##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-51567
 NxStage Medical, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    04-3454702(State or Other Jurisdiction of Incorporation or 
Organization)
    
    (I.R.S. Employer Identification No.)
 439 S. Union St., 5thFloor, Lawrence, MA
    
    01843(Address of Principal Executive Offices)
    
    (Zip Code)
 (978) 687-4700
( Registrants Telephone Number, Including Area Code)
(Former Name, Former Address, and Former Fiscal year, If Changed Since Last Report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



NXSTAGE MEDICAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2011
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):Condensed Consolidated Balance Sheets at March 31, 2011 and December 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    21PART II  OTHER INFORMATION
    
    
    22Item 1A. Risk Factors
    
    
    22Item 6. Exhibits
    
    
    40SIGNATURES
    
    
    41EX-10.32EX-10.33EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (unaudited)
 NXSTAGE MEDICAL, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 March 31,
    
    
    December 31,2011
    
    
    2010(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    99,930
    
    
    $
    104,339Accounts receivable, net
    
    
    14,796
    
    
    
    14,107Inventory
    
    
    36,709
    
    
    
    34,950Prepaid expenses and other current assets
    
    
    2,355
    
    
    
    2,084Total current assets
    
    
    153,790
    
    
    
    155,480Property and equipment, net
    
    
    11,382
    
    
    
    8,290Field equipment, net
    
    
    13,710
    
    
    
    13,660Deferred cost of revenues
    
    
    40,339
    
    
    
    40,081Intangible assets, net
    
    
    24,712
    
    
    
    25,412Goodwill
    
    
    42,698
    
    
    
    42,698Other assets
    
    
    564
    
    
    
    473Total assets
    
    $
    287,195
    
    
    $
    286,094LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    21,037
    
    
    $
    16,811Accrued expenses
    
    
    12,902
    
    
    
    19,537Current portion of long-term debt
    
    
    31
    
    
    
    43Total current liabilities
    
    
    33,970
    
    
    
    36,391Deferred revenues
    
    
    55,967
    
    
    
    55,366Long-term debt
    
    
    41,127
    
    
    
    40,454Other long-term liabilities
    
    
    4,985
    
    
    
    1,754Total liabilities
    
    
    136,049
    
    
    
    133,965Commitments and contingencies (Note 10)Stockholders equity:Undesignated preferred stock: par value
$0.001, 5,000,000 shares authorized; no
shares issued and outstanding as of March
31, 2011 and December 31, 2010
    
    
    
    
    
    
    Common stock: par value $0.001,
100,000,000 shares authorized; 54,678,198
and 54,043,317 shares issued as of March
31, 2011 and December 31, 2010,
respectively
    
    
    54
    
    
    
    53Additional paid-in capital
    
    
    473,117
    
    
    
    465,642Accumulated deficit
    
    
    (314,436
    )
    
    
    (308,426
    )Accumulated other comprehensive income
    
    
    314
    
    
    
    85Treasury stock, at cost: 447,929 and
325,104 shares as of March 31, 2011 and
December 31, 2010, respectively
    
    
    (7,903
    )
    
    
    (5,225
    )Total stockholders equity
    
    
    151,146
    
    
    
    152,129Total liabilities and stockholders equity
    
    $
    287,195
    
    
    $
    286,094
  3




---



##### Table of Contents



NXSTAGE MEDICAL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended March 31,2011
    
    
    2010(In thousands, except per share data)Revenues
    
    $
    50,564
    
    
    $
    40,408Cost of revenues
    
    
    32,531
    
    
    
    28,595Gross profit
    
    
    18,033
    
    
    
    11,813Operating expenses:Selling and marketing
    
    
    9,210
    
    
    
    8,017Research and development
    
    
    3,717
    
    
    
    3,035Distribution
    
    
    4,158
    
    
    
    3,411General and administrative
    
    
    5,582
    
    
    
    4,938Total operating expenses
    
    
    22,667
    
    
    
