austria*
            
            
            55
            
            
            
            312
            
            
            
            308
            
            
            
            911Germany*
            
            
            276
            
            
            
            —
            
            
            
            1,098
            
            
            
            —France
            
            
            1
            
            
            
            207
            
            
            
            407
            
            
            
            233Rest
                of Europe
            
            
            351
            
            
            
            427
            
            
            
            1,355
            
            
            
            1,008Other
            
            
            121
            
            
            
            34
            
            
            
            323
            
            
            
            51$
            1,880
            
            
            $
            1,772
            
            
            $
            6,405
            
            
            $
            4,021




No
      other
      country represented more that 10 percent of total revenue.





*
      Prior
      to May 2007, sales to end users in both Germany and Austria were conducted
      through a distributor in Austria, and were reflected as Austrian
      sales.   Beginning in May 2007, sales in both Germany and Austria
      have been conducted predominantly through a distributor in Germany, and are
      reflected as German sales.




The
      Company’s revenue by product category was as follows:




**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Disposables
            
            $
            832
            
            
            $
            767
            
            
            $
            3,099
            
            
            $
            1,845CoolGard
                and Thermogard   systems
            
            
            912
            
            
            
            929
            
            
            
            2,956
            
            
            
            2,011Services
            
            
            136
            
            
            
            76
            
            
            
            350
            
            
            
            165$
            1,880
            
            
            $
            1,772
            
            
            $
            6,405
            
            
            $
            4,021


-24-


The
      Company’s long-lived assets located in its country of domicile and
      internationally were as follows:




**As
                of September 30, 2007**
            
            
            **As
                of December 31, 2006**United
                States
            
            $
            1,244
            
            
            $
            881International
            
            
            158
            
            
            
            115$
            1,402
            
            
            $
            996




**14.**
            **RELATED
                PARTIES**




The
      Company paid approximately $657 and $732 in legal fees for the nine months
      ended
      September 30, 2006 and 2007, respectively, to a law firm whose partner is the
      corporate secretary of the Company. Included in accounts payable and accrued
      expenses at December 31, 2006 and at September 30, 2007 is approximately
      $189 and $41, respectively, due to this law firm.




The
      Company paid approximately $35 and $83 in professional fees for the nine months
      ended September 30, 2006 and 2007, respectively, to an executive recruiting
      firm
      whose principal is the spouse of a Vice President of the Company. Included
      in
      accounts payable and accrued expenses at December 31, 2006 and at September
      30, 2007 is approximately $18 and $0, respectively, due to this executive
      recruiting firm.




In
      connection with the services rendered in the nine months ended September 30,
      2006 and 2007 for the procurement of the Company’s directors’ and officers’
insurance policies, the Company paid Woodruff-Sawyer & Co. a commission
      of $6 and $22, respectively.   Stephen R. Sawyer is a partial
      owner of Woodruff-Sawyer & Co. and the brother of Ms. Hutton, one
      of the Company’s directors. Ms. Hutton has no financial ownership or
      interest in Woodruff-Sawyer & Co. and did not participate in the
      selection of Woodruff-Sawyer & Co. as the Company’s insurance
      broker.  There are no amounts included in accounts payable and accrued
      expenses at December 31, 2006 and September 30, 2007 due to Woodruff-Sawyer
      & Co.


-25-





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




*This
      Quarterly Report on Form 10-Q contains forward-looking statements within the
      meaning of the federal securities laws. These statements are subject to risks
      and uncertainties that could cause actual results and events to differ
      materially from those expressed or implied by such forward-looking statements.
      For a detailed discussion of these risks and uncertainties, see the “Risk
      Factors” section in Item 1A of this Form 10-Q and in our other SEC filings.
      We caution the reader not to place undue reliance on these forward-looking
      statements, which reflect management’s analysis only as of the date of this Form
      10-Q. We undertake no obligation to update forward-looking statements to reflect
      events or circumstances occurring after the date of this Form
      10-Q.*




**Overview**




We
      are a
      commercial-stage medical device company that develops, manufactures and sells
      proprietary, innovative products to precisely control patient temperature in
      hospital critical care settings. Our products consist of our CoolGard
      temperature regulation system, which is a computer-controlled cooling and
      warming unit, as well as three families of single-use catheters used exclusively
      with the systems—Cool Line, Icy and Fortius. We market our products to acute
      care hospitals and critical care physicians through a direct sales force in
      the
      United States and independent distributors in international markets. Our revenue
      consists primarily of sales of the CoolGard system, single-use catheters and
      single use start-up kits which connect the catheter to the system. In the first
      quarter of 2007, we introduced our new Thermogard system, a computer controlled
      cooling and warming unit used with our catheters that is similar to the
      CoolGard, but which contains additional features for use in surgical
      applications.   In June 2007, we introduced our “Hospital
      Interface Accessory” (HMIA).  The HMIA enables the caregiver to
      display the patient’s temperature on both the Alsius system and the patient
      monitor.  The HMIA is compatible with the majority of patient
      monitoring systems.




We
      began
      selling our products in the United States in April 2004 and, as of September
      30,
      2007, had established a U.S. installed base of over 184 systems in 95 hospitals,
      of which 148 had been sold and 36 were under evaluation. We began building
      a
      current network of independent distributors in Europe in February 2004, and
      as
      of September 30, 2007, had established a European installed base of over 296
      systems in over 155 hospitals, of which 272 had been sold and 24 were under
      evaluation. We generated revenues of $1.6 million in 2004,
      $3.2 million in 2005, $6.0 million in 2006 and $6.4 million for the
      first nine months of 2007, which represents an annual revenue growth of 100%
      and
      88% in 2005 and 2006 and 60% from the first nine months of 2006 as compared
      to
      the first nine months of 2007, respectively. We had a net loss of
      $8.2 million in 2004, $10.1 million in 2005, $17.6 million in
      2006 and $16.6 million for the nine months of 2007. International sales
      accounted for 65% of our revenue in 2004, 62% in 2005, 57% in 2006 and 55%
      in
      the first nine months of 2007. We expect U.S. sales to represent a greater
      percentage of our revenue as we continue to increase direct sales efforts in
      the
      United States.





We
      believe our revenues for 2007 will be negatively impacted by the length of
      time
      it took to close our merger with Ithaka. This extended delay in the
      infusion of capital caused new
      catheter projects and regulatory clearances in certain ex-US
      markets to fall behind schedule. Also, during
      the second quarter of 2007 we noted that our sales
      cycle in the US is taking longer than originally forecast. We believe this
      extended sales cycle is due primarily to the fact
      that our hospital customers conduct more thorough evaluations of new
      temperature management products (including ours and our
      competitors') prior to making
      a purchase.   Although the sales cycle is taking longer, we
      believe we are rewarded with the majority of sales to hospitals seeking to
      purchase temperature management products, who have compared our products to
      available alternatives.




We
      have FDA clearance to market our products in the United States for fever control
      in certain neuro-intensive care patients and temperature management in cardiac
      and neuro surgery patients, and are exploring ways to obtain clearance for
      cardiac arrest in the United States. We have broader clearance to market our
      products in Europe, Canada and Australia, including clearance for cardiac
      arrest, and are in the process of obtaining clearances to sell our products
      in
      China, Japan and other Asian countries. We only market our products for
      treatments in the specific cleared indications; however this does not prevent
      physicians from using our products for non-cleared, or off-label, uses. As
      of
      September 30, 2007, we had 16 direct sales people in the United States and
      over
      27 independent international distributors covering over 35 countries. We intend
      to continue to expand the size of our direct U.S. sales force and clinical
      application specialists, as well as increase our network of distributors in
      Europe and other countries.


