##### 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 December 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 000-52045
 VOLCANO CORPORATION
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
    
    33-0928885(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)2870 Kilgore Road
    
    95670Rancho Cordova, California
    
    (Zip Code)(Address of Principal Executive 
Offices)
 Registrants telephone number, including area code:
1-800-228-4728
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.001 per share par value
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



VOLCANO CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007
TABLE OF CONTENTS
 PART I
    
    
    2Item 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    18Item 1B. Unresolved Staff Comments
    
    
    42Item 2. Properties
    
    
    42Item 3. Legal Proceedings
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42PART II
    
    
    43Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    43Item 6. Selected Financial Data
    
    
    46Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    48Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    64Item 8. Financial Statements and Supplementary Data
    
    
    65Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    97Item 9A. Controls and Procedures
    
    
    97Item 9B. Other Information
    
    
    98PART III
    
    
    99Item 10. Directors, Executive Officers and Corporate Governance
    
    
    99Item 11. Executive Compensation
    
    
    99Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    99Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    99Item 14. Principal Accounting Fees and Services
    
    
    99PART IV
    
    
    100Item
15. Exhibits, Financial Statement Schedules
    
    
    100SIGNATURES
    
    
    104EXHIBIT INDEX
    
    
    105EXHIBIT 10.20EXHIBIT 10.21EXHIBIT 12.1EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  1




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##### Table of Contents



This annual report on Form 10-K contains forward-looking statements regarding future events and our
future results that are based on current expectations, estimates, forecasts, and projections about
the industries in which we operate and the beliefs and assumptions of our management. In some
cases, you can identify these forward-looking statements by words like may, will, should,
expects, plans, anticipates, believes, estimates, predicts, potential or continue
or the negative of those words and other comparable words. These statements include, but are not
limited to, those concerning the following; our intentions, beliefs and expectations regarding our
future financial performance, anticipated growth and trends in our business; the timing and success
of our clinical trials and regulatory submissions; our belief that our cash and cash equivalents
will be sufficient to satisfy our anticipated cash requirements; our operating results; our
expectations regarding our revenues and customers; our distributors and statements regarding market
penetration and expansion efforts. Forward-looking statements are subject to risks and
uncertainties that could cause actual results and events to differ materially. For a detailed
discussion of these risks and uncertainties, see the Risk Factors section of this Form 10-K . Any
forward-looking statement speaks only as of the date on which it is made, and except as required by
law, we undertake no obligation to update forward-looking statements to reflect events or
circumstances occurring after the date of this Form 10-K .
 We currently have registered trademarks for, at least, Volcano®, Eagle Eye®, Visions®, Revolution®,
ComboWire®, SmartMap®, ComboMap®, SmartWire®, FloWire®, WaveWire®, VH®, Trak Back®, FloMap®,
ChromaFlo® and Avanar®, and are in the process of registering certain other of our trademarks with
the U.S. Patent and Trademark Office including, but not limited to, vfusion powered by
Volcano TM , vfusion TM , AIM TM , Safe and Sound TM and
SpinVision TM . Other brand names or trademarks appearing in this Annual Report are the
property of their respective holders.
 
 PART I
 
 Item 1. Business
 Overview
    2




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Our Strategy
  
    
    Accelerating the trend towards less invasive procedures.Our IVUS
products offer continuous, real-time three-dimensional imaging, plaque
visualization, color-coded identification of plaque composition, and
automatic drawing of lumen and vessel borders allowing for automatic
vessel sizing. Our FM products offer physicians a simple pressure and
flow based method to determine whether stenting or additional
percutaneous intervention is required. We believe our combination of
IVUS enhancements and functional assessment is instrumental in
facilitating less invasive procedures.
    
    Improving the diagnosis of cardiovascular disease.We believe our VH
IVUS products will significantly improve the diagnosis of
cardiovascular disease by addressing the limitations of diagnostic
angiography. Our ongoing VH Registry is exploring the correlation of
plaque characteristics with patient demographics, clinical
presentation and cardiac risk factors, which in conjunction with the
PROSPECT data we believe will allow clinicians to identify patients
and lesions at risk for future adverse coronary vascular system
events.
    
    Improving the outcomes of percutaneous interventional procedures.We
believe our products, enabled with novel technological enhancements,
provide clinically significant information that improves the outcomes
of current and increasingly complex percutaneous interventional
procedures.
    
    Enabling new procedures to treat CAD, PAD and structural heart
disease.Current treatment of a number of vascular and structural
heart diseases, including coronary, peripheral and carotid artery
disease and atrial fibrillation, a heart rhythm disorder involving a
rapid heart rate in which the upper chambers, or atria, are stimulated
to contract in a disorganized and abnormal manner, is limited by
conventional catheter-based techniques and angiography. Because our
technologies address many of these current limitations, we believe our
products provide the potential to enable these diseases to be
diagnosed and optimally treated percutaneously.
    
    Improving ease of use of IVUS technologies to drive market adoption.
We believe our products, especially our recent IVUS product
enhancements such as automatic real-time drawing of lumen and vessel
borders, automatic vessel sizing, and color-coded identification of
plaque composition, allow doctors to use IVUS with less training while
still providing substantially more and better information. Our
products also help physicians to conduct increasingly complex
percutaneous procedures.
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
    
    Decreasing the number of interventional devices used per procedure and
optimizing their usage.FM products offer the opportunity to
physiologically assess lesion severity and determine whether stents
are needed. Additionally, our image guided therapy products have
imaging capability. As a result, our IVUS and FM products have the
potential to reduce the number of devices deployed thereby lowering
treatment costs. IVUS provides the interventionalist the information
to optimize stent sizing and placement.
  
    
    Increase market share in existing IVUS and FM markets.We continue to
introduce product enhancements to meet physicians needs for improved
visualization, characterization, and ease of use. We believe these
enhancements make our products easier to use than competing products
while providing substantially more and better information to improve
procedural outcomes, thereby driving greater usage of our IVUS and FM
products within the existing percutaneous interventional market.
    
    Increase IVUS and FM adoption rates.We are working on three
strategies to increase penetration. First, we have addressed
limitations of conventional IVUS such as difficulty in use, lack of
automation and grayscale imaging by developing technologies and
introducing features such as automatic real-time drawing of lumen and
vessel borders, color-coded identification of plaque composition, and
automatic vessel sizing. Second, we developed PC-based IVUS and FM
consoles that can be integrated easily into cath labs, thereby making
it easier for physicians to adopt and use our products. Third, we have
pursued collaborations such as our agreement with General Electric
Medical Systems Scs, or GE, in which our integrated IVUS products are
required to be included on all of GEs initial quotes for
cardiovascular and interventional radiology systems.
    
    Leverage our installed base to drive single-procedure disposable
device revenues.We intend to grow and leverage our installed base
of IVUS and FM consoles to drive recurring sales of our
single-procedure disposable catheters and guide wires to increase our
recurring revenue stream from sales of our single-procedure disposable
products to our installed base.
    
    Develop clinical applications for and utilization of our technology in
new markets.We plan to leverage our current technology to expand
into new markets and increase clinical applications through clinical
studies, conducted by us or with other companies. We have several
programs underway to expand the use of our technology in percutaneous
interventional procedures and drug studies. These include
(1) establishing the use of our IVUS products in combination with
diagnostic angiography, (2) developing the capability to determine
optimal treatment options for those patients who have stents placed
and are on anti-platelet drug therapy, (3) developing technology
supported by clinical data to diagnose and guide treatment of
vulnerable plaque and carotid artery disease, (4) developing a family
of intracardiac echo products based on our existing technologies to
improve treatments of structural heart disease, (5) integrating the
imaging capability of IVUS with coronary and peripheral therapeutic
devices, and (6) using our current technologies in on-going or planned
drug studies conducted by pharmaceutical and biotechnology companies.
    
    Enhance product capabilities and introduce new products through
collaborations or acquisitions.We have a successful track record of
acquiring and licensing technologies and collaborating with third
parties to create synergistic product offerings. For instance, we
licensed from The Cleveland Clinic Foundation the VH IVUS technology
that now forms the core of our ability to determine the composition of
plaque and acquired from Philips the intellectual property rights
allowing us to develop our Revolution rotational catheter. In December
2007, we acquired CardioSpectra, Inc. whose core product line, based
on innovative Optical Coherence Tomography (OCT) technology, is
expected to complement our existing product offerings. In addition. We
believe there will be additional opportunities to leverage these
capabilities through technology or company acquisitions as well as
collaborations.
    
    Improve manufacturing efficiencies and reduce costs to improve
margins.We believe that by moving to PC-based consoles and improving
our manufacturing processes through increased automation and design
improvements, we will be able to continue to reduce the cost to
manufacture our consoles and single-procedure disposable products.
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
    
    Continue to expand and protect our intellectual property position.As
of December 31, 2007, we had a broad portfolio of at least 191 owned
or licensed U.S. and international patents and 154 applications for
owned or licensed patents. We intend to continue to expand our
intellectual property position to protect the design and use of our
products, principally in the areas of IVUS and FM for the diagnosis
and guidance of treatment of vascular and structural heart disease.
 Our Products
  Our IVUS Products
 Consoles
 s5:
 s5i:
 s5i GE Innova IVUS:
 s5 and s5i with FFR:
 Catheters
 5




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Advanced Functionality   in vivo
 ChromaFlo
 VH IVUS
  Expected
    
    Expected
    
    ExpectedEuropean
    
    U.S.
    
    JapaneseProduct
    
    Launch Date
    
    Launch Date
    
    Launch DateConsoless5 grayscale
    
    Launched
    
    Launched
    
    Launcheds5 with VH IVUS
    
    Launched
    
    Launched
    
    Launcheds5i with VH IVUS
    
    Launched
    
    Launched
    
    Launcheds5i GE Innova IVUS with VH IVUS
    
    Launched
    
    Launched
    
    s5 and s5i with FFR
    
    1H 2008
    
    1H 2008
    
    2H 2008CathetersRevolution on IVG consoles
    
    Launched
    
    Launched
    
    LaunchedRevolution on s5 family of consoles
    
    1H 2008
    
    1H 2008
    
    2H 2008Revolution supporting VH IVUS on s5
    
    1H 2009
    
    1H 2009
    
    2H 2009IVUS Guided Balloon
    
    1H 2009
    
    2H 2009
    
    2H 2010
 6




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Our FM Products
  Product Expansion
 Our
Vulnerable Plaque Products and
Technology
  Optical Coherence Tomography
  IVUS
Guided Therapies
 Intra-Cardiac Echocardiography
 7




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Clinical Program
   Study
    
    Indication
    
    Study Design
    
    Status
    
    Collaborator(s)ADAPT
(US/Europe)
    
    Study of the
optimal placement
of drug eluting
stents and optimal
anti-platelet
therapy
    
    11,000 patient,
multi-center study
of drug- eluting
stent placement and
stent thrombosis
with a
3,000 patient IVUS
sub-study
    
    Enrollment to begin
in March 2008
    
    Cardiovascular
Research Foundation
(CRF), Abbott
Vascular, Boston
Scientific and Johnson
& JohnsonPROSPECT
(US/Europe)
    
    Natural history
study of plaque to
investigate
non-flow
obstructing lesions
with an increased
risk for future
coronary events
    
    700 patient,
multi-center study
of acute coronary
syndrome patients
with single or
double CAD; non-
randomized
    
    Enrollment
completed, follow
up ongoing; interim
baseline data from
the first
250 patients was
presented in
October 2006
    
    Abbott VascularVolcano VH Registry (Worldwide)
    
    Study of
correlation of
coronary plaque
characteristics
with patient
demographics,
clinical
presentation and
cardiac risk
factors
    
    3,000 patient,
non-randomized
prospective, multi-
center, global,
registry imaging
study
    
    Enrollment
completed, analysis
of data in
progress; interim
data on first
990 patients
presented in
October 2006;
publications
planned for 2H 2007
    
    IBIS-2
(Europe)
    
    Estimate the effect
on the novel GSK
Lp-PLA(2) inhibitor
on circulatory
biomarkers and
coronary plaque
biomechanical
properties as well
as endothelial
dysfunction,
coronary plaque
volume and
composition with
IVUS grayscale
palpography and VH
IVUS
    
    330 patient,
randomized,
placebo-controlled,
parallel-group, one
year treatment
study
    
    Enrollment
completed, one year
follow up
completed;
presentation of
data expected 1H
2008
    
    GlaxoSmithKlineCAPITAL
(US)
    
    Evaluate the
prevalence and
correlation of the
data provided by
IVUS grayscale and
VH IVUS, such as
plaque components,
quantities,
configurations and
location, to
patient
demographics,
clinical
presentation and
risk factors for
carotid artery
disease
    
    30 patient,
single-center study
    
    Enrollment
completed; analysis
of data completed
and published
    
    Arizona Heart Institute
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Assessment of Dual Anti-Platelet Therapy with Drug-Eluting Stents (ADAPT)
  Providing Regional Observations to Study Predictors of Events in the Coronary Tree (PROSPECT)
  2
 Volcano VH Registry
 in vivo
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Study of Prospective Events in Coronary Intermediate Atherosclerotic Lesions (SPECIAL)
  Integrated Biomarker and Imaging Study (IBIS-2)
  Carotid Artery Plaque Virtual Histology Evaluation (CAPITAL)
  10




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Clinical Studies Using IVUS and VH Products
  Sales, Marketing and Distribution
      
    
    Consoles.We sell our consoles through our own direct sales force,
through distributors and through our supply and distribution agreement
with GE.
    