    19,401Loss from operations
    
    
    (4,634
    )
    
    
    (7,588
    )Other expense:Interest expense
    
    
    (1,157
    )
    
    
    (1,108
    )Other expense, net
    
    
    (26
    )
    
    
    (117
    )(1,183
    )
    
    
    (1,225
    )Net loss before income taxes
    
    
    (5,817
    )
    
    
    (8,813
    )Provision for income taxes
    
    
    193
    
    
    
    186Net loss
    
    $
    (6,010
    )
    
    $
    (8,999
    )Net loss per share, basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.19
    )Weighted-average shares outstanding, basic and diluted
    
    
    53,423
    
    
    
    46,971
  4




---



##### Table of Contents



NXSTAGE MEDICAL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months Ended March 31,2011
    
    
    2010(In thousands)Cash flows from operating activities:Net loss
    
    $
    (6,010
    )
    
    $
    (8,999
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    5,690
    
    
    
    5,464Stock-based compensation
    
    
    3,414
    
    
    
    2,892Other
    
    
    874
    
    
    
    477Changes in operating assets and liabilities:Accounts receivable
    
    
    (667
    )
    
    
    (766
    )Inventory
    
    
    (6,671
    )
    
    
    (6,654
    )Prepaid expenses and other assets
    
    
    (324
    )
    
    
    (556
    )Accounts payable
    
    
    3,985
    
    
    
    940Accrued expenses and other liabilities
    
    
    (3,887
    )
    
    
    2,521Deferred revenues
    
    
    602
    
    
    
    3,065Net cash used in operating activities
    
    
    (2,994
    )
    
    
    (1,616
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (623
    )
    
    
    (225
    )Net cash used in investing activities
    
    
    (623
    )
    
    
    (225
    )Cash flows from financing activities:Proceeds from stock option and purchase plans
    
    
    1,451
    
    
    
    883Purchase of treasury stock
    
    
    (2,526
    )
    
    
    (1,741
    )Repayments on loans and lines of credit
    
    
    (15
    )
    
    
    (15
    )Net cash used in financing activities
    
    
    (1,090
    )
    
    
    (873
    )Foreign exchange effect on cash and cash equivalents
    
    
    298
    
    
    
    80Decrease in cash and cash equivalents
    
    
    (4,409
    )
    
    
    (2,634
    )Cash and cash equivalents, beginning of period
    
    
    104,339
    
    
    
    21,720Cash and cash equivalents, end of period
    
    $
    99,930
    
    
    $
    19,086Noncash Investing ActivitiesTransfers from inventory to field equipment
    
    $
    4,595
    
    
    $
    4,178Transfers from field equipment to deferred cost of revenues
    
    $
    2,942
    
    
    $
    3,542
  5




---



##### Table of Contents



NXSTAGE MEDICAL, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Nature of Operations
   Basis of Presentation
  2. Summary of Significant Accounting Policies
 Principles of Consolidation and Basis of Presentation
  Use of Estimates
  6




---



##### Table of Contents



Revenue Recognition
    Multiple Deliverable Revenue Arrangements
    System One Segment
     7




---



##### Table of Contents



In-Center Segment
  Concentration of Credit Risk
  Warranty Costs
  Balance at December 31, 2010
    
    $
    268Provision
    
    
    148Usage
    
    
    (129
    )Balance at March 31, 2011
    
    $
    287
 3. Inventory
  March 31,
    
    
    December 31,2011
    
    
    2010Purchased components
    
    $
    14,706
    
    
    $
    14,928Work in process
    
    
    7,451
    
    
    
    6,372Finished goods
    
    
    14,552
    
    
    
    13,650$
    36,709
    
    
    $
    34,950
 4. Property and Equipment, Field Equipment and Deferred Cost of Revenues
   8




---



##### Table of Contents



5. Intangible Assets
  6. Comprehensive Loss
  Three Months Ended March 31,2011
    
    
    2010Net loss
    
    $
    (6,010
    )
    