-26-


**Critical
      Accounting Policies and Estimates**




Our
      discussion and analysis of our financial condition and results of operations
      is
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States. The preparation
      of financial statements requires management to make estimates and judgments
      that
      affect the reported amounts of assets and liabilities, revenue and expenses,
      and
      disclosures of contingent assets and liabilities as of the date of the financial
      statements. On a periodic basis, we evaluate our estimates, including those
      related to revenue recognition, accounts receivable, inventories, warranty,
      stock-based compensation, warrants and embedded derivatives. We use historical
      experience and other assumptions as the basis for making estimates. Actual
      results could differ from those estimates under different assumptions or
      conditions. We believe the following critical accounting policies affect our
      more significant judgments and estimates used in the preparation of our
      financial statements.




*Revenue.*We generate revenue primarily from the sale of our CoolGard and Thermogard
      systems, three families of single-use catheters and single-use start-up kits,
      one of which is required with each catheter used. In the United States, we
      sell
      our products through a direct sales force and are paid directly by the hospital
      purchasing our products. Outside of the United States, we sell our products
      to
      distributors at a discount to the list price and are paid directly by the
      distributor, who then sells to the hospital. Our revenue recognition policy
      is
      the same for both domestic customers and distributors.




We
      recognize revenue in accordance with SEC Staff Accounting
      Bulletin No. 104, *Revenue Recognition*, which requires that
      four basic criteria must be met before revenue can be recognized:
      (1) persuasive evidence of an arrangement exists; (2) delivery has
      occurred and title and the risks and rewards of ownership have been transferred
      to the customer or services have been rendered; (3) the price is fixed or
      determinable; and (4) collectability is reasonably assured. Persuasive
      evidence of an arrangement consists of a purchase order for domestic customers
      and a distributor agreement with a purchase order for sales to international
      distributors. Delivery has occurred and title and the risks and rewards of
      ownership are transferred to the customer when the product has been shipped
      or
      received by the customer in accordance with the terms of the related purchase
      order. The price is fixed and determinable upon the receipt of a customer
      purchase order, which includes a stated purchase price. The majority of our
      arrangements include FOB shipping point terms. We use judgment when determining
      whether collection is reasonably assured and rely on a number of factors,
      including past transaction history with the customer and management evaluations
      of the credit worthiness of the customer. If we determine that collection is
      not
      reasonably assured, we would defer revenue until such time that collection
      is
      reasonably assured.




We
      evaluate whether the separate deliverables in its arrangements can be unbundled.
      Sales of the CoolGard and Thermogard systems domestically to hospitals include
      separate deliverables consisting of the CoolGard or Thermogard system,
      disposables used with the system, installation and training. For these sales,
      we
      apply the residual value method in accordance with Emerging Issues Task Force
      (“EITF”) No. 00-21, *Revenue Arrangements with Multiple Deliverables,*which requires the allocation of the total arrangement consideration
      less
      the fair value of the undelivered elements, which consist of installation and
      training, to the delivered elements. Through September 30, 2007, there were
      a
      limited number of undelivered elements resulting in a minimal amount attributed
      to the undelivered elements. Installation and training are not included in
      arrangements with sales to distributors.




Explicit
      return rights are not offered to customers; however, we may accept returns
      in
      limited circumstances. We do not offer return rights for expired products to
      our
      customers. We assess levels of inventory in the distribution channel through
      regular communications with distributors by international sales and service
      personnel. The amount of returns through September 30, 2007 has been minimal.
      A
      sales return allowance has not been established because we believe returns
      will
      be insignificant.




We
      enter
      into equipment loan agreements with stated terms of primarily six-months with
      certain customers whereby the CoolGard or Thermogard system is placed at the
      customer’s site for their evaluation and use. During this time, the customer
      purchases disposables. There are no stated minimum purchase requirements. We
      account for these arrangements in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 13, *Accounting for Leases,*and
      have classified these arrangements as operating leases. The consideration for
      the rental portion of the arrangement is considered to be contingent and is
      recorded when earned, which is when the disposables are recognized as revenue.
      The CoolGard or Thermogard system is classified as evaluation equipment and
      is
      depreciated over its estimated economic life of five years with depreciation
      included as a component of cost of revenue.




During
      2005, we began to offer extended warranty contracts, which are separately sold
      to non-distributor customers. Revenue is recorded on a straight-line basis
      over
      the period of the contract, which is one year. The amount of deferred revenue
      through September 30, 2007 was minimal.


-27-


*Accounts
      receivable.*We record accounts receivable based on the invoice amount and
      do not charge interest on outstanding balances. Allowances for doubtful accounts
      are estimated for losses resulting from the inability of our customers to make
      required payments. We analyze accounts receivable and historical bad debts,
      customer credit, current economic trends and changes in customer payment trends
      when evaluating the adequacy of the allowance for doubtful accounts. Account
      balances are charged-off against the allowance when it is probable the
      receivable will not be recovered.




*Inventory.*Inventory, consisting of finished goods, work-in-progress and raw materials
      is stated at the lower of cost or market. We determine cost by the weighted
      average method. Inventory reserves are established when conditions indicate
      that
      the selling price could be less than cost due to physical deterioration, usage,
      obsolescence, reductions in estimated future demand and reductions in selling
      prices. Our catheters have an expiration date of two years from the date of
      manufacture, which we have established based on safety standards. We balance
      the
      need to maintain strategic inventory levels with the risk of obsolescence due
      to
      changing technology and customer demand levels. Unfavorable changes in market
      conditions may result in a need for additional inventory reserves that could
      adversely impact our financial results.




*Warranty
      reserve.*We provide a 12 month warranty from date of purchase for
      domestic customers and a 15 month warranty from date of purchase for
      distributors on our CoolGard and Thermogard systems, which covers parts, labor
      and shipping costs. We also allow our domestic customers one year from the
      date
      of purchase and our distributors two years from the date of purchase or the
      expiration date, whichever is shorter, to exchange any catheter or start-up
      kit
      that contains a defect. Accordingly, we have established a warranty reserve
      for
      our products. We estimate the costs that may be incurred under the warranties
      and record a liability for the amount of such costs at the time the products
      are
      sold. Factors that affect the warranty liability include the number of units
      sold, historical and anticipated rates of warranty claims, and costs per claim,
      which requires management to make estimates about future costs. We periodically
      assess the adequacy of the recorded warranty liabilities and adjust the amounts
      as necessary. Although we test our products in accordance with our quality
      programs and processes, the warranty obligation is affected by product failure
      rates and service delivery costs incurred in correcting a product failure.
      Revisions to the originally estimated warranty liability would be required
      should actual product failure rates or service costs differ from original
      estimates, which are based on historical data.




*Stock-based
      compensation.*We applied the principles of Accounting Principles Board
      (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees*prior to January 1, 2006, which requires us to record compensation
      expense equal to the excess of the estimated fair value of our common stock
      over
      the employee option’s exercise price on the grant date, the intrinsic value, and
      record such compensation expense over the stock option’s vesting period.
      Effective January 1, 2006, we adopted the provisions of SFAS 123(R)
      using the prospective transition method. Under the prospective transition
      method, only new awards, or awards that have been modified, repurchased or
      cancelled after January 1, 2006, are accounted for using the fair value
      method. We will continue to account for awards outstanding as of January 1,
      2006 using the accounting principles under APB No. 25. We also issue stock
      options to non-employees and apply the principles of EITF No. 96-18,
*Accounting for Equity Instruments that Are Issued to Other Than Employees
      for Acquiring, or in Conjunction with Selling, Goods or Services*, which
      requires that such equity instruments are recorded at their fair value and
      periodically adjusted as the stock options vest. The fair value of our
      non-employee stock options is estimated using the Black-Scholes option pricing
      model, which requires the use of management’s judgment in estimating the inputs
      used to determine fair value. Management’s estimate of the fair value of our
      common stock impacts compensation expense recorded in the results of operations
      for both employees and non-employees.