    Disposables.We leverage our installed base of consoles to drive
recurring sales of our proprietary disposables. We provide training
and clinical support to users of our products to increase their
familiarity with product features and benefits, and thereby increase
usage.
   11




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United States
  International
  Japan
   Interventional Cardiology
  Functional Measurement
  Endovascular/ Peripheral Applications
  12




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Europe
  Other International
  Financial Information About Geographic Areas
  Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total2007
    
    
    Revenue
    
    
    2006
    
    
    Revenue
    
    
    2005
    
    
    RevenueRevenues:United States
    
    $
    66,411
    
    
    
    50.8
    %
    
    $
    51,013
    
    
    
    49.5
    %
    
    $
    40,933
    
    
    
    44.5
    %Japan
    
    
    35,186
    
    
    
    26.9
    
    
    
    30,082
    
    
    
    29.2
    
    
    
    33,207
    
    
    
    36.1Europe, the Middle East and Africa
    
    
    23,995
    
    
    
    18.4
    
    
    
    17,765
    
    
    
    17.2
    
    
    
    15,294
    
    
    
    16.6Rest of world
    
    
    5,022
    
    
    
    3.8
    
    
    
    4,188
    
    
    
    4.1
    
    
    
    2,466
    
    
    
    2.7$
    130,614
    
    
    
    100.0
    
    
    $
    103,048
    
    
    
    100.0
    
    
    $
    91,900
    
    
    
    100.0
 Supply and Distribution Agreement with GE
  Competition
  
    
    innovate and maintain scientifically advanced technology;
    
    apply our technology across products and markets;
    
    develop proprietary products;
    
    successfully conduct clinical studies that expand our markets;
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
    
    obtain and maintain patent protection for our products;
    
    obtain and maintain regulatory approvals;
    
    cost-effectively manufacture and successfully market our products; and
    
    attract and retain skilled personnel.
   Intellectual Property
    Patents and Trademarks
  14




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® ® ® ® ® ® ® ® ® ® ® ® ® ® ® TM TM TM TM TM
 Third-party Licenses
  The Cleveland Clinic License
  Asset Transfer Agreement with Philips
  License with Medtronic
  Research and Development
  15




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Manufacturing
    Government Regulation
   
    
    product design, development and manufacture;
    
    product safety, testing, labeling and storage;
 16




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
    
    pre-marketing clearance or approval;
    
    record keeping procedures;
    
    product marketing, sales and distribution; and
    
    post-marketing surveillance, complaint handling, medical device
reporting, reporting of deaths or serious injuries and repair or
recall of products.
  
    
    warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;
    
    repair, replacement, refunds, recall or seizure of our products;
    
    operating restrictions, partial suspension or total shutdown of production;
    
    refusing our requests for 510(k) clearance or PMA approval of new products, new intended
uses or modifications to existing products;
    
    withdrawing 510(k) clearance or PMA approvals that have already been granted; and
    
    criminal prosecution.
 Employees
  Seasonality
  Corporate Information
  Available Information
  17




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Item 1A. Risk Factors
 Risks Related to Our Business and Industry
   
    
    physicians accepting the benefits of the use of IVUS in conjunction with angiography;
    
    physician experience with IVUS products;
    
    the availability of, and physicians willingness to participate in, training
required to gain proficiency in the use of IVUS products;
    
    the additional procedure time required for use of IVUS;
    
    perceived risks generally associated with the use of new products and procedures;
    
    the availability of alternative treatments or procedures that are perceived to be or
are more effective, safer, easier to use or less costly than IVUS technology;
    
    availability of adequate reimbursement; and
    
    marketing efforts and publicity regarding IVUS technology.
 
 
    
    the lack of perceived benefits of information on plaque composition
available to the physician through use of our IVUS products, including
the ability to identify calcified and other forms of plaque;
    
    the actual and perceived ease of use of our IVUS products;
    
    the quality of the images rendered by our IVUS products;
    
    the cost, performance, benefits and reliability of our IVUS products
relative to the products and services offered by our competitors;
    
    the lack of perceived benefit of integration of our IVUS products into the cath lab; and
    
    the extent and timing of technological advances.
  18




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We have a limited operating history, have incurred significant operating losses since inception and
cannot assure you that we will achieve profitability.
  If the clinical studies that we sponsor or co-sponsor are unsuccessful, or clinical data from
studies conducted by other industry participants are negative, we may not be able to develop or
increase penetration in identified markets and our business prospects may suffer.
  
    
    the U.S. Food and Drug Administration, or the FDA, institutional review boards or other regulatory
authorities do not approve a clinical study protocol or place a clinical study on hold;
    
    patients do not enroll in a clinical study or are not followed-up at the expected rate;
    
    patients experience adverse side effects, including adverse side effects to our or a co-sponsors drug
candidate or device;
    
    patients die during a clinical study for a variety of reasons that may or may not be related to our
products, including the advanced stage of their disease and medical problems;
    
    third-party clinical investigators do not perform the clinical studies on the anticipated schedule or
consistent with the clinical study protocol and good clinical practices, or other third-party
organizations do not perform data collection and analysis in a timely or accurate manner;
    
    our co-sponsors do not perform their obligations in relation to the clinical study or terminate the study;
    
    regulatory inspections of manufacturing facilities, which may, among other things, require us or a
co-sponsor to undertake corrective action or suspend the clinical studies;
    
    changes in governmental regulations or administrative actions; and
    
    the interim results of the clinical study are inconclusive or negative; and the study design, although
approved and completed, is inadequate to demonstrate safety and efficacy.
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If we are unable to identify the plaque that is most likely to rupture and cause a coronary event
we may not be able to develop a market for our vulnerable plaque products or expand the market for
existing products.
  If sponsorship of the PROSPECT study is delayed or stopped, our ongoing and future business may be
negatively affected because of the potential inability to obtain useful clinical data or increased
costs and delays in completing the study.
  20




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Competition from companies that have longer operating histories and greater resources than us may
harm our business.
  
    
    innovate and maintain scientifically advanced technology;
    
    apply our technology across products and markets;
    
    develop proprietary products;
    
    successfully conduct or sponsor clinical studies that expand our markets;
    
    obtain and maintain patent protection for our products;
    
    obtain and maintain regulatory clearance or approvals;
    
    cost-effectively manufacture and successfully market our products; and
    
    attract and retain skilled personnel.
 
 
    
    more established distribution networks;
    
    entrenched relationships with physicians;
    
    products and procedures that are less expensive;
    
    broader range of products and services that may be sold in bundled arrangements;
    
    greater experience in launching, marketing, distributing and selling products;
    
    greater experience in obtaining and maintaining the FDA and other regulatory clearances and approvals;
    
    established relationships with healthcare providers and payors; and
    
    greater financial and other resources for product development, sales and marketing, acquisitions of
products and companies, and intellectual property protection.
  21




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Failure to innovate will adversely impact our competitive position and may adversely impact our
product revenues.
   We manufacture our IVUS catheters, maintain our own customized equipment and are implementing a new
manufacturing process, making us vulnerable to production and supply problems that could negatively
impact our revenues.
    22




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We are dependent on our collaborations, and events involving these collaborations or any future
collaborations could delay or prevent us from developing or commercializing products.
    Delays in planned product introductions may adversely affect our business and negatively impact
future revenues.
    23




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
    
    we do not achieve our objectives under our collaboration agreements;
    
    we or our collaborators are unable to obtain patent protection for the products or proprietary
technologies we develop in our collaborations;
    
    we are unable to manage multiple simultaneous product discovery and development collaborations;
    
    our collaborators become competitors of ours or enter into agreements with our competitors;
    
    we or our collaborators encounter regulatory hurdles that prevent commercialization of our products; and
    
    we develop products and processes or enter into additional collaborations that conflict with the
business objectives of our other collaborators.
   If we choose to acquire new businesses, products or technologies, we may experience difficulty in
the identification or integration of any such acquisition, and our business may suffer.
  To market and sell our products, we depend on third-party distributors, and they may not be
successful.
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The risks inherent in our international operations may adversely impact our revenues, results of
operations and financial condition.
  
    
    our ability to obtain, and the costs associated with obtaining, U.S. export licenses and other required
export or import licenses or approvals;
    
    operating under government-run healthcare systems and changes in third-party reimbursement policies;
    
    changes in duties and tariffs, taxes, trade restrictions, license obligations and other non-tariff
barriers to trade;
    
    burdens of complying with a wide variety of foreign laws and regulations related to healthcare products;
    
    costs of localizing product and service offerings for foreign markets;
    
    business practices favoring local companies;
    
    longer payment cycles and difficulties collecting receivables through foreign legal systems;
    
    difficulties in enforcing or defending agreements and intellectual property rights; and
    
    changes in foreign political or economic conditions.
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We depend on one distributor to hold the regulatory approvals related to certain of our products
imported into Japan and for ongoing regulatory compliance, and difficulties involving this
relationship will impair our ability to sell these products in Japan.
  Our manufacturing operations are dependent upon third party suppliers, which makes us vulnerable to
supply problems, price fluctuations and manufacturing delays.
     26




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
    
    inability to obtain adequate supply in a timely manner or on commercially reasonable terms;
    
    interruption of supply resulting from modifications to, or discontinuation of, a suppliers operations;
    
    delays in product shipments resulting from uncorrected defects, reliability issues or a suppliers
variation in a component;
    
    uncorrected quality and reliability defects that impact performance, efficacy and safety of products
from replacement suppliers;
    
    price fluctuations due to a lack of long-term supply arrangements for key components with our suppliers;
    
    difficulty identifying and qualifying alternative suppliers for components in a timely manner;
    
    production delays related to the evaluation and testing of products from alternative suppliers and
corresponding regulatory qualifications; and
    
    delays in delivery by our suppliers due to changes in demand from us or their other customers.
   We may require significant additional capital to pursue our growth strategy, and our failure to
raise capital when needed could prevent us from executing our growth strategy.
  
    
    market acceptance of our products;
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
    
    the revenues generated by our products
    
    the need to adapt to changing technologies and technical requirements, and the costs related thereto;
    
    the costs associated with expanding our manufacturing, marketing, sales and distribution efforts; and
    
    the existence and timing of opportunities for expansion, including acquisitions and strategic transactions.
  If we are unable to recruit, hire and retain skilled and experienced personnel, our ability to
effectively manage and expand our business will be harmed.
  If we fail to properly manage our anticipated growth, our business could suffer.
  Future interest income and the value of our investments may be impacted by further declines in
interest rates and the broader effect of the recent disruption of credit markets.
  28




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##### Table of Contents



Fluctuations in foreign currency exchange rates could result in declines in our reported revenues
and earnings.
  Our FM products have one competitor who, if more successful at commercializing its product, may
cause us to lose market share which would adversely impact our business.
  If we become profitable, we cannot assure you that our net operating losses will be available to
reduce our tax liability.
  The expense and potential unavailability of insurance coverage for our company, customers or
products may have an adverse effect on our financial position and results of operations.
   
    
    substantial costs of related litigation or regulatory action;
    
    substantial monetary penalties or awards;
    
    decreased demand for our products;
    
    reduced revenue or market penetration;
 29




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##### Table of Contents




    
    injury to our reputation;
    
    withdrawal of clinical study participants;
    
    an inability to establish new strategic relationships;
    
    increased product liability insurance rates; and
    
    prevention of securing continuing coverage.
  Risks Related to Government Regulation
 If we fail to obtain, or experience significant delays in obtaining, regulatory clearances or
approvals for our products or product enhancements, our ability to commercially distribute and
market our products could suffer.
    30




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##### Table of Contents



Modifications to our products may require new regulatory clearances or approvals or may require us
to recall or cease marketing our products until clearances are obtained.
   If we fail to adequately manage our regulatory responsibilities following the Japanese regulatory
approvals, our ability to sell our IVUS products in Japan would be impaired.
  31




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##### Table of Contents



Changes in the Japanese regulatory requirements for medical devices could impact our ability to
market our products in Japan and subject us to fines, penalties or other sanctions.
     32




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##### Table of Contents



If we or our suppliers fail to comply with the FDAs Quality System Regulation or ISO Quality
Management Systems, manufacturing of our products could be negatively impacted and sales of our
products could suffer.
      Our products may in the future be subject to product recalls or voluntary market withdrawals that
could harm our reputation, business and financial results.
  33




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##### Table of Contents



If our products, or malfunction of our products, cause or contribute to death or serious injury, we
will be subject to medical device reporting regulations, which can result in voluntary corrective
actions or agency enforcement actions.
   Failure to obtain regulatory approval in additional foreign jurisdictions will prevent us from
expanding the commercialization of our products abroad.
  34




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##### Table of Contents



We may be subject to Federal, state and foreign healthcare fraud and abuse laws and regulations and
other regulatory reforms, and a finding of failure to comply with such laws, regulations and
reforms could have a material adverse effect on our business.
      35




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##### Table of Contents



If our customers are unable to obtain coverage of or sufficient reimbursement for procedures
performed with our products, it is unlikely that our products will be widely used.
      36




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##### Table of Contents



Compliance with environmental laws and regulations could be expensive, and failure to comply with
these laws and regulations could subject us to significant liability.
  The use, misuse or off-label use of our products may result in injuries that lead to product
liability suits, which could be costly to our business.
  Risks Related to Our Intellectual Property and Potential Litigation
 Our ability to protect our intellectual property and proprietary technology through patents and
other means is uncertain.
  37