    $
    (8,999
    )Foreign currency translation gain (loss)
    
    
    229
    
    
    
    (8
    )Comprehensive loss
    
    $
    (5,781
    )
    
    $
    (9,007
    )
 7. Net Loss per Share
   Three Months Ended March 31,2011
    
    
    2010Options to purchase common stock
    
    
    3,624
    
    
    
    2,108Restricted stock
    
    
    731
    
    
    
    723Warrants to purchase common stock
    
    
    1,174
    
    
    
    776Total
    
    
    5,529
    
    
    
    3,607
 8. Segment Disclosures
    9




---



##### Table of Contents



System One
    
    In-Center
    
    Unallocated
    
    TotalThree Months Ended March 31, 2011Revenues from external customers
    
    $
    33,483
    
    
    $
    17,081
    
    
    $
    
    
    
    $
    50,564Segment profit (loss)
    
    
    2,513
    
    
    
    2,152
    
    
    
    (9,299
    )
    
    
    (4,634
    )Segment assets
    
    
    88,252
    
    
    
    17,302
    
    
    
    181,641
    
    
    
    287,195Three Months Ended March 31, 2010Revenues from external customers
    
    $
    25,102
    
    
    $
    15,306
    
    
    $
    
    
    
    $
    40,408Segment (loss) profit
    
    
    (1,279
    )
    
    
    1,664
    
    
    
    (7,973
    )
    
    
    (7,588
    )Segment assets
    
    
    79,461
    
    
    
    15,552
    
    
    
    101,447
    
    
    
    196,460
   Three Months Ended March 31,2011
    
    2010Customer A
    
    
    21
    %
    
    
    23
    %Customer B
    
    
    13
    %
    
    
    17
    %Customer C
    
    
    13
    %
    
    
    14
    %
   March 31,
    
    
    December 31,2011
    
    
    2010Total segment assets
    
    $
    105,554
    
    
    $
    102,798Corporate assets:Cash and cash equivalents
    
    
    99,930
    
    
    
    104,339Property and equipment, net
    
    
    11,382
    
    
    
    8,290Intangible assets, net
    
    
    24,712
    
    
    
    25,412Goodwill
    
    
    42,698
    
    
    
    42,698Prepaid and other assets
    
    
    2,919
    
    
    
    2,557Total assets
    
    $
    287,195
    
    
    $
    286,094
 9. Income Taxes
  10




---



##### Table of Contents



10. Commitments and Contingencies
  11. Stock-Based Compensation
 Stock-based Compensation Expense
  Three Months Ended March 31,2011
    
    
    2010Cost of revenues
    
    $
    540
    
    
    $
    460Selling and marketing
    
    
    1,330
    
    
    
    1,011Research and development
    
    
    342
    
    
    
    401General and administrative
    
    
    1,202
    
    
    
    1,020$
    3,414
    
    
    $
    2,892
 12. Stockholders Equity
  13. Fair Value Measurements
    11




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Special Note Regarding Forward Looking Statements
    Introduction
   12




---



##### Table of Contents



Segment and Market Highlights
      Financial Performance
  13




---



##### Table of Contents



Comparison of the Three Months Ended March 31, 2011 and 2010
 Revenues
  Three Months Ended March 31,2011
    
    
    2010System One segmentHome
    
    $
    26,045
    
    
    
    51
    %
    
    $
    19,043
    
    
    
    47
    %Critical Care
    
    
    7,438
    
    
    
    15
    %
    
    
    6,059
    
    
    
    15
    %Total System One segment
    
    
    33,483
    
    
    
    66
    %
    
    
    25,102
    
    
    
    62
    %In-Center segment
    
    
    17,081
    
    
    
    34
    %
    
    
    15,306
    
    
    
    38
    %Total
    
    $
    50,564
    
    
    
    100
    %
    
    $
    40,408
    
    
    
