##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the fiscal year ended March 31, 2006                                                    
|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: 000-51323


Micrus Endovascular Corporation


(Exact name of registrant as specified in its charter)


|                                                                              |  |                                         
|----------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                      |  | 23-2853441                              
|(State or other jurisdiction of
    incorporation or organization)            |  | (I.R.S. Employer
    Identification No.)
|                                                                             
|821 Fox Lane
    San Jose, California(Address of principal executive offices) |  | 95131(Zip Code)                         

(408) 433-1400


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:




Securities registered pursuant to Section 12(g) of the
Act:




o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o o þ


12b-2 o þ














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##### 



MICRUS ENDOVASCULAR CORPORATION


TABLE OF CONTENTS







|              |  |                                                                                                                       |     |      |     | 
|------------- |  | --------------------------------------------------------------------------------------------------------------------- | --- | ---- | --- | 
|              |  |                                                                                                                       |     | Page |    
|              |  |                                                                                                                       |     |      |    
|PART I       
|Item 1.       |  | Business                                                                                                              |     |      | 1   | 
|Item 1A.      |  | Risk Factors                                                                                                          |     |      | 20  | 
|Item 1B.      |  | Unresolved Staff Comments                                                                                             |     |      | 37  | 
|Item 2.       |  | Properties                                                                                                            |     |      | 37  | 
|Item 3.       |  | Legal Proceedings                                                                                                     |     |      | 38  | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                               |     |      | 40  | 
|             
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities |     |      | 40  | 
|Item 6.       |  | Selected Financial Data                                                                                               |     |      | 42  | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                             |     |      | 43  | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                        |     |      | 56  | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                       |     |      | 57  | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                              |     |      | 90  | 
|Item 9A.      |  | Controls and Procedures                                                                                               |     |      | 90  | 
|Item 9B.      |  | Other Information                                                                                                     |     |      | 91  | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                                |     |      | 91  | 
|Item 11.      |  | Executive Compensation                                                                                                |     |      | 95  | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management                                                    |     |      | 98  | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                    |     |      | 102 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                                |     |      | 102 | 
|             
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                        |     |      | 103 | 
|SIGNATURES    |  |                                                                                                                       | 104 |     
|EXHIBIT 10.23
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32   





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FORWARD-LOOKING STATEMENTS


Certain information contained in or incorporated by reference
in this Report contains forward-looking statements that involve
risks and uncertainties. The statements contained in this Report
that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding
our expectations, beliefs, intentions or strategies regarding
the future. All forward-looking statements included in this
Report are based on information available to us on the date
hereof, and we assume no obligation to update any such
forward-looking statements. Our actual results could differ
materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited
to, those discussed in Item 1A, Risk Factors, and elsewhere
in this Report. References herein to Micrus,
the Company, we, our,
us and similar words or phrases are references to
Micrus Endovascular Corporation and its subsidiaries, unless the
context otherwise requires. Unless otherwise provided in this
Report, trademarks identified by
®
and
TM
are registered trademarks or trademarks, respectively, of Micrus
Endovascular Corporation or its subsidiaries. All other
trademarks are the properties of their respective owners.





PART I







|        |          
|------- | ---------
|Item 1. | Business.

The Company




® ®


tm






1



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Industry Overview










The Lancet, The
Lancet


2



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The Lancet


Market Opportunity










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Access to the Aneurysm Site. Specialized products are
    required to access the complex vasculature of the brain,
    properly access the aneurysm site and perform a coiling
    procedure. These access products include microcatheters and
    guidewires. In order to navigate the complex vascular anatomy of
    the brain, access products must have enough column strength to
    be pushed significant distances through this vasculature, yet
    flexible enough to travel to distal portions of the brain
    without injuring blood vessels.                                                              
|
| |  | Framing and Filling the Aneurysm. In order to effectively
    treat an aneurysm, the interventionalist must fill the aneurysm
    with a sufficient volume of coils to disrupt blood flow and
    occlude the aneurysm. Aneurysms vary in shape and size and,
    consequently, neurointerventionalists seek an embolic coiling
    solution that enables coils to conform to the aneurysms
    shape without requiring extensive manipulation of the coil.
    Coils that frame, or conform to, the aneurysm wall reduce the
    risk of rupture and facilitate the retention of additional coils
    in the aneurysm.
|
| |  | Coverage of the Neck of the Aneurysm. It is important to
    effectively cover the neck of the aneurysm to help reduce
    recanalization and ensure a better clinical outcome. Embolic
    coils that deploy in a random manner are less likely to
    adequately cover the neck of the aneurysm.                                                                                                                                                                                                                                                                                                                      
|
| |  | Deployment. Once embolic coils are placed in the
    aneurysm, the interventionalist must be able to quickly and
    reliably deploy the coils from the device positioning unit
    within the microcatheter. Unreliable detachment mechanisms can
    lead to inadvertent movement of the embolic coil out of optimal
    position as the interventionalist withdraws the positioning unit
    only to discover that the coil is still attached. Further,
    increased time for deployment increases procedure time and its
    attendant risks.                                                                      
|
| |  | Recanalization. Industry sources estimate that
    recanalization, or the continued or renewed growth of the
    aneurysm, occurs in approximately 20 to 35% of aneurysms treated
    with embolic coiling. Experts believe that recanalization occurs
    due to incomplete filling of the aneurysm or disruption of the
    blood clot that fills the aneurysm following an embolic coiling
    procedure. Studies have shown that the recanalization rate is
    higher for patients treated with embolic coiling procedures
    compared                                                                            

3



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | to aneurysm clipping. Therefore, embolic coiling solutions that
    decrease recanalization rates are highly desirable.                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Risk of Rupture. Embolic coiling solutions that enhance
    safety and limit the risk of rupture or re-rupture in treatment
    of aneurysms are also essential. Successful framing and filling
    of the aneurysm requires precise placement of the embolic coil.
    Neurointerventionalists seek embolic coiling solutions that
    minimize stress on the aneurysm wall in the course of placing or
    repositioning the coil in order to reduce the risk of rupture.

The Micrus Solution






Self-Deploying Anatomically Conforming Coils. ® tm


Enhanced Coverage of the Neck of the Aneurysm. ®


Unique Framing and Filling Technology.


Deployment Technology.


Bioactive Technology. ® ®


Stent Platform. tm TM


4



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tm


Improved Access Products.


Micrus Strategy




Expand Market Share of Our Microcoils through Continued
Product Innovation.


Increase Our Per-Procedure Revenues.


Leverage Our Sales and Marketing Expansion.


Continue to Penetrate Asian Market.


License or Acquire Complementary Products and
Technologies.


Enter the Ischemic Stroke Market.


5



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Products




|                                         |  |                                                        |  |                                                                                                           
|---------------------------------------- |  | ------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------
|Product Line                             |  | Sizes                                                  |  | Product Description                                                                                       
|                                         |  |                                                        |  |                                                                                                           
|(MicruSphere Microcoil graphic)          |  | 2-18 mm diameter                                       |  | Three-dimensional framing microcoil; stabilizes the aneurysm.
    Available in bare platinum and Cerecyte.
|MicruSphere®
    Microcoil               |  |                                                        |  |                                                                                                           
|(HeliPaq & HeliPaq SR Microcoil graphic) |  | HeliPaq: 2-20 mm diameter HeliPaq SR: 2-10 mm diameter |  | Filling microcoil;
    occludes aneurysm
    following framing. Available in bare platinum and Cerecyte.  
|HeliPaq® &
    HeliPaq
    SR®Microcoil  |  |                                                        |  |                                                                                                           
|(InterPaq Microcoil graphic)             |  | 4 and 6 mm
    diameter                                |  | Filling microcoil; occludes aneurysm following framing.
    Available in bare platinum.                   
|InterPaq®
    Microcoil                  |  |                                                        |  |                                                                                                           

6



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|                             |  |                      |  |                                                                                                     
|---------------------------- |  | -------------------- |  | ----------------------------------------------------------------------------------------------------
|Product Line                 |  | Sizes                |  | Product Description                                                                                 
|                             |  |                      |  |                                                                                                     
|                             |  |                      |  | Framing and filling coil to                                                                         
|(Presidio Microcoil graphic) |  | 4-8 mm
    diameter  |  | deliver more neck and wall coverage in a single deployment.
    Available in Cerecyte.              
|PresidioMicrocoil           |  |                      |  |                                                                                                     
|                             |  |                      |  | Finishing microcoil; soft, stretch resistant,
    pliable                                           
|(UltiPaq Microcoil graphic)  |  | 2-4 mm
    diameter  |  | microcoil designed to complete filling of the aneurysm.
    Available in bare platinum and Cerecyte.
|UltiPaq®
    Microcoil       |  |                      |  |                                                                                                     
|                             |  |                      |  | Available in MicruSphere,                                                                           
|(Cerecyte Microcoil graphic) |  | 2-18 mm
    diameter |  | HeliPaq SR, UltiPaq and Presidio. Includes filaments comprised
    of PGA, a bioactive material.    
|Cerecyte®
    Microcoil      |  |                      |  |                                                                                                     

7



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|                                |  |                                                    |  |                                                                                            
|------------------------------- |  | -------------------------------------------------- |  | -------------------------------------------------------------------------------------------
|Product Line                    |  | Sizes                                              |  | Product Description                                                                        
|                                |  |                                                    |  |                                                                                            
|(Courier Microcatheter graphic) |  | .0170 and .0190 inner diameter and 150 cm length |  | Device used to deliver microcoils into the aneurysm.                                       
|CourierMicrocatheter           |  |                                                    |  |                                                                                            
|(Watusi Guidewire graphic)      |  | .014 diameter and 205 cm length                   |  | Device used to guide microcatheters and other devices to the
    aneurysm or stenosis site.
|WatusiGuidewire                |  |                                                    |  |                                                                                            

8



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|                                                  |  |                                                            |  |                                                                                                                                                                     
|------------------------------------------------- |  | ---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product Line                                      |  | Sizes                                                      |  | Product Description                                                                                                                                                 
|                                                  |  |                                                            |  |                                                                                                                                                                     
|(Pharos Stent System graphic)                     |  | 2.5 mm  4.0 mm outer diameter and
    8 mm  20 mm length |  | For use as scaffolding of wide-neck aneurysms to ensure that the
    microcoil is not dislodged and for use in opening intracranial
    arteries that have narrowed.
|PharosStent System                               |  |                                                            |  |                                                                                                                                                                     
|(Device Control Box And Connecting Cable graphic) |  |                                                            |  | Electronic control that activates our proprietary microcoil
    deployment mechanism.                                                                               
|Device Control Box and Connecting Cable           |  |                                                            |  |                                                                                                                                                                     

9



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Microcoil Products






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Frame. Our MicruSphere microcoils are typically the first
    microcoils used by the interventionalist to frame the aneurysm.
    The MicruSphere microcoil folds automatically into a spherical
    three-dimensional shape that conforms to the shape of the
    aneurysm. This conforming shape reduces the need for the
    clinician to manipulate and reposition the coil multiple times,
    shortens procedure time, and reduces the potential for
    complications. Additional microcoils may then be placed within
    the first microcoil in smaller sizes in an approach known as the
    Russian doll technique, sequentially filling the
    aneurysm.                                                                                                            
|
| |  | Frame and Fill. Our Presidio Microcoil features longer
    lengths and the unique MicruSphere shape to frame and fill the
    aneurysm. This can allow for more platinum to be deployed at the
    neck of the aneurysm, as well as greater packing density to be
    achieved with a single coil.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Fill. Our proprietary HeliPaq and HeliPaq SR products are
    filling microcoils used to fill gaps which may remain in the
    center of the aneurysm after placement of one or more of our
    MicruSphere microcoils. Both the HeliPaq and the HeliPaq SR
    automatically form a helical shape upon deployment, which allows
    filling of complex gaps in the aneurysm. The HeliPaq SR employs
    a stretch-resistant system designed to prevent the microcoil
    from stretching in an unwanted manner while being positioned in
    the aneurysm. InterPaq microcoils are filling coils used in
    larger size aneurysms requiring a greater volume of coil mass in
    order to be adequately filled.                                                                  
|
| |  | Finish. Our UltiPaq microcoil is an extra-soft,
    stretch-resistant finishing coil, used to fill any final gaps in
    the aneurysm after placement of one or more MicruSphere,
    Presidio and/or HeliPaq microcoils.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Cerecyte. Our proprietary Cerecyte microcoil product line
    incorporates filaments comprised of PGA into most of our current
    line of microcoils  MicruSphere, Presidio, HeliPaq,
    SR and UltiPaq. Because the PGA filaments run through the center
    of our microcoils, our Cerecyte microcoils possess the same
    handling characteristics as our standard platinum microcoils.
    Initial data from single center studies presented at major
    scientific meetings suggest that Cerecyte may improve clinical
    outcomes compared to bare platinum coils. We have initiated two
    post-market clearance studies in order to collect human clinical
    data for the purpose of demonstrating accelerated healing by our
    Cerecyte microcoil product line.



Pharos Balloon-Expandable Stent




10



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Access Products






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CouriertmMicrocatheter. Our Courier Microcatheter is a device used to
    deliver microcoils to the aneurysm. Our Courier microcatheter
    features our proprietary
    Endurancetm
    technology designed to enhance both tip shaping and tip shape
    retention, both of which are vital to optimal coil delivery. It
    will be available in straight and pre-shaped models. Our Courier
    Microcatheter has been designed to provide the
    neurointerventionalist with the ability to navigate the tortuous
    vasculature of the brain. The microcatheters design and
    hydrophilic coating enable a high level of pushability, tip
    shape retention and overall tracking.
|
| |  | WatusitmGuidewire. Our Watusi Guidewire is used to guide the
    microcatheter or other delivery system to the aneurysm. Our
    Watusi Guidewire features excellent visualization as well as our
    proprietary Response
    Tiptm
    technology, which results in the unique ability to effectively
    shape and re-shape the guidewire tip.                                                                                                                                                                                                                                                                                                                                             

Microcoil Delivery System and Deployment Mechanism




Products Under Development




Sales and Marketing


one-third




11



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Research and Development








Biotronik Collaboration




12



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Physician Advisors








| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | L. Nelson Hopkins, M.D., Professor and Chair,
    Department of Neurosurgery/ Professor, Department of Radiology,
    State University of New York, Buffalo, member of the Micrus
    Board of Directors.
|
| |  | Joseph Horton, M.D., Professor and Chief, Interventional
    Neuroradiology, Department of Radiology, University of Alabama
    at Birmingham, Micrus co-founder.                                        
|
| |  | Andrew Molyneux, M.D., Frenchay Hospital, North Bristol NHS
    Trust, United Kingdom, Micrus Medical Director.                                                                                          



Manufacturing








13



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Patents and Proprietary Rights








| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | vasoocclusive microcoils and devices and methods for
    manufacturing such coils and devices;
|
| |  | microcoil deployment systems;                                                                 
|
| |  | bioactive microcoils;                                                                         
|
| |  | intracranial vascular stents;                                                                 
|
| |  | catheters for neurovascular intervention;                                                     
|
| |  | embolic clot retrieval devices; and                                                           
|
| |  | bioactive material placement systems and methods.                                             

14



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Competition




®


15



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| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | improved patient outcomes as a result of physician use of the
    device;
|
| |  | access to and acceptance by leading physicians;                          
|
| |  | depth of product line;                                                   
|
| |  | product quality and reliability;                                         
|
| |  | ease of use for physicians;                                              
|
| |  | sales and marketing capability; and                                      
|
| |  | brand recognition and reputation.                                        





Government Regulation


United States




FDAs Premarket
Clearance and Approval Requirements




16



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510(k) Clearance






Premarket Approval






17



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Continuing FDA
Regulation






| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | quality system regulation (QSR), which requires manufacturers to
    follow design, testing, control, documentation and other quality
    assurance procedures during the manufacturing process (otherwise
    known as Good Manufacturing Practices or GMPs);                                        
|
| |  | labeling regulations, which prohibit the promotion of products
    for unapproved or off-label uses and impose other
    restrictions on labeling; and                                                                                                                                              
|
| |  | medical device reporting regulations, which require that
    manufacturers report to the FDA if their device may have caused
    or contributed to a death or serious injury or malfunctioned in
    a way that would likely cause or contribute to a death or
    serious injury if it were to recur.





| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | fines, injunctions, and civil penalties;                                             
|
| |  | recall or seizure of our products;                                                   
|
| |  | operating restrictions, partial suspension or total shutdown of
    production;      
|
| |  | refusing our request for 510(k) clearance or premarket approval
    of new products; 
|
| |  | withdrawing 510(k) clearance or premarket approvals that are
    already granted; and
|
| |  | criminal prosecution.                                                                



International






13-14


18



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Third-Party Reimbursement






Product Liability and Insurance




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Employees




Product Liability and Insurance




Employees


full-time







|         |              
|-------- | -------------
|Item 1A. | Risk Factors.

Certain Factors that May Affect Our Business and Future
Results




Our future success is dependent on the continued growth in
embolic coiling procedures and our ability to convince a
concentrated customer base of neurointerventionalists to use our
products as an alternative to other available products.






20



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| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | extent of clinical evidence supporting patient benefits;                                       
|
| |  | their level of experience with the alternative product;                                        
|
| |  | perceived liability risks generally associated with the use of
    new products and procedures;
|
| |  | availability of reimbursement within healthcare payment
    systems; and                       
|
| |  | costs associated with the purchase of new products and equipment.                              



We are currently involved in a patent litigation action
involving Boston Scientific Corporation and, if we do not
prevail in this action, we could be liable for past damages and
be prevented from making, using, selling, offering to sell,
importing into the U.S. or exporting from the U.S., our
microcoils, our primary product line.






ex parte


21



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| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pay damages, including up to treble damages and Boston
    Scientifics attorneys fees and costs, which may be
    substantial;                                                                                                                                                                       
|
| |  | cease, because of an injunction, the making, using, selling,
    offering to sell, importing into the U.S. or exporting from the
    U.S. of our microcoil devices, which currently represent
    virtually all of our revenues, found to infringe the patent
    claims asserted by Boston Scientific;
|
| |  | expend significant resources to redesign our technology so that
    it does not infringe the patent claims asserted by Boston
    Scientific, which may not be possible;                                                                                                                               
|
| |  | discontinue manufacturing or other processes that incorporate
    technology that infringes the patent claims asserted by Boston
    Scientific;                                                                                                                                                       
|
| |  | become subject to a compulsory license order under which we
    would be required to pay Boston Scientific a royalty on future
    sales of our products; and/or                                                                                                                                       
|
| |  | obtain a license from Boston Scientific to use the relevant
    patents, which may not be available to us on acceptable terms,
    or at all.                                                                                                                                                          



22



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We have a limited operating history, have incurred
significant operating losses since inception, and expect to
continue to incur losses, and we cannot assure you that we will
achieve profitability.






| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | grow our internal and third-party sales and marketing forces to
    expand the sales of our products in the United States and
    internationally;
|
| |  | increase our research and development efforts to improve upon
    our existing products and develop new products;                                 
|
| |  | perform clinical research and trials on our existing products
    and product candidates;                                                         
|
| |  | expand our regulatory resources in order to obtain governmental
    approvals for our existing product enhancements and new products;             
|
| |  | acquire and/or license new technologies; and                                                                                                      
|
| |  | expand manufacturing.                                                                                                                             



Our quarterly operating and financial results and our gross
margins are likely to fluctuate significantly in future
periods.






| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | neurointerventionalist and patient acceptance of our products;                                   
|
| |  | changes in the number of embolic coiling procedures performed to
    treat cerebral aneurysms;   
|
| |  | the seasonality of our product sales;                                                            
|
| |  | the mix of our products sold;                                                                    
|
| |  | stocking patterns for distributors;                                                              
|
| |  | the development of new procedures to treat cerebral aneurysms;                                   
|
| |  | results of clinical research and trials on our existing products
    and products in development;
|
| |  | demand for, and pricing of, our products;                                                        
|
| |  | levels of third-party reimbursement for our products;                                            

23



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| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | timing of new product offerings, acquisitions, licenses or other
    significant events involving us or our competitors;
|
| |  | increases in the costs of manufacturing and selling our products;                                                       
|
| |  | the amount and timing of our operating expenses;                                                                        
|
| |  | litigation expenses;                                                                                                    
|
| |  | fluctuations in foreign currency exchange rates;                                                                        
|
| |  | regulatory approvals and legislative changes affecting the
    products we may offer or those of our competitors;       
|
| |  | the effect of competing technological and market developments;                                                          
|
| |  | changes in our ability to obtain and maintain FDA approval or
    clearance for our products.                           
|
| |  | inventory adjustments we may have to make in any quarter;                                                               
|
| |  | interruption in the manufacturing or distribution of our
    products;                                                  
|
| |  | our ability to maintain and expand our sales force and
    operational personnel;                                       
|
| |  | the ability of our suppliers to timely provide us with an
    adequate supply of materials and components; and          
|
| |  | amount and timing of capital expenditures and other costs
    relating to any potential expansion of our operations.    