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##### Table of Contents



The medical device industry is characterized by patent litigation, and we could become subject to
litigation that could be costly, result in the diversion of our managements time and efforts,
require us to pay damages or prevent us from selling our products.
   We expect to enter new product fields, such as the IVUS guided therapies and ICE field, in the
future. Entering such additional fields may subject us to claims of infringement. Defending any
infringement claims would be expensive and time consuming.
  38




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##### Table of Contents



Our rights to a worldwide license of certain IVUS patents owned or licensed by Boston Scientific
may be challenged.
  Our VH IVUS business depends on a license from The Cleveland Clinic Foundation, the loss of which
would severely impact our business.
  Risks Related to Our Common Stock
 We expect that the price of our common stock will fluctuate substantially.
  
    
    changes in earnings estimates, investors perceptions, recommendations by securities analysts or our
failure to achieve analysts earning estimates;
    
    quarterly variations in our or our competitors results of operations
    
    changes in governmental regulations or in the status of our regulatory clearance or approvals;
    
    changes in availability of third-party reimbursement in the United States or other countries;
 39




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##### Table of Contents




    
    the announcement of new products or product enhancements by us or our competitors;
    
    the announcement of an acquisition or other business combination or strategic transaction;
    
    announcements related to patents issued to us or our competitors and to litigation;
    
    sales of large blocks of our common stock, including sales by our executive officers and directors; and
    
    general market conditions and other factors unrelated to our operating performance or the operating
performance of our competitors.
  Future equity issuances or a sale of a substantial number of shares of our common stock may cause
the price of our common stock to decline.
  Our directors, officers and principal stockholders have significant voting power and may take
actions that may not be in the best interests of our other stockholders.
  Anti-takeover provisions in our amended and restated certificate of incorporation and bylaws and
Delaware law could discourage a takeover.
  
    
    a classified board of directors;
    
    advance notice requirements to stockholders for matters to be brought at stockholder meetings;
    
    a supermajority stockholder vote requirement for amending certain provisions of our amended
and restated certificate of incorporation and bylaws; and
    
    the right to issue preferred stock without stockholder approval, which could be used to
dilute the stock ownership of a potential hostile acquirer.
 40




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##### Table of Contents




    
    the rights will become exercisable only upon the occurrence of certain
events specified in the plan, including the acquisition of 20% of our
outstanding common stock by a person or group, with limited
exceptions;
    
    each right will entitle the holder, other than an acquiring person, to
acquire shares of our common stock at a discount to the then
prevailing market price;
    
    our board of directors may redeem outstanding rights at any time prior
to a person becoming an acquiring person at a minimal price per right;
and
    
    prior to a person becoming an acquiring person, the terms of the
rights may be amended by our board of directors without the approval
of the holders of the rights.
 Our costs have increased significantly as a result of operating as a public company, and our
management is required to devote substantial time to comply with public company regulations.
   We have not paid dividends in the past and do not expect to pay dividends in the future.
  41




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##### Table of Contents



Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
   
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  42




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##### Table of Contents



PART II
 
 Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  Price RangeLow
    
    HighFiscal 2007:First Quarter
    
    $
    16.18
    
    
    $
    21.87Second Quarter
    
    
    17.59
    
    
    
    23.10Third Quarter
    
    
    14.40
    
    
    
    20.97Fourth Quarter
    
    
    12.04
    
    
    
    19.09Fiscal Year
    
    
    12.04
    
    
    
    23.10Fiscal 2006:Third Quarter
    
    
    7.95
    
    
    
    14.75Fourth Quarter
    
    
    10.52
    
    
    
    19.90Fiscal Year (publicly traded June 15, 2006 through December 31, 2006)
    
    
    7.90
    
    
    
    19.90
      43




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##### Table of Contents



Performance Graph
 The following Performance Graph and related information shall not be deemed soliciting material
or filed with the Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of
1934, each as amended, except to the extent that we specifically incorporate it by reference into
such filing.
  COMPARISON OF 18 MONTH CUMULATIVE TOTAL RETURN*
Among Volcano Corporation, The NASDAQ Composite Index
And The NASDAQ Medical Equipment Index
 
 44




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##### Table of Contents



Equity Compensation Plan Information
  Recent Sales of Unregistered Securities
  Recent Purchase of our Registered Equity Securities
  Dividends
  45




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##### Table of Contents



Item 6. Selected Financial Data
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Consolidated Statement of Operations
Data:Revenues
    
    $
    130,614
    
    
    $
    103,048
    
    
    $
    91,900
    
    
    $
    61,098
    
    
    $
    23,463Cost of revenues
    
    
    51,559
    
    
    
    41,715
    
    
    
    47,843
    
    
    
    29,860
    
    
    
    14,524Gross profit
    
    
    79,055
    
    
    
    61,333
    
    
    
    44,057
    
    
    
    31,238
    
    
    
    8,939Operating expenses:Selling, general and administrative
    
    
    62,631
    
    
    
    47,614
    
    
    
    35,365
    
    
    
    30,374
    
    
    
    13,880Research and development
    
    
    20,315
    
    
    
    16,923
    
    
    
    15,119
    
    
    
    9,800
    
    
    
    8,064In-process research and development(1)
    
    
    26,188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    3,067
    
    
    
    3,117
    
    
    
    3,052
    
    
    
    2,929
    
    
    
    1,571Total operating expenses
    
    
    112,201
    
    
    
    67,654
    
    
    
    53,536
    
    
    
    43,103
    
    
    
    23,515Operating loss
    
    
    (33,146
    )
    
    
    (6,321
    )
    
    
    (9,479
    )
    
    
    (11,865
    )
    
    
    (14,576
    )Interest income
    
    
    5,841
    
    
    
    958
    
    
    
    458
    
    
    
    153
    
    
    
    129Interest expense
    
    
    (199
    )
    
    
    (4,013
    )
    
    
    (5,311
    )
    
    
    (4,784
    )
    
    
    (565
    )Exchange rate gain (loss)
    
    
    1,452
    
    
    
    1,053
    
    
    
    (859
    )
    
    
    342
    
    
    
    (63
    )Other, net
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Loss before provision for income taxes
    
    
    (26,052
    )
    
    
    (8,305
    )
    
    
    (15,191
    )
    
    
    (16,154
    )
    
    
    (15,091
    )Provision for income taxes
    
    
    524
    
    
    
    298
    
    
    
    70
    
    
    
    37
    
    
    
    10Net loss
    
    $
    (26,576
    )
    
    $
    (8,603
    )
    
    $
    (15,261
    )
    
    $
    (16,191
    )
    
    $
    (15,101
    )Net loss per sharebasic and diluted
    
    $
    (0.66
    )
    
    $
    (0.41
    )
    
    $
    (2.28
    )
    
    $
    (2.57
    )
    
    $
    (4.56
    )Weighted-average shares
outstandingbasic and diluted
    
    
    40,024
    
    
    
    21,113
    
    
    
    6,693
    
    
    
    6,291
    
    
    
    3,312
 46




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##### Table of Contents



As of December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Balance Sheet Data:Cash and cash equivalents(1)
    
    $
    122,913
    
    
    $
    77,738
    
    
    $
    15,219
    
    
    $
    11,438
    
    
    $
    20,398Short-term available-for-sale investments
    
    
    66,205
    
    
    
    17,787
    
    
    
    
    
    
    
    
    
    
    
    Working capital
    
    
    210,094
    
    
    
    108,908
    
    
    
    16,993
    
    
    
    12,042
    
    
    
    21,883Intangible assets, net(2)
    
    
    9,385
    
    
    
    11,946
    
    
    
    14,645
    
    
    
    17,279
    
    
    
    19,739Total assets
    
    
    266,574
    
    
    
    154,725
    
    
    
    68,468
    
    
    
    59,141
    
    
    
    69,185Short and long-term debt, including
current maturities(3)
    
    
    198
    
    
    
    1,720
    
    
    
    30,350
    
    
    
    34,534
    
    
    
    31,286Convertible preferred stock(4)
    
    
    
    
    
    
    
    
    
    
    63,060
    
    
    
    47,696
    
    
    
    47,222Total stockholders equity (deficit)
    
    
    232,937
    
    
    
    129,182
    
    
    
    (49,468
    )
    
    
    (36,976
    )
    
    
    (21,526
    )
 
 These historical results are not necessarily indicative of results expected for any future period.(1)
    
    In December 2007, we paid $25.2 million for the acquisition of CardioSpectra. In
connection with this acquisition, we recorded in-process research and development expense
of $26.2 million.(2)
    
    Includes the effects of the Jomed Acquisition and the acquisition of other IVUS patents
and technology in July 2003 for $20.7 million.(3)
    
    Includes the effects of borrowings under a revolving credit facility commencing in
July 2003, the issuance of a note payable in July 2003 of $3.0 million related to the
purchase of certain IVUS patents and technology, the issuance of a $5.0 million term loan
in September 2003 for working capital and general corporate purposes, the issuance of
$20.0 million of senior subordinated notes in December 2003 for working capital and
general corporate purposes, the issuance of a $1.5 million term loan in September 2004 for
working capital and general corporate purposes and the issuance of a $500,000 term loan in
March 2005 for working capital and general corporate purposes.(4)
    
    Includes the issuance of Series A preferred stock in 2001 in the amount of $2.3
million, the issuance of Series B preferred stock in 2002 in the amount of $24.0 million,
the issuance of Series B preferred stock and preferred stock warrants in July 2003 in the
amount of $20.1 million and $321,000, respectively (primarily to finance the Jomed
Acquisition), the issuance of Series B preferred stock in November 2003 in the amount of
$500,000, the issuance of Series B preferred stock in March 2004 in the amount of
$250,000, the issuance of Series B preferred stock warrants in 2004 related to debt
agreements in the amount of $224,000, the issuance of Series C preferred stock in February
2005 in the amount of $15.4 million and the conversion of all outstanding shares of
preferred stock into 18,123,040 shares of the Companys common stock in June 2006. 47




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis should be read in conjunction with Selected Consolidated
Financial Data and our consolidated financial statements and notes thereto included elsewhere in
this annual report.
 Overview
      48




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49




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##### Table of Contents



Financial Operations Overview
  Revenues.
    Cost of Revenues.
 50




---



##### Table of Contents



Selling, General and Administrative.
 Research and Development.
 Amortization of Intangibles.
 Interest Income.
 Interest Expense.
 Exchange Rate Gain (Loss).
 Provision for Income Taxes.
  51




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##### Table of Contents



Results of Operations
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Revenues
    
    $
    130,614
    
    
    
    100.0
    %
    
    $
    103,048
    
    
    
    100.0
    %
    
    $
    91,900
    
    
    
    100.0
    %Cost of revenues
    
    
    51,559
    
    
    
    39.5
    
    
    
    41,715
    
    
    
    40.5
    
    
    
    47,843
    
    
    
    52.1Gross profit
    
    
    79,055
    
    
    
    60.5
    
    
    
    61,333
    
    
    
    59.5
    
    
    
    44,057
    
    
    
    47.9Operating expenses:Selling, general and administrative
    
    
    62,631
    
    
    
    48.0
    
    
    
    47,614
    
    
    
    46.2
    
    
    
    35,365
    
    
    
    38.5Research and development
    
    
    20,315
    
    
    
    15.6
    
    
    
    16,923
    
    
    
    16.4
    
    
    
    15,119
    
    
    
    16.4In-process research and development
    
    
    26,188
    
    
    
    20.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    3,067
    
    
    
    2.3
    
    
    
    3,117
    
    
    
    3.0
    
    
    
    3,052
    
    
    
    3.3Total operating expenses
    
    
    112,201
    
    
    
    85.9
    
    
    
    67,654
    
    
    
    65.6
    
    
    
    53,536
    
    
    
    58.2Operating loss
    
    
    (33,146
    )
    
    
    (25.4
    )
    
    
    (6,321
    )
    
    
    (6.1
    )
    
    
    (9,479
    )
    
    
    (10.3
    )Interest income
    
    
    5,841
    
    
    
    4.5
    
    
    
    958
    
    
    
    0.9
    
    
    
    458
    
    
    
    0.5Interest expense
    
    
    (199
    )
    
    
    (0.2
    )
    
    
    (4,013
    )
    
    
    (3.9
    )
    
    
    (5,311
    )
    
    
    (5.8
    )Exchange rate gain (loss)
    
    
    1,452
    
    
    
    1.1
    
    
    
    1,053
    
    
    
    1.0
    
    
    
    (859
    )
    
    
    (0.9
    )Other, net
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    0.0
    
    
    
    
    
    
    
    Loss before provision for income taxes
    
    
    (26,052
    )
    
    
    (19.9
    )
    
    
    (8,305
    )
    
    
    (8.1
    )
    
    
    (15,191
    )
    
    
    (16.5
    )Provision for income taxes
    
    
    524
    
    
    
    0.4
    
    
    
    298
    
    
    
    0.3
    
    
    
    70
    
    
    
    0.1Net loss
    
    $
    (26,576
    )
    
    
    (20.3
    )%
    
    $
    (8,603
    )
    
    
    (8.3
    )%
    
    $
    (15,261
    )
    
    
    (16.6
    )%
  Years Ended December 31,Percentage
    
    
    
    
    
    
    PercentageChange
    
    
    
    
    
    
    Change2007
    
    
    2006
    
    
    2006 to 2007
    
    
    2005
    
    
    2005 to 2006Revenues(1):United States
    
    $
    66,411
    
    
    $
    51,013
    
    
    
    30.2
    %
    
    $
    40,933
    
    
    
    24.6
    %Japan
    
    
    35,186
    
    
    
    30,082
    
    
    