    100
    %
    14




---



##### Table of Contents



Gross Profit
  Three Months Ended March 31,2011
    
    
    2010System One segment
    
    $
    13,921
    
    
    
    42
    %
    
    $
    8,640
    
    
    
    34
    %In-Center segment
    
    
    4,112
    
    
    
    24
    %
    
    
    3,173
    
    
    
    21
    %Gross profit
    
    $
    18,033
    
    
    
    36
    %
    
    $
    11,813
    
    
    
    29
    %
    Selling and Marketing
  Three Months Ended March 31,2011
    
    
    2010System One segment
    
    $
    7,896
    
    
    
    24
    %
    
    $
    6,909
    
    
    
    28
    %In-Center segment
    
    
    1,314
    
    
    
    8
    %
    
    
    1,108
    
    
    
    7
    %Total Selling and marketing
    
    $
    9,210
    
    
    
    18
    %
    
    $
    8,017
    
    
    
    20
    %
  15




---



##### Table of Contents



Research and Development
  Three Months Ended March 31,2011
    
    2010Research and development
    
    $
    3,717
    
    
    
    7
    %
    
    $
    3,035
    
    
    
    8
    %
  Distribution
  Three Months Ended March 31,2011
    
    
    2010System One segment
    
    $
    3,512
    
    
    
    10
    %
    
    $
    3,010
    
    
    
    12
    %In-Center segment
    
    
    646
    
    
    
    4
    %
    
    
    401
    
    
    
    3
    %Total Distribution
    
    $
    4,158
    
    
    
    8
    %
    
    $
    3,411
    
    
    
    8
    %
  General and Administrative
  Three Months Ended March 31,2011
    
    2010General and administrative
    
    $
    5,582
    
    
    
    11
    %
    
    $
    4,938
    
    
    
    12
    %
  16




---



##### Table of Contents



Other Expense
   Provision for Income Taxes
  Liquidity and Capital Resources
          17




---



##### Table of Contents



Three Months Ended March 31,2011
    
    
    2010Net cash used in operating activities
    
    $
    (2,994
    )
    
    $
    (1,616
    )Net cash used in investing activities
    
    
    (623
    )
    
    
    (225
    )Net cash used in financing activities
    
    
    (1,090
    )
    
    
    (873
    )Effect of exchange rate changes on cash
    
    
    298
    
    
    
    80Net cash flow
    
    $
    (4,409
    )
    
    $
    (2,634
    )
 Net Cash Used in Operating Activities.
  18




---



##### Table of Contents



Net Cash Used in Investing Activities.
 Net Cash Used in Financing Activities.
  Summary of Critical Accounting Policies and Estimates
   Revenue Recognition
    Multiple Deliverable Revenue Arrangements
  19




---



##### Table of Contents



System One Segment
      In-Center Segment
  Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  20




---



##### Table of Contents



Item 4. Controls and Procedures
   21




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  Risks Related to our Business
 We expect to derive a significant percentage of our future revenues from the rental or sale of our
System One and the related products used with the System One and a limited number of other
products.
  We cannot accurately predict the size of the home hemodialysis market, and it may be smaller, and
may develop more slowly than we expect.
     22




---



##### Table of Contents



Current Medicare reimbursement rates, at three times per week, limit the price at which we can
market our home products, and adverse changes to reimbursement would likely negatively affect the
adoption or continued sale of our home products.
   We have limited operating experience, a history of net losses and an accumulated deficit of $314.4
million at March 31, 2011. We cannot guarantee if, when and the extent to which we will become
profitable, or that we will be able to maintain profitability if it is achieved.
  Our customers in the System One and In-Center segments are highly consolidated, with concentrated
buying power.
   23