We may not be able to develop new products or product
enhancements that will be accepted by the market.






| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | properly identify and anticipate interventionalist and patient
    needs;              
|
| |  | develop new products or enhancements in a timely manner;                               
|
| |  | obtain the necessary regulatory approvals for new products or
    product enhancements;
|
| |  | provide adequate training to potential users of our products;                          
|
| |  | receive adequate reimbursement for our procedures; and                                 
|
| |  | develop an effective marketing and distribution network.                               

24



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Our international operations and our relationships with
physicians and other consultants require us to comply with a
number of U.S. and international regulations.












We are in a highly competitive market segment, face
competition from large, well-established medical device
manufacturers with significant resources, and may not be able to
increase penetration in our markets or otherwise compete
effectively.




25



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| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | greater financial and personnel resources;                                                                                                                                                                                                                                                            
|
| |  | significantly greater name recognition;                                                                                                                                                                                                                                                               
|
| |  | established relationships with neurointerventionalists;                                                                                                                                                                                                                                               
|
| |  | established distribution networks;                                                                                                                                                                                                                                                                    
|
| |  | greater experience in obtaining and maintaining FDA, and other
    regulatory approvals for products and product enhancements, and
    greater experience in developing compliance programs for
    compliance with numerous federal, state, local and similar laws
    in non-U.S.
    jurisdictions;
|
| |  | greater resources for product research and development;                                                                                                                                                                                                                                               
|
| |  | greater experience in, and resources for, launching, marketing,
    distributing and selling products; and                                                                                                                                                                                            
|
| |  | broader product lines.                                                                                                                                                                                                                                                                                





Our sales in international markets subject us to foreign
currency exchange and other risks and costs that could harm our
business.




26



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##### Table of Contents







| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | local economic and political instability or other potentially
    adverse conditions;          
|
| |  | lack of experience in certain geographical markets;                                            
|
| |  | unexpected delays or changes in regulatory requirements;                                       
|
| |  | increased difficulty in collecting accounts receivables in
    certain foreign countries;      
|
| |  | delays and expenses associated with tariffs and other trade
    barriers;                      
|
| |  | difficulties and costs associated with attracting and
    maintaining third party distributors;
|
| |  | compliance with foreign laws and regulations; and                                              
|
| |  | adverse tax consequences or overlapping tax structures.                                        

If we fail to increase our direct sales force in a timely
manner, our business could suffer.




If we fail to properly manage our anticipated growth, our
business could suffer.








27



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##### Table of Contents



We can provide no assurance regarding our, or our independent
registered public accounting firms, conclusions at
March 31, 2007 with respect to the effectiveness of our
internal controls over financial reporting.


10-K




| |   |                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | about managements responsibility for establishing and
    maintaining adequate internal controls over financial reporting;                                                                                                                      
|
| |  | identifying the framework used by management to conduct the
    required evaluation of the effectiveness of our internal control
    over financial reporting;                                                                                   
|
| |  | concerning managements assessment of the effectiveness of
    our internal control over financial reporting as of
    March 31, 2007, including a statement as to whether or not
    internal control over financial reporting is effective; and
|
| |  | that our independent registered public accounting firm has
    issued an attestation report on managements assessment and
    the effectiveness of internal control over financial reporting.                                                   





Our future capital needs are uncertain and we may need to
raise additional funds in the future, and such funds may not be
available on acceptable terms or at all.






| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | the revenues generated by sales of our products;                        
|
| |  | the costs associated with expanding our sales and marketing
    efforts;
|
| |  | the expenses we incur in manufacturing and selling our products;        

28



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| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the costs of developing and or acquiring new products or
    technologies;                                                                                                                                                          
|
| |  | the cost of obtaining and maintaining U.S Food and Drug
    Administration (FDA) approval or clearance of our
    products and products in development;                                                                           
|
| |  | costs associated with our litigation with Boston Scientific;                                                                                                                                                                        
|
| |  | the expenses we incur related to compliance with the
    U.S. Foreign Corrupt Practices Act (FCPA) and
    laws and regulations in
    non-U.S.jurisdictions;                                                                     
|
| |  | costs associated with compliance with the Sarbanes-Oxley Act of
    2002 and rules and regulations affecting public companies
    recently promulgated by the Securities and Exchange Commission
    and the Nasdaq National Market;
|
| |  | the costs associated with our facilities expansion, if
    any; and                                                                                                                                                                 
|
| |  | the costs associated with increased capital expenditures.                                                                                                                                                                           



If we choose to acquire new and complementary businesses,
products or technologies instead of developing them ourselves,
we may be unable to complete these acquisitions or to
successfully integrate them in a cost effective and
non-disruptive manner.




We are dependent on single source suppliers for components
and materials used in our devices, and the loss of any of these
suppliers, or their inability to supply us with an adequate
supply of materials, could harm our business.




29



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##### Table of Contents







Our operations are currently conducted at a single location
that may be at risk from earthquakes or other natural
disasters.




If we are unable to effectively manage our inventory held on
consignment by our intended customers, we will not achieve our
expected results.




30



---



##### Table of Contents



We are dependent on our senior management team, key clinical
advisors and scientific personnel, and the loss of any of them
could harm our business.




The medical device industry is characterized by patent
litigation, which could be costly, result in the diversion of
managements time and efforts and require us to pay
damages.






Our ability to protect our intellectual property and
proprietary technology through patents and other means is
uncertain.




31



---



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If we fail to obtain, or experience significant delays in
obtaining, FDA clearances or approvals for our future products
or product enhancements, or to comply with similar regulatory
requirements in other countries where we market our products,
our ability to commercially distribute and market our products
could suffer.




32



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Modifications to our marketed products may require new 510(k)
clearances or pre-market approvals, or may require us to cease
marketing or recall the modified products until clearances are
obtained.




If we or our suppliers fail to comply with the FDAs
quality system regulations, the manufacture of our products
could be delayed.




If interventionalists are unable to obtain sufficient
reimbursement for procedures performed with our products, it is
unlikely that our products will be widely used.






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Recent changes in accounting rules and regulations, such as
expensing of stock options, will result in unfavorable
accounting charges and could require us to change our
compensation policies.


Share-Based
Payment,




We may become subject to product liability claims which could
require us to pay damages that exceed our insurance coverage.




34



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##### Table of Contents



We may be subject to damages resulting from claims that we or
our employees have wrongfully used or disclosed alleged trade
secrets of their former employers.




The price of our common stock has fluctuated and we expect
will continue to fluctuate substantially and you may not be able
to sell your shares at or above your purchase price.






| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | volume and timing of orders for our products;                                                                                                                 
|
| |  | the introduction of new products or product enhancements by us
    or our competitors;                                                                        
|
| |  | disputes or other developments with respect to intellectual
    property rights;                                                                              
|
| |  | our ability to develop, obtain regulatory clearance for, and
    market, new and enhanced products on a timely basis;                                         
|
| |  | product liability claims or other litigation;                                                                                                                 
|
| |  | quarterly variations in our or our competitors results of
    operations;                                                                                    
|
| |  | sales of large blocks of our common stock, including sales by
    our executive officers and directors;                                                       
|
| |  | changes in governmental regulations or in the status of our
    regulatory approvals or applications;                                                         
|
| |  | changes in the availability of third-party reimbursement in the
    United States or other countries;                                                         
|
| |  | changes in earnings estimates or recommendations by securities
    analysts; and                                                                              
|
| |  | general market conditions and other factors, including factors
    unrelated to our operating performance or the operating
    performance of our competitors.



Because of their significant stock ownership, our executive
officers, directors and principal stockholders will be able to
exert control over us and our significant corporate
decisions.




35



---



##### Table of Contents







| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | delaying, deferring or preventing a change in control of our
    company;                                      
|
| |  | impeding a merger, consolidation, takeover or other business
    combination involving our company; or         
|
| |  | causing us to enter into transactions or agreements that are not
    in the best interests of all stockholders.



Future sales of our common stock may depress our stock
price.






We may incur increased costs as a result of recently enacted
and proposed changes in laws and regulations.




We may become involved in securities class action litigation
that could divert managements attention and harm our
business.




36



---



##### Table of Contents



We do not intend to pay cash dividends.




Anti-takeover provisions in our organizational documents and
Delaware law may discourage or prevent a change of control, even
an acquisition which would be beneficial to our stockholders,
and thereby affect our stock price adversely and prevent
attempts by our stockholders to replace or remove our current
management.






| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize the issuance of preferred stock which can be created
    and issued by the board of directors without prior stockholder
    approval, with rights senior to those of the common stock;
|
| |  | provide for a classified board of directors, with each director
    serving a staggered three-year term;                                                                                        
|
| |  | prohibit our stockholders from filling board vacancies, calling
    special stockholder meetings, or taking action by written
    consent;                                                      
|
| |  | prohibit our stockholders from making certain changes to our
    amended and restated certificate of incorporation or bylaws
    except with
    662/3% stockholder approval; and               
|
| |  | require advance written notice of stockholder proposals and
    director nominations.                                                                                                           










|         |                           
|-------- | --------------------------
|Item 1B. | Unresolved Staff Comments.








|        |            
|------- | -----------
|Item 2. | Properties.

seven-year


37



---



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|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.

FCPA Investigation










Patent Litigation




38



---



##### Table of Contents







ex parte






| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pay damages, including up to treble damages and Boston
    Scientifics attorneys fees and costs, which may be
    substantial;                                                                                                                                                                       
|
| |  | cease, because of an injunction, the making, using, selling,
    offering to sell, importing into the U.S. or exporting from
    the U.S. of our microcoil devices, which currently
    represent virtually all of our revenues, found to infringe the
    patent claims asserted by Boston Scientific;
|
| |  | expend significant resources to redesign our technology so that
    it does not infringe the patent claims asserted by Boston
    Scientific, which may not be possible;                                                                                                                               
|
| |  | discontinue manufacturing or other processes that incorporate
    technology that infringes the patent claims asserted by Boston
    Scientific;                                                                                                                                                       
|
| |  | become subject to a compulsory license order under which we
    would be required to pay Boston Scientific a royalty on future
    sales of our products; and/or                                                                                                                                       
|
| |  | obtain a license from Boston Scientific to use the relevant
    patents, which may not be available to us on acceptable terms,
    or at all.                                                                                                                                                          



39



---



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|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.






PART II







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities.



|                                   |  |      |       |  |     |   |       | 
|---------------------------------- |  | ---- | ----- |  | --- | - | ----- | 
|Fiscal Year Ended March 31, 2006   |  | High |       |  | Low |  
|                                   |  |      |       |  |     |  
|First Quarter (from June 16, 2005) |  | $    | 11.40 |  |     | $ | 10.75 | 
|Second Quarter                     |  | $    | 12.80 |  |     | $ | 9.65  | 
|Third Quarter                      |  | $    | 10.25 |  |     | $ | 6.34  | 
|Fourth Quarter                     |  | $    | 14.40 |  |     | $ | 8.40  | 





| |                
| | ---------------
| | Dividend Policy





| |                                            
| | -------------------------------------------
| | Unregistered Securities Sold in Fiscal 2006





| |                
| | ---------------
| | Use of Proceeds



40



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| |                                      
| | -------------------------------------
| | Issuer Purchases of Equity Securities



41



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|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.



Consolidated Statement of Operations


|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |        |       |       |   |        |       |       | 
|------------------------------------------------------------------------------------------------ | ----------------------------- | ------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ----- | ------ | ---- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                                                                 |                               | Year Ended March 31,                  |       
|                                                                                                 |                               |                                       |       
|                                                                                                 |                               | 2006                                  |        |        | 2005   |   |        | 2004   |        |   | 2003   |       |        | 2002 |       
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|                                                                                                 |                               | (In thousands, except per share data) |       
|Revenues                                                                                         |                               | $                                     | 32,781 |        |        | $ | 24,012 |        |        | $ | 15,700 |       |        | $    | 8,287  |       |       | $ | 3,770  |      
|Cost of goods sold(1)                                                                            |                               |                                       | 9,710  |        |        |   | 8,003  |        |        |   | 5,725  |       |        |      | 3,629  |       |       |   | 2,626  |      
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|Gross profit                                                                                     |                               |                                       | 23,071 |        |        |   | 16,009 |        |        |   | 9,975  |       |        |      | 4,658  |       |       |   | 1,144  |      
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|Operating expenses:                                                                              |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |        |       |       |   |        |      
|                                                                                                 | Research and development(1)   |                                       |        | 6,589  |        |   |        | 2,360  |        |   |        | 2,927 |        |      |        | 1,763 |       |   |        | 1,364 |      
|                                                                                                 | Sales and marketing(1)        |                                       |        | 15,171 |        |   |        | 8,781  |        |   |        | 6,012 |        |      |        | 4,367 |       |   |        | 3,451 |      
|                                                                                                 | General and administrative(1) |                                       |        | 10,307 |        |   |        | 11,884 |        |   |        | 3,511 |        |      |        | 3,080 |       |   |        | 3,463 |      
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|                                                                                                 |                               | Total operating expenses              |        |        | 32,067 |   |        |        | 23,025 |   |        |       | 12,450 |      |        |       | 9,210 |   |        |       | 8,278 | 
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|Loss from operations                                                                             |                               |                                       | (8,996 | )      |        |   | (7,016 | )      |        |   | (2,475 | )     |        |      | (4,552 | )     |       |   | (7,134 | )    
|Interest income                                                                                  |                               |                                       | 1,295  |        |        |   | 177    |        |        |   | 153    |       |        |      | 95     |       |       |   | 254    |      
|Interest expense                                                                                 |                               |                                       | (12    | )      |        |   | (29    | )      |        |   | (20    | )     |        |      | (11    | )     |       |   | (11    | )    
|Other income, net                                                                                |                               |                                       | (632   | )      |        |   | 164    |        |        |   | 328    |       |        |      | 287    |       |       |   | 30     |      
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|Net loss before income taxes                                                                     |                               | $                                     | (8,345 | )      |        | $ | (6,704 | )      |        | $ | (2,014 | )     |        | $    | (4,181 | )     |       | $ | (6,861 | )    
|Benefit from income taxes                                                                        |                               |                                       | (84    | )      |        |   |       |        |        |   |       |       |        |      |       |       |       |   |       |      
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|Net loss                                                                                         |                               |                                       | (8,261 | )      |        |   | (6,704 | )      |        |   | (2,014 | )     |        |      | (4,181 | )     |       |   | (6,861 | )    
|Accretion to redemption value of redeemable convertible
    preferred stock                      |                               |                                       | (659   | )      |        |   | (588   | )      |        |   | (530   | )     |        |      | (476   | )     |       |   | (458   | )    
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|Net loss attributable to common stockholders                                                     |                               | $                                     | (8,920 | )      |        | $ | (7,292 | )      |        | $ | (2,544 | )     |        | $    | (4,657 | )     |       | $ | (7,319 | )    
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|Net loss per share attributable to stockholders, basic and
    diluted                           |                               | $                                     | (0.79  | )      |        | $ | (5.22  | )      |        | $ | (2.02  | )     |        | $    | (3.82  | )     |       | $ | (6.17  | )    
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       
|Shares used in computing net loss per attributable to common
    stockholders, basic and diluted |                               |                                       | 11,240 |        |        |   | 1,397  |        |        |   | 1,257  |       |        |      | 1,220  |       |       |   | 1,186  |      
|                                                                                                 |                               |                                       |        |        |        |   |        |        |        |   |        |       |        |      |       






|    |                                                             
|--- | ------------------------------------------------------------
|(1) | Includes non-cash stock-based compensation of the following:

42



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|                           |  |                      |     |  |      |   |       |      |  |   |      |  |  |      |    |  |  |   |    | 
|-------------------------- |  | -------------------- | --- |  | ---- | - | ----- | ---- |  | - | ---- |  |  | ---- | -- |  |  | - | -- | 
|                           |  | Year Ended March 31, |    
|                           |  |                      |    
|                           |  | 2006                 |     |  | 2005 |   |       | 2004 |  |   | 2003 |  |  | 2002 |   
|                           |  |                      |     |  |      |   |       |      |  |   |      |  |  |      |   
|Cost of goods sold         |  | $                    | 26  |  |      | $ | 26    |      |  | $ | 11   |  |  | $    |   |  |  | $ |   | 
|Research and development   |  |                      | 22  |  |      |   | 69    |      |  |   | 207  |  |  |      | 19 |  |  |   | 12 | 
|Sales and marketing        |  |                      | 169 |  |      |   | 134   |      |  |   | 162  |  |  |      | 13 |  |  |   | 7  | 
|General and administrative |  |                      | 172 |  |      |   | 3,210 |      |  |   | 174  |  |  |      | 16 |  |  |   | 8  | 
|                           |  |                      |     |  |      |   |       |      |  |   |      |  |  |      |   
|Total                      |  | $                    | 389 |  |      | $ | 3,439 |      |  | $ | 554  |  |  | $    | 48 |  |  | $ | 27 | 
|                           |  |                      |     |  |      |   |       |      |  |   |      |  |  |      |   

|                                 |                                                    |                |   |        |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  
|-------------------------------- | -------------------------------------------------- | -------------- | - | ------ | ---- |  | - | ------- | - |  | ---- | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                                 |                                                    | March 31,      |  
|                                 |                                                    |                |  
|                                 |                                                    | 2006           |   |        | 2005 |  |   | 2004    |   |  | 2003 |         |   | 2002 |  
|                                 |                                                    |                |   |        |      |  |   |         |   |  |      |         |   |      |  
|                                 |                                                    | (In thousands) |  
|Consolidated Balance Sheet Data: |                                                    |                |   |        |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |        
|                                 | Total assets                                       |                | $ | 62,114 |      |  | $ | 29,774  |   |  | $    | 17,878  |   |      | $ | 8,864   |   |  | $ | 9,331   |  
|                                 | Mandatorily redeemable convertible preferred stock |                |   |       |      |  |   | 58,442  |   |  |      | 49,479  |   |      |   | 39,305  |   |  |   | 35,395  |  
|                                 | Total stockholders equity (deficit)               |                |   | 51,316 |      |  |   | (37,561 | ) |  |      | (34,193 | ) |      |   | (32,475 | ) |  |   | (27,686 | )






|        |                                                                                            
|------- | -------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Conditions and Results of Operations.

The following discussion and analysis of the financial
condition and results of operations of the Company should be
read in conjunction with the consolidated financial statements
and the related notes included elsewhere in this report, and
with other factors described from time to time in our other
filings with the Securities and Exchange Commission. This Annual
Report on
Form 10-K contains
forward-looking statements that involve risks and uncertainties.
Actual results and the timing of events may differ materially
from those contained in the forward-looking statements due to a
number of factors, including those discussed in Part I,
Item 1A Risk Factors above and elsewhere in
this Annual Report on
Form 10-K.


Overview






43



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Recent Developments


Expanded Manufacturing Facility.


Initial Public Offering.


Vascular FX Intellectual Property Purchase.


Neurologic Acquisition.


44



---



##### Table of Contents











Goodman Distribution Agreement.


Biotronik Agreement.