    17.0
    %
    
    
    33,207
    
    
    
    (9.4
    )%Europe, the Middle East and Africa
    
    
    23,995
    
    
    
    17,765
    
    
    
    35.1
    %
    
    
    15,294
    
    
    
    16.2
    %Rest of world
    
    
    5,022
    
    
    
    4,188
    
    
    
    19.9
    %
    
    
    2,466
    
    
    
    69.8
    %$
    130,614
    
    
    $
    103,048
    
    
    
    26.8
    %
    
    $
    91,900
    
    
    
    12.1
    %
 
 (1)
    
    Revenues are attributed to geographies based on location of the customer, except for
original equipment manufacturer revenues which are attributed to the geography of the legal entity
invoicing.  Years Ended December 31,Percentage
    
    
    
    
    
    
    PercentageChange
    
    
    
    
    
    
    Change2007
    
    
    2006
    
    
    2006 to 2007
    
    
    2005
    
    
    2005 to 2006IVUS:Consoles
    
    $
    26,847
    
    
    $
    22,128
    
    
    
    21.3
    %
    
    $
    23,617
    
    
    
    (6.3
    )%Single-procedure disposables
    
    
    85,537
    
    
    
    66,268
    
    
    
    29.1
    %
    
    
    54,069
    
    
    
    22.6
    %FM:Consoles
    
    
    2,064
    
    
    
    1,954
    
    
    
    5.7
    %
    
    
    1,394
    
    
    
    40.1
    %Single-procedure disposables
    
    
    12,260
    
    
    
    10,072
    
    
    
    21.7
    %
    
    
    10,635
    
    
    
    (5.3
    )%Other
    
    
    3,905
    
    
    
    2,626
    
    
    
    48.7
    %
    
    
    2,185
    
    
    
    20.2
    %$
    130,614
    
    
    $
    103,048
    
    
    
    26.8
    %
    
    $
    91,900
    
    
    
    12.1
    %
 52




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##### Table of Contents



Comparison of Years Ended December 31, 2007 and 2006
 Revenues.
 Cost of Revenues.
 Selling, General and Administrative.
 Research and Development.
 In-process Research and Development.
 Amortization of Intangibles.
 Interest Expense.
 Interest and Other Income (Expense), Net.
 Comparison of Years Ended December 31, 2006 and 2005
 Revenues.
 53




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##### Table of Contents



Cost of Revenues.
  Selling, General and Administrative.
 Research and Development.
 Amortization of Intangibles.
 Interest Expense.
 Interest and Other Income (Expense), Net.
 54




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##### Table of Contents



Liquidity and Capital Resources
 Sources of Liquidity
       Cash Flows
 Cash Flows from Operating Activities.
 55




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##### Table of Contents



Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
 Future Liquidity Needs
  56




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Off-Balance Sheet Arrangements and Other Contractual Obligations
   Payment Due By PeriodLess
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    1-3
    
    
    3-5
    
    
    thanContractual Obligations and Commercial Commitments
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsDebt
    
    $
    64
    
    
    $
    64
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest on debt(1)
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
(including interest)
    
    
    146
    
    
    
    64
    
    
    
    80
    
    
    
    2
    
    
    
    Operating lease obligations(2)
    
    
    4,212
    
    
    
    2,349
    
    
    
    1,863
    
    
    
    
    
    
    
    Minimum payments under
license agreements(3)
    
    
    1,835
    
    
    
    755
    
    
    
    780
    
    
    
    50
    
    
    
    250Non-cancelable purchase
commitments(4)
    
    
    9,885
    
    
    
    9,885
    
    
    
    
    
    
    
    
    
    
    
    Total(5)
    
    $
    16,143
    
    
    $
    13,118
    
    
    $
    2,723
    
    
    $
    52
    
    
    $
    250
 
 (1)
    
    Future interest payments on our debt are based on the assumption that the debt is
outstanding until maturity and all interest expense has been calculated for all future periods
using the rate implicit in the respective debt agreements.(2)
    
    We lease office space and have entered into other lease commitments in the United
States as well as locations in Europe and Asia. Operating lease obligations include future
minimum lease payments under all our non-cancelable operating leases as of December 31, 2007.(3)
    
    Our license agreements include provisions that require us to make milestone or
royalty payments to the licensor based on the amount of future sales of covered products.
Certain of these agreements require that the royalties we pay in a given year total at least a
minimum amount as set forth in the agreements. The royalty obligations we may incur in excess
of these minimum amounts are not included in the table above because we cannot, at this time,
determine the timing or amount of these obligations.(4)
    
    Consists of non-cancelable commitments primarily for the purchase of production
materials.(5)
    
    The table above does not include potential milestone payments
up to an aggregate of $38 million
due to the former shareholders of CardioSpectra (see
Acquisitions note to our consolidated financial statements). Critical Accounting Policies
  57




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##### Table of Contents



Revenue Recognition.
 Revenue Arrangements with Multiple Deliverables
 Accounting for Consideration Given by a Vendor to a
Customer,
 Inventory Valuation.
 Valuation of Long-lived Assets.
  58




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##### Table of Contents



Stock-based Compensation. Share-Based Payment
  Accounting for Stock Issued to Employees Accounting
for Stock-Based Compensation Accounting for Stock-Based
CompensationTransition and Disclosurean amendment of FASB Statement No. 123, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling Goods and Services
  Practice Aid
Valuation of Privately-Held-Company Equity Securities Issues as Compensation
 59




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60




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##### Table of Contents



Fair Value ofNumber of Options
    
    Option Exercise
    
    Common Stock on
    
    Intrinsic Value PerGranted
    
    Price
    
    Grant Date(1)
    
    ShareGrant Date2005 GrantsJanuary
    
    
    153,456
    
    
    $
    0.83
    
    
    $
    5.06
    
    
    $
    4.23January
    
    
    117,568
    
    
    
    1.65
    
    
    
    5.06
    
    
    
    3.41April
    
    
    195,455
    
    
    
    5.78
    
    
    
    5.78
    
    
    
    June
    
    
    90,455
    
    
    
    5.78
    
    
    
    5.78
    
    
    
    July
    
    
    908,636
    
    
    
    6.49
    
    
    
    6.49
    
    
    
    October
    
    
    270,273
    
    
    
    8.36
    
    
    
    8.36
    
    
    
    Total 2005 grants
    
    
    1,735,8432006 GrantsFebruary
    
    
    145,406
    
    
    $
    10.56
    
    
    $
    10.56
    
    
    $
    May
    
    
    91,339
    
    
    
    10.56
    
    
    
    10.56
    
    
    
    July
    
    
    66,500
    
    
    
    8.50
    
    
    
    8.50
    
    
    
    November
    
    
    61,000
    
    
    
    18.10
    
    
    
    18.10
    
    
    
    Total 2006 grants
    
    
    364,2452007 GrantsJanuary
    
    
    1,071,456
    
    
    $
    19.15
    
    
    $
    19.15
    
    
    $
    April
    
    
    83,000
    
    
    
    18.36
    
    
    
    18.36
    
    
    
    June
    
    
    76,000
    
    
    
    21.07
    
    
    
    21.07
    
    
    
    July
    
    
    481,833
    
    
    
    20.22
    
    
    
    20.22
    
    
    
    October
    
    
    131,000
    
    
    
    17.27
    
    
    
    17.27
    
    
    
    December
    
    
    124,666
    
    
    
    13.52
    
    
    
    13.52
    
    
    
    Total 2007 grants
    
    
    1,967,955
 
 (1)
    
    The estimated fair values for January 1, 2005 have been determined based upon
retrospective valuations prepared by management and the estimated fair values shown for the
period April 1, 2005 through the date of our initial public offering are based upon
contemporaneous valuations prepared by management.   61




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##### Table of Contents



Years Ended December 31,2007
    
    2006
    
    2005Risk-free interest rate
    
    
    4.67
    %
    
    
    4.76
    %
    
    
    3.9
    %Expected life (years)
    
    
    4.52
    
    
    
    4.56
    
    
    
    5.00Estimated volatility factor
    
    
    51.7
    %
    
    
    57.4
    %
    
    
    75.0
    %Expected dividends
    
    None
    
    None
    
    None
      Income Taxes. Accounting for Income
Taxes
  62




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##### Table of Contents



Recent Accounting Pronouncements
 Fair Value
Measurements
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB
Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
StatementsAn Amendment of ARB No. 51
 Inflation
  63




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
   Foreign Currency Exchange Risk
  64




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##### Table of Contents



Item 8.  Financial Statements and Supplementary Data
 VOLCANO CORPORATION
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    66Report of Independent Registered Public Accounting Firm
    
    
    67Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    68Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005
    
    
    69Consolidated Statements of Convertible Preferred Stock and Stockholders Equity (Deficit)
for the Years Ended December 31, 2007, 2006 and 2005
    
    
    70Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
    
    
    71Notes to Consolidated Financial Statements
    
    
    72
 65




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
         
 66




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Share-Based Payment, Accounting for
Uncertainty in Income Taxes
   
 67




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##### Table of Contents



VOLCANO CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    122,913
    
    
    $
    77,738Short-term available-for-sale investments
    
    
    66,205
    
    
    
    17,787Accounts receivable, net
    
    
    27,976
    
    
    
    21,575Inventories
    
    
    21,243
    
    
    
    13,423Prepaid expenses and other current assets
    
    
    3,997
    
    
    
    2,208Total current assets
    
    
    242,334
    
    
    
    132,731Restricted cash
    
    
    365
    
    
    
    352Property and equipment, net
    
    
    13,692
    
    
    
    9,333Intangible assets, net
    
    
    9,385
    
    
    
    11,946Other non-current assets
    
    
    798
    
    
    
    363$
    266,574
    
    
    $
    154,725Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    11,077
    
    
    $
    8,209Accrued compensation
    
    
    9,083
    
    
    
    5,993Accrued expenses and other current liabilities
    
    
    6,600
    
    
    
    5,292Deferred revenues
    
    
    5,360
    
    
    
    2,675Current maturities of long-term debt
    
    
    120
    
    
    
    1,654Total current liabilities
    
    
    32,240
    
    
    
    23,823Long-term debt
    
    
    78
    
    
    
    66Deferred license fee from a related party
    
    
    1,125
    
    
    
    1,375Other
    
    
    194
    
    
    
    279Total liabilities
    
    
    33,637
    
    
    
    25,543Commitments and contingencies (Note 8)Stockholders equity:Common stock, par value of $0.001; 250,000
shares authorized at December 31, 2007 and
2006; 46,957 and 37,720 shares issued and
outstanding at December 31, 2007 and 2006,
respectively
    
    
    47
    
    
    
    38Additional paid-in capital
    
    
    324,746
    
    
    
    193,468Accumulated other comprehensive loss
    
    
    (1,258
    )
    
    
    (302
    )Accumulated deficit
    
    
    (90,598
    )
    
    
    (64,022
    )Total stockholders equity
    
    
    232,937
    
    
    
    129,182$
    266,574
    
    
    $
    154,725
 See notes to consolidated financial statements.
 68




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VOLCANO CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Revenues
    
    $
    130,614
    
    
    $
    103,048
    
    
    $
    91,900Cost of revenues
    
    
    51,559
    
    
    
    41,715
    
    
    
    47,843Gross profit
    
    
    79,055
    
    
    
    61,333
    
    
    
    44,057Operating expenses:Selling, general and administrative
    
    
    62,631
    
    
    
    47,614
    
    
    
    35,365Research and development
    
    
    20,315
    
    
    
    16,923
    
    
    
    15,119In-process research and development
    
    
    26,188
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    3,067
    
    
    
    3,117
    
    
    
    3,052Total operating expenses
    
    
    112,201
    
    
    
    67,654
    
    
    
    53,536Operating loss
    
    
    (33,146
    )
    
    
    (6,321
    )
    
    
    (9,479
    )Interest income
    
    
    5,841
    
    
    
    958
    
    
    
    458Interest expense
    
    
    (199
    )
    
    
    (4,013
    )
    
    
    (5,311
    )Exchange rate gain (loss)
    
    
    1,452
    
    
    
    1,053
    
    
    
    (859
    )Other, net
    
    
    
    
    
    
    18
    
    
    
    Loss before provision for income taxes
    
    
    (26,052
    )
    
    
    (8,305
    )
    
    
    (15,191
    )Provision for income taxes
    
    
    524
    
    
    
    298
    
    
    
    70Net loss
    
    $
    (26,576
    )
    
    $
    (8,603
    )
    
    $
    (15,261
    )Net loss per sharebasic and diluted
    
    $
    (0.66
    )
    
    $
    (0.41
    )
    
    $
    (2.28
    )Weighted-average shares outstandingbasic and diluted
    
    
    40,024
    
    
    
    21,113
    
    
    
    6,693
 See notes to consolidated financial statements.
 69




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##### Table of Contents



VOLCANO CORPORATION
 
 CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT)
 (in thousands)
 Designated Series A
    
    
    Designated Series B
    
    
    Designated Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    TotalConvertible
    
    
    Convertible
    
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Deferred
    
    
    
    
    
    
    Other
    
    
    StockholdersPreferred Stock
    
    
    Preferred Stock
    
    
    Preferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Stock
    
    
    Accumulated
    
    
    Comprehensive
    
    
    EquityShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Income (loss)
    
    
    (Deficit)Balance at December 31, 2004
    
    
    2,304
    
    
    $
    2,304
    
    
    
    14,949
    
    
    $
    45,392
    
    
    
    
    
    
    $
    
    
    