Another
      variable that impacts the estimated fair value of our employee stock options
      granted after January 1, 2006 and non-employee stock options is the volatility
      of the common stock. Prior to the completion of the merger with Ithaka in June
      2007, Alsius Medical’s common stock was not publicly traded and therefore
      estimates were based on the volatility of comparable public companies. Changes
      in these estimates may increase the estimated value of the non-employee stock
      options and the related compensation expense recorded in the statement of
      operations.




In
      determining exercise prices for stock options prior to the merger with Ithaka
      in
      June 2007, we did not obtain contemporaneous valuations by an unrelated
      valuation specialist, but instead relied on our board of directors, the members
      of which we believe have extensive experience in the medical device market
      and a
      majority of which is comprised of non-employee directors, to determine a
      reasonable estimate of the then-current fair value of the common stock. Because
      we did not have any outside equity financings since September 2004, and
      because there had been no liquidity in our common stock, our board of directors
      determined the fair value of the common stock on the date options were granted
      based on several factors, including the liquidation preferences of our preferred
      stock, progress against regulatory and product development milestones, our
      financial condition and the likelihood of achieving a liquidity event such
      as an
      initial public offering or a sale of the company.


-28-


During
      the first six months of 2006, as we considered an initial public offering,
      we
      reassessed the valuations of common stock relating to option grants during
      the
      year ended December 31, 2005. We considered the expected value of our
      common stock in a planned initial public offering, in addition to our increasing
      sales, and favorable valuations of comparable publicly-traded medical device
      companies. As a result, the estimated fair value of our common stock in 2005
      was
      greater than the exercise price of the stock options. We used a market-based
      approach in determining the fair value of our common stock as of each grant
      date, and also considered the following factors:




•
            successive
                quarters of increased U.S. and international sales during 2005, which,
                by
                the end of the first six months of 2006 we believed evidenced its
                commercial traction;




•
            our
                progress in developing its U.S. and international sales and marketing
                infrastructure;




•
            our
                growing installed base of systems in hospitals and increasing catheter
                utilization; and




•
            increased
                receptivity of the public capital markets to early stage medical
                device
                initial public offerings.




During
      the third quarter of 2006, as we changed our strategy from pursuing an initial
      public offering of our common stock to entering into a merger transaction with
      Ithaka, we reassessed the valuation model used in determining the fair value
      of
      common stock from a market-based approach to a probability weighted approach
      for
      a sale transaction or a recapitalization event. These new approaches included
      the following factors:




•
            the
                proposed merger terms whereby eight million shares of Ithaka common
                stock
                would be issued as consideration for the
                merger;




•
            the
                potential of an additional six million shares of Ithaka common stock
                would
                be issued as Milestone Shares if certain revenue targets were achieved
                in
                fiscal 2007-2009;




•
            the
                amount of unsecured promissory notes which would have to be satisfied
                in
                accordance with their terms prior to any consideration being issued
                to our
                shareholders; and




•
            the
                priority position of preferred stockholders, particularly the Series
                F
                preferred stockholders, to common
                stockholders.




After
      consideration of the above factors, we determined that the estimated fair value
      of our common stock since September 30, 2006 was minimal. We did not grant
      any stock options between March 31, 2006 and June 30, 2007.




The
      aggregate intrinsic value recorded for employee stock options granted during
      the
      year ended December 31, 2005 was $1.2 million. We recognized
      $0.09 million as compensation expense in 2005, $0.3 million in 2006
      and $0.2 million and $2.1 million in the first nine months of 2006 and 2007,
      respectively, related to employee option grants. In addition, we recognized
      $0.2 million of compensation expense in 2005, ($0.05) million in 2006
      and ($0.05) million and $0.01 in the first nine months of 2006 and 2007
      respectively, for the fair value of options granted to
      non-employees.




Effective
      January 1, 2006, we account for stock options granted using
      SFAS No. 123(R), *Share-Based Payment*, which has replaced
      SFAS No. 123 and APB 25. Under SFAS No. 123(R),
      companies are no longer able to account for share-based compensation
      transactions using the intrinsic method in accordance with APB 25, but will
      be required to account for such transactions using a fair-value method and
      recognize the expense in the statements of operations. We adopted the provisions
      of SFAS 123(R) using the prospective transition method. Under the
      prospective transition method, only new awards, or awards that have been
      modified, repurchased or cancelled after January 1, 2006, are accounted for
      using the fair value method. We will continue to account for awards outstanding
      as of January 1, 2006 using the accounting principles under APB
      No. 25.




*Warrants.*We issued warrants in 2005, 2006 and during the six months ended June
      30,
      2007 in connection with certain borrowings. We applied the principles of FSP
      150-5, *Issuer’s Accounting under FASB Statement No. 150 for
      Freestanding Warrants and Other Similar Instruments on Shares that are
      Redeemable,* to record the warrants as liabilities based on their estimated
      value on the issuance date. The warrant is carried at its fair value with
      decreases or increases in fair value at each reporting date recorded as other
      income (expense). The fair value of the warrants is estimated using the
      Black-Scholes pricing model, which requires the use of management’s judgment in
      estimating the inputs used to determine fair value.


-29-


*Embedded
      Derivatives.*In 2006 and during the three months ended March 31, 2007, we
      issued certain promissory notes (the “2006 Bridge Notes”). The 2006 Bridge Notes
      provide for a payment equal to 150% of the principal and accrued interest in
      the
      event there is a sale transaction of substantially all of the assets of the
      Company or a change in control in the form of the acquirer’s stock. This
      provision was determined to be an embedded derivative and was valued separately
      from the notes. The Company engages an independent consulting firm to assist
      management in determining the estimated fair value of the embedded derivatives.
      The estimated fair value is determined using a present value analysis and
      management’s estimate of the probability of a sale transaction. The embedded
      derivative was recorded as a liability at its estimated fair value with
      decreases or increases in fair value at each reporting date recorded as other
      income (expense).




*Income
      Taxes.* Effective January 1, 2007, we adopted FASB Interpretation No. 48
      (“FIN 48”), *Accounting for Uncertainty in Income Taxes*, which clarifies
      the accounting for uncertainty in income taxes recognized in the financial
      statements in accordance with FASB Statement No. 109, *Accounting for Income
      Taxes*. FIN 48 provides guidance on the financial statement recognition and
      measurement of a tax position taken or expected to be taken in a tax return.
      FIN
      48 also provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, disclosures, and transition. In
      accordance with FIN 48, a tax position is a position in a previously filed
      tax
      return or a position expected to be taken in a future tax filing that is
      reflected in measuring current or deferred income tax assets and liabilities.
      Tax positions are recognized only when it is more likely than not (likelihood
      of
      greater than 50%), based on technical merits, that the position will be
      sustained upon examination. Tax positions that meet the more likely than not
      threshold should be measured using a probability weighted approach as the
      largest amount of tax benefit that is greater than 50% likely of being realized
      upon settlement. The adoption of FIN 48 did not have a material impact on our
      financial position, results of operations or cash flows.




We
      have
      elected to recognize interest and penalties with respect to unrecognized tax
      benefits in income tax expense. We have identified no uncertain tax position
      for
      which it is reasonably possible that the total amount of unrecognized tax
      benefits will significantly increase or decrease within 12 months.




We
      are
      subject to taxation in the U.S. and various state jurisdictions. We are no
      longer subject to U.S. federal or state examinations by tax authorities for
      years before 2003.




At
      December 31, 2006, we had both federal and state net operating loss (“NOL”)
      carryforwards of approximately $56,286 and $52,715, respectively. The net
      operating loss carryforwards for federal purposes begin to expire in 2007,
      and
      the net operating loss carryforwards for state purposes began expiring in 2006.
      Due to uncertainties surrounding our ability to generate future taxable income
      to realize these assets, a full valuation allowance has been established to
      offset the net deferred tax assets.  In addition, the Company has
      $15,000 of federal net operating losses from a prior acquisition that are
      subject to limitation under Section 1503 of the Internal Revenue
      Code.  The related deferred tax asset has a full valuation allowance
      as well.