45



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##### Table of Contents



Results of Operations




|                                                                                                                    |                            |                          |     |    |      |   |     |      |    |   |     |    |    |  
|------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------ | --- | -- | ---- | - | --- | ---- | -- | - | --- | -- | -- | -
|                                                                                                                    |                            | Year Ended March 31,     |    
|                                                                                                                    |                            |                          |    
|                                                                                                                    |                            | 2006                     |     |    | 2005 |   |     | 2004 |   
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   
|                                                                                                                    |                            | %                        |     |    | %    |   |     | %    |   
|Consolidated Statement of Operations Data:                                                                          |                            |                          |     |    |      |   |     |      |    |   |     |   
|Revenues                                                                                                            |                            |                          | 100 | %  |      |   | 100 | %    |    |   | 100 | % 
|Cost of goods sold                                                                                                  |                            |                          | 30  | %  |      |   | 33  | %    |    |   | 36  | % 
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   
|Gross profit                                                                                                        |                            |                          | 70  | %  |      |   | 67  | %    |    |   | 64  | % 
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   
|Operating expenses:                                                                                                 |                            |                          |     |    |      |   |     |      |    |   |     |   
|                                                                                                                    | Research and development   |                          |     | 20 | %    |   |     | 10   | %  |   |     | 19 | % 
|                                                                                                                    | Sales and marketing        |                          |     | 46 | %    |   |     | 36   | %  |   |     | 38 | % 
|                                                                                                                    | General and administrative |                          |     | 31 | %    |   |     | 50   | %  |   |     | 22 | % 
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   
|                                                                                                                    |                            | Total operating expenses |     |    | 97   | % |     |      | 96 | % |     |    | 79 | %
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   
|Loss from operations                                                                                                |                            |                          | (27 | )% |      |   | (29 | )%   |    |   | (15 | )%
|Interest and investment income                                                                                      |                            |                          | 4   | %  |      |   | 1   | %    |    |   | 1   | % 
|Interest expense                                                                                                    |                            |                          | 0   | %  |      |   | 0   | %    |    |   | 0   | % 
|Other income, net                                                                                                   |                            |                          | (2  | )% |      |   | 0   | %    |    |   | 1   | % 
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   
|Net loss before provision for income taxes                                                                          |                            |                          | (25 | )% |      |   | (28 | )%   |    |   | (13 | )%
|Benefit from income taxes                                                                                           |                            |                          | 0   | %  |      |   | 0   | %    |    |   | 0   | % 
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   
|Net loss                                                                                                            |                            |                          | (25 | )% |      |   | (28 | )%   |    |   | (13 | )%
|Accretion of redeemable convertible preferred stock to
    redemption value including beneficial conversion feature |                            |                          | (2  | )% |      |   | (2  | )%   |    |   | (3  | )%
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   
|Net loss attributable to common stockholders                                                                        |                            |                          | (27 | )% |      |   | (30 | )%   |    |   | (16 | )%
|                                                                                                                    |                            |                          |     |    |      |   |     |      |   

Fiscal Years Ended March 31, 2006 and 2005




| |         
| | --------
| | Revenues





| |             
| | ------------
| | Gross Profit



46



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| |                   
| | ------------------
| | Operating Expenses

Research and Development.


Sales and Marketing.


General and Administrative.


47



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| |                                 
| | --------------------------------
| | Stock-based Compensation Charges







|                 |  |   |         | 
|---------------- |  | - | ------- | 
|Fiscal Year 2007 |  | $ | 229,000 | 
|Fiscal Year 2008 |  | $ | 168,000 | 







| |                  
| | -----------------
| | Other Income, Net



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| |             
| | ------------
| | Income Taxes





| |                                                                            
| | ---------------------------------------------------------------------------
| | Accretion of Redeemable Convertible Preferred Stock to
    Redemption Value





| |                              
| | -----------------------------
| | Beneficial Conversion Feature

paid-in


Fiscal Years Ended March 31, 2005 and 2004




| |         
| | --------
| | Revenues





| |             
| | ------------
| | Gross Profit



49



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ramp-up






| |                   
| | ------------------
| | Operating Expenses

Research and Development.


Sales and Marketing.


General and Administrative.


50



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| |                                 
| | --------------------------------
| | Stock-based Compensation Charges









| |                  
| | -----------------
| | Other Income, Net





| |                                                                            
| | ---------------------------------------------------------------------------
| | Accretion of Redeemable Convertible Preferred Stock to
    Redemption Value



Liquidity and Capital Resources


|                                                    |  |                      |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------- |  | -------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                    |  | Year Ended March 31, |       
|                                                    |  |                      |       
|                                                    |  | 2006                 |        |   | 2005 |   |        | 2004 | 
|                                                    |  |                      |        |   |      |   |        |      | 
|Cash flow activities:                               |  |                      |        |   |      |   |        |      |  |   |        |  
|Net cash used in operating activities               |  | $                    | (9,055 | ) |      | $ | (3,402 | )    |  | $ | (716   | )
|Net cash (used in) provided by investing activities |  | $                    | (5,940 | ) |      | $ | 2,462  |      |  | $ | (4,965 | )
|Net cash provided by financing activities           |  | $                    | 35,665 |   |      | $ | 11,255 |      |  | $ | 9,953  |  







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Critical Accounting Policies and Estimates




52



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Revenue Recognition and Product Warranty.


















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Allowance for Doubtful Accounts.


Excess and Obsolete Inventory.


Accounting for Income Taxes.


Stock-based Compensation.




54



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|         |  |   |              | 
|-------- |  | - | ------------ | 
|Vested   |  | $ | 1.3  million | 
|         |  |   |             
|Unvested |  | $ | 1.6  million | 
|         |  |   |             

Recent Accounting Pronouncements






Contractual Obligations






|                                           |  |                        |       |           |        |   |       |       |  |     |       |  |        |         |       |  |  |   |     | 
|------------------------------------------ |  | ---------------------- | ----- | --------- | ------ | - | ----- | ----- |  | --- | ----- |  | ------ | ------- | ----- |  |  | - | --- | 
|                                           |  | Payments Due by Period |      
|                                           |  |                        |      
|                                           |  |                        |       | Less Than |        |   | 1-3   |       |  | 3-5 |       |  | Beyond |        
|                                           |  | Total                  |       |           | 1 Year |   |       | Years |  |     | Years |  |        | 5 Years |      
|                                           |  |                        |       |           |        |   |       |       |  |     |       |  |        |         |      
|Contractual obligations:                   |  |                        |       |           |        |   |       |       |  |     |       |  |        |         |       |  |  |   |     | 
|Non-cancelable operating lease obligations |  | $                      | 3,982 |           |        | $ | 625   |       |  | $   | 1,830 |  |        | $       | 1,113 |  |  | $ | 414 | 
|Purchase commitments                       |  |                        | 2,658 |           |        |   | 2,658 |       |  |     |      |  |        |         |      |  |  |   |    | 
|                                           |  |                        |       |           |        |   |       |       |  |     |       |  |        |         |      
|Total                                      |  | $                      | 6,640 |           |        | $ | 3,283 |       |  | $   | 1,830 |  |        | $       | 1,113 |  |  | $ | 414 | 
|                                           |  |                        |       |           |        |   |       |       |  |     |       |  |        |         |      



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|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk.

Foreign Currency Market Risks.




Interest Rate Market Risk.


56



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|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements


|                                                                                                                       |  |      |     | 
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                       |  | Page |    
|                                                                                                                       |  |      |    
|Report of Independent Registered Public
    Accounting Firm                                                            |  |      | 58  | 
|Consolidated Balance Sheets                                                                                            |  |      | 59  | 
|Consolidated Statements of Operations                                                                                  |  |      | 60  | 
|Consolidated Statements of Changes in
    Stockholders Equity (Deficit)                                               |  |      | 61  | 
|Consolidated Statements of Cash Flows                                                                                  |  |      | 63  | 
|Notes to Consolidated Financial
    Statements                                                                         |  |      | 64  | 
|                                                                                                                      
|Supplementary Data                                                                                                     |  |      |     | 
|                                                                                                                      
|Schedule II  Valuation and
    Qualifying Accounts for Each
    of the Three Years in the Period Ended March 31, 2006 |  |      | 106 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














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MICRUS ENDOVASCULAR CORPORATION





Consolidated Balance Sheets


|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        |  |       |         |         |  
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ----- | ------- | ------ |  | ----- | ------- | ------- | -
|                                                                                           |                                                                                                                      | March 31,                                                                                              |      
|                                                                                           |                                                                                                                      |                                                                                                        |      
|                                                                                           |                                                                                                                      | 2006                                                                                                   |       |         | 2005   | 
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|                                                                                           |                                                                                                                      | (In thousands, except                                                                                  |      
|                                                                                           |                                                                                                                      | share and per share amounts)                                                                           |      
|ASSETS                                                                                    
|Current Assets:                                                                            |                                                                                                                      |                                                                                                        |       |         |        |  |       |        
|                                                                                           | Cash and cash equivalents                                                                                            |                                                                                                        | $     | 36,104  |        |  | $     | 15,017  |        
|                                                                                           | Short-term investments                                                                                               |                                                                                                        |       | 984     |        |  |       | 1,977   |        
|                                                                                           | Accounts receivable, net of allowance for doubtful accounts of
    $317 at March 31, 2006 and $230 at March 31, 2005 |                                                                                                        |       | 8,267   |        |  |       | 4,486   |        
|                                                                                           | Inventories, net                                                                                                     |                                                                                                        |       | 4,479   |        |  |       | 3,930   |        
|                                                                                           | Prepaid expenses and other current assets                                                                            |                                                                                                        |       | 766     |        |  |       | 524     |        
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|                                                                                           |                                                                                                                      | Total current assets                                                                                   |       |         | 50,600 |  |       |         | 25,934  |  
|Long term investments                                                                      |                                                                                                                      |                                                                                                        |      |         |        |  | 977   |        
|Property and equipment, net                                                                |                                                                                                                      |                                                                                                        | 2,488 |         |        |  | 922   |        
|Goodwill                                                                                   |                                                                                                                      |                                                                                                        | 3,309 |         |        |  |      |        
|Intangible assets, net                                                                     |                                                                                                                      |                                                                                                        | 5,417 |         |        |  | 550   |        
|Other assets                                                                               |                                                                                                                      |                                                                                                        | 300   |         |        |  | 96    |        
|Deferred initial public offering costs                                                     |                                                                                                                      |                                                                                                        |      |         |        |  | 1,295 |        
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|                                                                                           |                                                                                                                      | Total assets                                                                                           |       | $       | 62,114 |  |       | $       | 29,774  |  
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|                                                                                          
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
    STOCK AND STOCKHOLDERS EQUITY (DEFICIT)
|Current Liabilities:                                                                       |                                                                                                                      |                                                                                                        |       |         |        |  |       |        
|                                                                                           | Accounts payable                                                                                                     |                                                                                                        | $     | 2,088   |        |  | $     | 2,641   |        
|                                                                                           | Accrued payroll and other related expenses                                                                           |                                                                                                        |       | 3,147   |        |  |       | 1,663   |        
|                                                                                           | Accrued liabilities                                                                                                  |                                                                                                        |       | 4,308   |        |  |       | 1,337   |        
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|                                                                                           |                                                                                                                      | Total current liabilities                                                                              |       |         | 9,543  |  |       |         | 5,641   |  
|                                                                                           | Warrant liability                                                                                                    |                                                                                                        |       |        |        |  |       | 3,201   |        
|                                                                                           | Other non-current liabilities                                                                                        |                                                                                                        |       | 1,255   |        |  |       | 51      |        
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|                                                                                           |                                                                                                                      | Total liabilities                                                                                      |       |         | 10,798 |  |       |         | 8,893   |  
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|Commitments and contingencies (Note 6)                                                     |                                                                                                                      |                                                                                                        |       |         |        |  |       |        
|Redeemable convertible preferred stock, $0.01 par value;                                   |                                                                                                                      |                                                                                                        |       |         |        |  |       |        
|                                                                                           | Authorized: 1,000,000 shares                                                                                         |                                                                                                        |       |         |        |  |       |         |        
|                                                                                           | Issued and outstanding: none at March 31, 2006 and
    7,680,943 shares at March 31, 2005                            |                                                                                                        |       |        |        |  |       | 58,442  |        
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|Stockholders equity (deficit):                                                            |                                                                                                                      |                                                                                                        |       |         |        |  |       |        
|                                                                                           | Common stock, $0.01 par value;                                                                                       |                                                                                                        |       |         |        |  |       |         |        
|                                                                                           |                                                                                                                      | Authorized: 50,000,000 shares                                                                          |       |         |        |  |       |         |         |  
|                                                                                           |                                                                                                                      | Issued and outstanding: 14,190,287 shares at March 31,
    2006 and 1,468,235 shares at March 31, 2005 |       |         | 142    |  |       |         | 15      |  
|                                                                                           | Additional paid-in capital                                                                                           |                                                                                                        |       | 101,430 |        |  |       | 4,397   |        
|                                                                                           | Deferred stock-based compensation                                                                                    |                                                                                                        |       | (397    | )      |  |       | (630    | )      
|                                                                                           | Accumulated other comprehensive loss                                                                                 |                                                                                                        |       | (240    | )      |  |       | (368    | )      
|                                                                                           | Accumulated deficit                                                                                                  |                                                                                                        |       | (49,619 | )      |  |       | (40,975 | )      
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|                                                                                           |                                                                                                                      | Total stockholders equity (deficit)                                                                   |       |         | 51,316 |  |       |         | (37,561 | )
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 
|                                                                                           |                                                                                                                      | Total liabilities, redeemable convertible preferred stock and
    stockholders equity (deficit)       |       | $       | 62,114 |  |       | $       | 29,774  |  
|                                                                                           |                                                                                                                      |                                                                                                        |       |         |        | 



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MICRUS ENDOVASCULAR CORPORATION





Consolidated Statements of Operations


|                                                                                                                    |                            |                          |        |        |        |   |        |        |        |   |        |       |        | 
|------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------ | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ----- | ------ | 
|                                                                                                                    |                            | Year Ended March 31,     |       
|                                                                                                                    |                            |                          |       
|                                                                                                                    |                            | 2006                     |        |        | 2005   |   |        | 2004   |       
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|                                                                                                                    |                            | (In thousands, except    |       
|                                                                                                                    |                            | per share amounts)       |       
|Revenues                                                                                                            |                            | $                        | 32,781 |        |        | $ | 24,012 |        |        | $ | 15,700 |      
|Cost of goods sold                                                                                                  |                            |                          | 9,710  |        |        |   | 8,003  |        |        |   | 5,725  |      
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|Gross profit                                                                                                        |                            |                          | 23,071 |        |        |   | 16,009 |        |        |   | 9,975  |      
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|Operating expenses:                                                                                                 |                            |                          |        |        |        |   |        |        |        |   |        |      
|                                                                                                                    | Research and development   |                          |        | 6,589  |        |   |        | 2,360  |        |   |        | 2,927 |       
|                                                                                                                    | Sales and marketing        |                          |        | 15,171 |        |   |        | 8,781  |        |   |        | 6,012 |       
|                                                                                                                    | General and administrative |                          |        | 10,307 |        |   |        | 11,884 |        |   |        | 3,511 |       
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|                                                                                                                    |                            | Total operating expenses |        |        | 32,067 |   |        |        | 23,025 |   |        |       | 12,450 | 
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|Loss from operations                                                                                                |                            |                          | (8,996 | )      |        |   | (7,016 | )      |        |   | (2,475 | )    
|Interest and investment income                                                                                      |                            |                          | 1,295  |        |        |   | 177    |        |        |   | 153    |      
|Interest expense                                                                                                    |                            |                          | (12    | )      |        |   | (29    | )      |        |   | (20    | )    
|Other income (expense), net                                                                                         |                            |                          | (632   | )      |        |   | 164    |        |        |   | 328    |      
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|Loss before benefit from income taxes                                                                               |                            |                          | (8,345 | )      |        |   | (6,704 | )      |        |   | (2,014 | )    
|Benefit from income taxes                                                                                           |                            |                          | (84    | )      |        |   |       |        |        |   |       |      
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|Net loss                                                                                                            |                            |                          | (8,261 | )      |        |   | (6,704 | )      |        |   | (2,014 | )    
|Accretion of redeemable convertible preferred stock to
    redemption value including beneficial conversion feature |                            |                          | (659   | )      |        |   | (588   | )      |        |   | (530   | )    
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|Net loss attributable to common stockholders                                                                        |                            | $                        | (8,920 | )      |        | $ | (7,292 | )      |        | $ | (2,544 | )    
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|Net loss per share attributable to common stockholders:                                                             |                            |                          |        |        |        |   |        |        |        |   |        |      
|                                                                                                                    | Basic and diluted          |                          | $      | (0.79  | )      |   | $      | (5.22  | )      |   | $      | (2.02 | )     
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       
|Weighted-average number of shares used in per share calculations:                                                   |                            |                          |        |        |        |   |        |        |        |   |        |      
|                                                                                                                    | Basic and diluted          |                          |        | 11,240 |        |   |        | 1,397  |        |   |        | 1,257 |       
|                                                                                                                    |                            |                          |        |        |        |   |        |        |       



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MICRUS ENDOVASCULAR CORPORATION





Consolidated Statements of Stockholders Equity
(Deficit)