    
    3,617
    
    
    $
    4
    
    
    $
    6,182
    
    
    $
    (3,006
    )
    
    $
    (40,158
    )
    
    $
    2
    
    
    $
    (36,976
    )Issuance of common stock under stock option plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88Deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,239
    
    
    
    (1,239
    )
    
    
    
    
    
    
    
    
    
    
    Reversal of unamortized deferred stock compensation
relating to the forfeiture of unvested employee stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (255
    )
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock compensation net of
adjustment for forfeitures of unvested options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,102
    
    
    
    
    
    
    
    
    
    
    
    1,102Non-employee stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736Issuance of convertible preferred stock, net of
offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,662
    
    
    
    15,364
    
    
    
    
    
    
    
    
    
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (258
    )Sale of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    601
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    601Issuance of common stock in exchange for consulting
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110Comprehensive income (loss)Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,261
    )
    
    
    
    
    
    
    (15,261
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390
    
    
    
    390Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,871
    )Balance at December 31, 2005
    
    
    2,304
    
    
    
    2,304
    
    
    
    14,949
    
    
    
    45,392
    
    
    
    2,662
    
    
    
    15,364
    
    
    
    3,883
    
    
    
    4
    
    
    
    8,443
    
    
    
    (2,888
    )
    
    
    (55,419
    )
    
    
    392
    
    
    
    (49,468
    )Reversal of deferred stock compensation upon adoption
of SFAS No. 123(R)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,888
    )
    
    
    2,888
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock under stock option plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    
    
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194Employee stock-based compensation cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,913Non-employee stock-based compensation cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    434
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    434Common stock issued in connection with public offerings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,115
    
    
    
    12
    
    
    
    121,334
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,346Conversion of convertible preferred stock into common
stock upon initial public offering
    
    
    (2,304
    )
    
    
    (2,304
    )
    
    
    (14,949
    )
    
    
    (45,392
    )
    
    
    (2,662
    )
    
    
    (15,364
    )
    
    
    18,123
    
    
    
    19
    
    
    
    63,041
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,060Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,133
    
    
    
    3
    
    
    
    (3
    )Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,603
    )
    
    
    
    
    
    
    (8,603
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (693
    )
    
    
    (693
    )Unrealized net loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,297
    )Balance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,720
    
    
    
    38
    
    
    
    193,468
    
    
    
    
    
    
    
    (64,022
    )
    
    
    (302
    )
    
    
    129,182Issuance of common stock under stock option plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,152
    
    
    
    1
    
    
    
    1,695
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,696Employee stock-based compensation cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,454
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,454Non-employee stock-based compensation cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    341Common stock issued in connection with public offerings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,050
    
    
    
    8
    
    
    
    122,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,796Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,576
    )
    
    
    
    
    
    
    (26,576
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,012
    )
    
    
    (1,012
    )Unrealized net gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    56Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,532
    )Balance at December 31, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    46,957
    
    
    $
    47
    
    
    $
    324,746
    
    
    $
    
    
    
    $
    (90,598
    )
    
    $
    (1,258
    )
    
    $
    232,937
 See notes to consolidated financial statements.
 70




---



##### Table of Contents



VOLCANO
CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Operating activitiesNet loss
    
    $
    (26,576
    )
    
    $
    (8,603
    )
    
    $
    (15,261
    )Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:In-process research and development expense
    
    
    26,188
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    7,902
    
    
    
    8,480
    
    
    
    7,100Amortization and write-off of debt discount and deferred
financing fees
    
    
    102
    
    
    
    1,781
    
    
    
    808Accretion of investment discount, net
    
    
    (1,195
    )
    
    
    
    
    
    
    Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    360Interest capitalized as debt principal
    
    
    
    
    
    
    1,973
    
    
    
    3,774Non-cash stock compensation expense
    
    
    6,795
    
    
    
    3,195
    
    
    
    1,948Loss (gain) on foreign exchange
    
    
    (1,452
    )
    
    
    (1,052
    )
    
    
    859Loss on disposal of long-lived assets
    
    
    222
    
    
    
    
    
    
    
    34Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (5,846
    )
    
    
    (5,078
    )
    
    
    (4,110
    )Inventories
    
    
    (7,659
    )
    
    
    (2,992
    )
    
    
    (2,684
    )Prepaid expenses and other assets
    
    
    (1,942
    )
    
    
    (399
    )
    
    
    (697
    )Accounts payable
    
    
    2,217
    
    
    
    (2,682
    )
    
    
    6,281Accrued compensation
    
    
    2,980
    
    
    
    1,505
    
    
    
    1,223Accrued expenses and other liabilities
    
    
    110
    
    
    
    283
    
    
    
    2,441Deferred revenues
    
    
    2,390
    
    
    
    465
    
    
    
    804Deferred license fee from a related party
    
    
    
    
    
    
    (250
    )
    
    
    (250
    )Net cash provided by (used in) operating activities
    
    
    4,236
    
    
    
    (3,374
    )
    
    
    2,630Investing activitiesPurchase of short-term available-for-sale securities
    
    
    (105,823
    )
    
    
    (17,853
    )
    
    
    Sale or maturity of short-term available-for-sale securities
    
    
    58,655
    
    
    
    
    
    
    
    Capital expenditures
    
    
    (9,101
    )
    
    
    (4,990
    )
    
    
    (5,585
    )Cash paid for acquisitions
    
    
    (25,158
    )
    
    
    
    
    
    
    Cash paid for other intangibles
    
    
    (233
    )
    
    
    (373
    )
    
    
    (434
    )Proceeds from sale of long-lived assets
    
    
    45
    
    
    
    50
    
    
    
    Net cash used in investing activities
    
    
    (81,615
    )
    
    
    (23,166
    )
    
    
    (6,019
    )Financing activitiesProceeds from underwritten public stock offerings, net
    
    
    122,796
    
    
    
    121,346
    
    
    
    Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    500Repayment of long-term debt
    
    
    (1,774
    )
    
    
    (32,384
    )
    
    
    (2,963
    )Proceeds from issuance of short-term debt
    
    
    
    
    
    
    750
    
    
    
    Repayment of short-term debt
    
    
    
    
    
    
    (750
    )
    
    
    (5,897
    )Proceeds from issuance of convertible preferred stock, net of
issuance costs
    
    
    
    
    
    
    
    
    
    
    15,106Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    601Proceeds from exercise of common stock options
    
    
    1,687
    
    
    
    178
    
    
    
    63Increase in restricted cash
    
    
    
    
    
    
    (34
    )
    
    
    (82
    )Net cash provided by financing activities
    
    
    122,709
    
    
    
    89,106
    
    
    
    7,328Effect of exchange rate changes on cash and cash equivalents
    
    
    (155
    )
    
    
    (47
    )
    
    
    (158
    )Net increase in cash and cash equivalents
    
    
    45,175
    
    
    
    62,519
    
    
    
    3,781Cash and cash equivalents, beginning of year
    
    
    77,738
    
    
    
    15,219
    
    
    
    11,438Cash and cash equivalents, end of year
    
    $
    122,913
    
    
    $
    77,738
    
    
    $
    15,219Supplemental disclosuresInterest capitalized as debt principal
    
    $
    
    
    
    $
    1,973
    
    
    $
    Cash paid for interest
    
    $
    118
    
    
    $
    259
    
    
    $
    827Cash paid for income taxes
    
    $
    510
    
    
    $
    71
    
    
    $
    39Non-cash investing and financing activitiesPreferred stock converted into common stock upon initial public
offering
    
    
    
    
    
    $
    63,060
    
    
    
    
 See notes to consolidated financial statements.
 71




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##### Table of Contents



VOLCANO CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Summary of Significant Accounting Policies
 Basis of Presentation and Nature of Operations
   Reverse Stock Split
  Use of Estimates
  Foreign Currency Translation
    72




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##### Table of Contents



Financial Instruments
  Cash and Cash Equivalents
  Short-term Investments
  Restricted Cash
  Concentration of Credit Risk
     73




---



##### Table of Contents



Inventories
  Property and Equipment
    Intangible Assets
  Impairment or Disposal of Long-Lived Assets
 Accounting for the Impairment or Disposal of
Long-Lived Assets
 74




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##### Table of Contents



Product Warranty Costs
   Years Ended December 31,2007
    
    
    2006
    
    
    2005Balance at
beginning of year
    
    $
    706
    
    
    $
    359
    
    
    $
    203Warranties issued during the year
    
    
    2,342
    
    
    
    1,028
    
    
    
    611Settlements during the year
    
    
    (1,919
    )
    
    
    (681
    )
    
    
    (455
    )Balance at end of year
    
    $
    1,129
    
    
    $
    706
    
    
    $
    359
 Derivative Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities ,
 Stock-Based Compensation
 Share-Based Payment, Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
  75




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##### Table of Contents



Year EndedDecember 31, 2005Net loss as reported
    
    $
    (15,261
    )Add: Total stock-based employee compensation
determined under APB 25 and included in reported net
loss
    
    
    1,102Deduct: Total stock-based employee compensation
determined under fair value based method
    
    
    (1,800
    )Pro forma net loss
    
    $
    (15,959
    )Basic and diluted net loss per share:As reported
    
    $
    (2.28
    )Pro forma
    
    $
    (2.38
    )
   Stock Option Plan
 Years Ended December 31,2007
    
    2006
    
    2005Risk-free interest rate
    
    
    4.67
    %
    
    
    4.76
    %
    
    
    3.9
    %Expected life (years)
    
    
    4.52
    
    
    
    4.56
    
    
    
    5.00Estimated volatility factor
    
    
    51.7
    %
    
    
    57.4
    %
    
    
    75.0
    %Expected dividends
    
    None
    
    None
    
    None
  Employee Stock Purchase Plan
 Years Ended December 31,2007
    
    2006
    
    2005Risk-free interest rate
    
    
    4.20
    %
    
    
    
    
    
    
    Expected life (years)
    
    
    0.49
    
    
    
    
    
    
    
    Estimated volatility factor
    
    
    49.0
    %
    
    
    
    
    
    
    Expected dividends
    
    None
    
    
    
    
    
    
    
 Risk-Free Interest Rate
 Expected Life
 76




---



##### Table of Contents



Estimated Volatility Factor
 Expected Dividends
 Estimated Forfeitures
 Option and Warrant Grants to Non-employees
 Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling
Goods and Services
 Comprehensive Loss
  Revenue Recognition
 Revenue Recognition Revenue Recognition
 Accounting for Consideration Given by a Vendor to a
Customer,
  Revenue Arrangements with Multiple Deliverables
 77




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##### Table of Contents



Revenue Recognition
When Right of Return Exists
 Shipping and Handling Costs
  Research and Development
  Clinical Studies
  Income Taxes
  Accounting for Uncertainty in
Income Taxes Accounting for Income Taxes.
 78




---



##### Table of Contents



Net Loss Per Share
 Earnings per Share
  Years Ended December 31,2007
    
    2006
    
    2005Net loss
    
    $
    (26,576
    )
    
    $
    (8,603
    )
    
    $
    (15,261
    )Denominator for historical basic and diluted and pro forma
basic and diluted net loss per share:Weighted-average shares outstanding
    
    
    40,024
    
    
    
    19,675
    
    
    
    3,608Shares issuable upon exercise of certain warrants
    
    
    
    
    
    
    1,438
    
    
    
    3,085Shares used for historical basic and diluted net loss per share
    
    
    40,024
    
    
    
    21,113
    
    
    
    6,693Basic and diluted net loss per share
    
    $
    (0.66
    )
    
    $
    (0.41
    )
    
    $
    (2.28
    )
  December 31,2007
    
    2006
    
    2005Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    18,123Stock options outstanding
    
    
    5,337
    
    
    
    4,672
    
    
    
    4,941Warrants to purchase convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    177Warrants to purchase common stock
    
    
    127
    
    
    
    171
    
    
    
    49Unvested common stock subject to repurchase
    
    
    4
    
    
    
    24
    
    
    
    80
 Operating Segments
  Recent Accounting Pronouncements
 Fair Value
Measurements
 79




---



##### Table of Contents



The Fair
Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB
Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
StatementsAn Amendment of ARB No. 51
 2. Acquisitions
 CardioSpectra Acquisition
   80




---



##### Table of Contents



December 18,2007Current Assets:Cash
    
    $
    24Prepaid expenses and other current assets
    
    
    118Total current assets
    
    
    142Equipment
    
    
    132Intangible assets (1)
    
    
    274In-process research and development (2)
    
    
    26,188Total assets acquired
    
    $
    26,736Current liabilities:Accounts payable
    
    $
    316Accrued compensation
    
    
    40Other accrued liabilities
    
    
    82Total current liabilities
    
    
    438Total liabilities acquired
    
    
    438Net assets acquired
    
    $
    26,298
 
 (1)
    
    Intangible assets acquired consisted entirely of assembled workforce, which is being amortized
over 4 years.(2)
    
    In December 2007, in-process research and development
was recorded as expense in our consolidated
statement of operations.  
    