Utilization
      of the NOL carryforwards may be subject to a substantial annual limitation
      due
      to ownership change limitations that may have occurred or that could occur
      in
      the future, as required by Section 382 of the Internal Revenue Code of 1986,
      as
      amended (the “Code”), as well as similar state provisions. These ownership
      changes may limit the amount of NOL carryforwards that can be utilized annually
      to offset future taxable income and tax, respectively. In general, an “ownership
      change” as defined by Section 382 of the Code results from a transaction or
      series of transactions over a three-year period resulting in an ownership change
      of more than 50 percentage points of the outstanding stock of a company by
      certain stockholders or public groups. Since our formation, capital has been
      raised through the issuance of capital stock on several occasions which,
      combined with the purchasing stockholders’ subsequent disposition of those
      shares, may have resulted in such an ownership change, or could result in an
      ownership change in the future upon subsequent disposition.




We
      are
      currently investigating the impact on whether an ownership change has occurred
      with the consummation of the merger in June 2007 or whether there have been
      multiple ownership changes since our formation.  There may be
      additional such ownership changes in the future. If we have experienced an
      ownership change at any time since our formation, utilization of the NOL
      carryforwards would be subject to an annual limitation under Section 382 of
      the
      Code, which is determined by first multiplying the value of our stock at the
      time of the ownership change by the applicable long-term, tax-exempt rate,
      and
      then could be subject to additional adjustments, as required. Any limitation
      may
      result in expiration of a portion of the NOL carryforwards before
      utilization


-30-


**Results
      of Operations**




***Nine
      Months Ended September 30, 2007 and 2006***




*Revenue.*Revenue was $6.4 million for the nine months ended September 30, 2007,
      an increase of $2.4 million or 60%, from $4.0 million for the nine
      months ended September 30, 2006. The increase was attributable to an increase
      in
      the sale of our catheters and start-up kits due to our growing installed base
      of
      CoolGard and Thermogard systems. During the nine months ended September 30,
      2007, we sold 5,646 catheters and 4,872 start-up kits, an increase of 57% and
      58%, respectively, from the 3,599 catheters and 3,093 start-up kits sold during
      the nine months ended September 30, 2006. In addition, we increased sales of
      our
      CoolGard and Thermogard systems from 112 during the nine months ended September
      30, 2006 to 153 during the nine months ended September 30, 2007. Sales of our
      CoolGard and Thermogard systems accounted for 46% and 50% of revenue and sales
      of catheters and start-up kits accounted for 48% and 46% of our revenue for
      the
      nine months ended September 30, 2007 and 2006, respectively.  Sales in
      the United States accounted for 45% of our revenue for the nine months ended
      September 30, 2007 and for the nine months ended September 30, 2006. We expect
      that U.S. sales will increase as a percentage of future
      revenue.





*Cost
      of revenue.*Cost of revenue consists of costs of materials, products
      purchased from third-parties, manufacturing personnel, freight, depreciation
      of
      property and equipment, royalties paid to technology licensors, manufacturing
      overhead, warranty expenses and inventory reserves. Royalties paid to third
      parties include two worldwide licenses related to our catheters. One license
      covers a coating used on our catheters and requires that we pay a royalty of
      between 2.0% and 3.5% on net revenue generated by all catheters. The other
      license covers technology used in our Cool Line catheter and requires that
      we
      pay a royalty of 2.5% on net revenue generated by the Cool Line
      catheter.




Cost
      of
      revenue was $5.4 million for the nine months ended September 30, 2007, an
      increase of $0.9 million or 20%, from $4.5 million for the nine months ended
      September 30, 2006. Cost of revenue increased primarily due
      to increased sales volume. As a percentage of revenue, cost of revenue
      decreased from 113% of sales for the nine months ended September 30,
      2006, to 84% of sales for the nine months ended September
      30, 2007. The percentage decrease was primarily due
      to higher average selling prices as a result of an increase in
      sales to domestic U.S. customers, to whom we sell directly,
      versus international sales which are made
      through distributors. The decrease in cost of revenue was
      partially offset by increased production costs due to labor and materials
      costs of $0.2 million during the nine months ended September 30, 2007 to
      replace catheter components that did not meet quality specifications and
      $0.3 million increase in compensation and benefits related to the higher
      headcount needed to support increased production.  Stock based
      compensation also increased $0.1 million associated with our new 2006 Stock
      Option Plan.





*Research
      and development expense.*Research and development expense consists of costs
      related to our regulatory and product development activities. Research and
      development expense has been, and we anticipate in the future will be, highest
      when it is actively engaged in human clinical trials to support new regulatory
      clearances. Research and development expense was $2.6 million for the nine
      months ended September 30, 2007, an increase of $0.5 million, or 24%, from
      $2.1 million for the nine months ended September 30, 2006. The increase was
      primarily due higher clinical research costs, specifically for testing and
      qualification process in Japan, and increased compensation and benefits of
      $0.2
      million related to the higher headcount needed to support the
      activities.   Stock based compensation also increased $0.3
      million associated with our new 2006 Stock Option Plan.  We expect
      research and development expenses to decline as a percentage of revenue due
      to a
      larger revenue base.




*Sales
      and marketing expense.*Sales and marketing expense consists of costs
      related to our direct sales force personnel, clinical application specialists,
      travel, trade shows, advertising, entertainment, and marketing materials
      provided to our international distributors. Sales and marketing expense was
      $7.8
      million for the nine months ended September 30, 2007, an increase of $3.8
      million, or 95%, from $4.0 million for the nine months ended September 30,
      2006.
      This increase was primarily attributable to the growth of our direct sales
      force
      and marketing activities to support our worldwide market expansion resulting
      in
      increased compensation costs of $1.2 million, increased travel costs of $0.8
      million, increased advertising and promotion expenses of $0.4 million, increased
      trade show and meeting expenses of $0.3 million, increased commissions of $0.2
      million corresponding to increase in sales, and increased outside services
      expenses of $0.2 million.  Stock based compensation also increased by
      $0.5 million associated with our new 2006 Stock Option Plan.   We
      expect that expenses associated with sales and marketing activities will
      increase as we incur additional costs to support our worldwide market
      expansion.


-31-


*General
      and administrative expense.*General and administrative expense consists of
      costs related to personnel, legal, accounting and other general operating
      expenses. General and administrative expense was $3.8 million for the nine
      months ended September 30, 2007, an increase of $0.4 million or 12%, from
      $3.4 million for the nine months ended September 30, 2006. The increase was
      primarily attributable to an increase in stock based compensation of $0.7
      million, initial NASDAQ filing fees of $0.1 million, and $0.1 million increase
      in consulting related to our Sarbanes-Oxley compliance efforts.  These
      increases are partially offset by decreased professional fees (legal, accounting
      and printing) of $0.5 million as we undertook significant efforts in the
      nine months ended September 30, 2006 related to an initial public offering
      (IPO)
      prior to commencing the merger transaction with Ithaka in late
      2006.  The IPO costs were expensed when we withdrew our
      offering.   We expect that general and administrative expense
      will increase in absolute dollar amounts as we incur additional costs related
      to
      operating as a public company, such as legal and accounting fees, and higher
      costs for officers’ and directors’ insurance, investor relations programs and
      director and professional fees.




*Interest
      income.*Interest income was $0.4 million for the nine months ended
      September 30, 2007, an increase of $0.3 million, or 300%, from
      $0.1 million for the nine months ended September 30, 2006. This increase
      was due to the investing the cash and cash equivalents we obtained in the
      merger.