|                                                                                  |                                          |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |   |   |         |        |   |   |         |        |  
|--------------------------------------------------------------------------------- | ---------------------------------------- | -------------- | ----- | - | ---------- | - | -- | ----------- |  | - | ------------- | - | ----- | ----------- | ------ | ------------- | ------- | - | ---- | --------- | - | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                  |                                          |                |       |   |            |   |    | Accumulated |  |   |               |   | Total |            
|                                                                                  |                                          | Common Stock   |       |   | Additional |   |    | Deferred    |  |   | Other         |   |       |             |        | Stockholders |        
|                                                                                  |                                          |                |       |   | Paid-in    |   |    | Stock-Based |  |   | Comprehensive |   |       | Accumulated |        |               | Equity  |  
|                                                                                  |                                          | Shares         |       |   | Amount     |   |    | Capital     |  |   | Compensation  |   |       | Loss        |        |               | Deficit |   |      | (Deficit) |  
|                                                                                  |                                          |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |  
|                                                                                  |                                          | (In thousands) |      
|Balance at March 31, 2003                                                         |                                          |                | 1,247 |   |            | $ | 13 |             |  | $ |              |   |       | $           |       |               |         | $ | (231 | )         |   | $ | (32,257 | )      |   | $ | (32,475 | )     
|Comprehensive loss:                                                               |                                          |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |   |   |         |        |   |   |         |       
|                                                                                  | Net loss                                 |                |       |  |            |   |    |            |  |   |               |  |       |             |        |              |         |   |      |          |   |   |         | (2,014 | ) |   |         | (2,014 | )
|                                                                                  | Translation adjustment                   |                |       |  |            |   |    |            |  |   |               |  |       |             |        |              |         |   |      | (58       | ) |   |         |       |   |   |         | (58    | )
|                                                                                  | Change in unrealized gain on investments |                |       |  |            |   |    |            |  |   |               |  |       |             |        |              |         |   |      | 21        |   |   |         |       |   |   |         | 21     |  
|                                                                                  |                                          |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |  
|                                                                                  | Total comprehensive loss                 |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |   |   |         |        |   |   |         | (2,051 | )
|Exercise of stock options                                                         |                                          |                | 14    |   |            |   |   |             |  |   | 11            |   |       |             |       |               |         |   |     |           |   |   |        |        |   |   | 11      |       
|Deferred stock based compensation                                                 |                                          |                |      |   |            |   |   |             |  |   | 1,119         |   |       |             | (1,119 | )             |         |   |     |           |   |   |        |        |   |   |        |       
|Amortization of deferred stock-based compensation                                 |                                          |                |      |   |            |   |   |             |  |   |              |   |       |             | 87     |               |         |   |     |           |   |   |        |        |   |   | 87      |       
|Fair value of warrants                                                            |                                          |                |      |   |            |   |   |             |  |   | 298           |   |       |             |       |               |         |   |     |           |   |   |        |        |   |   | 298     |       
|Non-employee stock-based compensation                                             |                                          |                |      |   |            |   |   |             |  |   | 467           |   |       |             |       |               |         |   |     |           |   |   |        |        |   |   | 467     |       
|Accretion of redemable convertible preferred stock to redemption
    value        |                                          |                |      |   |            |   |   |             |  |   | (530          | ) |       |             |       |               |         |   |     |           |   |   |        |        |   |   | (530    | )     
|                                                                                  |                                          |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |  
|Balance at March 31, 2004                                                         |                                          |                | 1,261 |   |            |   | 13 |             |  |   | 1,365         |   |       |             | (1,032 | )             |         |   | (268 | )         |   |   | (34,271 | )      |   |   | (34,193 | )     
|Comprehensive loss:                                                               |                                          |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |   |   |         |        |   |   |         |       
|                                                                                  | Net loss                                 |                |       |  |            |   |    |            |  |   |               |  |       |             |        |              |         |   |      |          |   |   |         | (6,704 | ) |   |         | (6,704 | )
|                                                                                  | Translation adjustment                   |                |       |  |            |   |    |            |  |   |               |  |       |             |        |              |         |   |      | (56       | ) |   |         |       |   |   |         | (56    | )
|                                                                                  | Change in unrealized loss on investments |                |       |  |            |   |    |            |  |   |               |  |       |             |        |              |         |   |      | (44       | ) |   |         |       |   |   |         | (44    | )
|                                                                                  |                                          |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |  
|                                                                                  | Total comprehensive loss                 |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |   |   |         |        |   |   |         | (6,804 | )
|Issuance of common stock in exchange for in-process technology                    |                                          |                | 4     |   |            |   |   |             |  |   | 25            |   |       |             |       |               |         |   |     |           |   |   |        |        |   |   | 25      |       
|Exercise of stock options                                                         |                                          |                | 203   |   |            |   | 2  |             |  |   | 175           |   |       |             |       |               |         |   |     |           |   |   |        |        |   |   | 177     |       
|Deferred stock-based compensation associated with stock options
    forfeited     |                                          |                |      |   |            |   |   |             |  |   | (137          | ) |       |             | 137    |               |         |   |     |           |   |   |        |        |   |   |        |       
|Beneficial conversion feature related to issuance of
    Series E preferred stock |                                          |                |      |   |            |   |   |             |  |   | 383           |   |       |             |       |               |         |   |     |           |   |   |        |        |   |   | 383     |       
|Amortization of deferred stock-based compensation                                 |                                          |                |      |   |            |   |   |             |  |   |              |   |       |             | 265    |               |         |   |     |           |   |   |        |        |   |   | 265     |       
|Stock-based compensation related to option modification                           |                                          |                |      |   |            |   |   |             |  |   | 2,985         |   |       |             |       |               |         |   |     |           |   |   |        |        |   |   | 2,985   |       
|Non-employee stock-based compensation                                             |                                          |                |      |   |            |   |   |             |  |   | 189           |   |       |             |       |               |         |   |     |           |   |   |        |        |   |   | 189     |       
|Accretion of redeemable convertible preferred stock to
    redemption value       |                                          |                |      |   |            |   |   |             |  |   | (588          | ) |       |             |       |               |         |   |     |           |   |   |        |        |   |   | (588    | )     
|                                                                                  |                                          |                |       |   |            |   |    |             |  |   |               |   |       |             |        |               |         |   |      |           |  
|Balance at March 31, 2005                                                         |                                          |                | 1,468 |   |            |   | 15 |             |  |   | 4,397         |   |       |             | (630   | )             |         |   | (368 | )         |   |   | (40,975 | )      |   |   | (37,561 | )     

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MICRUS ENDOVASCULAR CORPORATION


Consolidated Statements of Stockholders Equity
(Deficit)  (Continued)


|                                                                                                           |                                          |                |        |   |            |   |     |             |  |   |               |   |       |             |      |               |         |   |      |           |  |   |         |        |   |   |        |        |  
|---------------------------------------------------------------------------------------------------------- | ---------------------------------------- | -------------- | ------ | - | ---------- | - | --- | ----------- |  | - | ------------- | - | ----- | ----------- | ---- | ------------- | ------- | - | ---- | --------- |  | - | ------- | ------ | - | - | ------ | ------ | -
|                                                                                                           |                                          |                |        |   |            |   |     | Accumulated |  |   |               |   | Total |            
|                                                                                                           |                                          | Common Stock   |        |   | Additional |   |     | Deferred    |  |   | Other         |   |       |             |      | Stockholders |        
|                                                                                                           |                                          |                |        |   | Paid-in    |   |     | Stock-Based |  |   | Comprehensive |   |       | Accumulated |      |               | Equity  |  
|                                                                                                           |                                          | Shares         |        |   | Amount     |   |     | Capital     |  |   | Compensation  |   |       | Loss        |      |               | Deficit |   |      | (Deficit) | 
|                                                                                                           |                                          |                |        |   |            |   |     |             |  |   |               |   |       |             |      |               |         |   |      |           | 
|                                                                                                           |                                          | (In thousands) |       
|Comprehensive loss:                                                                                        |                                          |                |        |   |            |   |     |             |  |   |               |   |       |             |      |               |         |   |      |           |  |   |         |        |   |   |        |       
|                                                                                                           | Net loss                                 |                |        |  |            |   |     |            |  |   |               |  |       |             |      |              |         |   |      |          |  |   |         | (8,261 | ) |   |        | (8,261 | )
|                                                                                                           | Translation adjustment                   |                |        |  |            |   |     |            |  |   |               |  |       |             |      |              |         |   |      | 92        |  |   |         |       |   |   |        | 92     |  
|                                                                                                           | Change in unrealized loss on investments |                |        |  |            |   |     |            |  |   |               |  |       |             |      |              |         |   |      | 36        |  |   |         |       |   |   |        | 36     |  
|                                                                                                           |                                          |                |        |   |            |   |     |             |  |   |               |   |       |             |      |               |         |   |      |           | 
|Total comprehensive loss                                                                                   |                                          |                |        |   |            |   |     |             |  |   |               |   |       |             |      |               |         |   |      |           |  |   |         |        |   |   | (8,133 | )     
|Issuance of common stock in connection with the initial public
    offering (IPO), net of issuance costs |                                          |                | 3,250  |   |            |   | 33  |             |  |   | 30,439        |   |       |             |     |               |         |   |     |           |  |   |        |        |   |   | 30,472 |       
|Conversion of preferred stock to common stock in connection with
    the IPO                               |                                          |                | 7,920  |   |            |   | 79  |             |  |   | 59,148        |   |       |             |     |               |         |   |     |           |  |   |        |        |   |   | 59,227 |       
|Exercise of over-allotment by underwriters                                                                 |                                          |                | 250    |   |            |   | 3   |             |  |   | 2,555         |   |       |             |     |               |         |   |     |           |  |   |        |        |   |   | 2,558  |       
|Reclassification of liability for Series E preferred stock
    warrants upon IPO                           |                                          |                |       |   |            |   |    |             |  |   | 3,358         |   |       |             |     |               |         |   |     |           |  |   |        |        |   |   | 3,358  |       
|Beneficial conversion feature related to issuance of
    Series E prefereed stock                          |                                          |                |       |   |            |   |    |             |  |   |              |   |       |             |     |               |         |   |     |           |  |   | (383    | )      |   |   | (383   | )     
|Accretion of preferred stock                                                                               |                                          |                |       |   |            |   |    |             |  |   | (276          | ) |       |             |     |               |         |   |     |           |  |   |        |        |   |   | (276   | )     
|Exercise of common stock warrants                                                                          |                                          |                | 699    |   |            |   | 6   |             |  |   | 863           |   |       |             |     |               |         |   |     |           |  |   |        |        |   |   | 869    |       
|Exercise of stock options                                                                                  |                                          |                | 563    |   |            |   | 6   |             |  |   | 459           |   |       |             |     |               |         |   |     |           |  |   |        |        |   |   | 465    |       
|Issuance of shares under employee stock purchase plan                                                      |                                          |                | 40     |   |            |   |    |             |  |   | 333           |   |       |             |     |               |         |   |     |           |  |   |        |        |   |   | 333    |       
|Amortization of deferred stock-based compensation                                                          |                                          |                |       |   |            |   |    |             |  |   |              |   |       |             | 229  |               |         |   |     |           |  |   |        |        |   |   | 229    |       
|Deferred stock-based compensation associated with stock options
    forfeited                              |                                          |                |       |   |            |   |    |             |  |   | (4            | ) |       |             | 4    |               |         |   |     |           |  |   |        |        |   |   |       |       
|Non-employee stock-based compensation                                                                      |                                          |                |       |   |            |   |    |             |  |   | 160           |   |       |             |     |               |         |   |     |           |  |   |        |        |   |   | 160    |       
|Payment for fractional shares on stock split                                                               |                                          |                |       |   |            |   |    |             |  |   | (2            | ) |       |             |     |               |         |   |     |           |  |   |        |        |   |   | (2     | )     
|                                                                                                           |                                          |                |        |   |            |   |     |             |  |   |               |   |       |             |      |               |         |   |      |           | 
|Balance at March 31, 2006                                                                                  |                                          |                | 14,190 |   |            | $ | 142 |             |  | $ | 101,430       |   |       | $           | (397 | )             |         | $ | (240 | )         |  | $ | (49,619 | )      |   | $ | 51,316 |       
|                                                                                                           |                                          |                |        |   |            |   |     |             |  |   |               |   |       |             |      |               |         |   |      |           | 



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MICRUS ENDOVASCULAR CORPORATION





Consolidated Statement of Cash Flows


|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |       |        |        |        |     |      |        |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------ | --------------------------------------------------- | ---- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | --- | ---- | ------ | -
|                                                                            |                                                                                                                     | Year Ended March 31,                                 |                                           
|                                                                            |                                                                                                                     |                                                      |                                           
|                                                                            |                                                                                                                     | 2006                                                 |                                            |                                                     | 2005 |        |        | 2004   |      
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|                                                                            |                                                                                                                     | (In thousands)                                       |                                           
|Cash flows from operating activities:                                       |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |       |        |        |       
|                                                                            | Net loss                                                                                                            |                                                      | $                                          | (8,261                                              | )    |        | $      | (6,704 | )     |        | $      | (2,014 | )  
|                                                                            | Adjustments to reconcile net loss to net cash used in operating
    activities:                                     |                                                      |                                            |                                                     |      |        |        |        |       |        |        |        |    
|                                                                            |                                                                                                                     | Depreciation and amortization                        |                                            |                                                     | 989  |        |        |        | 505   |        |        |        | 424 |     
|                                                                            |                                                                                                                     | Provision for doubtful accounts                      |                                            |                                                     | 102  |        |        |        | 11    |        |        |        | 176 |     
|                                                                            |                                                                                                                     | Loss on disposal of equipment                        |                                            |                                                     | 1    |        |        |        | 2     |        |        |        | 2   |     
|                                                                            |                                                                                                                     | Provision for impairment of inventory                |                                            |                                                     | 264  |        |        |        | 734   |        |        |        | 739 |     
|                                                                            |                                                                                                                     | Increase in fair value of 2005 common stock warrants |                                            |                                                     | 158  |        |        |        |      |        |        |        |    |     
|                                                                            |                                                                                                                     | Realized loss on investments                         |                                            |                                                     | 5    |        |        |        | 16    |        |        |        | 20  |     
|                                                                            |                                                                                                                     | Stock-based compensation expense                     |                                            |                                                     | 389  |        |        |        | 3,439 |        |        |        | 554 |     
|                                                                            |                                                                                                                     | Changes in operating assets and liabilities:         |                                            |                                                     |      |        |        |        |       |        |        |        |     |     
|                                                                            |                                                                                                                     |                                                      | Accounts receivable                        |                                                     |      | (4,005 | )      |        |       | (1,385 | )      |        |     | (621 | )     
|                                                                            |                                                                                                                     |                                                      | Inventories                                |                                                     |      | (239   | )      |        |       | (2,470 | )      |        |     | (540 | )     
|                                                                            |                                                                                                                     |                                                      | Prepaid expenses and other current assets  |                                                     |      | (134   | )      |        |       | (159   | )      |        |     | 12   |       
|                                                                            |                                                                                                                     |                                                      | Other assets                               |                                                     |      | (208   | )      |        |       | (28    | )      |        |     | (1   | )     
|                                                                            |                                                                                                                     |                                                      | Accounts payable                           |                                                     |      | (938   | )      |        |       | 1,522  |        |        |     | (116 | )     
|                                                                            |                                                                                                                     |                                                      | Accrued payroll and other related expenses |                                                     |      | 1,507  |        |        |       | 583    |        |        |     | 306  |       
|                                                                            |                                                                                                                     |                                                      | Accrued liabilities                        |                                                     |      | 826    |        |        |       | 549    |        |        |     | 335  |       
|                                                                            |                                                                                                                     |                                                      | Other non-current liabilities              |                                                     |      | 489    |        |        |       | (17    | )      |        |     | 8    |       
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|                                                                            |                                                                                                                     |                                                      |                                            | Net cash used in operating activities               |      |        | (9,055 | )      |       |        | (3,402 | )      |     |      | (716   | )
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|Cash flows from investing activities:                                       |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |       |        |        |       
|                                                                            | Purchase of Neurologic UK Ltd., net of cash acquired                                                                |                                                      |                                            | (5,139                                              | )    |        |        |       |       |        |        |       |    
|                                                                            | Acquisition of property and equipment                                                                               |                                                      |                                            | (2,070                                              | )    |        |        | (612   | )     |        |        | (330   | )  
|                                                                            | Payment to Biotronik AG for developed technology                                                                    |                                                      |                                            | (731                                                | )    |        |        |       |       |        |        |       |    
|                                                                            | Purchases of available-for-sale securities                                                                          |                                                      |                                            |                                                    |      |        |        |       |       |        |        | (7,156 | )  
|                                                                            | Proceeds from sales of available-for-sale securities                                                                |                                                      |                                            | 2,000                                               |      |        |        | 3,074  |       |        |        | 2,521  |    
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|                                                                            |                                                                                                                     |                                                      |                                            | Net cash (used in) provided by investing activities |      |        | (5,940 | )      |       |        | 2,462  |        |     |      | (4,965 | )
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|Cash flows from financing activities:                                       |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |       |        |        |       
|                                                                            | Proceeds from issuance of common stock, net of issuance costs                                                       |                                                      |                                            | 33,872                                              |      |        |        | (844   | )     |        |        |       |    
|                                                                            | Proceeds from exercise of preferred and common stock warrants                                                       |                                                      |                                            | 1,007                                               |      |        |        | 61     |       |        |        |       |    
|                                                                            | Proceeds from exercise of stock options                                                                             |                                                      |                                            | 465                                                 |      |        |        | 177    |       |        |        | 11     |    
|                                                                            | Proceeds from employee stock purchase plan                                                                          |                                                      |                                            | 333                                                 |      |        |        |       |       |        |        |       |    
|                                                                            | Proceeds from (costs of) issuance of convertible preferred stock
    and warrants                                   |                                                      |                                            | (11                                                 | )    |        |        | 11,861 |       |        |        | 9,942  |    
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|                                                                            |                                                                                                                     |                                                      |                                            | Net cash provided by financing activities           |      |        | 35,665 |        |       |        | 11,255 |        |     |      | 9,953  |  
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|Effect of exchange rate changes on cash                                     |                                                                                                                     |                                                      | 416                                        |                                                     |      |        | (225   | )      |       |        | (192   | )     
|Net increase in cash and cash equivalents                                   |                                                                                                                     |                                                      | 20,670                                     |                                                     |      |        | 10,315 |        |       |        | 4,272  |       
|Cash and cash equivalents at beginning of period                            |                                                                                                                     |                                                      | 15,017                                     |                                                     |      |        | 4,927  |        |       |        | 847    |       
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|Cash and cash equivalents at end of period                                  |                                                                                                                     | $                                                    | 36,104                                     |                                                     |      | $      | 15,017 |        |       | $      | 4,927  |       
|                                                                            |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |      
|Supplemental disclosure of cash flow information:                           |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |       |        |        |       
|Interest paid                                                               |                                                                                                                     | $                                                    | 12                                         |                                                     |      | $      | 29     |        |       | $      | 20     |       
|Income taxes paid  liability assumed in Neurologic UK
    Ltd. acquisition |                                                                                                                     | $                                                    | 192                                        |                                                     |      | $      |       |        |       | $      |       |       
|Supplemental schedule of noncash investing and financing
    activities:    |                                                                                                                     |                                                      |                                            |                                                     |      |        |        |        |       |        |        |       
|                                                                            | Conversion of preferred stock to common stock                                                                       |                                                      | $                                          | 59,227                                              |      |        | $      |       |       |        | $      |       |    
|                                                                            | Accretion to redemption value of redeemable convertible
    preferred stock including beneficial conversion feature |                                                      | $                                          | 659                                                 |      |        | $      | 588    |       |        | $      | 530    |    
|                                                                            | Reclassification of 2005 common stock warrants to equity                                                            |                                                      | $                                          | 3,358                                               |      |        | $      |       |       |        | $      |       |    
|                                                                            | Accrued first year earn-out payment associated with the purchase
    of Neurologic UK Ltd.                          |                                                      | $                                          | 1,403                                               |      |        | $      |       |       |        | $      |       |    
|                                                                            | Accrued milestone payment associated with the Biotronik AG
    transaction                                          |                                                      | $                                          | 732                                                 |      |        | $      |       |       |        | $      |       |    
|                                                                            | Accrued offering cost for issuance of common stock                                                                  |                                                      | $                                          |                                                    |      |        | $      | 450    |       |        | $      |       |    



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MICRUS ENDOVASCULAR CORPORATION





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1  Formation and Business of the
Company






| |            
| | -----------
| | Stock split





| |                        
| | -----------------------
| | Initial public offering



Note 2  Summary of Significant Accounting
Policies




| |                            
| | ---------------------------
| | Principles of consolidation







| |                 
| | ----------------
| | Use of estimates





| |                                         
| | ----------------------------------------
| | Revenue recognition and product warranty



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






















| |                                
| | -------------------------------
| | Allowance for doubtful accounts



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                            
| | -------------------------------------------
| | Certain significant risks and uncertainties









| |                                                         
| | --------------------------------------------------------
| | Cash and cash equivalents and short-term
    investments





| |                              
| | -----------------------------
| | Available-for-sale securities





| |                                    
| | -----------------------------------
| | Fair value of financial instruments





| |                             
| | ----------------------------
| | Concentration of credit risk





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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                    
| | -------------------
| | Inventory Valuation

work-in first-in,






| |                       
| | ----------------------
| | Property and equipment





| |                                
| | -------------------------------
| | Impairment of long-lived assets





| |                               
| | ------------------------------
| | Goodwill and Intangible assets