---



##### Table of Contents



DaVita is a key customer for our System One and In-Center product lines. The partial or complete
loss of DaVita as a customer would materially impair our financial results, at least in the near
term.
  We entered into a $40.0 million term loan and security agreement with Asahi in May 2009. We are
obligated to pay 50% of the interest on the first day of November and May, beginning on November 1,
2009, and repay the remaining interest and principal upon maturity in May 2013. If we fail to
comply with all terms under this agreement, we may go into default, which could trigger, among
other things, the acceleration of all of our indebtedness there under or the sale of our assets.
   We entered into a two year Loan and Security Agreement, dated as of March 10, 2010, with Silicon
Valley Bank, or SVB. The terms of this agreement may restrict our current and future operations,
which could affect our ability to respond to changes in our business and to manage our operations.
  24




---



##### Table of Contents



We compete against other dialysis equipment manufacturers with much greater financial resources and
established products and customer relationships, which may make it difficult for us to penetrate
the market and achieve significant sales of our products. Our competitors may also introduce new
products or features that could impair the competitiveness of our own product portfolio.
   Our continued growth is dependent on our development and successful commercialization of new and
improved products.
  The success and growth of our business will depend upon our ability to achieve expanded market
acceptance of our System One.
  25




---



##### Table of Contents




    
    the failure by us to demonstrate to operators of dialysis clinics, hospitals,
nephrologists, dialysis nurses, patients and others that our products are equivalent or
superior to existing therapy options;
    
    competition from products sold by companies with longer operating histories and
greater financial resources, more recognizable brand names and better established
distribution networks and relationships with hospitals or dialysis clinics;
    
    the failure by us to continue to improve product reliability and the ease of use
of our products;
    
    limitations on the existing infrastructure in place to support home hemodialysis,
including without limitation, home hemodialysis training nurses, and the willingness,
cost associated with, and ability of dialysis clinics to build that infrastructure;
    
    the ownership and operation of some dialysis providers by companies that also
manufacture and sell competitive dialysis products;
    
    the introduction of competing products or treatments that may be more effective,
easier to use or less expensive than ours;
    
    regulations that impose additional burden on patients and their caregivers, such
as the recently adopted Medicare conditions for coverage which impose additional water
testing requirements in connection with the use of our PureFlow SL;
    
    the number of patients willing and able to perform therapy independently, outside
of a traditional dialysis clinic, may be smaller than we estimate; and
    
    the availability of satisfactory reimbursement from healthcare payors, including
Medicare.
 If we are unable to convince additional hospitals and healthcare providers of the benefits of our
products for the treatment of acute kidney failure and fluid overload, we will not be successful in
increasing our market share in the critical care market.
  Our business and results of operations may be negatively impacted by general economic and financial
market conditions, including fluctuations in foreign exchange rates, and such conditions may
increase other risks that affect our business.
  The non-cash discounts we have offered to DaVita may lead to reductions in our future net revenues
that will fluctuate because the amount of the discount is based upon the number of warrants earned
and our stock price.
  26




---



##### Table of Contents



Healthcare reform legislation could adversely affect our revenue and financial condition.
   As our business continues to grow, we may have difficulty managing our growth and expanding our
operations successfully.
  If we are unable to maintain strong product reliability for our products, our ability to maintain
or grow our business and achieve profitability could be impaired. Transition of supply or
manufacturing locations of products can also lead to product quality and reliability issues which
could impair our ability to maintain or grow our business and achieve profitability.
   27




---



##### Table of Contents



We have a significant amount of System One field equipment and our inability to effectively manage
this asset could negatively impact our working capital requirements and future profitability.
  If kidney transplantation becomes a viable treatment option for more patients with ESRD, or if
medical or other solutions for renal replacement become viable, the market for our products may be
limited.
  We could be subject to costly and damaging product and professional liability claims and may not be
able to maintain sufficient liability insurance to cover claims against us.
   We maintain insurance at levels deemed adequate by management; however, future claims could exceed
our applicable insurance coverage.
  We face risks associated with having international manufacturing operations, and if we are unable
to manage these risks effectively, our business could suffer.
  28