    $11 million of the milestone payments to be paid upon approval by applicable US,
Japanese or European regulators of a first generation OCT system on or before December 31,
2009;
    
    $10 million of the milestone payments to be paid upon applicable US regulatory approval
of a productized version of the first generation OCT system on or before December 31, 2010;
    
    $10 million of the milestone payments to be paid upon cumulative cash sales totaling $10
million from commercial sales of OCT products, so long as such cumulative cash sales are
attained prior to the date that is 3 years after the date on which the applicable US
regulatory approval described in the second bullet point above was obtained (if such
approval was obtained on or before December 31, 2010) or otherwise on or before December
31, 2013; and
    
    $7 million of the milestone payments to be paid upon cumulative cash sales totaling $25
million from commercial sales of OCT products, so long as such cumulative cash sales are
attained prior to the date that is 4 years after the date on which the applicable US
regulatory approval described in the second bullet point above was obtained (if such
approval was obtained on or before December 31, 2010) or otherwise on or before December
31, 2014.
 81




---



##### Table of Contents



Acquisition of IVUS Technology
   
 Jomed Acquisition
  3. Financial Statement Details
 Accounts Receivable, Net
  December 31,2007
    
    
    2006Trade accounts receivable
    
    $
    28,114
    
    
    $
    21,776Less: allowance for doubtful accounts
    
    
    138
    
    
    
    201Total
    
    $
    27,976
    
    
    $
    21,575
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Balance at beginning of year
    
    $
    201
    
    
    $
    158
    
    
    $
    118Additions charged to selling, general
and administrative expense, net of
recoveries
    
    
    (79
    )
    
    
    70
    
    
    
    70Write-offs
    
    
    
    
    
    
    (40
    )
    
    
    (21
    )Foreign currency translation adjustments
    
    
    16
    
    
    
    13
    
    
    
    (9
    )Balance at end of year
    
    $
    138
    
    
    $
    201
    
    
    $
    158
 82




---



##### Table of Contents



Inventories
  December 31,2007
    
    
    2006Finished goods
    
    $
    7,010
    
    
    $
    5,302Work-in-process
    
    
    5,337
    
    
    
    2,529Raw materials
    
    
    8,896
    
    
    
    5,592Total
    
    $
    21,243
    
    
    $
    13,423
 Property and Equipment
  December 31,2007
    
    
    2006Equipment
    
    $
    11,371
    
    
    $
    9,269Medical diagnostic equipment
    
    
    15,016
    
    
    
    9,210Leasehold improvements
    
    
    1,490
    
    
    
    1,613Purchased software
    
    
    1,803
    
    
    
    973Construction-in-progress
    
    
    395
    
    
    
    70030,075
    
    
    
    21,765Accumulated depreciation and amortization
    
    
    (16,383
    )
    
    
    (12,432
    )Total
    
    $
    13,692
    
    
    $
    9,333
    4. Debt and Credit Facilities
  December 31,2007
    
    
    2006Note payable, non-interest bearing, payable in four
annual payments of 725,000, matured in 2007(a)
    
    $
    
    
    
    $
    905Term loan B, bearing interest at 13.0% per annum,
payable monthly, matured in October 2007(b)
    
    
    
    
    
    
    528Term loan C, bearing interest at 13.7% per annum,
payable monthly, maturing in February 2008(b)
    
    
    64
    
    
    
    229Capital lease obligations(c)
    
    
    134
    
    
    
    108198
    
    
    
    1,770Less: Current portion
    
    
    (120
    )
    
    
    (1,654
    )Unamortized debt discount
    
    
    
    
    
    
    (50
    )Long-term debt
    
    $
    78
    
    
    $
    66
 83




---



##### Table of Contents



Short-Term Debt
  Long-Term Debt
  
   Key Covenants
  Debt Maturities
  5. Financial Instruments
 Cash, Cash Equivalents and Short Term Investments.
 Gross
    
    GrossUnrealized
    
    UnrealizedGross
    
    Losses
    
    LossesUnrealized
    
    Less Than
    
    12 Months or
    
    Estimated FairCost
    
    Gains
    
    12 Months
    
    Longer
    
    ValueNon interest bearing cash
    
    $
    4,021
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,021Money market funds
    
    
    64,199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,199U.S. corporate securities
    
    
    120,843
    
    
    
    62
    
    
    
    (7
    )
    
    
    
    
    
    
    120,898Total
    
    $
    189,063
    
    
    $
    62
    
    
    $
    (7
    )
    
    $
    
    
    
    $
    189,118
  84




---



##### Table of Contents



6. Intangible Assets
    December 31, 2007Accumulated
    
    
    
    
    
    
    Weighted-Cost
    
    
    Amortization
    
    
    Net
    
    
    Average LifeDeveloped technology
    
    $
    12,469
    
    
    $
    8,692
    
    
    $
    3,777
    
    
    
    6.3Licenses
    
    
    7,034
    
    
    
    3,440
    
    
    
    3,594
    
    
    
    9.8Customer relationships
    
    
    1,674
    
    
    
    1,099
    
    
    
    575
    
    
    
    8.5Patents and trademarks
    
    
    1,601
    
    
    
    436
    
    
    
    1,165
    
    
    
    9.3Assembled workforce
    
    
    274
    
    
    
    
    
    
    
    274
    
    
    
    4.0$
    23,052
    
    
    $
    13,667
    
    
    $
    9,385
    
    
    
    7.4
 December 31, 2006AccumulatedCost
    
    
    Amortization
    
    
    NetDeveloped technology
    
    $
    12,469
    
    
    $
    6,714
    
    
    $
    5,755Licenses
    
    
    7,034
    
    
    
    2,721
    
    
    
    4,313Customer relationships
    
    
    1,674
    
    
    
    901
    
    
    
    773Patents and trademarks
    
    
    1,369
    
    
    
    264
    
    
    
    1,105$
    22,546
    
    
    $
    10,600
    
    
    $
    11,946
   2008
    
    $
    3,1722009
    
    
    3,1722010
    
    
    9962011
    
    
    9962012
    
    
    871
 7. Impairment of Long-Lived Assets
  85




---



##### Table of Contents



8. Commitments and Contingencies
 Litigation
  Collaboration Agreements
    Licenses
    
  86




---



##### Table of Contents



Leases
 Accounting for
Operating Leases with Scheduled Rent Increases
  Year Ending December 31,
    
    Capital
    
    
    Operating2008
    
    $
    64
    
    
    $
    2,3492009
    
    
    55
    
    
    
    1,6802010
    
    
    25
    
    
    
    1832011
    
    
    2
    
    
    
    2012
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    Net minimum lease payments
    
    
    146
    
    
    $
    4,212Less:Amounts representing interest
    
    
    12Current
    
    
    56Long-term
    
    $
    78
  Purchase Commitments
  Indemnification
  87




---



##### Table of Contents



9. Convertible Preferred Stock
  SharesAggregateIssued and
    
    
    LiquidationAuthorized
    
    
    Outstanding
    
    
    PreferenceSeries A
    
    
    2,304
    
    
    
    2,304
    
    
    $
    2,304Series B
    
    
    15,143
    
    
    
    14,949
    
    
    
    44,846Series C
    
    
    2,662
    
    
    
    2,662
    
    
    
    15,36420,109
    
    
    
    19,915
    
    
    $
    62,514
       10. Stockholders Equity
  Stockholders Rights Plan
  88




---



##### Table of Contents



Public Offerings of our Common Stock
    Warrants
  Stock-Based Compensation
    89




---



##### Table of Contents



Years Ended December 31,2007
    
    2006
    
    2005Cost of revenues
    
    $
    621
    
    
    $
    348
    
    
    $
    258Selling, general and administrative
    
    $
    4,919
    
    
    $
    2,238
    
    
    $
    1,267Research and development
    
    $
    1,151
    
    
    $
    609
    
    
    $
    423
    90




---



##### Table of Contents



December 31,2007
    
    2006Loss per share, as reported:Basic and diluted
    
    $
    (0.66
    )
    
    $
    (0.41
    )Adjusted earnings (loss) per share (1):Basic and diluted
    
    $
    (0.53
    )
    
    $
    (0.32
    )
 
 (1)
    
    Adjusted earnings per share if we had not adopted SFAS No. 123(R).   Weighted-AverageExerciseShares
    
    
    PriceOutstanding, December 31, 2004
    
    
    3,718,901
    
    
    $
    0.30Granted below estimated fair value (weighted-average fair value of $4.36)
    
    
    271,024
    
    
    $
    1.19Granted at estimated fair value (weighted-average fair value of $4.29)
    
    
    1,464,819
    
    
    $
    6.70Exercised
    
    
    (180,998
    )
    
    $
    0.35Canceled and expired
    
    
    (332,908
    )
    
    $
    1.95Outstanding, December 31, 2005
    
    
    4,940,838
    
    
    $
    2.13Granted at estimated fair value
    
    
    364,245
    
    
    $
    11.45Exercised
    
    
    (466,023
    )
    
    $
    0.38Canceled and expired
    
    
    (166,652
    )
    
    $
    3.69Outstanding, December 31, 2006
    
    
    4,672,408
    
    
    $
    2.98Granted at estimated fair value
    
    
    1,967,955
    
    
    $
    18.97Exercised
    
    
    (1,151,996
    )
    
    $
    1.46Canceled and expired
    
    
    (151,009
    )
    
    $
    13.76Outstanding, December 31, 2007
    
    
    5,337,358
    
    
    $
    8.90
  Options Outstanding and Exercisable
    
    Vested OptionsWeighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Remaining
    
    Average
    
    
    
    
    
    AverageNumber
    
    Contractual Life
    
    Exercise
    
    Number
    
    ExerciseRange
    
    Outstanding
    
    (in years)
    
    Price
    
    Outstanding
    
    Price$0.11
    
    
    311,218
    
    
    
    4.3
    
    
    $
    0.11
    
    
    
    311,218
    
    
    $
    0.11$0.33
    
    
    1,475,018
    
    
    
    6.0
    
    
    $
    0.33
    
    
    
    1,343,703
    
    
    $
    0.33$0.83  $6.49
    
    
    1,155,263
    
    
    
    7.4
    
    
    $
    5.14
    
    
    
    700,635
    
    
    $
    4.91$8.36  $18.44
    
    
    829,594
    
    
    
    5.7
    
    
    $
    12.51
    
    
    
    226,310
    
    
    $
    10.12$19.11
    
    
    986,351
    
    
    
    6.1
    
    
    $
    19.11
    
    
    
    226,086
    
    
    $
    19.11$19.77  $21.07
    
    
    579,914
    
    
    
    6.4
    
    
    $
    20.36
    
    
    
    34,070
    
    
    $
    20.88$0.11 to $21.07
    
    
    5,337,358
    
    
    
    6.2
    
    
    $
    8.90
    
    
    
    2,842,022
    
    
    $
    3.96
 91




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##### Table of Contents



Weighted-AverageGrant Date FairShares
    
    
    ValueNon-vested shares at December 31, 2006
    
    
    1,891,033
    
    
    $
    3.94Grants of options
    
    
    1,967,955
    
    
    $
    9.18Vested
    
    
    (1,208,347
    )
    
    $
    4.72Forfeitures or expirations
    
    
    (151,009
    )
    
    $
    7.36Non-vested shares at December 31, 2007
    
    
    2,499,632
    
    
    $
    7.48
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual Life
    
    
    intrinsic valueShares
    
    
    Price
    
    
    (in years)
    
    
    (in thousands)Outstanding at December 31, 2006
    
    
    4,672,408
    
    
    $
    2.98Grants of options
    
    
    1,967,955
    
    
    $
    18.97Exercises
    
    
    (1,151,996
    )
    
    $
    1.46Forfeitures or expirations
    
    
    (151,009
    )
    
    $
    13.76Outstanding and exercisable at December 31, 2007
    
    
    5,337,358
    
    
    $
    8.90
    
    
    
    6.2
    
    
    $
    31,786Vested and expected to vest as of December 31, 2007
    
    
    5,215,914
    
    
    $
    8.77
    
    
    
    6.2
    
    
    $
    31,531
   Employee Stock Purchase Plan
 1 2
  92




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11. Income Taxes
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    133
    
    
    
    35
    
    
    
    50Foreign
    
    
    391
    
    
    
    263
    
    
    
    20$
    524
    
    
    $
    298
    
    
    $
    70
   Years Ended December 31,2007
    
    
    2006
    
    
    2005U.S. federal statutory income tax benefit
    
    $
    (9,118
    )
    
    $
    (2,907
    )
    
    $
    (5,317
    )State income tax benefit, net of federal income tax expense
    
    
    (173
    )
    
    
    (524
    )
    
    
    (393
    )Valuation allowance
    
    
    725
    
    
    
    3,308
    
    
    
    6,163Foreign tax rate differential
    
    
    281
    
    
    
    445
    
    
    
    (142
    )Credits
    
    
    (587
    )
    
    
    (414
    )
    
    
    (401
    )In-process research and development
    
    
    9,166
    
    
    
    
    
    
    
    Other
    
    
    230
    
    
    
    390
    
    
    
    160$
    524
    
    
    $
    298
    
    
    $
    70
  December 31,2007
    
    
    2006Deferred tax assets:Net operating loss carryovers
    
    $
    17,654
    
    
    $
    18,335Tax credit carryovers
    
    
    3,733
    
    
    
    3,236Depreciation and amortization
    
    
    1,939
    
    
    
    1,937Accruals
    
    
    4,048
    
    
    
    1,285Deferred revenue
    
    
    527
    
    
    
    623Other, net
    
    
    1,396
    
    
    
    1,340Total deferred tax assets
    
    
    29,297
    
    
    
    26,756Less valuation allowance
    
    
    (29,297
    )
    
    
    (26,756
    )$
    
    
    
    $
    
     93




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12. Segment and Geographic Information
   Years Ended December 31,2007
    
    
    2006
    
    
    2005Revenues:United States
    
    $
    66,411
    
    
    $
    51,013
    
    
    $
    40,933Japan
    
    
    35,186
    
    
    
    30,082
    
    
    