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                       
| | --------------------------------------
| | Redeemable convertible preferred stock





| |                   
| | ------------------
| | Comprehensive loss





| |             
| | ------------
| | Income taxes





| |                         
| | ------------------------
| | Research and development





| |                  
| | -----------------
| | Advertising costs





| |                              
| | -----------------------------
| | Foreign currency transactions





| |                  
| | -----------------
| | Reclassifications



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                          
| | -------------------------
| | Net loss per common share



|                                                                                                                |                                                                             |                      |        |        |      |  |       |        |   |  |       |        |  
|--------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------- | ------ | ------ | ---- |  | ----- | ------ | - |  | ----- | ------ | -
|                                                                                                                |                                                                             | Year Ended March 31, |       
|                                                                                                                |                                                                             |                      |       
|                                                                                                                |                                                                             | 2006                 |        |        | 2005 |  |       | 2004   |  
|                                                                                                                |                                                                             |                      |        |        |      |  |       |        |  
|Numerator:                                                                                                      |                                                                             |                      |        |        |      |  |       |        |   |  |       |       
|                                                                                                                | Net loss                                                                    |                      | $      | (8,261 | )    |  | $     | (6,704 | ) |  | $     | (2,014 | )
|                                                                                                                | Beneficial conversion feature of preferred stock                            |                      |        | (383   | )    |  |       |       |   |  |       |       |  
|                                                                                                                | Accretion of redeemable convertible preferred stock to
    redemption value |                      |        | (276   | )    |  |       | (588   | ) |  |       | (530   | )
|                                                                                                                |                                                                             |                      |        |        |      |  |       |        |  
|                                                                                                                | Net loss attributable to common stockholders                                |                      | $      | (8,920 | )    |  | $     | (7,292 | ) |  | $     | (2,544 | )
|                                                                                                                |                                                                             |                      |        |        |      |  |       |        |  
|Weighted-average number of common shares outstanding used in
    computing basic and diluted net loss per share |                                                                             |                      | 11,240 |        |      |  | 1,397 |        |   |  | 1,257 |       
|                                                                                                                |                                                                             |                      |        |        |      |  |       |        |  



| |                         
| | ------------------------
| | Anti-dilutive securities



|                                                                                  |  |                      |       |  |      |  |        |      |  |  |       | 
|--------------------------------------------------------------------------------- |  | -------------------- | ----- |  | ---- |  | ------ | ---- |  |  | ----- | 
|                                                                                  |  | Year Ended March 31, |      
|                                                                                  |  |                      |      
|                                                                                  |  | 2006                 |       |  | 2005 |  |        | 2004 | 
|                                                                                  |  |                      |       |  |      |  |        |      | 
|Redeemable convertible preferred stock (as if converted)                          |  |                      |      |  |      |  | 7,901  |      |  |  | 6,545 | 
|Options to purchase common stock                                                  |  |                      | 2,804 |  |      |  | 2,447  |      |  |  | 1,620 | 
|Warrants to purchase common stock                                                 |  |                      |      |  |      |  | 834    |      |  |  | 834   | 
|Warrants to purchase redeemable convertible preferred stock (as
    if converted) |  |                      |      |  |      |  | 405    |      |  |  | 424   | 
|                                                                                  |  |                      |       |  |      |  |        |      | 
|                                                                                  |  |                      | 2,804 |  |      |  | 11,587 |      |  |  | 9,423 | 
|                                                                                  |  |                      |       |  |      |  |        |      | 



| |                         
| | ------------------------
| | Stock-based compensation





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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                              |                                                                                                                      |                      |        |       |      |   |        |        |   |   |        |       |  
|--------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | -------------------- | ------ | ----- | ---- | - | ------ | ------ | - | - | ------ | ----- | -
|                                              |                                                                                                                      | Year Ended March 31, |       
|                                              |                                                                                                                      |                      |       
|                                              |                                                                                                                      | 2006                 |        |       | 2005 |   |        | 2004   |  
|                                              |                                                                                                                      |                      |        |       |      |   |        |        |  
|Net loss attributable to common stockholders  |                                                                                                                      | $                    | (8,920 | )     |      | $ | (7,292 | )      |   | $ | (2,544 | )    
|                                              | Add: Stock-based employee compensation expenses included in
    reported net loss                                    |                      |        | 229   |      |   |        | 3,250  |   |   |        | 87    |  
|                                              | Deduct: Total stock-based employee compensation expenses
    determined under fair value based method for all awards |                      |        | (829  | )    |   |        | (4,300 | ) |   |        | (164  | )
|                                              |                                                                                                                      |                      |        |       |      |   |        |        |  
|Adjusted net loss                             |                                                                                                                      | $                    | (9,520 | )     |      | $ | (8,342 | )      |   | $ | (2,621 | )    
|                                              |                                                                                                                      |                      |        |       |      |   |        |        |  
|Net loss per common share, basic and diluted: |                                                                                                                      |                      |        |       |      |   |        |        |   |   |        |      
|                                              | As reported                                                                                                          |                      | $      | (0.79 | )    |   | $      | (5.22  | ) |   | $      | (2.02 | )
|                                              |                                                                                                                      |                      |        |       |      |   |        |        |  
|                                              | Adjusted                                                                                                             |                      | $      | (0.85 | )    |   | $      | (5.97  | ) |   | $      | (2.09 | )
|                                              |                                                                                                                      |                      |        |       |      |   |        |        |  



|                         |  |                      |         |  |      |  |         |      |  |  |         | 
|------------------------ |  | -------------------- | ------- |  | ---- |  | ------- | ---- |  |  | ------- | 
|                         |  | Year Ended March 31, |        
|                         |  |                      |        
|                         |  | 2006                 |         |  | 2005 |  |         | 2004 | 
|                         |  |                      |         |  |      |  |         |      | 
|Risk-free interest rates |  |                      | 4.3%    |  |      |  | 3.5%    |      |  |  | 2.1%    | 
|Expected lives           |  |                      | 4 years |  |      |  | 4 years |      |  |  | 4 years | 
|Dividend yield           |  |                      | 0.0%    |  |      |  | 0.0%    |      |  |  | 0.0%    | 
|Volatility factor        |  |                      | 44.0%   |  |      |  | 0.0%    |      |  |  | 0.0%    | 



S-1




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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |           |           | 
|----------------------- |  | --------- | --------- | 
|                        |  | Year      |          
|                        |  | Ended     |          
|                        |  | March 31, |          
|                        |  |           |          
|                        |  | 2006      |          
|                        |  |           |          
|Risk-free interest rate |  |           | 4.19%     | 
|Expected lives          |  |           | 0.4 years | 
|Expected dividend yield |  |           | 0.0%      | 
|Volatility factor       |  |           | 44.0%     | 





| |                                 
| | --------------------------------
| | Recent accounting pronouncements





Note 3  Business Combination






71



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




















|                                                            |  |   |       | 
|----------------------------------------------------------- |  | - | ----- | 
|Total cash payments and accrued first year earn-out payment |  | $ | 6,232 | 
|Forgiven intercompany payables                              |  |   | 611   | 
|Direct acquisition related costs                            |  |   | 316   | 
|                                                            |  |   |      
|Total consideration                                         |  | $ | 7,159 | 
|                                                            |  |   |      

72



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |                         |   |       |       | 
|-------------------------------------- | ----------------------- | - | ----- | ----- | 
|Acquired net assets                    |                         | $ | 664   |      
|Deferred tax liability                 |                         |   | (714  | )    
|Goodwill                               |                         |   | 3,309 |      
|Other intangible assets consisting of: |                         |   |       |      
|                                       | Customer relationships  |   |       | 900   | 
|                                       | Distribution agreements |   |       | 2,300 | 
|                                       | Non-compete agreements  |   |       | 700   | 
|                                       |                         |   |      
|                                       | Total purchase price    |   | $     | 7,159 | 
|                                       |                         |   |      







|                                          |                                   |   |      |       |  
|----------------------------------------- | --------------------------------- | - | ---- | ----- | -
|Cash                                      |                                   | $ | 6    |      
|Accounts receivable                       |                                   |   | 760  |      
|Inventories                               |                                   |   | 690  |      
|Prepaid expenses and other current assets |                                   |   | 143  |      
|                                          |                                   |   |     
|                                          | Total current assets acquired     |   |      | 1,599 |  
|Accounts payable                          |                                   |   | (612 | )    
|Accrued and other liabilities             |                                   |   | (323 | )    
|                                          |                                   |   |     
|                                          | Total current liabilities assumed |   |      | (935  | )
|                                          |                                   |   |     
|                                          | Net assets acquired               |   | $    | 664   |  
|                                          |                                   |   |     



|                                       |  |                      |        |   |      |   |        |  
|-------------------------------------- |  | -------------------- | ------ | - | ---- | - | ------ | -
|                                       |  | Year Ended March 31, |       
|                                       |  |                      |       
|                                       |  | 2006                 |        |   | 2005 |  
|                                       |  |                      |        |   |      |  
|Total revenues                         |  | $                    | 33,560 |   |      | $ | 25,356 |  
|Net loss                               |  | $                    | (9,220 | ) |      | $ | (7,706 | )
|Net loss per share  basic and diluted |  | $                    | (0.82  | ) |      | $ | (5.52  | )

73



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |                |       |  |              |   |     |              |  |   |       | 
|----------------------- |  | -------------- | ----- |  | ------------ | - | --- | ------------ |  | - | ----- | 
|                        |  | Gross Carrying |       |  | Accumulated  |   |     | Net Carrying | 
|                        |  | Amount         |       |  | Amortization |   |     | Amount       | 
|                        |  |                |       |  |              |   |     |              | 
|Customer relationships  |  | $              | 900   |  |              | $ | 92  |              |  | $ | 808   | 
|Distribution agreements |  |                | 2,300 |  |              |   | 234 |              |  |   | 2,066 | 
|Non-compete agreements  |  |                | 700   |  |              |   | 59  |              |  |   | 641   | 
|                        |  |                |       |  |              |   |     |              | 
|                        |  | $              | 3,900 |  |              | $ | 385 |              |  | $ | 3,515 | 
|                        |  |                |       |  |              |   |     |              | 





|                          |  |              |       | 
|------------------------- |  | ------------ | ----- | 
|                          |  | Amortization |      
|                          |  |              |      
|For Years Ended March 31, |  |              |       | 
|2007                      |  | $            | 757   | 
|2008                      |  |              | 757   | 
|2009                      |  |              | 757   | 
|2010                      |  |              | 757   | 
|2011                      |  |              | 431   | 
|2012                      |  |              | 56    | 
|                          |  |              |      
|Total                     |  | $            | 3,515 | 
|                          |  |              |      








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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Note 4  Balance Sheet Components




| |                              
| | -----------------------------
| | Available-for-sale securities



|                       |  |           |     |   |      |   |       |  
|---------------------- |  | --------- | --- | - | ---- | - | ----- | -
|                       |  | March 31, |    
|                       |  |           |    
|                       |  | 2006      |     |   | 2005 |  
|                       |  |           |     |   |      |  
|Government Securities: |  |           |     |   |      |   |       |  
|Fair market value      |  | $         | 984 |   |      | $ | 2,954 |  
|Amortized cost basis   |  |           | 995 |   |      |   | 3,001 |  
|                       |  |           |     |   |      |  
|Unrealized gain (loss) |  | $         | (11 | ) |      | $ | (47   | )
|                       |  |           |     |   |      |  





| |            
| | -----------
| | Inventories



|                                              |  |           |       |   |      |   |       |  
|--------------------------------------------- |  | --------- | ----- | - | ---- | - | ----- | -
|                                              |  | March 31, |      
|                                              |  |           |      
|                                              |  | 2006      |       |   | 2005 |  
|                                              |  |           |       |   |      |  
|Raw materials                                 |  | $         | 507   |   |      | $ | 664   |  
|Work-in-progress                              |  |           | 504   |   |      |   | 722   |  
|Finished goods                                |  |           | 1,294 |   |      |   | 1,340 |  
|Consigned inventory                           |  |           | 2,874 |   |      |   | 1,794 |  
|Inventory held by Latin American distributors |  |           | 230   |   |      |   | 361   |  
|                                              |  |           |       |   |      |  
|Gross inventory                               |  |           | 5,409 |   |      |   | 4,881 |  
|Less inventory allowances                     |  |           | (930  | ) |      |   | (951  | )
|                                              |  |           |       |   |      |  
|                                              |  | $         | 4,479 |   |      | $ | 3,930 |  
|                                              |  |           |       |   |      |  



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                       
| | ----------------------
| | Property and equipment



|                                               |  |           |        |   |      |   |        |  
|---------------------------------------------- |  | --------- | ------ | - | ---- | - | ------ | -
|                                               |  | March 31, |       
|                                               |  |           |       
|                                               |  | 2006      |        |   | 2005 |  
|                                               |  |           |        |   |      |  
|Computer equipment and software                |  | $         | 1,093  |   |      | $ | 925    |  
|Furniture, fixtures and equipment              |  |           | 2,419  |   |      |   | 1,438  |  
|Leasehold improvements                         |  |           | 1,040  |   |      |   | 192    |  
|                                               |  |           |        |   |      |  
|Total cost                                     |  |           | 4,552  |   |      |   | 2,555  |  
|Less accumulated depreciation and amortization |  |           | (2,064 | ) |      |   | (1,633 | )
|                                               |  |           |        |   |      |  
|                                               |  | $         | 2,488  |   |      | $ | 922    |  
|                                               |  |           |        |   |      |  





| |                  
| | -----------------
| | Intangible assets



|                                                      |  |          |        |   |      |   |       |  
|----------------------------------------------------- |  | -------- | ------ | - | ---- | - | ----- | -
|                                                      |  | March 31 |       
|                                                      |  |          |       
|                                                      |  | 2006     |        |   | 2005 |  
|                                                      |  |          |        |   |      |  
|Identifiable intangible assets-Neurologic acquisition |  | $        | 3,900  |   |      | $ |      |  
|Licensed technology-Biotronik                         |  |          | 1,462  |   |      |   |      |  
|Patents                                               |  |          | 1,100  |   |      |   | 1,100 |  
|                                                      |  |          |        |   |      |  
|                                                      |  |          | 6,462  |   |      |   | 1,100 |  
|Less accumulated amortization                         |  |          | (1,045 | ) |      |   | (550  | )
|                                                      |  |          |        |   |      |  
|                                                      |  | $        | 5,417  |   |      | $ | 550   |  
|                                                      |  |          |        |   |      |  







76



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |         
| | --------
| | Accruals



|                      |  |           |       |  |      |   |       | 
|--------------------- |  | --------- | ----- |  | ---- | - | ----- | 
|                      |  | March 31, |      
|                      |  |           |      
|                      |  | 2006      |       |  | 2005 |  
|                      |  |           |       |  |      |  
|Accrued bonuses       |  | $         | 1,157 |  |      | $ | 579   | 
|Accrued salaries      |  |           | 478   |  |      |   | 304   | 
|Accrued vacation      |  |           | 804   |  |      |   | 504   | 
|Accrued commissions   |  |           | 392   |  |      |   | 113   | 
|Accrued payroll taxes |  |           | 316   |  |      |   | 163   | 
|                      |  |           |       |  |      |  
|                      |  | $         | 3,147 |  |      | $ | 1,663 | 
|                      |  |           |       |  |      |  



|                                                           |  |           |       |  |      |   |       | 
|---------------------------------------------------------- |  | --------- | ----- |  | ---- | - | ----- | 
|                                                           |  | March 31, |      
|                                                           |  |           |      
|                                                           |  | 2006      |       |  | 2005 |  
|                                                           |  |           |       |  |      |  
|Earn-out payment in connection with Neurologic acquisition |  | $         | 1,403 |  |      | $ |      | 
|Biotronik milestone payment                                |  |           | 732   |  |      |   |      | 
|Accrued professional fees                                  |  |           | 709   |  |      |   | 825   | 
|Import handling fee  Japan product shipments              |  |           | 282   |  |      |   |      | 
|Deferred revenue from Japan distribution agreement         |  |           | 150   |  |      |   |      | 
|Marketing related programs                                 |  |           | 144   |  |      |   |      | 
|Other                                                      |  |           | 888   |  |      |   | 512   | 
|                                                           |  |           |       |  |      |  
|                                                           |  | $         | 4,308 |  |      | $ | 1,337 | 
|                                                           |  |           |       |  |      |  



| |                              
| | -----------------------------
| | Other non-current liabilities



|                                                   |  |           |       |  |      |   |    | 
|-------------------------------------------------- |  | --------- | ----- |  | ---- | - | -- | 
|                                                   |  | March 31, |      
|                                                   |  |           |      
|                                                   |  | 2006      |       |  | 2005 |  
|                                                   |  |           |       |  |      |  
|Deferred tax liability                             |  | $         | 641   |  |      | $ |   | 
|Deferred revenue from Japan distribution agreement |  |           | 525   |  |      |   |   | 
|Other non-current liabilities                      |  |           | 89    |  |      |   | 51 | 
|                                                   |  |           |       |  |      |  
|                                                   |  | $         | 1,255 |  |      | $ | 51 | 
|                                                   |  |           |       |  |      |  



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 5  Income Taxes












|                                  |         |                      |     |     |      |   |      |   |  |   |   |   | 
|--------------------------------- | ------- | -------------------- | --- | --- | ---- | - | ---- | - |  | - | - | - | 
|                                  |         | Year Ended March 31,
|                                  |         |                     
|                                  |         | 2006                 |     |     | 2005 |   | 2004
|                                  |         |                      |     |     |      |   |     
|Current                           |         |                      |     |     |      |   |      |   |  |   |   |  
|                                  | Federal |                      | $   |    |      |   | $    |  |  |   | $ |  | 
|                                  | State   |                      |     |    |      |   |      |  |  |   |   |  | 
|                                  | Foreign |                      |     | (11 | )    |   |      |  |  |   |   |  | 
|                                  |         |                      |     |     |      |   |      |   | 
|Total current income tax benefit  |         |                      | (11 | )   |      |   |     |   |  |   |  |  
|                                  |         |                      |     |     |      |   |      |   | 
|Deferred                          |         |                      |     |     |      |   |      |   |  |   |   |  
|                                  | Federal |                      |     |    |      |   |      |  |  |   |   |  | 
|                                  | State   |                      |     |    |      |   |      |  |  |   |   |  | 
|                                  | Foreign |                      |     | (73 | )    |   |      |  |  |   |   |  | 
|                                  |         |                      |     |     |      |   |      |   | 
|Total deferred income tax benefit |         |                      | (73 | )   |      |   |     |   |  |   |  |  
|                                  |         |                      |     |     |      |   |      |   | 
|Total income tax benefit          |         | $                    | (84 | )   |      | $ |     |   |  | $ |  |  
|                                  |         |                      |     |     |      |   |      |   | 



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |                                          |           |        |         |      |   |        |         |  
|------------------------------ | ---------------------------------------- | --------- | ------ | ------- | ---- | - | ------ | ------- | -
|                               |                                          | March 31, |       
|                               |                                          |           |       
|                               |                                          | 2006      |        |         | 2005 |  
|                               |                                          |           |        |         |      |  
|Deferred tax assets:           |                                          |           |        |         |      |   |        |        
|                               | Net operating loss carryforwards         |           | $      | 11,992  |      |   | $      | 11,198  |  
|                               | Basis difference in fixed assets         |           |        | 326     |      |   |        | 2,266   |  
|                               | Accruals deductible in different periods |           |        | 2,324   |      |   |        | 1,828   |  
|                               | Credit carryforwards                     |           |        | 1,436   |      |   |        | 1,439   |  
|                               |                                          |           |        |         |      |  
|Total deferred tax assets      |                                          |           | 16,078 |         |      |   | 16,731 |        
|                               | Less valuation allowance                 |           |        | (16,078 | )    |   |        | (16,731 | )
|                               |                                          |           |        |         |      |  
|Net deferred tax asset         |                                          |           |       |         |      |   |       |        
|Deferred tax liabilities:      |                                          |           |        |         |      |   |        |        
|                               | Basis difference in intangible assets    |           |        | 641     |      |   |        |        |  
|                               |                                          |           |        |         |      |  
|Total deferred tax liabilities |                                          |           | (641   | )       |      |   |       |        
|                               |                                          |           |        |         |      |  
|Net deferred tax liability     |                                          | $         | (641   | )       |      | $ |       |        
|                               |                                          |           |        |         |      |  





|                                       |  |                      |     |    |      |  |     |      |  |  |     |   
|-------------------------------------- |  | -------------------- | --- | -- | ---- |  | --- | ---- |  |  | --- | --
|                                       |  | Year Ended March 31, |    
|                                       |  |                      |    
|                                       |  | 2006                 |     |    | 2005 |  |     | 2004 | 
|                                       |  |                      |     |    |      |  |     |      | 
|Income tax benefit at statutory rate   |  |                      | (35 | )% |      |  | (35 | )%   |  |  | (35 | )%
|State taxes, net of federal benefit    |  |                      | (3  | )% |      |  | (6  | )%   |  |  | (6  | )%
|Non-US income taxed at different rates |  |                      | 11  | %  |      |  |    |      |  |  |    |   
|Change in valuation allowance          |  |                      | 23  | %  |      |  | 26  | %    |  |  | 28  | % 
|Nondeductible deferred compensation    |  |                      | 1   | %  |      |  | 15  | %    |  |  | 13  | % 
|Other                                  |  |                      | 2   | %  |      |  | 0   | %    |  |  | 0   | % 
|                                       |  |                      |     |    |      |  |     |      | 
|Effective income tax rate              |  |                      | (1  | )% |      |  | 0   | %    |  |  | 0   | % 
|                                       |  |                      |     |    |      |  |     |      | 