---



##### Table of Contents



We obtain some of our raw materials, components and finished goods from a single source or a
limited group of suppliers. We also obtain sterilization services from a single supplier. The
partial or complete loss of one of these suppliers could cause significant production delays, an
inability to meet customer demand, and a substantial loss in revenues.
   Our In-Center segment relies heavily upon third-party distributors.
  Unless we can demonstrate sufficient product differentiation in our In-Center segment products that
we introduce in the future, we will continue to be susceptible to further pressures to reduce
product pricing and more vulnerable to the loss of our blood tubing set business to competitors in
the dialysis industry.
  The activities of our business involve the import of finished goods into the United States from
foreign countries, subject to customs inspections and duties, and the export of components and
certain other products from other countries into Germany, Mexico, Thailand and Italy. To a lesser,
but increasing degree, our business also involves the export of finished
 29




---



##### Table of Contents



goods from the United States to foreign countries. If we misinterpret or violate these laws, or if
laws governing our exemption from certain duties change, we could be subject to significant fines,
liabilities or other adverse consequences.
  The success of our business depends on the services of each of our senior executives as well as
certain key engineering, scientific, manufacturing, clinical and marketing personnel, the loss of
whom could negatively affect the combined businesses.
  Risks Related to the Regulatory Environment
 We are subject to significant regulation, primarily by the FDA. We cannot market or commercially
distribute our products without obtaining and maintaining necessary regulatory clearances or
approvals.
  Modifications to our marketed devices may require new regulatory clearances or pre-market
approvals, or may require us to cease marketing or recall the modified devices until clearances or
approvals are obtained.
  30




---



##### Table of Contents



Even if we obtain the necessary FDA clearances or approvals, if we or our suppliers fail to comply
with ongoing regulatory requirements our products could be subject to restrictions or withdrawal
from the market.
  
    
    untitled letters, warning letters, fines, injunctions and civil penalties;
    
    administrative detention, which is the detention by the FDA of medical devices
believed to be adulterated or misbranded;
    
    customer notification, or orders for repair, replacement or refund;
    
    voluntary or mandatory recall or seizure of our products;
    
    operating restrictions, partial suspension or total shutdown of production;
    
    refusal to review pre-market notification or pre-market approval submissions;
    
    rescission of a substantial equivalence order or suspension or withdrawal of a
pre-market approval; and
    
    criminal prosecution.
 Our products are subject to market withdrawals or product recalls after receiving FDA clearance or
approval, and market withdrawals and product recalls could cause the price of our stock to decline
and expose us to product liability or other claims or could otherwise harm our reputation and
financial results.
  If we or our contract manufacturers fail to comply with FDAs Quality System Regulations, our
manufacturing operations could be interrupted, and our product sales and operating results could
suffer.
   31




---



##### Table of Contents



We may be subject to fines, penalties or injunctions if we are determined to be promoting the use
of our products in a manner not consistent with our products cleared indications for use or with
other state or federal laws governing the promotion of our products.
  Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our
products outside the United States.
  We have obligations under our contracts with dialysis clinics and hospitals to protect the privacy
of patient health information.
   32




---



##### Table of Contents



We are subject to federal and state laws prohibiting kickbacks and false and fraudulent claims
which, if violated, could subject us to substantial penalties. Additionally, any challenges to or
investigation into our practices under these laws could cause adverse publicity and be costly to
respond to, and thus could harm our business.
   Foreign governments tend to impose strict price controls, which may adversely affect our future
profitability.
  Failure to comply with the United States Foreign Corrupt Practices Act could subject us to
penalties and other adverse consequences.
  33