*Interest
      expense.*Interest expense was $3.8 million for the nine months ended
      September 30, 2007, an increase of $2.7 million, or 245%, from $1.1 million
      for the nine months ended September 30, 2006. The increase in interest expense
      resulted from an additional $1.9 million incurred on our convertible bridge
      notes issued from April 2006 through February 2007, $0.9 million incurred on
      promissory notes issued in February and May 2007 in connection with our loan
      from Merrill Lynch Capital, and $0.1 million incurred on our borrowings from
      Cheyne Capital, partially offset by a decrease in interest expense of $0.3
      million related to our borrowings from Oxford Finance which we repaid in
      February 2007. The interest expense on the bridge notes included a discount
      associated with the warrants issued with the bridge notes.   We
      expect interest expense to decline in future periods due to the lower level
      of
      borrowings as compared to prior periods.




*Other
      income (expense).*Other expense was $0.1 million for the nine months
      ended September 30, 2007, a decrease of $1.6 million, or 94%, from the $1.7
      million for the nine months ended September 30, 2006. The decrease is due to
      the
      changes in fair value of the warrant and embedded derivative liabilities
      associated with our debt instruments.  The underlying debt instruments
      were converted or repaid in the nine months ended September 30,
      2007.




***Three
      Months Ended September 30, 2007 and 2006***




*Revenue.*Revenue was $1.9 million for the quarter ended September 30, 2007, an
      increase of $0.1 million or 6%, from $1.8 million for the quarter
      ended September 30, 2006. The increase was attributable to an increase in
      average selling prices for our products which more than offset the slight
      decrease in number of units sold. During the quarter ended September 30, 2007,
      we sold 1,422 catheters and 1,235 start-up kits, a decrease of 5% and 4%,
      respectively, from the 1,502 catheters and 1,281 start-up kits sold during
      the
      quarter ended September 30, 2006. In addition, sales of our CoolGard and
      Thermogard systems decreased from 50 during the quarter ended September 30,
      2006
      to 44 during the quarter ended September 30, 2007. We believe that sales of
      our
      systems and catheters during the quarter ended September 30, 2007 compared
      to
      the quarter ended September 30, 2006 primarily reflected an increase in
      competitive activity in both the United States and Europe.  As a result, we
      did not close sales as quickly as expected, given the process hospitals much
      go
      through to evaluate alternatives as they implement new protocols and adopt
      next-generation cooling technology.  Sales of our CoolGard and Thermogard
      systems accounted for 49% and 52% of revenue and sales of catheters and start-up
      kits accounted for 44% and 43% of our revenue for the quarters ended September
      30, 2007 and 2006, respectively.  Sales in the United States accounted
      for 57% of our revenue for the quarter ended September 30, 2007, compared to
      45%
      for the quarter ended September 30, 2006. We expect that U.S. sales will
      increase as a percentage of future revenue.




*Cost
      of revenue.*Cost of revenue consists of costs of materials, products
      purchased from third-parties, manufacturing personnel, freight, depreciation
      of
      property and equipment, royalties paid to technology licensors, manufacturing
      overhead, warranty expenses and inventory reserves. Royalties paid to third
      parties include two worldwide licenses related to our catheters. One license
      covers a coating used on our catheters and requires that we pay a royalty of
      between 2.0% and 3.5% on net revenue generated by all catheters. The other
      license covers technology used in our Cool Line catheter and requires that
      we
      pay a royalty of 2.5% on net revenue generated by the Cool Line
      catheter.




Cost
      of
      revenue was $1.3 million for the quarter ended September 30, 2007, a decrease
      of
      $0.2 million or 13%, from $1.5 million for the quarter ended September 30,
      2006.
      As a percentage of revenue, cost of revenue decreased from 83% of
      sales for the quarter ended September 30, 2006, to 68% of
      sales for the quarter ended September
      30, 2007. The percentage decrease was primarily due
      to higher average selling prices as a result of an increase in
      sales to domestic U.S. customers, to whom we sell directly,
      versus international sales which are made
      through distributors. Stock based compensation increased in the
      quarter ended September 30, 2007 by $0.1 million as compared to the quarter
      ended September 30, 2006  due to the grant of stock options under our
      new 2006 Stock Option Plan.


-32-


*Research
      and development expense.*Research and development expense consists of costs
      related to our regulatory and product development activities. Research and
      development expense has been, and we anticipate in the future will be, highest
      when it is actively engaged in human clinical trials to support new regulatory
      clearances. Research and development expense was $1.0 million for the quarter
      ended September 30, 2007, an increase of $0.3 million, or 43%, from
      $0.7 million for the quarter ended September 30, 2006. This increase is
      primarily attributable to increased stock based compensation of $0.3 million
      associated with our new 2006 Stock Option Plan. We expect research and
      development expenses to decline as a percentage of revenue due to a larger
      revenue base.





*Sales
      and marketing expense.*Sales and marketing expense consists of costs
      related to our direct sales force personnel, clinical application specialists,
      travel, trade shows, advertising, entertainment, and marketing materials
      provided to our international distributors. Sales and marketing expense was
      $2.7 million for the quarter ended September 30, 2007, an increase of $1.4
      million, or 108%, from $1.3 million for the quarter ended September 30, 2006.
      This increase was primarily attributable to the growth of our direct sales
      force
      and marketing activities to support our worldwide market expansion, resulting
      in
      increased compensation and commission costs of $0.4 million, increased travel,
      trade show and meeting expenses of $0.3 million and increased advertising
      and promotion expenses of $0.1 million. Stock based compensation increased
      by
      $0.6 million associated with our new 2006 Stock Option Plan.  We
      expect that expenses associated with sales and marketing activities will
      increase as we incur additional costs to support our worldwide market
      expansion.




*General
      and administrative expense.*General and administrative expense consists of
      costs related to personnel, legal, accounting and other general operating
      expenses. General and administrative expense was $2.1 million for the
      quarter ended September 30, 2007, an increase of $1.5 million or 250%, from
      $0.6 million for the quarter ended September 30, 2006. The increase was
      primarily attributable to increased stock based compensation of $0.9 million
      associated with our 2006 Stock Option Plan and increased professional fees
      of
      $0.3 million associated with operating as a public company. We expect that
      general and administrative expense will increase in absolute dollar amounts
      as
      we incur additional costs related to operating as a public company, such as
      legal and accounting fees, and higher costs for officers’ and directors’
insurance, investor relations programs and director and professional
      fees.




*Interest
      income.*Interest income was $0.4 million for the quarter ended
      September 30, 2007, an increase of $0.4 million, or 4000%, from
      $0.01 million for the quarter ended September 30, 2006. This increase was
      due to the investing the cash and cash equivalents we obtained in the
      merger.




*Interest
      expense.*Interest expense was $0.4 million for the quarter ended September
      30, 2007, a decrease of $0.2 million, or 33%, from $0.6 million for the
      quarter ended September 30, 2006. The decrease in interest expense resulted
      from
      $0.3 million incurred on promissory notes issued in February and May 2007 in
      connection with our loan from Merrill Lynch Capital and $0.1 million related
      to
      our borrowings in June 2007 from another finance company, partially offset
      by a
      reduction of $0.1 million related to the early repayment of the secured
      promissory note, and $0.5 million related to the repayment in June 2007 of
      the
      Bridge Notes.  We expect interest expense to decline in future periods
      due to the lower level of borrowings as compared to prior periods.




*Other
      income (expense).*Other income was $0.002 million for the quarter
      ended September 30, 2007 as compared to $1.6 million of other expense for the
      quarter ended September 30, 2006. This increase was primarily due to the
      decrease in the fair value adjustments of the warrant liabilities and embedded
      derivatives associated with the May 2005 secured promissory note and the 2006
      Bridge Notes as these items were either repaid or converted in the merger
      transaction in June 2007.