Note 6  Commitments and Contingencies




| |                  
| | -----------------
| | Lease commitments

7-year




79



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                             |  |          |       | 
|---------------------------- |  | -------- | ----- | 
|                             |  | Minimum  |      
|                             |  | Lease    |      
|                             |  | Payments |      
|                             |  |          |      
|For Years Ended March 31,    |  |          |       | 
|2007                         |  | $        | 625   | 
|2008                         |  |          | 623   | 
|2009                         |  |          | 615   | 
|2010                         |  |          | 592   | 
|2011 and beyond              |  |          | 1,527 | 
|                             |  |          |      
|Total minimum lease payments |  | $        | 3,982 | 
|                             |  |          |      





| |                
| | ---------------
| | Indemnification





| |           
| | ----------
| | Litigation





| |                   
| | ------------------
| | FCPA Investigation



80



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                  
| | -----------------
| | Patent Litigation







Note 7  Redeemable Convertible Preferred
Stock




81



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|           |  |               |  |            |       |        |             |  |            |           |  |              |              |  |           |            |       |  |             |   |       |            |  |   |        |  |  |            
|---------- |  | ------------- |  | ---------- | ----- | ------ | ----------- |  | ---------- | --------- |  | ------------ | ------------ |  | --------- | ---------- | ----- |  | ----------- | - | ----- | ---------- |  | - | ------ |  |  | -----------
|           |  |               |  |            |       | Shares |             |  | Accounting |           |  | Common Stock |              |  | Per Share |            |       |  |             |  
|           |  |               |  | Shares     |       |        | Issued and  |  |            | Proceeds, |  |              | Reserved for |  |           | Redemption |       |  | Liquidation |   |       | Redemption
|           |  | Issuance Date |  | Authorized |       |        | Outstanding |  |            | Net       |  |              | Conversion   |  |           | Value      |       |  | Value       |   |       | Date      
|           |  |               |  |            |       |        |             |  |            |           |  |              |              |  |           |            |       |  |             |   |       |           
|Series A   |  | November-96   |  |            | 223   |        |             |  | 223        |           |  | $            | 1,101        |  |           |            | 223   |  |             | $ | 5.06  |            |  | $ | 1,127  |  |  | November-02
|Series B   |  | December-97   |  |            | 642   |        |             |  | 642        |           |  |              | 7,182        |  |           |            | 845   |  |             | $ | 11.25 |            |  | $ | 7,225  |  |  | December-03
|Series C   |  | June-99       |  |            | 958   |        |             |  | 958        |           |  |              | 6,405        |  |           |            | 958   |  |             | $ | 6.75  |            |  | $ | 6,471  |  |  | June 05    
|Series D   |  | August-00     |  |            | 2,914 |        |             |  | 2,504      |           |  |              | 16,310       |  |           |            | 2,504 |  |             | $ | 7.52  |            |  | $ | 18,818 |  |  | August-06  
|Series D-1 |  | August-00     |  |            | 334   |        |             |  | 334        |           |  |              | 2,184        |  |           |            | 334   |  |             | $ | 7.52  |            |  | $ | 2,505  |  |  | August-06  
|Series D-2 |  | May-02        |  |            | 344   |        |             |  | 344        |           |  |              | 3,434        |  |           |            | 361   |  |             | $ | 10.19 |            |  | $ | 3,502  |  |  | May-08     
|Series D-3 |  | June-03       |  |            | 1,333 |        |             |  | 1,333      |           |  |              | 9,644        |  |           |            | 1,333 |  |             | $ | 7.52  |            |  | $ | 15,030 |  |  | June-09    
|Series E   |  | February-05   |  |            | 1,667 |        |             |  | 1,343      |           |  |              | 8,661        |  |           |            | 1,343 |  |             | $ | 9.00  |            |  | $ | 18,134 |  |  | June-09    
|           |  |               |  |            |       |        |             |  |            |           |  |              |              |  |           |            |       |  |             |   |       |           
|Total      |  |               |  |            | 8,415 |        |             |  | 7,681      |           |  | $            | 54,921       |  |           | $          | 7,901 |  |             |   |       |            |  | $ | 72,812 |  |  |            
|           |  |               |  |            |       |        |             |  |            |           |  |              |              |  |           |            |       |  |             |   |       |           



| |           
| | ----------
| | Conversion





| |           
| | ----------
| | Redemption





| |                         
| | ------------------------
| | Preferred Stock Warrants







82



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                      
| | ---------------------
| | Note 8  Common Stock





| |                     
| | --------------------
| | 2000 Common Warrants





| |                     
| | --------------------
| | 2003 Common Warrants









| |                     
| | --------------------
| | 2005 Common Warrants





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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




paid-in




| |                                                            
| | -----------------------------------------------------------
| | Note 9  Stock Option Plans and Other Employee
    Benefits



| |                       
| | ----------------------
| | 1996 Stock Option Plan





| |                
| | ---------------
| | 1998 Stock Plan





| |                           
| | --------------------------
| | 2005 Equity Incentive Plan







84



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |                                    |           |       |                     |           |          |         |          |   |   |      |      | 
|------------------------- | ---------------------------------- | --------- | ----- | ------------------- | --------- | -------- | ------- | -------- | - | - | ---- | ---- | 
|                          |                                    |           |       | Options Outstanding |          
|                          |                                    |           |       |                     |          
|                          |                                    |           |       |                     |           | Weighted |        
|                          |                                    | Options   |       |                     |           |          | Average |         
|                          |                                    | Available |       |                     | Number of |          |         | Exercise |  
|                          |                                    | for Grant |       |                     | Options   |          |         | Price    |  
|                          |                                    |           |       |                     |           |          |         |          |  
|Balance at March 31, 2003 |                                    |           | 86    |                     |           |          | 1,340   |          |   | $ | 0.81 |     
|                          | Options authorized                 |           |       | 444                 |           |          |         |         |   |   |      |     | 
|                          | Options granted                    |           |       | (393                | )         |          |         | 393      |   |   | $    | 0.90 | 
|                          | Options exercised                  |           |       |                    |           |          |         | (14      | ) |   | $    | 0.81 | 
|                          | Options forfeited                  |           |       | 99                  |           |          |         | (99      | ) |   | $    | 0.86 | 
|                          |                                    |           |       |                     |           |          |         |          |  
|Balance at March 31, 2004 |                                    |           | 236   |                     |           |          | 1,620   |          |   | $ | 0.83 |     
|                          | Options authorized                 |           |       | 978                 |           |          |         |         |   |   |      |     | 
|                          | Options granted                    |           |       | (1,265              | )         |          |         | 1,265    |   |   | $    | 7.58 | 
|                          | Options exercised                  |           |       |                    |           |          |         | (203     | ) |   | $    | 0.88 | 
|                          | Options forfeited                  |           |       | 186                 |           |          |         | (186     | ) |   | $    | 1.97 | 
|                          | Options canceled                   |           |       | 49                  |           |          |         | (49      | ) |   | $    | 1.52 | 
|                          | Common stock issued under the plan |           |       | (4                  | )         |          |         |         |   |   |      |     | 
|                          |                                    |           |       |                     |           |          |         |          |  
|Balance at March 31, 2005 |                                    |           | 180   |                     |           |          | 2,447   |          |   | $ | 4.06 |     
|                          | Options authorized                 |           |       | 2,222               |           |          |         |         |   |   |      |      | 
|                          | Options granted                    |           |       | (1,040              | )         |          |         | 1,040    |   |   | $    | 9.51 | 
|                          | Options exercised                  |           |       |                    |           |          |         | (563     | ) |   | $    | 0.82 | 
|                          | Options forfeited                  |           |       | 98                  |           |          |         | (98      | ) |   | $    | 9.35 | 
|                          | Options canceled                   |           |       | 22                  |           |          |         | (22      | ) |   |      |      | 
|                          |                                    |           |       |                     |           |          |         |          |  
|Balance at March 31, 2006 |                                    |           | 1,482 |                     |           |          | 2,804   |          |   | $ | 6.54 |     
|                          |                                    |           |       |                     |           |          |         |          |  



|                |  |                     |       |           |                     |  |          |          |  |   |             |          |  |          |       |  |  |   |       | 
|--------------- |  | ------------------- | ----- | --------- | ------------------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | ----- |  |  | - | ----- | 
|                |  | Options Outstanding |       |           | Options Exercisable | 
|                |  |                     |       |           |                     | 
|                |  |                     |       | Weighted  |                     |  |          |          | 
|                |  |                     |       | Average   |                     |  | Weighted |          |  |   |             | Weighted | 
|                |  |                     |       | Remaining |                     |  | Average  |          |  |   |             | Average  | 
|                |  | Number              |       |           | Contractual Life    |  |          | Exercise |  |   | Number      |          |  | Exercise |      
|Exercise Price  |  | Outstanding         |       |           | (Years)             |  |          | Price    |  |   | Exercisable |          |  | Price    |      
|                |  |                     |       |           |                     |  |          |          |  |   |             |          |  |          |      
|$ 0.68 - $ 1.01 |  |                     | 510   |           |                     |  | 5.3      |          |  | $ | 0.78        |          |  |          | 478   |  |  | $ | 0.77  | 
|$ 1.13 - $ 1.15 |  |                     | 156   |           |                     |  | 6.7      |          |  | $ | 1.14        |          |  |          | 106   |  |  | $ | 1.14  | 
|$ 5.63 - $ 7.26 |  |                     | 938   |           |                     |  | 8.8      |          |  | $ | 5.69        |          |  |          | 399   |  |  | $ | 5.63  | 
|$ 8.56 - $12.48 |  |                     | 942   |           |                     |  | 9.7      |          |  | $ | 9.59        |          |  |          | 3     |  |  | $ | 10.13 | 
|$13.05 - $13.39 |  |                     | 258   |           |                     |  | 8.3      |          |  | $ | 13.11       |          |  |          | 173   |  |  | $ | 13.09 | 
|                |  |                     |       |           |                     |  |          |          |  |   |             |          |  |          |      
|$ 0.68 - $13.39 |  |                     | 2,804 |           |                     |  | 8.3      |          |  | $ | 6.54        |          |  |          | 1,159 |  |  | $ | 4.33  | 
|                |  |                     |       |           |                     |  |          |          |  |   |             |          |  |          |      



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                         
| | ------------------------
| | Stock-Based Compensation







| |                     
| | --------------------
| | Non-Employee Options



|                         |  |                      |          |  |      |  |          |      |  |  |          | 
|------------------------ |  | -------------------- | -------- |  | ---- |  | -------- | ---- |  |  | -------- | 
|                         |  | Year Ended March 31, |         
|                         |  |                      |         
|                         |  | 2006                 |          |  | 2005 |  |          | 2004 | 
|                         |  |                      |          |  |      |  |          |      | 
|Risk-free interest rate  |  |                      | 4.4%     |  |      |  | 4.6%     |      |  |  | 3.5%     | 
|Expected life (in years) |  |                      | 6  years |  |      |  | 7  years |      |  |  | 8  years | 
|Dividend yield           |  |                      | 0.0%     |  |      |  | 0.0%     |      |  |  | 0.0%     | 
|Volatility               |  |                      | 45%      |  |      |  | 51%      |      |  |  | 56%      | 





|                           |  |                      |     |  |      |   |       |      |  |   |     | 
|-------------------------- |  | -------------------- | --- |  | ---- | - | ----- | ---- |  | - | --- | 
|                           |  | Year Ended March 31, |    
|                           |  |                      |    
|                           |  | 2006                 |     |  | 2005 |   |       | 2004 | 
|                           |  |                      |     |  |      |   |       |      | 
|Cost of goods sold         |  | $                    | 26  |  |      | $ | 26    |      |  | $ | 11  | 
|Research and development   |  |                      | 22  |  |      |   | 69    |      |  |   | 207 | 
|Sales and marketing        |  |                      | 169 |  |      |   | 134   |      |  |   | 162 | 
|General and administrative |  |                      | 172 |  |      |   | 3,210 |      |  |   | 174 | 
|                           |  |                      |     |  |      |   |       |      | 
|Total                      |  | $                    | 389 |  |      | $ | 3,439 |      |  | $ | 554 | 
|                           |  |                      |     |  |      |   |       |      | 



| |                                  
| | ---------------------------------
| | 2005 Employee Stock Purchase Plan



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |                    
| | -------------------
| | 401(k) Savings Plan





| |                   
| | ------------------
| | Note 10  Segments



|               |  |                      |        |  |      |   |        |      |  |   |        | 
|-------------- |  | -------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|               |  | Year Ended March 31, |       
|               |  |                      |       
|               |  | 2006                 |        |  | 2005 |   |        | 2004 | 
|               |  |                      |        |  |      |   |        |      | 
|United States  |  | $                    | 16,541 |  |      | $ | 12,517 |      |  | $ | 7,908  | 
|Europe         |  |                      | 12,537 |  |      |   | 10,225 |      |  |   | 6,820  | 
|Asia Pacific   |  |                      | 2,868  |  |      |   | 520    |      |  |   | 119    | 
|Other          |  |                      | 835    |  |      |   | 750    |      |  |   | 853    | 
|               |  |                      |        |  |      |   |        |      | 
|Total revenues |  | $                    | 32,781 |  |      | $ | 24,012 |      |  | $ | 15,700 | 
|               |  |                      |        |  |      |   |        |      | 



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                  |  |           |       |  |      |   |     | 
|--------------------------------- |  | --------- | ----- |  | ---- | - | --- | 
|                                  |  | March 31, |      
|                                  |  |           |      
|                                  |  | 2006      |       |  | 2005 |  
|                                  |  |           |       |  |      |  
|United States                     |  | $         | 2,246 |  |      | $ | 802 | 
|Europe                            |  |           | 242   |  |      |   | 120 | 
|                                  |  |           |       |  |      |  
|Total property and equipment, net |  | $         | 2,488 |  |      | $ | 922 | 
|                                  |  |           |       |  |      |  



|              |          |                      |   |        |      |  |   |        |  |  |   |        | 
|------------- | -------- | -------------------- | - | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|              |          | Year Ended March 31, |  
|              |          |                      |  
|              |          | 2006                 |   |        | 2005 |  |   | 2004   | 
|              |          |                      |   |        |      |  |   |        | 
|Revenues:     |          |                      |   |        |      |  |   |        |  |  |   |       
|              | Americas |                      | $ | 18,021 |      |  | $ | 13,787 |  |  | $ | 8,880  | 
|              | Europe   |                      |   | 14,760 |      |  |   | 10,225 |  |  |   | 6,820  | 
|              |          |                      |   |        |      |  |   |        | 
|              | Total    |                      | $ | 32,781 |      |  | $ | 24,012 |  |  | $ | 15,700 | 
|              |          |                      |   |        |      |  |   |        | 
|Gross Profit: |          |                      |   |        |      |  |   |        |  |  |   |       
|              | Americas |                      | $ | 14,213 |      |  | $ | 9,414  |  |  | $ | 5,353  | 
|              | Europe   |                      |   | 8,858  |      |  |   | 6,595  |  |  |   | 4,622  | 
|              |          |                      |   |        |      |  |   |        | 
|              | Total    |                      | $ | 23,071 |      |  | $ | 16,009 |  |  | $ | 9,975  | 
|              |          |                      |   |        |      |  |   |        | 



|              |          |            |   |        |                        |  |   |       |  |  |      |        |  |  |   |       | 
|------------- | -------- | ---------- | - | ------ | ---------------------- |  | - | ----- |  |  | ---- | ------ |  |  | - | ----- | 
|              |          | As revised |   |        | As previously reported | 
|              |          |            |   |        |                        | 
|              |          | 2005       |   |        | 2004                   |  |   | 2005  |  |  | 2004 |       
|              |          |            |   |        |                        |  |   |       |  |  |      |       
|Gross Profit: |          |            |   |        |                        |  |   |       |  |  |      |        |  |  |   |      
|              | Americas |            | $ | 9,414  |                        |  | $ | 5,353 |  |  | $    | 11,461 |  |  | $ | 6,707 | 
|              | Europe   |            |   | 6,595  |                        |  |   | 4,622 |  |  |      | 4,548  |  |  |   | 3,268 | 
|              |          |            |   |        |                        |  |   |       |  |  |      |       
|              | Total    |            | $ | 16,009 |                        |  | $ | 9,975 |  |  | $    | 16,009 |  |  | $ | 9,975 | 
|              |          |            |   |        |                        |  |   |       |  |  |      |       



88



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MICRUS ENDOVASCULAR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |  |                      |        |  |      |   |        |      |  |   |        | 
|-------- |  | -------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|         |  | Year Ended March 31, |       
|         |  |                      |       
|         |  | 2006                 |        |  | 2005 |   |        | 2004 | 
|         |  |                      |        |  |      |   |        |      | 
|Americas |  | $                    | 46,243 |  |      | $ | 25,331 |      |  | $ | 14,226 | 
|Europe   |  |                      | 15,871 |  |      |   | 4,443  |      |  |   | 3,652  | 
|         |  |                      |        |  |      |   |        |      | 
|Total    |  | $                    | 62,114 |  |      | $ | 29,774 |      |  | $ | 17,878 | 
|         |  |                      |        |  |      |   |        |      | 

Note 11  Line of Credit




Note 12  Quarterly Financial Information
(unaudited)




|      |                                                                |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|----- | -------------------------------------------------------------- | ------- | - | ------ | ------- |  | - | ------- | - |  | ------- | ------ | - |  | - | ------ | -
|      |                                                                | First   |   |        | Second  |  |   | Third   |   |  | Fourth  |       
|      |                                                                | Quarter |   |        | Quarter |  |   | Quarter |   |  | Quarter |       
|      |                                                                |         |   |        |         |  |   |         |   |  |         |       
|2006: |                                                                |         |   |        |         |  |   |         |   |  |         |        |   |  |   |       
|      | Revenues                                                       |         | $ | 7,112  |         |  | $ | 6,130   |   |  | $       | 8,092  |   |  | $ | 11,447 |  
|      | Gross profit                                                   |         |   | 4,993  |         |  |   | 4,401   |   |  |         | 5,676  |   |  |   | 8,001  |  
|      | Net loss attributable to common stockholders                   |         |   | (1,897 | )       |  |   | (2,831  | ) |  |         | (1,652 | ) |  |   | (2,540 | )
|      | Net loss attributable to common stockholders basic and diluted |         | $ | (0.70  | )       |  | $ | (0.20   | ) |  | $       | (0.12  | ) |  | $ | (0.18  | )
|2005: |                                                                |         |   |        |         |  |   |         |   |  |         |        |   |  |   |       
|      | Revenues                                                       |         | $ | 5,131  |         |  | $ | 5,833   |   |  | $       | 5,659  |   |  | $ | 7,389  |  
|      | Gross profit                                                   |         |   | 3,455  |         |  |   | 3,835   |   |  |         | 3,711  |   |  |   | 5,008  |  
|      | Net loss attributable to common stockholders                   |         |   | (593   | )       |  |   | (903    | ) |  |         | (1,915 | ) |  |   | (3,881 | )
|      | Net loss attributable to common stockholders basic and diluted |         | $ | (0.45  | )       |  | $ | (0.65   | ) |  | $       | (1.35  | ) |  | $ | (2.66  | )

89



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure.








|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.





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|         |                   
|-------- | ------------------
|Item 9B. | Other Information.