---



##### Table of Contents



Our business activities involve the use of hazardous materials, which require compliance with
environmental and occupational safety laws regulating the use of such materials. If we violate
these laws, we could be subject to significant fines, liabilities or other adverse consequences.
  Risks Related to Operations
 Resin is a key input material to the manufacture of our products and System One cartridge. Oil
prices affect both the pricing and availability of this material. Escalation of oil prices could
affect our ability to obtain sufficient supply of resin at the prices we need to manufacture our
products at current rates of profitability.
  Distribution costs represent a significant percentage of our overall costs, and these costs are
dependent upon fuel prices. Increases in fuel prices could lead to increases in our distribution
costs, which, in turn, could impair our ability to achieve profitability.
  We have labor agreements with our production employees in Italy and in Mexico. We cannot guarantee
that we will not in the future face strikes, work stoppages, work slowdowns, grievances,
complaints, claims of unfair labor practices, other collective bargaining disputes or in Italy,
anti-union behavior, that may cause production delays and negatively impact our ability to deliver
our products on a timely basis.
  We do not have long-term supply contracts with many of our third-party suppliers.
  Risks Related to Intellectual Property
 If we are unable to protect our intellectual property and prevent its use by third parties, we will
lose a significant competitive advantage.
 34




---



##### Table of Contents




    
    prevent our competitors from duplicating our products;
    
    prevent our competitors from gaining access to our proprietary information and
technology; or
    
    permit us to gain or maintain a competitive advantage.
    Our products could infringe the intellectual property rights of others, which may lead to
litigation that could itself be costly, could result in the payment of substantial damages or
royalties, and/or prevent us from using technology that is essential to our products.
   
    
    cease selling or using any of our products that incorporate the asserted
intellectual property, which would adversely affect our revenues;
    
    pay substantial damages for past use of the asserted intellectual property;
    
    obtain a license from the holder of the asserted intellectual property, which
license may not be available on reasonable terms, if at all and which could reduce
profitability; and
    
    redesign or rename, in the case of trademark claims, our products to avoid
infringing the intellectual property rights of third parties, which may not be possible
and could be costly and time-consuming if it is possible to do so.
 Confidentiality agreements with employees and others may not adequately prevent disclosure of trade
secrets and other proprietary information.
  35




---



##### Table of Contents



We may be subject to damages resulting from claims that our employees or we have wrongfully used or
disclosed alleged trade secrets of other companies.
  Risks Related to our Common Stock
 Our stock price is likely to be volatile, and the market price of our common stock may drop.
  
    
    timing of market launch and/or market acceptance of our products;
    
    timing of achieving profitability from operations;
    
    changes in estimates of our financial results or recommendations by securities
analysts or the failure to meet or exceed securities analysts expectations;
    
    actual or anticipated variations in our quarterly operating results;
    
    future debt or equity financings;
    
    developments or disputes with key vendors or customers, or adverse changes to the
purchasing patterns of key customers;
    
    disruptions in product supply for any reason, including product recalls, our
failure to appropriately forecast supply or demand, difficulties in moving products
across the border, or the failure of third party suppliers to produce needed products or
components;
    
    reports by officials or health or medical authorities, the general media or the
FDA regarding the potential benefits of the System One or of similar dialysis products
distributed by other companies or of daily or home dialysis;
    
    announcements by the FDA of non-clearance or non-approval of our products, or
delays in the FDA or other foreign regulatory agency review process;
    
    product recalls;
    
    defaults under our material contracts, including without limitation our credit
agreement;
    
    regulatory developments in the United States and foreign countries;
    
    changes in third-party healthcare reimbursements, particularly a decline in the
level of Medicare reimbursement for dialysis treatments, or the willingness of Medicare
contractors to pay for more than three treatments a week where medically justified;
    
    litigation involving our company or our general industry or both;
    
    announcements of technical innovations or new products by us or our competitors;
    
    developments or disputes concerning our patents or other proprietary rights;
    
    our ability to manufacture and supply our products to commercial standards;
    
    significant acquisitions, strategic partnerships, joint ventures or capital
commitments by us or our competitors;
    
    departures of key personnel; and
    
    investors general perception of our company, our products, the economy and
general market conditions.
 36