    33,207Europe, the Middle East and Africa
    
    
    23,995
    
    
    
    17,765
    
    
    
    15,294Rest of world
    
    
    5,022
    
    
    
    4,188
    
    
    
    2,466$
    130,614
    
    
    $
    103,048
    
    
    $
    91,900
 13. Employee Benefits
 Defined Contribution Plans
   94




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14. Quarterly Information (Unaudited)
  Quarter EndedYear ended2007
    
    March 31
    
    June 30
    
    September 30
    
    December 31(1)
    
    December 31Revenue
    
    $
    29,579
    
    
    $
    29,552
    
    
    $
    31,474
    
    
    $
    40,009
    
    
    $
    130,614Gross profit
    
    
    18,714
    
    
    
    17,236
    
    
    
    19,189
    
    
    
    23,916
    
    
    
    79,055Operating income (loss)
    
    
    656
    
    
    
    (4,938
    )
    
    
    (2,404
    )
    
    
    (26,460
    )
    
    
    (33,146
    )Net income (loss)
    
    
    1,674
    
    
    
    (3,855
    )
    
    
    (652
    )
    
    
    (23,219
    )
    
    
    (26,052
    )Net income (loss) per share:Basic
    
    $
    0.04
    
    
    $
    (0.10
    )
    
    $
    (0.02
    )
    
    $
    (0.53
    )
    
    $
    (0.66
    )Diluted
    
    $
    0.04
    
    
    $
    (0.10
    )
    
    $
    (0.02
    )
    
    $
    (0.53
    )
    
    $
    (0.66
    )Includes the following
stock-based compensation
expense:Cost of revenues
    
    $
    112
    
    
    $
    140
    
    
    $
    181
    
    
    $
    188
    
    
    $
    621Selling, general and
administrative
    
    
    923
    
    
    
    1,126
    
    
    
    1,437
    
    
    
    1,433
    
    
    
    4,919Research and development
    
    
    208
    
    
    
    217
    
    
    
    359
    
    
    
    367
    
    
    
    1,151
 Quarter EndedYear ended2006
    
    March 31
    
    June 30
    
    September 30
    
    December 31
    
    December 31Revenue
    
    $
    19,872
    
    
    $
    25,863
    
    
    $
    27,782
    
    
    $
    29,531
    
    
    $
    103,048Gross profit
    
    
    11,652
    
    
    
    14,395
    
    
    
    17,222
    
    
    
    18,064
    
    
    
    61,333Operating income (loss)
    
    
    (5,320
    )
    
    
    (2,312
    )
    
    
    707
    
    
    
    604
    
    
    
    (6,321
    )Net income (loss)
    
    
    (6,374
    )
    
    
    (4,163
    )
    
    
    501
    
    
    
    1,433
    
    
    
    (8,603
    )Net income (loss) per share:Basic
    
    $
    (0.93
    )
    
    $
    (0.41
    )
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    (0.41
    )Diluted
    
    $
    (0.93
    )
    
    $
    (0.41
    )
    
    $
    0.01
    
    
    $
    0.04
    
    
    $
    (0.41
    )Includes the following
stock-based compensation
expense:Cost of revenues
    
    $
    68
    
    
    $
    68
    
    
    $
    103
    
    
    $
    109
    
    
    $
    348Selling, general and
administrative
    
    
    506
    
    
    
    601
    
    
    
    573
    
    
    
    558
    
    
    
    2,238Research and development
    
    
    115
    
    
    
    127
    
    
    
    133
    
    
    
    234
    
    
    
    609
 
 (1)
    
    During the fourth quarter of 2007, we recorded a $26.2 million write-off of
in-process research and development that was purchased as part of the December 18, 2007
acquisition of CardioSpectra. 15. Related Parties
 Medtronic, Inc. and Its Affiliates
  95




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96




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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Limitations on the Effectiveness of Controls
  Changes in Internal Control Over Financial Reporting
  Managements Report on Internal Control Over Financial Reporting
  (1)
    
    Pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company,(2)
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and directors, and(3)
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
consolidated financial statements.
 
 97




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Internal Control  Integrated Framework
 Attestation Report of the Registered Public Accounting Firm
  
 Item 9B. Other Information
  98




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
   
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accounting Fees and Services.
  99




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PART IV
 
 Item 15. Exhibits, Financial Statement Schedules.
  (1)
    
    The financial statements required by Item 15(a) are filed in Item 8 of this Annual Report
on Form 10-K.(2)
    
    Schedules required by Item 15(a) are omitted because they are not required, are not
applicable or the information is included in the consolidated financial statements or notes
thereto.
 100




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ExhibitNumber
    
    Description2.1
    
    Asset Purchase Agreement dated July 10, 2003 by and among
Jomed Inc., Jomed N.V., Jomed GmbH, Jomed Benelux S.A. and
the Registrant (filed as Exhibit 2.1 to the Registrants
Registration Statement on Form S-1, as amended (File
No. 333-132678), as originally filed on March 24, 2006, and
incorporated herein by reference).2.2
    
    Asset Transfer Agreement, by and between Pacific Rim Medical
Ventures Corp and Koninklijke Philips Electronics N.V.,
dated July 3, 2003 (filed as Exhibit 2.2 to the Registrants
Registration Statement on Form S-1, as amended (File
No. 333-132678), as originally filed on March 24, 2006, and
incorporated herein by reference).2.3
    
    Agreement and Plan of Merger, dated December 7, 2007, by and
among the Registrant, Corazon Acquisition, Inc.,
CardioSpectra, Inc. and Christopher E. Banas and Paul
Castella, as the Shareholders Representatives (filed as
Exhibit 2.1 to the Registrants Current Report on Form 8-K/A
(File No. 000-52045), as originally filed on March 4, 2008,
and incorporated herein by reference).3.1
    
    Amended and Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 3.1 to the Registrants
Quarterly Report on Form 10-Q (File No. 000-52045), as
originally filed on August 9, 2006, and incorporated herein
by reference).3.2
    
    Bylaws of the Registrant (filed as Exhibit 3.3 to the
Registrants Quarterly Report on Form 10-Q (File
No. 000-52045), as originally filed on August 9, 2006, and
incorporated herein by reference).3.3
    
    Certificate of Designation of Series A Junior Participating
Preferred Stock (filed as Exhibit 3.2 to the Registrants
Quarterly Report on Form 10-Q (File No. 000-52045), as
originally filed on August 9, 2006, and incorporated herein
by reference).4.1
    
    Reference is made to Exhibits 3.1, 3.2 and 3.3.4.2
    
    Specimen Common Stock certificate of the Registrant (filed
as Exhibit 4.1 to the Registrants Registration Statement on
Form S-1/A, as amended (File No. 333-132678), as originally
filed on May 24, 2006, and incorporated herein by
reference).4.3
    
    Fourth Amended and Restated Investor Rights Agreement, dated
February 18, 2005, by and among the Registrant and certain
stockholders (filed as Exhibit 4.2 to the Registrants
Registration Statement on Form S-1, as amended (File
No. 333-132678), as originally filed on March 24, 2006, and
incorporated herein by reference).4.4
    
    Warrant to purchase shares of Series B Preferred Stock
issued by the Registrant to Venture Lending & Leasing IV,
LLC, dated September 30, 2004 (filed as Exhibit 4.4 to the
Registrants Registration Statement on Form S-1, as amended
(File No. 333-132678), as originally filed on March 24,
2006, and incorporated herein by reference).4.5
    
    Warrant to purchase shares of common stock issued by the
Registrant to Silicon Valley Bank, dated July 18, 2003
(filed as Exhibit 4.8 to the Registrants Registration
Statement on Form S-1, as amended (File No. 333-132678), as
originally filed on March 24, 2006, and incorporated herein
by reference).4.6
    
    Warrant to purchase shares of Series B Preferred Stock
issued by the Registrant to Silicon Valley Bank, dated
July 18, 2004 (filed as Exhibit 4.9 to the Registrants
Registration Statement on Form S-1, as amended (File
No. 333-132678), as originally filed on March 24, 2006, and
incorporated herein by reference).4.7
    
    Rights Agreement, by and between the Registrant and American
Stock Transfer & Trust Company, dated June 20, 2006 (filed
as Exhibit 4.1 to the Registrants Quarterly Report on
Form 10-Q (File No. 000-52045), as originally filed on
August 9, 2006, and incorporated herein by reference).10.1*
    
    Form of Indemnification Agreement for directors, Chief
Executive Officer and Chief Financial Officer (filed as
Exhibit 10.1 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).10.2*
    
    2000 Long Term Incentive Plan and forms of Stock Option
Agreements thereunder (filed as Exhibit 10.2 to the
Registrants Registration Statement on Form S-1/A, as
amended (File No. 333-132678), as originally filed on May 5,
2006, and incorporated herein by reference).10.3*
    
    2005 Equity Compensation Plan and forms of Stock Option
Agreements and Stock Grant Agreement thereunder (2005 Equity
Compensation Plan filed as Exhibit 10.3 to the Registrants
Registration Statement on Form S-1/A, as amended (File
No. 333-132678), as originally filed on May 5, 2006, and
incorporated herein by reference).
 101




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##### Table of Contents



ExhibitNumber
    
    Description10.3a*
    
    2005 Equity Compensation Plan Form of Grantee Restriction
Agreement (filed as Exhibit 10.3a to the Registrants Annual
Report on Form 10-K, as amended (File No. 000-52045), as
originally filed on March 23, 2007, as amended, and
incorporated herein by reference).10.3b*
    
    2005 Equity Compensation Plan Form of Restricted Stock Unit
Grant Notice and Form of Restricted Stock Unit Agreement
(filed as Exhibit 10.3 to the Registrants Current Report on
Form 8-K (File No. 000-52045), as originally filed on
March 4, 2008, and incorporated herein by reference).10.4
    
    License Agreement by and between the Registrant and The
Cleveland Clinic Foundation, dated April 30, 2002 (filed as
Exhibit 10.15 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).10.5*
    
    Amended and Restated Employment Agreement by and between the
Registrant and R. Scott Huennekens, dated February 28, 2008
(filed as Exhibit 10.1 to the Registrants Current Report on
Form 8-K (File No. 000-52045), as originally filed on
March 4, 2008, and incorporated herein by reference).10.6*
    
    Amended and Restated Employment Agreement by and between the
Registrant and John T. Dahldorf, dated February 28, 2008
(filed as Exhibit 10.2 to the Registrants Current Report on
Form 8-K (File No. 000-52045), as originally filed on
March 4, 2008, and incorporated herein by reference).10.7
    
    Standard Multi-Tenant Office LeaseGross, as amended, by and
between Ethan Conrad and the Registrant, dated June 13, 2005
(filed as Exhibit 10.18 to the Registrants Registration
Statement on Form S-1, as amended (File No. 333-132678), as
originally filed on March 24, 2006, and incorporated herein
by reference).10.8
    
    Net Lease Agreement, as amended, by and among the
Registrant, Panattoni-Catlin Venture XXVI and Endosonics
Corporation, dated January 10, 1996 (filed as Exhibit 10.19
to the Registrants Registration Statement on Form S-1, as
amended (File No. 333-132678), as originally filed on
March 24, 2006, and incorporated herein by reference).10.9
    
    Standard Industrial/ Commercial Multi-Tenant Lease, as
amended, by and between 1325 J Street L.P. and Jomed
Incorporated, dated January 16, 2001 (filed as Exhibit 10.20
to the Registrants Registration Statement on Form S-1/A, as
amended (File No. 333-132678), as originally filed on May 5,
2006, and incorporated herein by reference).10.10
    
    Supply Agreement by and between the Registrant and AVE
Galway Limited, dated July 21, 2003 (filed as Exhibit 10.21
to the Registrants Registration Statement on Form S-1, as
amended (File No. 333-132678), as originally filed on
March 24, 2006, and incorporated herein by reference).10.11
    
    License Agreement by and between the Registrant and AVE
Galway Limited, dated July 21, 2003 (filed as Exhibit 10.22
to the Registrants Registration Statement on Form S-1, as
amended (File No. 333-132678), as originally filed on
March 24, 2006, and incorporated herein by reference).10.12
    
    International Distributor Agreement by and between
Cardiometrics, Inc., Goodman Company, Ltd. and Kaneko
Enterprises, Inc., entered September 17, 1994 (filed as
Exhibit 10.26 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).10.13
    
    Exclusive Distribution Agreement, as amended, by and between
Goodman Company, Ltd. and the Registrant, dated
September 27, 2004 (filed as Exhibit 10.27 to the
Registrants Registration Statement on Form S-1, as amended
(File No. 333-132678), as originally filed on March 24,
2006, and incorporated herein by reference).10.14
    
    Supply and Distribution Agreement between General Electric
Medical Systems Scs and the Registrant, dated March 16, 2006
(filed as Exhibit 10.28 to the Registrants Registration
Statement on Form S-1, as amended (File No. 333-132678), as
originally filed on March 24, 2006, and incorporated herein
by reference).10.15
    
    Amended and Restated Japanese Distribution Agreement by and
among the Registrant, Volcano Japan Co., Ltd. and Fukuda
Denshi Co., Ltd., dated March 17, 2006 (filed as
Exhibit 10.29 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).10.16*
    
    Managing Director Agreement by and between Volcano Europe NV
and Michel Lussier, dated March 20, 2006 (filed as
Exhibit 10.30 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).
 102