PART III







|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant.



| |                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our executive officers and directors and their ages and
    positions, as of March 31, 2006, are set forth below. The
    Board is divided into three classes, with each director serving
    a three-year term and one class being elected at each
    years Annual Meeting of stockholders:

|                              |  |     |    |  |          |                                                                                                                                 
|----------------------------- |  | --- | -- |  | -------- | --------------------------------------------------------------------------------------------------------------------------------
|Name                          |  | Age |    |  | Position
|                              |  |     |    |  |         
|John T. Kilcoyne              |  |     | 46 |  |          | President, Chief Executive Officer and Director (Director term
    expires at annual meeting of stockholders to be held in 2007)
|Robert A. Stern               |  |     | 49 |  |          | Executive Vice President, Chief Financial Officer and Secretary                                                                 
|Robert C. Colloton            |  |     | 48 |  |          | Vice President, Global Sales and Marketing                                                                                      
|Tom M. Holdych                |  |     | 46 |  |          | Senior Vice President                                                                                                           
|Edward F. Ruppel, Jr.         |  |     | 39 |  |          | Vice President, Technical Operations                                                                                            
|William G. Rigas              |  |     | 63 |  |          | Vice President of Sales, Asia and Latin America                                                                                 
|Carolyn M. Bruguera           |  |     | 40 |  |          | Vice President and General Counsel                                                                                              
|David A. Watson               |  |     | 47 |  |          | Vice President of Research and Development                                                                                      
|Michael R. Henson(2)(3)       |  |     | 60 |  |          | Chairman of the Board of Directors (Term expires at annual
    meeting of stockholders to be held in 2007)                      
|L. Nelson Hopkins, M.D.       |  |     | 62 |  |          | Director (Term expires at annual meeting of stockholders to be
    held in 2008)                                                
|Fred Holubow(1)(3)            |  |     | 66 |  |          | Director (Term expires at annual meeting of stockholders to be
    held in 2006)                                                
|Beat R. Merz, Dr. sc. Techn.  |  |     | 45 |  |          | Director(Term expires at annual meeting of stockholders to be
    held in 2006)                                                 
|Francis J. Shammo(1)(3)       |  |     | 45 |  |          | Director(Term expires at annual meeting of stockholders to be
    held in 2008)                                                 
|Jeffrey H. Thiel(1)(3)        |  |     | 50 |  |          | Director(Term expires at annual meeting of stockholders to be
    held in 2007)                                                 
|Simon Waddington, Ph.D.(2)(3) |  |     | 41 |  |          | Director(Term expires at annual meeting of stockholders to be
    held in 2006)                                                 






|    |                                                            
|--- | -----------------------------------------------------------
|(1) | Member of the Audit Committee                              
|   
|(2) | Member of the Compensation Committee                       
|   
|(3) | Member of the Nominating and Corporate Governance Committee

Mr. Kilcoyne


91



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Mr. Stern


Mr. Colloton


Mr. Holdych


Mr. Ruppel


Mr. Rigas


Ms. Bruguera


92



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##### Table of Contents



1993-1995.


Mr. Watson


Mr. Henson


Dr. Hopkins


Mr. Holubow


Dr. Merz


Mr. Shammo


Mr. Thiel


93



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Dr. Waddington




| |                   
| | ------------------
| | Executive Officers





| |                
| | ---------------
| | Audit Committee





| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | reviewing and monitoring our accounting practices and financial
    reporting procedures and audits of our financial statements;
|
| |  | appointing, compensating and overseeing our independent
    auditors; and                                                       
|
| |  | reviewing and evaluating the effectiveness of our internal
    controls over financial reporting.                               





| |                                                            
| | -----------------------------------------------------------
| | Section 16(a) Beneficial Ownership Reporting
    Compliance









94



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| |               
| | --------------
| | Code of Ethics

http://investor.micrusendovascular.com/governance/ethics.cfm. 8-K.







|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation.



|                               |                                                       |        |         |  |        |       |         |                        |            |   |        |            |  |            |   |  |         |  |                 |  |  |   |   |  |  |   |     |  | 
|------------------------------ | ----------------------------------------------------- | ------ | ------- |  | ------ | ----- | ------- | ---------------------- | ---------- | - | ------ | ---------- |  | ---------- | - |  | ------- |  | --------------- |  |  | - | - |  |  | - | --- |  | 
|                               |                                                       |        |         |  |        |       |         | Long-Term Compensation |           
|                               |                                                       |        |         |  |        |       |         |                        |           
|                               |                                                       |        |         |  |        | Other |         |                        | Restricted |   |        | Securities |  |            |  
|                               |                                                       | Annual |         |  | Annual |       |         | Annual                 |            |   | Stock  |            |  | Underlying |   |  | LTIP    |  | All Other       | 
|Name and Principal Position(s) |                                                       | Salary |         |  | Bonus  |       |         | Compensation           |            |   | Awards |            |  | Options    |   |  | Payouts |  | Compensation(1) | 
|                               |                                                       |        |         |  |        |       |         |                        |            |   |        |            |  |            |   |  |         |  |                 | 
|John T. Kilcoyne               |                                                       | $      | 265,385 |  |        | $     | 62,569  |                        |            | $ |       |            |  |            |  |  |         |  | 346,220         |  |  | $ |  |  |  | $ | 194 | 
|                               | President and Chief Executive Officer                 |        |         |  |        |       |         |                        |            |   |        |            |  |            |   |  |         |  |                 |  |  |   |   |  |  |   |     |  | 
|Robert A. Stern                |                                                       | $      | 239,769 |  |        | $     | 154,219 |                        |            | $ |       |            |  |            |  |  |         |  | 217,125         |  |  | $ |  |  |  | $ | 194 | 
|                               | Executive Vice President, Chief Financial Officer     |        |         |  |        |       |         |                        |            |   |        |            |  |            |   |  |         |  |                 |  |  |   |   |  |  |   |     |  | 
|Tom M. Holdych                 |                                                       | $      | 194,400 |  |        | $     | 36,360  |                        |            | $ |       |            |  |            |  |  |         |  | 117,863         |  |  | $ |  |  |  | $ | 194 | 
|                               | Senior Vice President                                 |        |         |  |        |       |         |                        |            |   |        |            |  |            |   |  |         |  |                 |  |  |   |   |  |  |   |     |  | 
|Edward F. Ruppel, Jr           |                                                       | $      | 183,480 |  |        | $     | 34,320  |                        |            | $ |       |            |  |            |  |  |         |  | 73,330          |  |  | $ |  |  |  | $ | 186 | 
|                               | Vice President of Technical Operations                |        |         |  |        |       |         |                        |            |   |        |            |  |            |   |  |         |  |                 |  |  |   |   |  |  |   |     |  | 
|Robert Colloton                |                                                       | $      | 211,154 |  |        | $     |        |                        |            | $ |       |            |  |            |  |  |         |  | 161,110         |  |  | $ |  |  |  | $ | 194 | 
|                               | Vice President of Global Sales and Marketing          |        |         |  |        |       |         |                        |            |   |        |            |  |            |   |  |         |  |                 |  |  |   |   |  |  |   |     |  | 
|Eckhard H. Reitz(2)(3)         |                                                       | $      | 215,768 |  |        | $     | 26,971  |                        |            | $ | 41,266 |            |  |            |  |  |         |  | 55,555          |  |  | $ |  |  |  | $ |    | 
|                               | Executive Vice President  Micrus Endovascular
    SA |        |         |  |        |       |         |                        |            |   |        |            |  |            |   |  |         |  |                 |  |  |   |   |  |  |   |     |  | 






|    |                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the payment of life insurance premiums.                                                                                                          
|   
|(2) | Mr. Reitz ceased to serve as an executive officer of the
    Company in January, 2006.                                                                      
|   
|(3) | Mr. Reitzs other annual compensation includes a
    representation allowance of $11,769, a relocation allowance of
    $13,271 and car expenses of $16,226.

95



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Option Grants In Year Ended March 31, 2006




|                         |  |            |        |  |                  |  |     |           |  |                            |            |                             |                 |    |           |  |     |   |         |  |  |   |           | 
|------------------------ |  | ---------- | ------ |  | ---------------- |  | --- | --------- |  | -------------------------- | ---------- | --------------------------- | --------------- | -- | --------- |  | --- | - | ------- |  |  | - | --------- | 
|                         |  |            |        |  |                  |  |     |           |  | Potential Realizable Value |           
|                         |  | Number of  |        |  | Percentage of    |  |     |           |  |                            |            | at Assumed Annual Rates     |                
|                         |  | Shares     |        |  | Total Options    |  |     |           |  |                            |            | of Stock Price Appreciation |                
|                         |  | Underlying |        |  | Granted to       |  |     | Exercise  |  |                            |            |                             | for Option Term |   
|                         |  | Options    |        |  | Employees in the |  |     | Price per |  |                            | Expiration |                             |                 |    |          
|Named Executive Officers |  | Granted    |        |  | Fiscal Year      |  |     | Share     |  |                            | Date       |                             |                 | 5% |           |  | 10% |  
|                         |  |            |        |  |                  |  |     |           |  |                            |            |                             |                 |    |           |  |     |  
|Robert A. Stern          |  |            | 72,685 |  |                  |  | 7.2 | %         |  | $                          | 10.05      |                             |                 |    | 2/14/2016 |  |     | $ | 459,398 |  |  | $ | 1,164,204 | 
|Robert Colloton          |  |            | 50,000 |  |                  |  | 5.0 | %         |  | $                          | 9.25       |                             |                 |    | 1/6/2016  |  |     | $ | 290,864 |  |  | $ | 737,106   | 

Aggregated Option Exercises During Year Ended March 31,
2006 and Year-End Option Values


in-the


|                         |  |          |   |  |          |                      |                           |             |                      |                      |               |  |  |             |         |  |               |   |           |  |  |   |           | 
|------------------------ |  | -------- | - |  | -------- | -------------------- | ------------------------- | ----------- | -------------------- | -------------------- | ------------- |  |  | ----------- | ------- |  | ------------- | - | --------- |  |  | - | --------- | 
|                         |  |          |   |  |          | Number of Securities |                           |             | Value of Unexercised |                     
|                         |  | Shares   |   |  |          |                      | Underlying Unexercised    |             |                      | In-The-Money Options |              
|                         |  | Acquired |   |  |          |                      | Options at March 31, 2006 |             |                      | at March 31, 2006    |              
|                         |  | Upon     |   |  | Value    |                      |                           |             |                      |                      |               | 
|Named Executive Officers |  | Exercise |   |  | Realized |                      |                           | Exercisable |                      |                      | Unexercisable |  |  | Exercisable |         |  | Unexercisable |  
|                         |  |          |   |  |          |                      |                           |             |                      |                      |               |  |  |             |         |  |               |  
|John T. Kilcoyne         |  |          |  |  |          |                      |                          |             |                      |                      | 125,443       |  |  |             | 220,777 |  |               | $ | 1,050,585 |  |  | $ | 1,849,007 | 
|Robert A. Stern          |  |          |  |  |          |                      |                          |             |                      |                      | 83,560        |  |  |             | 133,565 |  |               | $ | 877,146   |  |  | $ | 911,847   | 
|Tom M. Holdych           |  |          |  |  |          |                      |                          |             |                      |                      | 108,382       |  |  |             | 9,481   |  |               | $ | 1,399,224 |  |  | $ | 89,302    | 
|Edward F. Ruppel, Jr.    |  |          |  |  |          |                      |                          |             |                      |                      | 42,034        |  |  |             | 31,296  |  |               | $ | 339,906   |  |  | $ | 210,088   | 
|Robert Colloton          |  |          |  |  |          |                      |                          |             |                      |                      | 34,721        |  |  |             | 126,389 |  |               | $ | 290,788   |  |  | $ | 877,258   | 
|Eckhard H. Reitz         |  |          |  |  |          |                      |                          |             |                      |                      | 21,990        |  |  |             | 33,565  |  |               | $ | 281,107   |  |  | $ | 184,166   | 

Director Compensation




96



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1 48 1 12


Compensation Committee Interlocks and Insider
Participation




Employment and Severance Agreements








97



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|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management.





| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | each of our directors and named executive officers;                                                                       
|
| |  | all of our directors and executive officers as a group; and                                                               
|
| |  | each person or group of affiliated persons known by us to be the
    beneficial owner of more than 5% of our common stock.





98



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|                                                    |                                    |  |           |                    |  |  |      |       |  
|--------------------------------------------------- | ---------------------------------- |  | --------- | ------------------ |  |  | ---- | ----- | -
|                                                    |                                    |  |           | Number of Shares   | 
|Name and Address                                    |                                    |  |           | Beneficially Owned | 
|                                                    |                                    |  |           |                    | 
|John T. Kilcoyne(1)                                 |                                    |  | 139,258   |                    |  |  | *    |      
|Robert A. Stern(2)                                  |                                    |  | 90,875    |                    |  |  | *    |      
|Robert C. Colloton(3)                               |                                    |  | 39,351    |                    |  |  | *    |      
|Eckhard H. Reitz(4)                                 |                                    |  | 23,148    |                    |  |  | *    |      
|Tom M. Holdych(5)                                   |                                    |  | 109,426   |                    |  |  | *    |      
|Edward F. Ruppel, Jr(6)                             |                                    |  | 45,290    |                    |  |  | *    |      
|Michael R. Henson(7)                                |                                    |  | 481,404   |                    |  |  | 3.43 | %    
|Leo Nelson Hopkins(8)                               |                                    |  | 108,836   |                    |  |  | *    |      
|Fred Holubow(9)                                     |                                    |  | 60,805    |                    |  |  | *    |      
|Beat R. Merz(10)                                    |                                    |  | 35,229    |                    |  |  | *    |      
|Francis J. Shammo(11)                               |                                    |  | 19,999    |                    |  |  | *    |      
|Jeffrey H. Thiel(12)                                |                                    |  | 61,364    |                    |  |  | *    |      
|Simon Waddington(13)                                |                                    |  | 42,744    |                    |  |  | *    |      
|All directors and executive officers as a group(14) |                                    |  | 1,298,691 |                    |  |  | 9.13 | %    
|Holders of more than 5% of our voting securities    |                                    |  |           |                    |  |  |      |      
|                                                   
|                                                    | HBM Bioventures (Cayman) Ltd       |  |           |                    |  |  |      |       |  
|                                                    | Unit 10 Eucalyptus Building        |  |           |                    |  |  |      |       |  
|                                                    | Grand Cayman A1 00000(15)          |  |           | 1,927,561          |  |  |      | 13.55 | %
|                                                    | PolyTechnos Medical Devices Ltd.   |  |           |                    |  |  |      |       |  
|                                                    | 13-15 Victoria Road                |  |           |                    |  |  |      |       |  
|                                                    | St Peter Port                      |  |           |                    |  |  |      |       |  
|                                                    | Guernsey, GY5 70A(16)              |  |           | 965,936            |  |  |      | 6.79  | %
|                                                    | William Harris Investors           |  |           |                    |  |  |      |       |  
|                                                    | 191 North Wacker Drive, Suite 1500 |  |           |                    |  |  |      |       |  
|                                                    | Chicago, IL 60606(17)              |  |           | 908,068            |  |  |      | 6.39  | %
|                                                    | Delaware Management Holdings       |  |           |                    |  |  |      |       |  
|                                                    | One Commerce Square                |  |           |                    |  |  |      |       |  
|                                                    | 2005 Market Street                 |  |           |                    |  |  |      |       |  
|                                                    | Philadelphia, PA 19103(18)         |  |           | 826,500            |  |  |      | 5.81  | %
|                                                    | Aureus Capital Partners, Ltd       |  |           |                    |  |  |      |       |  
|                                                    | P.O. Box 641, No. 1 Seaton Place   |  |           |                    |  |  |      |       |  
|                                                    | St Helier, Jersey                  |  |           |                    |  |  |      |       |  
|                                                    | Channel Islands XO JE4 8YJ(19)     |  |           | 732,351            |  |  |      | 5.15  | %






| |   |                                                         
| | - | --------------------------------------------------------
| | * | Indicates beneficial ownership of less than one percent.



| |     |                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Includes 138,406 shares of common stock issuable upon
    exercise of stock options.                                                                                         
|
| | (2) | Includes 88,653 shares of common stock issuable upon
    exercise of stock options.                                                                                          
|
| | (3) | Includes 39,351 shares of common stock issuable upon
    exercise of stock options.                                                                                          
|
| | (4) | Represents 109,426 shares of common stock issuable upon
    exercise of stock options. Mr. Reitz ceased to serve as an
    executive officer of the Company in January, 2006.
|
| | (5) | Includes 44,552 shares of common stock issuable upon
    exercise of stock options.                                                                                          
|
| | (6) | Represents 23,148 shares of common stock issuable upon
    exercise of stock options.                                                                                        

99



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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | Includes 140,895 shares of common stock issuable upon
    exercise of stock options. Includes shares of record held by the
    Henson Family Trust, 1/8/87 Michael Henson Annuity
    Trust No. 1, and Linda Henson Annuity
    Trust No. 1, of which Mr. Henson is the trustee,
    the Michael R. Henson UTA Charles Schwab & Co. Inc. IRA
    Rollover, the Linda A. Henson Charles Schwab & Co. Inc.
    IRA Rollover and shares of record and warrants held by
    JAIC-Henson MedFocus, LLC of which Mr. Henson is a partner.
    Mr. Henson holds voting and investment power over the
    foregoing shares.                                                                                                                                                                                                                                              
|
| | (8) | Represents 108,836 shares of common stock issuable upon
    exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (9) | Includes 30,861 shares of common stock issuable upon
    exercise of stock options Mr. Holubow, our director, is an
    employee of William Harris Investors, Inc. William Harris
    Investors, Inc. is affiliated with or provides investment advice
    to the following individuals and entities that hold shares of
    our common stock: Adjuvant Foundation, Courderay Partners,
    Harris Venture Partners LLC, Irving B. Harris Revocable Trust,
    Irving Harris Foundation, Jack Polsky Investment Trust, Jerome
    Kahn, Jr. Revocable Trust, Margot Kahn, Peter Martin, James
    J. Pelts, Michael S. Resnick, Rotonda Foundation, Roxanne H.
    Frank Trust and Virginia H. Polsky Trust. Mr. Holubow does
    not have voting or dispositive power over any of our shares held
    by affiliates or clients of William Harris Investors, Inc.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 26,804 shares of common stock issuable upon
    exercise of stock options. Dr. Merz, our director, is an
    employee of HBM Partners AG. HBM Partners AG acts as an
    investment advisor to HBM Partners (Cayman) Ltd. HBM Partners
    (Cayman) Ltd. provides investment management services to HBM
    BioVentures (Cayman) Ltd. In addition, HBM Partners (Cayman)
    Ltd. is the sole shareholder of HBM BioPartners Limited. HBM
    BioPartners Limited is the general partner of International Life
    Science Managers LP, and International Life Science Managers LP
    is the general partner of International Life Science Partners
    LP. Dr. Merz does not have voting or dispositive power over
    any of our shares held by HBM BioVentures (Cayman) Ltd. or
    International Life Science Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(11) | Represents 19,999 shares of common stock issuable upon
    exercise of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(12) | Includes 52,162 shares of common stock issuable upon
    exercise of stock options. Also includes 9,202 shares held
    by the Thiel Family Trust dated 5/10/00, of which Mr. Thiel
    is the trustee. Mr. Thiel exercises voting and investment
    power over the foregoing shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(13) | Includes 41,972 shares of common stock issuable upon
    exercise of stock options. Also includes 772 shares of
    record held by Global Venture Advisors GmbH, of which
    Dr. Waddington is a Managing Director. Dr. Waddington,
    our director, is a Managing Director and Managing Partner of
    PolyTechnos Venture-Partners GmbH, or PTVP. PTVP acts as an
    investment advisor to PolyTechnos (GP) Ltd., the General
    Partner of the Enabling Technology Limited Partnership, which
    has invested in Micrus through PolyTechnos Medical Devices Ltd.
    PTVP acts as an investment advisor to PolyTechnos (GP) II Ltd.,
    the General Partner of the PolyTechnos Venture Fund II Limited
    Partnership. PTVP acts as an investment advisor to PolyTechnos
    Management GmbH, the General Partner of PolyTechnos Venture
    Fund II GmbH & Co. KG. PolyTechnos
    Partners & Team GmbH is a trustee vehicle for
    co-investments made into various companies. Dr. Waddington
    has a carried interest in the various general
    partnerships described above and has participated in
    co-investments made by PolyTechnos Partners & Team
    GmbH. Dr. Waddington does not have voting or dispositive
    power over any shares held by the various PolyTechnos funds and
    entities with the exception of those shares held by Global
    Venture Advisors GmbH. Dr. Waddington disclaims beneficial
    ownership of the shares held by the various PolyTechnos funds
    and entities except to the extent of his proportional interest
    in those entities.
|    
|(14) | See footnotes (1) through (13). Includes an aggregate of
    865,065 shares of common stock issuable upon the exercise
    of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|(15) | See footnote 10 for a description of the relationship of
    Dr. Merz, our director, with HBM BioVentures (Cayman) Ltd.
    The board of directors of HBM BioVentures (Cayman) Ltd.
    exercises voting and investment power over any of our shares
    held by such entity and acts by majority vote. The board of
    directors of HBM BioVentures (Cayman) Ltd. is comprised of John
    Arnold, Colin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Shaw, Richard Coles, Dr. Andreas Wicki and John Urquhart,
    none of whom has individual voting or investment power with
    respect to these shares.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(16) | See footnote 13 for a description of the relationship of
    Dr. Waddington, our director, with PolyTechnos Medical
    Devices Ltd. This information is based on Schedule 13G/A
    filed with the SEC by Simon Waddington on April 12, 2006.
    Includes 327,083 shares held by PolyTechnos Venture Fund
    II, LP, 81,472 shares held by PolyTechnos Venture Fund II
    GmbH & Co., 2,472 shares held by PolyTechnos
    Partners and Team GmbH and 554,909 shares held by
    PolyTechnos Medical Devices Ltd. The board of directors of
    PolyTechnos Medical Devices Ltd. exercises voting and investment
    power over the shares of our capital stock held by such entity.
    The board of directors of PolyTechnos Medical Devices Ltd. is
    comprised of Andrew Gill and Peter Touzeau.
|    
|(17) | This information is based on Schedule 13G filed with the
    SEC on February 14, 2006. According to the
    Schedule 13G Harris William Investors (William Harris
    Investors, Inc.) hold sole voting power over 172,627 shares
    and shared voting power over 675,603 shares and sole
    dispositive power over 848,230 shares and shared
    dispositive power over 59,838 shares.                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(18) | This information is based on Schedule 13G filed with the
    SEC on February 9, 2006 by Delaware Management Holdings.
    According to the Schedule 13G, such entity has voting and
    dispositive power with respect to all such shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(19) | Includes 508,494 shares of record held by Mach II L.P. and
    223,857 shares of record held by Mach Capital L.P. The board of
    directors of Aureus Capital Partners Ltd. exercises voting and
    investment power over the shares of our capital stock held by
    Mach II L.P., as general partner of Mach Capital L.P., which is
    in turn the general partner of Mach II L.P. The board of
    directors of Aureus Capital Partners Ltd. is comprised of Frank
    Becker, Peter Donnelly, Keith Mackenzie and Andrew Wignall.                                                                                                                                                                                                                                                                  