---



##### Table of Contents



Anti-takeover provisions in our restated certificate of incorporation and amended and restated
bylaws and under Delaware law could make an acquisition of us more difficult and may prevent
attempts by our stockholders to replace or remove our current management.
  
    
    a prohibition on actions by our stockholders by written consent;
    
    the ability of our board of directors to issue preferred stock without
stockholder approval, which could be used to institute a poison pill that would work
to dilute the stock ownership of a potential hostile acquirer, effectively preventing
acquisitions that have not been approved by our board of directors;
    
    advance notice requirements for nominations of directors or stockholder
proposals; and
    
    the requirement that board vacancies be filled by a majority of our directors
then in office.
  If there are substantial sales of our common stock in the market by our large existing
stockholders, our stock price could decline.
    We have filed a resale registration statement covering both shares of our common stock that we sold
in a May 2008 private placement and shares of our common stock issuable upon the exercise of a
warrant held by DaVita. If the holders of these shares or shares issued pursuant to the terms of
the warrant are unable to sell these shares under the respective registration statements, we may be
obligated to pay them damages, which could harm our financial condition. Further, these resale
registration statements could result in downward pressure on the price of our common stock and may
affect the ability of our stockholders to realize the current trading price of our common stock.
  37




---



##### Table of Contents



Our outstanding warrants, and the provisions of our Term Loan with Asahi, may result in substantial
dilution to our stockholders.
  Our executive officers, directors and current and principal stockholders own a large percentage of
our voting common stock and could limit new stockholders influence on corporate decisions or could
delay or prevent a change in corporate control.
  
    
    delaying, deferring or preventing a change in control of our company;
    
    entrenching our management and/or Board;
    
    impeding a merger, consolidation, takeover or other business combination
involving our company; or
    
    discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
 We may grow through additional acquisitions, which could dilute our existing shareholders and could
involve substantial integration risks.
  
    
    difficulty in transitioning and integrating the operations and personnel of the
acquired businesses, including different and complex accounting and financial reporting
systems;
    
    potential disruption of our ongoing business and distraction of management;
 38




---



##### Table of Contents




    
    potential difficulty in successfully implementing, upgrading and deploying in a
timely and effective manner new operational information systems and upgrades of our
finance, accounting and product distribution systems;
    
    difficulty in incorporating acquired technology and rights into our products and
technology;
    
    unanticipated expenses and delays in completing acquired development projects and
technology integration;
    
    management of geographically remote units both in the United States and
internationally;
    
    impairment of relationships with partners and customers;
    
    customers delaying purchases of our products pending resolution of product
integration between our existing and our newly acquired products;
    
    entering markets or types of businesses in which we have limited experience;
    
    potential loss of key employees of the acquired company; and
    
    inaccurate assumptions of the acquired companys product quality and/or product
reliability.
  39




---



##### Table of Contents



Item 6. Exhibits
 ExhibitNumber*10.32
    
    Employment Agreement dated April 25, 2011 between Registrant and Michael Miller, Jr.*10.33
    
    Amendment, dated as of March 29, 2011, to the Loan and Security Agreement,
dated March 10, 2010, by and among Silicon Valley Bank, as the Lender, and the Registrant, EIR Medical, Inc.,
Medisystems Corporation and Medisystems Services Corporation, as
Borrowers.*31.1
    
    Certification of Chief Executive Officer pursuant to Exchange
Act Rules 13a-14(a) or 15d-14(a), as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer pursuant to Exchange
Act Rules 13a-14(a) or 15d-14(a), as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to Exchange
Act Rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of Sarbanes-Oxley Act of
2002.*32.2
    
    Certification of Chief Financial Officer pursuant to Exchange
Act Rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
 
 *
    
    Filed herewidth. 40




---



##### Table of Contents



SIGNATURES
  NXSTAGE MEDICAL, INC.By:
    /s/ Robert S. BrownRobert S. BrownChief Financial Officer
(Duly authorized officer and principal financial and
accounting officer)  41