**Liquidity
      and Capital Resources**




From
      our
      inception, and prior to the merger with Ithaka in June 2007, we financed our
      operations primarily through private sales of preferred stock, with aggregate
      net proceeds of $76.5 million in cash. From April 2006 through
      February 2007, we borrowed an aggregate amount of $10.6 million from
      existing shareholders (the 2006 Bridge Notes). We issued to each lending party
      unsecured convertible promissory notes bearing interest at 8% per annum. In
      February 2007, we borrowed $8.0 million from Merrill Lynch Capital of which
      $3.0 million was used to pay existing debt. We issued a secured promissory
      note
      to Merrill Lynch Capital bearing interest at 6.5% over the LIBOR rate with
      interest only payments for the first six months and interest and principal
      payments for 30 months thereafter. In connection with this term loan, we issued
      a warrant having a contractual life of ten years. We estimated the fair value
      of
      the warrant using the Black-Scholes option pricing model. The resultant
      estimated fair value of $206 resulted in a discount to the term loan. The
      discount will be amortized to interest expense using the effective interest
      method over the life of the term loan.


-33-


In
      May
      2007, we and Merrill Lynch Capital amended our promissory note to provide for
      an
      additional $2.0 million of borrowing for an aggregate total of $10.0 million.
      The second tranche of $2.0 million was funded on May 11, 2007 with interest
      at the same rate as the original note and it was repaid upon the close of the
      Ithaka merger. In connection with the second tranche, we did not issue any
      additional warrants but we did incur a fee of $150,000, which was paid out
      of
      proceeds.  In June 2007, we borrowed $1.5 million in an unsecured
      promissory note from a financing company, Cheyne Capital, a shareholder of
      Ithaka.  The interest rate on this note was 15% and we incurred a fee
      of 7.5% which was paid out of proceeds.  We repaid this unsecured
      promissory note in July 2007.  We consummated our merger with Ithaka
      in June 2007, and in that transaction we acquired approximately $50.0 million
      of
      cash and cash equivalents.




We
      have
      incurred significant net losses since inception and have relied on our ability
      to obtain financing.  We expect operating losses and negative cash
      flows to continue for the foreseeable future as we incur additional costs and
      expenses related to expanding sales and marketing, continuing product
      development, and obtaining FDA and foreign regulatory approvals for new
      indications. We believe that our existing cash resources will be sufficient
      to
      fund our operations, anticipated capital expenditures and working capital
      requirements for at least the next twelve months.




***Nine
      Months Ended September 30, 2007 and 2006***




As
      of
      September 30, 2007, we had cash and cash equivalents of $29.5 million, working
      capital of $31.3 million and an accumulated deficit of $92.6
      million.




*Cash
      flows used in operating activities.*Net cash used in operations was $21.6
      million for the nine months ended September 30, 2007 and $9.0 million for the
      nine months ended September 30, 2006. The net cash used in each of these periods
      primarily reflects the net loss for those periods, offset by non-cash charges
      such as depreciation and amortization, stock-based compensation, amortization
      of
      debt discounts and the change in fair value of warrant liabilities associated
      with the May 2005 and February 2007 secured promissory notes and Merrill Lynch
      Capital Term Loan and the change in the fair value of the warrant liabilities
      and embedded derivatives associated with our 2006 Bridge Notes.  Non-cash
      charges for depreciation and amortization, stock-based compensation,
      amortization of debt discounts and the change in fair value of warrant
      liabilities and embedded derivatives totaled $5.0 million and $2.9 million
      for
      the nine months ended September 30, 2007 and 2006, respectively, representing
      a
      $2.1 million increase. This increase was comprised of a $2.1 million increase
      in
      discount amortization associated with the 2006 Bridge Notes, and increase in
      stock-based compensation of $1.7 million during the nine months ended September
      30, 2007, offset by a decrease of $1.7 million of change in fair value of
      warrant liabilities associated with our debt instruments since we converted
      or
      repaid our debt instruments in the nine months ended September 30,
      2007.




For
      the
      nine months ended September 30, 2006, operating assets and liabilities
      aggregated to a net increase of cash of $0.8 million, primarily related to
      increased accounts payable and accrued liabilities of $1.3 million and decreased
      inventories of $0.2 million.




For
      the
      nine months ended September 30, 2007, operating assets and liabilities
      aggregated to a net decrease of cash of $10.2 million, representing an increased
      level of all operating assets and liabilities.  We were building
      inventories by $3.2 million to support our increased sales growth, and this
      partially attributed to the $6.2 million increase in accounts payable and
      accrued expenses.




*Cash
      flows provided by (used in) investing activities.*Net cash used in
      investing activities was $0.4 million and $0.2 million for the nine months
      ended
      September 30, 2007 and 2006, respectively. We incurred capital expenditures
      of
      $0.4 million and $0.2 million for the nine months ended September 30, 2007
      and
      2006, respectively.  However, we expect our capital expenditures to
      increase in future quarters to support the growth of our infrastructure. We
      anticipate that our current operating facility will be appropriate to support
      our manufacturing demands for the foreseeable future.




*Cash
      flows from financing activities.*Cash flows from financing activities were
      $50.8 million for the nine months ended September 30, 2007 and $5.0 million
      for
      the nine months ended September 30, 2006. Cash flows from financing activities
      in the nine months ended September 30, 2007 reflected $50.0 million of cash
      we
      acquired in the merger, $1.5 million in proceeds from the 2006 Bridge Notes,
      $10.0 million in proceeds from the promissory notes issued in February and
      May
      2007 to Merrill Lynch Capital, and $1.5 million in proceeds on the unsecured
      Cheyne Capital promissory note, offset by $3.1 million for the payment in full
      of the 2005 promissory note with Oxford Finance Corporation, $2.3 million in
      repayment of the borrowings from Merrill Lynch, and $1.5 million in full
      repayment of our borrowings from Cheyne Capital.   We also paid $0.4
      million in debt issuance costs on these borrowings.  In the nine
      months ended September 30, 2007 we also spent $0.9 million to repurchase common
      stock warrants and $4.1 million to redeem a portion of the redeemable common
      stock we acquired in the merger.


-34-


Cash
      flows from financing activities in the first nine months of 2006 reflects $5.0
      million in net principal payments on the note from Oxford Finance
      Corporation.




***Uses
      of Capital Resources***




We
      expect
      to use our capital to fund sales and marketing, manufacturing, research and
      development, and for general corporate purposes. We expect to increase the
      number of employees including the size of our U.S. sales force and clinical
      application specialists and increase our sales and marketing efforts
      internationally. From time-to-time we may acquire businesses, technology or
      products that complement our business, which may require substantial outlays
      of
      capital resources. No acquisitions are currently pending. As a result of the
      June 2007 merger with Ithaka, we will incur additional costs related to
      operating as a public company, such as legal and accounting fees, and higher
      costs for officers’ and directors’ insurance, investor relations programs and
      director and professional fees and other costs associated with public reporting
      requirements and compliance. Our use of capital resources depends upon a number
      of factors, including future expenses to expand and support our sales and
      marketing efforts, the rate of market acceptance of our current and future
      products, the resources we devote to developing and supporting our products,
      costs relating to changes in regulatory policies or laws that affect our
      operations, costs of filing, prosecuting, defending and enforcing our
      intellectual property rights, and possible acquisitions and joint
      ventures.




Duke
      University previously prepared a submission to obtain a National Institutes
      of
      Health (NIH) grant to fund a cardiac arrest clinical trial. However, we do
      not
      believe NIH funding is imminent and we plan to meet with the FDA in the fourth
      quarter of 2007 to discuss other options and will plan accordingly after that
      meeting.





The
      following table summarizes information about our material contractual
      obligations as of September 30, 2007:




**Contractual
                Obligations**
            
            **Total**
            
            
            **Less Than**
              **1
                Year**
            
            
            **1-3**
              **Years**
            
            
            **3-5**
              **Years**
            
            
            **More Than**
              **5
                Years****(in
                thousands)**Operating
                leases
            
            $
            461
            
            
            $
            339
            
            
            $
            122
            
            
            $
            —
            
            
            $
            —Promissory
                notes
            
            $
            7,733
            
            
            $
            3,200
            
            
            $
            4,533
            
            
            $
            —
            
            
            $
            —Capital
                leases
            
            $
            114
            
            
            $
            25
            
            
            $
            86
            
            
            $
            3
            
            
            $
            —




*Operating
      leases.*We lease our facility under a noncancelable operating lease which,
      as amended in May 2006, expires in December 2008 with an option to extend
      the lease for an additional three-year term at market rates. Under the lease,
      we
      are required to pay for insurance, taxes, utilities and building maintenance,
      commonly known as a “triple net” lease. We also lease a small space for our
      European service center in Wateringen, the Netherlands, under a lease that
      expires on May 31, 2010.