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##### Table of Contents



ExhibitNumber
    
    Description10.17
    
    Termination of Option to Distribute Agreement by and between
Medtronic Vascular, Inc. and the Registrant, dated
January 27, 2006 (filed as Exhibit 10.31 to the Registrants
Registration Statement on Form S-1/A, as amended (File
No. 333-132678), as originally filed on May 24, 2006, and
incorporated herein by reference).10.18
    
    Software Development and License Agreement by and between
Paieon, Inc. and the Registrant dated May 10, 2006 (filed as
Exhibit 10.32 to the Registrants Registration Statement on
Form S-1/A, as amended (File No. 333-132678), as originally
filed on May 24, 2006, and incorporated herein by
reference).10.19*
    
    Director Compensation Policy, as revised on August 27, 2007
(filed as Exhibit 10.19 to the Registrants Quarterly Report
on Form 10-Q (File No. 000-52045), as originally filed on
November 13, 2007, and incorporated herein by reference).10.20*
    
    2007 Commission Plan between the Registrant and Jorge Quinoy.10.21*
    
    Named Executive Officer Cash Compensation Arrangements.12.1
    
    Ratio of earnings to fixed charges21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of Independent Registered Public Accounting Firm.24.1
    
    Power of Attorney (See signature pages hereto).31.1
    
    Certification of the President & Chief Executive Officer
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934.31.2
    
    Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.32.1**
    
    Certification of the President & Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2**
    
    Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 
    
    Portions of the exhibit have been omitted pursuant to a
request for confidential treatment. The confidential
portions have been filed with the SEC.*
    
    Management contract or compensatory plan or arrangement.**
    
    The certifications attached as Exhibits 32.1 and 32.2
accompany this annual report on Form 10-K pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, and shall not be deemed
filed by the Registrant for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended. 103




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SIGNATURES
 th
 Volcano CorporationBy:
    /s/ R. Scott HuennekensR. Scott HuennekensPresident and Chief Executive Officer POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ R. Scott Huennekens

R. Scott Huennekens
    
    President and Chief Executive Officer and
Director (principal executive officer)
    
    March 14, 2008/s/ John T. Dahldorf

John T. Dahldorf
    
    Chief Financial Officer (principal financial
officer and principal accounting officer)
    
    March 14, 2008/s/ Olav B. Bergheim

Olav B. Bergheim
    
    Director
    
    March 14, 2008/s/ Connie R. Curran, RN, Ed.D.

Connie R. Curran, RN, Ed.D.
    
    Director
    
    March 14, 2008/s/ Kieran T. Gallahue

Kieran T. Gallahue
    
    Director
    
    March 14, 2008/s/ Lesley H. Howe

Lesley H. Howe
    
    Director
    
    March 14, 2008/s/ Alexis V. Lukianov

Alexis V. Lukianov
    
    Director
    
    March 14, 2008/s/ Ronald A. Matricaria

Ronald A. Matricaria
    
    Director
    
    March 14, 2008/s/ John Onopchenko

John Onopchenko
    
    Director
    
    March 14, 2008
 104




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EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Asset Purchase Agreement dated July 10, 2003 by and among
Jomed Inc., Jomed N.V., Jomed GmbH, Jomed Benelux S.A. and
the Registrant (filed as Exhibit 2.1 to the Registrants
Registration Statement on Form S-1, as amended (File
No. 333-132678), as originally filed on March 24, 2006, and
incorporated herein by reference).2.2
    
    Asset Transfer Agreement, by and between Pacific Rim Medical
Ventures Corp and Koninklijke Philips Electronics N.V.,
dated July 3, 2003 (filed as Exhibit 2.2 to the Registrants
Registration Statement on Form S-1, as amended (File
No. 333-132678), as originally filed on March 24, 2006, and
incorporated herein by reference).2.3
    
    Agreement and Plan of Merger, dated December 7, 2007, by and
among the Registrant, Corazon Acquisition, Inc.,
CardioSpectra, Inc. and Christopher E. Banas and Paul
Castella, as the Shareholders Representatives (filed as
Exhibit 2.1 to the Registrants Current Report on Form 8-K/A
(File No. 000-52045), as originally filed on March 4, 2008,
and incorporated herein by reference).3.1
    
    Amended and Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 3.1 to the Registrants
Quarterly Report on Form 10-Q (File No. 000-52045), as
originally filed on August 9, 2006, and incorporated herein
by reference).3.2
    
    Bylaws of the Registrant (filed as Exhibit 3.3 to the
Registrants Quarterly Report on Form 10-Q (File
No. 000-52045), as originally filed on August 9, 2006, and
incorporated herein by reference).3.3
    
    Certificate of Designation of Series A Junior Participating
Preferred Stock (filed as Exhibit 3.2 to the Registrants
Quarterly Report on Form 10-Q (File No. 000-52045), as
originally filed on August 9, 2006, and incorporated herein
by reference).4.1
    
    Reference is made to Exhibits 3.1, 3.2 and 3.3.4.2
    
    Specimen Common Stock certificate of the Registrant (filed
as Exhibit 4.1 to the Registrants Registration Statement on
Form S-1/A, as amended (File No. 333-132678), as originally
filed on May 24, 2006, and incorporated herein by
reference).4.3
    
    Fourth Amended and Restated Investor Rights Agreement, dated
February 18, 2005, by and among the Registrant and certain
stockholders (filed as Exhibit 4.2 to the Registrants
Registration Statement on Form S-1, as amended (File
No. 333-132678), as originally filed on March 24, 2006, and
incorporated herein by reference).4.4
    
    Warrant to purchase shares of Series B Preferred Stock
issued by the Registrant to Venture Lending & Leasing IV,
LLC, dated September 30, 2004 (filed as Exhibit 4.4 to the
Registrants Registration Statement on Form S-1, as amended
(File No. 333-132678) as originally filed on March 24, 2006,
and incorporated herein by reference).4.5
    
    Warrant to purchase shares of common stock issued by the
Registrant to Silicon Valley Bank, dated July 18, 2003
(filed as Exhibit 4.8 to the Registrants Registration
Statement on Form S-1, as amended (File No. 333-132678), as
originally filed on March 24, 2006, and incorporated herein
by reference).4.6
    
    Warrant to purchase shares of Series B Preferred Stock
issued by the Registrant to Silicon Valley Bank, dated
July 18, 2004 (filed as Exhibit 4.9 to the Registrants
Registration Statement on Form S-1, as amended (File
No. 333-132678), as originally filed on March 24, 2006, and
incorporated herein by reference).4.7
    
    Rights Agreement, by and between the Registrant and American
Stock Transfer & Trust Company, dated June 20, 2006 (filed
as Exhibit 4.1 to the Registrants Quarterly Report on
Form 10-Q (File No. 000-52045), as originally filed on
August 9, 2006, and incorporated herein by reference).10.1*
    
    Form of Indemnification Agreement for directors, Chief
Executive Officer and Chief Financial Officer (filed as
Exhibit 10.1 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).10.2*
    
    2000 Long Term Incentive Plan and forms of Stock Option
Agreements thereunder (filed as Exhibit 10.2 to the
Registrants Registration Statement on Form S-1/A, as
amended (File No. 333-132678), as originally filed on May 5,
2006, and incorporated herein by reference).10.3*
    
    2005 Equity Compensation Plan and forms of Stock Option
Agreements and Stock Grant Agreement thereunder (2005 Equity
Compensation Plan filed as Exhibit 10.3 to the Registrants
Registration Statement on Form S-1/A, as amended (File
No. 333-132678), as originally filed on May 5, 2006, and
incorporated herein by reference).
 105




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##### Table of Contents



ExhibitNumber
    
    Description10.3a*
    
    2005 Equity Compensation Plan Form of Grantee Restriction
Agreement (filed as Exhibit 10.3a to the Registrants Annual
Report on Form 10-K, as amended (File No. 000-52045), as
originally filed on March 23, 2007, as amended, and
incorporated herein by reference).10.3b*
    
    2005 Equity Compensation Plan Form of Restricted Stock Unit
Grant Notice and Form of Restricted Stock Unit Agreement
(filed as Exhibit 10.3 to the Registrants Current Report on
Form 8-K (File No. 000-52045), as originally filed on
March 4, 2008, and incorporated herein by reference).10.4
    
    License Agreement by and between the Registrant and The
Cleveland Clinic Foundation, dated April 30, 2002 (filed as
Exhibit 10.15 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).10.5*
    
    Amended and Restated Employment Agreement by and between the
Registrant and R. Scott Huennekens, dated February 28, 2008
(filed as Exhibit 10.1 to the Registrants Current Report on
Form 8-K (File No. 000-52045), as originally filed on
March 4, 2008, and incorporated herein by reference).10.6*
    
    Amended and Restated Employment Agreement by and between the
Registrant and John T. Dahldorf, dated February 28, 2008
(filed as Exhibit 10.2 to the Registrants Current Report on
Form 8-K (File No. 000-52045), as originally filed on
March 4, 2008, and incorporated herein by reference).10.7
    
    Standard Multi-Tenant Office LeaseGross, as amended, by and
between Ethan Conrad and the Registrant, dated June 13, 2005
(filed as Exhibit 10.18 to the Registrants Registration
Statement on Form S-1, as amended (File No. 333-132678), as
originally filed on March 24, 2006, and incorporated herein
by reference).10.8
    
    Net Lease Agreement, as amended, by and among the
Registrant, Panattoni-Catlin Venture XXVI and Endosonics
Corporation, dated January 10, 1996 (filed as Exhibit 10.19
to the Registrants Registration Statement on Form S-1, as
amended (File No. 333-132678), as originally filed on
March 24, 2006, and incorporated herein by reference).10.9
    
    Standard Industrial/ Commercial Multi-Tenant Lease, as
amended, by and between 1325 J Street L.P. and Jomed
Incorporated, dated January 16, 2001 (filed as Exhibit 10.20
to the Registrants Registration Statement on Form S-1/A, as
amended (File No. 333-132678), as originally filed on May 5,
2006, and incorporated herein by reference).10.10
    
    Supply Agreement by and between the Registrant and AVE
Galway Limited, dated July 21, 2003 (filed as Exhibit 10.21
to the Registrants Registration Statement on Form S-1, as
amended (File No. 333-132678), as originally filed on
March 24, 2006, and incorporated herein by reference).10.11
    
    License Agreement by and between the Registrant and AVE
Galway Limited, dated July 21, 2003 (filed as Exhibit 10.22
to the Registrants Registration Statement on Form S-1, as
amended (File No. 333-132678), as originally filed on
March 24, 2006, and incorporated herein by reference).10.12
    
    International Distributor Agreement by and between
Cardiometrics, Inc., Goodman Company, Ltd. and Kaneko
Enterprises, Inc., entered September 17, 1994 (filed as
Exhibit 10.26 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).10.13
    
    Exclusive Distribution Agreement, as amended, by and between
Goodman Company, Ltd. and the Registrant, dated
September 27, 2004 (filed as Exhibit 10.27 to the
Registrants Registration Statement on Form S-1, as amended
(File No. 333-132678), as originally filed on March 24,
2006, and incorporated herein by reference).10.14
    
    Supply and Distribution Agreement between General Electric
Medical Systems Scs and the Registrant, dated March 16, 2006
(filed as Exhibit 10.28 to the Registrants Registration
Statement on Form S-1, as amended (File No. 333-132678), as
originally filed on March 24, 2006, and incorporated herein
by reference).10.15
    
    Amended and Restated Japanese Distribution Agreement by and
among the Registrant, Volcano Japan Co., Ltd. and Fukuda
Denshi Co., Ltd., dated March 17, 2006 (filed as
Exhibit 10.29 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).10.16*
    
    Managing Director Agreement by and between Volcano Europe NV
and Michel Lussier, dated March 20, 2006 (filed as
Exhibit 10.30 to the Registrants Registration Statement on
Form S-1, as amended (File No. 333-132678), as originally
filed on March 24, 2006, and incorporated herein by
reference).
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##### Table of Contents



ExhibitNumber
    
    Description10.17
    
    Termination of Option to Distribute Agreement by and between
Medtronic Vascular, Inc. and the Registrant, dated
January 27, 2006 (filed as Exhibit 10.31 to the Registrants
Registration Statement on Form S-1/A, as amended (File
No. 333-132678), as originally filed on May 24, 2006, and
incorporated herein by reference).10.18
    
    Software Development and License Agreement by and between
Paieon, Inc. and the Registrant dated May 10, 2006 (filed as
Exhibit 10.32 to the Registrants Registration Statement on
Form S-1/A, as amended (File No. 333-132678), as originally
filed on May 24, 2006, and incorporated herein by
reference).10.19*
    
    Director Compensation Policy, as revised on August 27, 2007
(filed as Exhibit 10.19 to the Registrants Quarterly Report
on Form 10-Q (File No. 000-52045), as originally filed on
November 13, 2007, and incorporated herein by reference).10.20*
    
    2007 Commission Plan between the Registrant and Jorge Quinoy.10.21*
    
    Named Executive Officer Cash Compensation Arrangements.12.1
    
    Ratio of earnings to fixed charges21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of Independent Registered Public Accounting Firm.24.1
    
    Power of Attorney (See signature pages hereto).31.1
    
    Certification of the President & Chief Executive Officer
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934.31.2
    
    Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.32.1**
    
    Certification of the President & Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2**
    
    Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 
    
    Portions of the exhibit have been omitted pursuant to a
request for confidential treatment. The confidential
portions have been filed with the SEC.*
    
    Management contract or compensatory plan or arrangement.**
    
    The certifications attached as Exhibits 32.1 and 32.2
accompany this annual report on Form 10-K pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, and shall not be deemed
filed by the Registrant for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended. 107