Equity Compensation Plan Information


|                                                           |       |                  |           |           |                  |   |      |                       |  |  |           |           |    
|---------------------------------------------------------- | ----- | ---------------- | --------- | --------- | ---------------- | - | ---- | --------------------- |  |  | --------- | --------- | ---
|                                                           |       | (a)              |           |           |                  |   | (c)  |                      
|                                                           |       | Number of        |           |           | (b)              |   |      | Number of Securities  | 
|                                                           |       | Securities to be |           |           | Weighted-        |   |      | Remaining Available   | 
|                                                           |       | Issued Upon      |           |           | Average Exercise |   |      | for Future Issuance   | 
|                                                           |       | Exercise of      |           |           | Price of         |   |      | Under Equity          | 
|                                                           |       | Outstanding      |           |           | Outstanding      |   |      | Compensation Plans    | 
|                                                           |       | Options,         |           |           | Options,         |   |      | (Excluding Securities | 
|                                                           |       | Warrants and     |           |           | Warrants and     |   |      | Reflected in          | 
|Plan Category                                              |       | Rights           |           |           | Rights           |   |      | Column (a))           | 
|                                                           |       |                  |           |           |                  |   |      |                       | 
|Equity compensation plans approved by security holders     |       |                  | 2,804,093 | (1)       |                  | $ | 6.54 |                       |  |  | 1,481,988 | (2)      
|Equity compensation plans not approved by security holders |       |                  |          |           |                  | $ |     |                       |  |  |          |          
|                                                           |       |                  |           |           |                  |   |      |                       | 
|                                                           | Total |                  |           | 2,804,093 | (1)              |   | $    | 6.54                  |  |  |           | 1,481,988 | (2)
|                                                           |       |                  |           |           |                  |   |      |                       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 1,874,930 shares subject to options outstanding
    under our 1998 Plan and 929,163 shares subject to options
    outstanding under our 2005 Plan. Excludes purchase rights
    currently accruing under the Purchase Plan.                                                                                                                                                                                                                              
|   
|(2) | Includes 910,826 shares of common stock reserved for future
    issuance under our 2005 Plan and 182,068 shares of common
    stock reserved for future issuance under our Purchase Plan. As
    of April 1, 2006, the number of shares available for
    issuance under the foregoing plans automatically increased to
    2,166,991 shares available for issuance under the 2005 Plan
    and 404,290 shares available for issuance under the
    Purchase Plan.

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|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions.



Stockholders Agreement









|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accountant Fees and Services.



|                      |  |             |       |  |      |   |       | 
|--------------------- |  | ----------- | ----- |  | ---- | - | ----- | 
|                      |  | Years Ended |      
|                      |  | March 31,   |      
|                      |  |             |      
|                      |  | 2006        |       |  | 2005 |  
|                      |  |             |       |  |      |  
|Audit Fees(1)         |  | $           | 779   |  |      | $ | 1,418 | 
|Audit-Related Fees(2) |  |             | 168   |  |      |   |      | 
|Tax Fees(3)           |  |             | 54    |  |      |   | 214   | 
|                      |  |             |       |  |      |  
|Total                 |  | $           | 1,001 |  |      | $ | 1,632 | 
|                      |  |             |       |  |      |  






|    |                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These fees consisted of the audit of our financial statements,
    review of our financial statements included in our Quarterly
    Reports on
    Form 10-Q and the
    review of our
    Form S-1
    Registration Statement in connection with our initial
    public offering.
|   
|(2) | These fees consisted of services primarily related to our
    Form 8-K filing in
    connection with the acquisition of Neurologic.                                                                                                                                               
|   
|(3) | These fees consisted of tax compliance, tax advice and tax
    planning including preparation of tax forms and some consulting
    for international tax matters.                                                                                                                 

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PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules.

10-K:




| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Financial Statements. The following statements
    of Micrus Endovascular Corporation and the report of
    PricewaterhouseCoopers LLP, Independent Registered Public
    Accounting Firm, are included in Part II, Item 8:

|                                                                                        |  |        |    | 
|--------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                        |  | Page # |   
|                                                                                        |  |        |   
|Report of PricewaterhouseCoopers LLP,
    Independent Registered Public Accounting Firm |  |        | 58 | 
|Consolidated Balance Sheets                                                             |  |        | 59 | 
|Consolidated Statements of Operations                                                   |  |        | 60 | 
|Consolidated Statements of
    Stockholders Equity (Deficit)                           |  |        | 61 | 
|Consolidated Statements of Cash Flows                                                   |  |        | 63 | 
|Notes to Consolidated Financial
    Statements                                          |  |        | 64 | 



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) Financial Statement Schedules. The following
    schedule is required to be filed by Item 15(b).                                                                                           
|
| | Schedule II  Valuation and Qualifying Accounts
    for each of the three years in the period ended March 31,
    2006                                                                         
|
| | All other schedules have been omitted because they are either
    inapplicable or the required information has been provided in
    the consolidated financial statements or the notes thereto.



| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) Exhibits. The list of exhibits on the Index to
    Exhibits on pages 107 through 108 of this report is
    incorporated herein by reference.

103



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##### Table of Contents







| |                                
| | -------------------------------
| | MICRUS ENDOVASCULAR CORPORATION



| |     |                         
| | --- | ------------------------
| | By: | /s/ John T.
    Kilcoyne

| |                                      
| | -------------------------------------
| |                                      
| | John T. Kilcoyne                     
| | President and Chief Executive Officer



POWERS OF ATTORNEY


attorneys-in 10-K attorneys-in


10-K


|                                             |  |                                                                                                                      |  |               |  | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | 
|Signature                                    |  | Title                                                                                                                |  | Date         
|                                             |  |                                                                                                                      |  |              
|                                            
|/s/ John T. KilcoyneJohn T. Kilcoyne         |  | President and Chief Executive Officer (Principal Executive
    Officer)                                              |  | June 16, 2006
|                                            
|/s/ Robert A. SternRobert A. Stern           |  | Executive Vice President, Chief Financial Officer and Secretary
    (Principal Financial and
    Accounting Officer) |  | June 16, 2006
|                                            
|/s/ Michael R. HensonMichael R. Henson       |  | Chairman of the Board of
    Directors and Director                                                                  |  | June 16, 2006
|                                            
|/s/ L. Nelson HopkinsL. Nelson Hopkins, M.D. |  | Director                                                                                                             |  | June 16, 2006
|                                            
|/s/ Fred HolubowFred Holubow                 |  | Director                                                                                                             |  | June 16, 2006
|                                            
|/s/ Beat R. MerzBeat R. Merz                 |  | Director                                                                                                             |  | June 16, 2006

104



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|                                       |  |          |  |               |  | 
|-------------------------------------- |  | -------- |  | ------------- |  | 
|Signature                              |  | Title    |  | Date         
|                                       |  |          |  |              
|                                      
|/s/ Francis J. ShammoFrancis J. Shammo |  | Director |  | June 16, 2006
|                                      
|/s/ Jeffrey H. ThielJeffrey H. Thiel   |  | Director |  | June 16, 2006
|                                      
|/s/ Simon WaddingtonSimon Waddington   |  | Director |  | June 16, 2006

105



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##### Table of Contents






Schedule II  Valuation and Qualifying
Accounts


|                                |                           |            |   |            |           |  |   |            |  |  |             |      |   |  |   |     | 
|------------------------------- | ------------------------- | ---------- | - | ---------- | --------- |  | - | ---------- |  |  | ----------- | ---- | - |  | - | --- | 
|                                |                           |            |   | Charged to |           |  |   |            | 
|                                |                           | Balance at |   |            | Expenses/ |  |   | Write-Offs |  |  |            
|                                |                           | Beginning  |   |            | Against   |  |   | Net of     |  |  | Balance at  |     
|                                |                           | of Year    |   |            | Revenue   |  |   | Recoveries |  |  | End of Year |     
|                                |                           |            |   |            |           |  |   |            |  |  |             |     
|Allowance for Doubtful Accounts |                           |            |   |            |           |  |   |            |  |  |             |      |   |  |   |    
|                                | Year Ended March 31, 2006 |            | $ | 230        |           |  | $ | 102        |  |  | $           | (15  | ) |  | $ | 317 | 
|                                | Year Ended March 31, 2005 |            |   | 267        |           |  |   | 11         |  |  |             | (48  | ) |  |   | 230 | 
|                                | Year Ended March 31, 2004 |            |   | 136        |           |  |   | 176        |  |  |             | (45  | ) |  |   | 267 | 
|Inventory Reserve               |                           |            |   |            |           |  |   |            |  |  |             |      |   |  |   |    
|                                | Year Ended March 31, 2006 |            |   | 951        |           |  |   | 264        |  |  |             | (285 | ) |  |   | 930 | 
|                                | Year Ended March 31, 2005 |            |   | 868        |           |  |   | 734        |  |  |             | (651 | ) |  |   | 951 | 
|                                | Year Ended March 31, 2004 |            |   | 119        |           |  |   | 739        |  |  |             | 10   |   |  |   | 868 | 

106



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##### Table of Contents



INDEX TO EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Certificate of Incorporation (Filed as Exhibit 3.2 of Amendment
    No. 3 to the Companys Registration Statement on Form S-1
    filed on May 17, 2005 (Registration No. 333-123154)
    (Amendment No. 3), and incorporated herein by
    reference)                                                                                                                             
|        | 3  | .2          |  | Bylaws (Filed as Exhibit 3.4 of Amendment No. 3, and
    incorporated herein by reference)                                                                                                                                                                                                                                                                                           
|        | 4  | .1          |  | Specimen Stock Certificate (Filed as Exhibit 4.1 of the
    Companys Registration Statement on Form S-1 filed on March
    4, 2005 (Registration No. 333-123154) (Form S-1),
    and incorporated herein by reference)                                                                                                                                                            
|        | 4  | .2          |  | Warrant dated as of December 11, 2000 among the Registrant and
    Roberts Mitani Capital, LLC (Filed as Exhibit 4.2 of Form S-1,
    and incorporated herein by reference)                                                                                                                                                                                                          
|        | 4  | .3          |  | Amended and Restated Stockholders Rights Agreement dated
    as of February 21, 2005 among the Registrant and the parties
    listed therein (Filed as Exhibit 4.3 of Form S-1, and
    incorporated herein by reference)                                                                                                                                                           
|        | 4  | .4          |  | Form of Common Stock Warrant issued in connection with the
    Series E Preferred Stock and Warrant Purchase Agreement dated
    February 21, 2005, among the Company and the purchasers of the
    Companys Series E Preferred Stock (Filed as Exhibit 4.4 to
    the Companys Quarterly Report on Form 10-Q filed on
    February 14, 2006, and incorporated herein by reference)
|        | 10 | .1*         |  | 1996 Stock Option Plan (Filed as Exhibit 10.1 of Form S-1, and
    incorporated herein by reference)                                                                                                                                                                                                                                                                                 
|        | 10 | .2*         |  | 1998 Stock Plan (Filed as Exhibit 10.2 of Form S-1, and
    incorporated herein by reference)                                                                                                                                                                                                                                                                                        
|        | 10 | .3*         |  | 2005 Equity Incentive Plan (Filed as Exhibit 10.3 of Amendment
    No. 4 to the Companys Registration Statement on Form S-1
    filed on May 23, 2005 (Registration No. 333-123154)
    (Amendment No. 4), and incorporated herein by
    reference)                                                                                                                              
|        | 10 | .4*         |  | 2005 Equity Incentive Plan  Form of Incentive Stock
    Option Agreement for Executive Officers and Directors (Filed as
    Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
    filed on August 15, 2005, and incorporated herein by reference)                                                                                                                         
|        | 10 | .5*         |  | 2005 Equity Incentive Plan  Form of Nonstatutory
    Stock Option Agreement for Executive Officers and Directors
    (Filed as Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q filed on August 15, 2005, and incorporated herein by
    reference)                                                                                                                  
|        | 10 | .6*         |  | Employee Cash Bonus Plan with respect to Executive Officers
    (Filed as Exhibit 99.1 to the Companys Current Report on
    Form 8-K filed on July 19, 2005, and incorporated herein by
    reference)                                                                                                                                                                             
|        | 10 | .7*         |  | 2005 Employee Stock Purchase Plan, as amended (Filed as Exhibit
    10.4 of Amendment No. 6 to the Companys Registration
    Statement on Form S-1 filed on June 13, 2005 (Registration No.
    333-123154) (Amendment No. 6), and incorporated
    herein by reference)                                                                                                          
|        | 10 | .8*         |  | Letter Agreement dated November 15, 2004 with John R. Kilcoyne
    (Filed as Exhibit 10.7 of Form S-1, and incorporated herein by
    reference)                                                                                                                                                                                                                                     
|        | 10 | .9*         |  | Letter Agreement dated November 5, 2003 with Robert A. Stern
    (Filed as Exhibit 10.8 of Form S-1, and incorporated herein by
    reference)                                                                                                                                                                                                                                       
|        | 10 | .10*        |  | Letter Agreement dated June 12, 1998 with Tom M. Holdych (Filed
    as Exhibit 10.9 of Form S-1, and incorporated herein by
    reference)                                                                                                                                                                                                                                           
|        | 10 | .11*        |  | Letter Agreement dated May 23, 2003 with Edward F. Ruppel, Jr.
    (Filed as Exhibit 10.10 of Form S-1, and incorporated herein by
    reference)                                                                                                                                                                                                                                    
|        | 10 | .12*        |  | Letter Agreement dated October 25, 2004 with Eckhard H. Reitz
    (Filed as Exhibit 10.13 of Form S-1, and incorporated herein by
    reference)                                                                                                                                                                                                                                     
|        | 10 | .13*        |  | Letter Agreement dated February 16, 2005 with Robert
    C. Colloton (Filed as Exhibit 10.23 of Amendment
    No. 6, and incorporated herein by reference)                                                                                                                                                                                                                           
|        | 10 | .14         |  | Form of Director and Executive Officer Indemnification Agreement
    (Filed as Exhibit 10.14 of Form S-1, and incorporated herein by
    reference)                                                                                                                                                                                                                                  

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##### Table of Contents



|        |     |             |  |                                                                                                                                                                                                                                                                                                                                   
|------- | --- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | 10  | .15         |  | Office Lease dated June 6, 2005 between the Registrant and WW/LJ
    GATEWAYS LTD., a California limited partnership, for office
    space located at 821 Fox Lane in San Jose, California (Filed as
    Exhibit 99.1 to the Companys Current Report on Form 8-K
    filed on July 5, 2005, and incorporated herein by reference)
|        | 10  | .16**       |  | Distribution Agreement, dated September 30, 2005, between Micrus
    Endovascular Corporation and Goodman CO., Ltd. (Filed as Exhibit
    10.3 to the Companys Quarterly Report on Form 10-Q filed
    on November 14, 2005, and incorporated herein by reference)                                                               
|        | 10  | .17         |  | Share Purchase Agreement, dated September 20, 2005, between Mark
    Ellis and James Mackenzie and Micrus Endovascular Corporation
    (Filed as Exhibit 2.1 to the Companys Current Report on
    Form 8-K filed on September 26, 2005, and incorporated herein by
    reference)                                               
|        | 10  | .18**       |  | License Agreement, effective July 1, 2005, between Micrus
    Endovascular Corporation and Micrus Endovascular SA (Filed as
    Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q
    filed on November 14, 2005, and incorporated herein by reference)                                                                 
|        | 10  | .19**       |  | Contract Manufacturing Agreement, effective July 1, 2005,
    between Micrus Endovascular Corporation and Micrus Endovascular
    SA (Filed as Exhibit 10.6 to the Companys Quarterly Report
    on Form 10-Q filed on November 14, 2005, and incorporated herein
    by reference)                                              
|        | 10  | .20**       |  | Agreement for Sharing Development Costs, effective July 1, 2005,
    between Micrus Endovascular Corporation and Micrus Endovascular
    SA (Filed as Exhibit 10.7 to the Companys Quarterly Report
    on Form 10-Q filed on November 14, 2005, and incorporated herein
    by reference)                                       
|        | 10  | .21**       |  | Support Services Agreement, effective July 1, 2005, between
    Micrus Endovascular Corporation and Micrus Endovascular SA
    (Filed as Exhibit 10.8 to the Companys Quarterly Report on
    Form 10-Q filed on November 14, 2005, and incorporated herein by
    reference)                                                    
|        | 10  | .22**       |  | Technology Transfer Agreement, effective July 28, 2005,
    between Micrus Endovascular Corporation and VascularFX (Filed as
    Exhibit 10.9 to the Companys Quarterly Report on
    Form 10-Q filed on November 14, 2005, and incorporated
    herein by reference)                                                            
|        | 10  | .23#**      |  | License, Development and Distribution Agreement, effective
    January 6, 2006, between Micrus Endovascular Corporation and
    Biotronik AG                                                                                                                                                                                      
|        | 21  | .1#         |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                              
|        | 23  | .1#         |  | Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm                                                                                                                                                                                                                                          
|        | 24  | .1#         |  | Powers of Attorney (appears on the signature page of this form)                                                                                                                                                                                                                                                                   
|        | 31  | .1#         |  | Certification of Chief Executive Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                            
|        | 31  | .2#         |  | Certification of Chief Financial Officer Pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                            
|        | 32# |             |  | Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                       






|   |  |                                                                                                                                                                                                                                                     
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|#  |  | Filed herewith.                                                                                                                                                                                                                                     
|  
|*  |  | Indicates a management contract or compensatory plan or
    arrangement, as required by Item 15(a)3.                                                                                                                                                
|  
|** |  | Confidential treatment requested for certain portions of this
    Exhibit pursuant to Rule 24b-2 promulgated under the
    Securities Exchange Act, which portions are omitted and filed
    separately with the Securities and Exchange Commission.

108