*Promissory
      notes*.  The senior secured credit facility with Merrill Lynch
      Capital, entered into in February 2007 and amended in May
      2007,  consists of a $10.0 million term loan with an interest rate of
      one month LIBOR plus 6.50%, and the outstanding balance at September 30, 2007
      is
      $7.3 million.   The term loan requires interest only payments for
      the first six months and interest and principal payments for each month
      thereafter through February 2010.





*Capital
      lease.*In June 2006, we entered into a new lease commitment for computer
      equipment over a period of 63 months for a total value of $106 thousand. In
      November 2006, we entered into a new lease commitment for office equipment
      over
      a period of 60 months for a total value of $14 thousand. In April 2007, we
      entered into a new lease commitment for machinery and equipment over a period
      of
      48 months for a total value of $14 thousand.




**Off-Balance
      Sheet Arrangements**




Since
      inception, we have not engaged in material off-balance sheet activities,
      including the use of structured finance, special purpose entities or variable
      interest entities.


-35-


**Recent
      Accounting Pronouncements**




In
      February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities* (“SFAS No. 159”), which
      provides reporting entities an option to report selected financial assets,
      including investment securities designated as available for sale, and
      liabilities, including most insurance contracts, at fair value. SFAS
      No. 159 establishes presentation and disclosure requirements designed to
      facilitate comparisons between companies that choose different measurement
      attributes for similar types of assets and liabilities. The standard also
      requires additional information to aid financial statement users’ understanding
      of a reporting entity’s choice to use fair value on its earnings and also
      requires entities to display on the face of the balance sheet the fair value
      of
      those assets and liabilities for which the reporting entity has chosen to
      measure at fair value. SFAS No. 159 is effective as of the beginning of a
      reporting entity’s first fiscal year beginning after November 15, 2007. We
      are currently assessing the impact, if any, of adopting SFAS No. 159 on our
      financial position, results of operations and cash flows.




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value
      Measurements*. SFAS No. 157 establishes a single authoritative
      definition of fair value, sets out a framework for measuring fair value, and
      requires additional disclosures about fair value measurements. SFAS No. 157
      applies only to fair value measurements that are already required or permitted
      by other accounting standards. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007, and we do not expect that the adoption
      of this statement will have a material impact on our financial condition,
      results of operations, or cash flows.




In
      June
      2006, the Emerging Issues Task Force issued EITF 06-3, *How Taxes Collected
      from Customers and Remitted to Governmental Authorities Should Be Presented
      in
      the Income Statement (That Is, Gross versus Net Presentation)* (“EITF
      06-03”) to clarify diversity in practice on the presentation of different types
      of taxes in the financial statements. The Task Force concluded that, for taxes
      within the scope of the issue, a company may adopt a policy of presenting taxes
      either gross within revenue or net. That is, it may include charges to customers
      for taxes within revenues and the charge for the taxes from the taxing authority
      within cost of sales, or alternatively, it may net the charge to the customer
      and the charge from the taxing authority. If taxes subject to this Issue are
      significant, a company is required to disclose its accounting policy for
      presenting taxes and the amounts of such taxes that are recognized on a gross
      basis. The guidance in this consensus is effective for the first interim
      reporting period beginning after December 15, 2006. The adoption of EITF
      06-3 using the gross method of presenting taxes within revenue did not have
      a
      material impact on our financial position, results of operations and cash
      flows.




In
      September 2006, the Securities and Exchange Commission released Staff Accounting
      Bulletin No. 108. SAB 108 provides interpretative guidance on how the effects
      of
      the carryover or reversal of prior year misstatements should be considered
      in
      quantifying a current year misstatement. SAB 108 was effective for fiscal years
      ending after November 15, 2006.  The Company adopted this statement
      and it did not have an impact on its financial condition or results of
      operations.




**ITEM 3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




Substantially
      all of our revenue is denominated in U.S. dollars, including sales to its
      international distributors. Only a small portion of our revenue and expenses
      is
      denominated in foreign currencies, principally the Euro. Our Euro expenditures
      primarily consist of the cost of maintaining its office in the Netherlands,
      including the facility and employee-related costs. A 10% increase in the value
      of the U.S. dollar relative to the Euro or a 10% decrease in the relative
      value of the dollar would have a negligible impact on current costs or revenue.
      To date, we have not entered into any hedging contracts. Future fluctuations
      in
      the value of the U.S. dollar may, however, affect the price competitiveness
      of our products outside the United States.




We
      invest
      our excess cash primarily in U.S. Treasury Bills with maturities less than
      90 days. We do not utilize derivative financial instruments, derivative
      commodity instruments or other market risk-sensitive instruments, positions
      or
      transactions to any material extent. Accordingly, we believe that, while the
      instruments we hold are subject to changes in the financial standing of the
      issuer of such securities, we are not subject to any material risks arising
      from
      changes in interest rates, foreign currency exchange rates, commodity prices,
      equity prices or other market changes that affect market risk sensitive
      instruments. Due to the short-term nature of these investments, a 1% change
      in
      market interest rates would not have a significant impact on the total value
      of
      our portfolio as of September 30, 2007.





-36-




**ITEM 4.**
            **CONTROLS
                AND PROCEDURES**




**Evaluation
      of Disclosure Controls and Procedures**. Our management evaluated, with
      the participation of our Chief Executive Officer and our Chief Financial
      Officer, the effectiveness of our disclosure controls and procedures (as defined
      in Rule 13a-15(e) of the Exchange Act of 1934, as amended) as of the end of
      the
      period covered by this Quarterly Report on Form 10-Q. Based on this evaluation,
      our Chief Executive Officer and our Chief Financial Officer have concluded
      that
      our disclosure controls and procedures are effective to ensure that information
      we are required to disclose in reports that we file or submit under the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the time periods specified in Securities and Exchange Commission rules
      and forms, and that such information is accumulated and communicated to
      management as appropriate to allow for timely decisions regarding required
      disclosure.




**Changes
      in Internal Control Over Financial Reporting**. There was no change in
      our internal control over financial reporting (as defined in Rule 13a-15(f)
      of
      the Exchange Act) that occurred during the period covered by this Quarterly
      Report on Form 10-Q that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting.




**PART
      II – OTHER INFORMATION**




**ITEM 1.**
            **LEGAL
                PROCEEDINGS**




We
      are
      not a party to any material pending or threatened litigation.




**ITEM 1A.**
            **RISK
                FACTORS**





Other
      than as set forth below, there
      are no material changes from the risk factors previously disclosed in Item
      1A of
      Part I of our Quarterly Report on Form 10-Q for the quarter ended June 30,
      2007,
      which sets forth the most recent Risk Factors presentation in our filings under
      the Securities Exchange Act of 1934.  Per the Form 10-Q disclosure
      rules for Item 1A, the risk factors contained in this report reflect only
      changes from or additions to the risks stated in the 10-Q for the quarter ended
      June 30, 2007.  The updated risks set forth below must be read in
      conjunction with those in the Form 10-Q for the quarter ended June 30,
      2007.  You must not construe the following statements as an exhaustive
      list of risks.


**Risks
      Related to Our Business**




***We
      have not yet been able to finance our operations with the cash generated from
      our business and in the opinion regarding our 2006 financial statements, our
      independent registered public accounting firm stated that there is a substantial
      doubt regarding our ability to continue as a going concern. If we do not
      generate cash sufficient to finance our operations, we will need additional
      financing to continue our growth.***




We
      have
      not yet generated sufficient cash from operations to finance our business.
      Our
      audited financial statements have been prepared assuming that we would continue
      as a going concern. Operations to date have been financed principally through
      the private placement of equity securities and debt securities convertible
      to
      equity. We have not reported an operating profit for any year since our
      inception, and from our inception through September 30, 2007, we had accumulated
      losses of $92.5 million. We expect to incur net losses for the foreseeable
      future. These losses may be substantial and we may never achieve or maintain
      profitability. These factors raise substantial doubt about our ability to
      continue as a going concern.




If
      our
      cash flow is insufficient in the future to finance our expenses, we may need
      to
      finance our growth through additional debt or equity financing or reduce costs.
      Any additional financing that we may require in the future may not be available
      at all or, if available, may be on terms unfavorable to us. Our inability to
      finance our growth, either internally or externally, would limit our growth
      potential and our ability to implement our business strategy.


-37-


***The
      long sales cycle for our system may cause revenue and operating results to
      vary
      significantly quarter to quarter and year to year.***




The
      decision to purchase our CoolGard and Thermogard systems and catheters often
      involves a significant commitment of resources and a lengthy evaluation process.
      We need to convince hospitals and critical care providers that our products
      are
      more effective than, and provide advantages over, competing temperature
      management products. Hospital purchases often involve a committee decision
      requiring approval of multiple decision makers including physicians, nurses
      and
      administrators. As a result, our sales process varies by hospital and country.
      In addition, a hospital typically uses funds from its capital equipment budget
      to purchase our CoolGard and Thermogard systems. Budget constraints and the
      need
      for multiple approvals within the hospital may delay the purchase decision
      for
      our products. This can result in a lengthy sales process, sometimes as long
      as
      six months to a year. The long sales cycle for our system may cause our revenue
      and operating results to vary significantly quarter to quarter and year to
      year.  In particular, in the quarter ended September 30, 2007, we
      experienced unit sales significantly lower than our prior forecasts, due
      primarily to longer sales cycles as customers evaluate a variety of alternative
      products to manage patient temperature, in addition to our
      products.




***We
      depend on several large customers for our international sales, and a loss of
      or
      decline in sales to such customers may significantly reduce our
      revenue.***




A
      significant portion of our sales in Europe are to a few key
      distributors.  In 2006, Euromed and Fuchs Medical accounted for 24%
      and 4%, respectively, of our revenue. For the nine months ended September 30,
      2007, Euromed and Fuchs Medical accounted for 5% and 3%, respectively, of our
      revenue. From time to time, other international distributors may also account
      for a large portion of our revenue. Our contract with Euromed covered Austria
      and Germany. We decided to terminate our contract with Euromed effective May
      2007, in order to enter into a new contract with Euromed that covers Austria,
      and a separate contract with another distributor, Elan, for Germany, which
      previously acted as Euromed’s subdistributor of our products in Germany. In May
      2007, we entered into a new contract with Elan for Germany, but are still in
      the
      process of negotiating a contract with Euromed for Austria. There is no
      assurance, however, that we will be successful in completing a contract with
      Euromed for sales in Austria, which we estimate accounted for approximately
      8%
      of our revenues in 2006. For the nine months ended September 30, 2007, Elan
      accounted for 17% of our revenue.  Our contracts with Elan and other
      international distributors do not assure us significant minimum purchase volume.
      If a contract with a distributor is terminated for cause or by us for
      convenience, the distributor will have no obligation to purchase products from
      us. Our contracts with future distributors will typically have similar terms,
      and will not assure us of long-term minimum purchase volumes. The loss of,
      or
      any sudden decline in business from, any significant distributor, likely would
      lead to a significant decline in our revenue. We may not be able to retain
      this
      or other large customers or any other significant distributor. If we were to
      lose any large distributor, it may take significant time to replace the
      distributor and the revenue generated by them, and we may not ultimately be
      able
      to do so.




**Risks
      Related to Our Operations**




***We
      are subject to risks associated with international sales that could harm our
      financial condition and results of operations.***




International
      sales accounted for 57%, 55% and 55% of our revenue for 2006 and the nine months
      ended September 30, 2006 and 2007, respectively. Although we intend to
      increasingly focus on sales in the United States, we believe that a significant
      percentage of our future revenue will continue to come from international sales.
      In particular, we rely on a network of third-party distributors to market and
      sell our products in non-U.S. markets. The success of our international
      sales depends upon a number of factors beyond our control, including the
      effectiveness and skill of our distributors and their willingness to commit
      resources and prioritize the sale of our products. These parties may not have
      the same interests as we do in marketing our products. If these distributors
      do
      not actively sell our products, we may be unable to increase or maintain our
      current level of international revenue. In order to grow our business and expand
      the territories into which we sell our products internationally, we will need
      to
      attract additional skilled distributors in key geographic areas. We cannot
      assure you that distributors will be available on acceptable
      terms.


-38-


Additionally,
      international sales are subject to a number of other risks,
      including:




•
            reduced
                protection for intellectual property rights in some
                countries;




•
            export
                restrictions, trade regulations and foreign tax
                laws;




•
            fluctuating
                foreign currency exchange rates;




•
            foreign
                certification and regulatory
                requirements;




•
            customs
                clearance and shipping
                delays; and




•
            political
                and economic instability.




Additionally,
      our products and manufacturing facilities are subject to review and inspection
      by foreign regulatory agencies. Foreign authorities have become increasingly
      stringent and we and our distributors may be subject to more rigorous regulation
      in the future. Our failure or the failure of our distributors to comply with
      foreign regulations may restrict our and our distributors’ ability to sell our
      products internationally.







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




We
      did
      not sell any equity securities during the period covered by this
      report.




In
      the
      merger which closed on June 21, 2007, we acquired $50.0 million of cash and
      cash
      equivalents.  These funds will be used for working capital
      purposes.  Through September 30, 2007, we have used $4.1 million of
      the proceeds for debt service and repayments, $4.1 million for redeemable common
      stock, $3.0 million for bonus payments, $1.4 million for merger transaction
      costs, $0.9 million for the repurchase of warrants, and $8.4 million of the
      proceeds for working capital purposes.




**ITEM 3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**




None.




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




None.




**ITEM 5.**
            **OTHER
                INFORMATION**





None.





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




**Exhibit No.**
            
            **Description**31.1
            
            Certification
                of Chief Executive Officer under Securities Exchange Act Rule
                13a-14(a).31.2
            
            Certification
                of Chief Financial Officer under Securities Exchange Act Rule
                13a-14(a).32.1
            
            Certifications
                of Chief Executive Officer and Chief Financial Officer pursuant to
                18 U.S.
                C. 1350 and Securities Exchange Act Rule
                13a-14(b).


-39-




**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Company has
      duly
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized, who have signed this report on behalf of the Company as the
      principal executive officer, principal financial officer and principal
      accounting officer.




Alsius
                CorporationDate:
                November 14, 2007
            /s/
                William J. WorthenWilliam
                J. WorthenPresident
                and Chief Executive Officer(Principal
                Executive Officer)Date:
                November 14, 2007
            /s/
                Brett L. ScottBrett
                L. ScottChief
                Financial Officer(Principal
                Financial and Accounting Officer)




-40-





**INDEX
      TO EXHIBITS**






**Exhibit No.**
            
            **Description**31.1
            
            Certification
                of Chief Executive Officer under Securities Exchange Act Rule
                13a-14(a).31.2
            
            Certification
                of Chief Financial Officer under Securities Exchange Act Rule
                13a-14(a).32.1
            
            Certifications
                of Chief Executive Officer and Chief Financial Officer pursuant to
                18 U.S.
                C. 1350 and Securities Exchange Act Rule
                13a-14(b).








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