Coronary artery disease, or CAD, is the most common form of cardiovascular disease and the number one cause of death in the United States and Europe. CAD is primarily caused by the accumulation of fat-laden cells, also known as plaque, in the arteries leading to the heart. Over time, the accumulation of plaque in an artery, known as a lesion, narrows the diameter of its lumen, or inner channel, and may significantly reduce or stop blood flow. A reduction in blood flow to the heart can cause chest pain, a heart attack or potentially death. CAD accounts for over 650,000 deaths annually and, according to the American Heart Association, affects over 13 million Americans. Risk factors for CAD include old age, smoking, diabetes, obesity, sedentary lifestyle and an individual\\\'s genetic history.

A number of surgical procedures and interventional therapies have been developed over the past four decades to treat CAD, each with the goal of quickly and safely restoring blood flow. This is accomplished by surgically rerouting the flow of blood around the lesion or using interventional techniques to reopen the artery. The treatment of CAD has experienced significant innovation and has evolved from invasive surgical approaches to minimally-invasive catheter-based therapies. This innovation has generally resulted in less severe procedure-related complications, as well as reduced costs due to shorter procedure and recovery times.

The most recent innovation in PCI was the development of drug eluting stents. Drug eluting stents were designed to address both causes of restenosis. Currently marketed drug eluting stents are conventional bare metal stents that are coated with a drug that is designed to reduce the formation of scar tissue in the artery. This advance has resulted in improved patient outcomes due to reduced restenosis. According to published third party analysis of the data from a number of randomized controlled clinical trials for currently marketed drug eluting stents, the restenosis rate for drug eluting stents was approximately 10.5% as compared with approximately 31.7% for bare metal stents. As a result, following their introduction in Europe in 2002 and in the United States in 2003, drug eluting stents brought about a rapid shift in physician treatment of CAD and were used in 89% of the stent procedures in the United States in 2005. Drug eluting stents were used in approximately 1.5 million of the 2.2 million coronary stent procedures performed worldwide in 2005, and represented a $5.3 billion market according to Millennium Research Group.

The Company’s stent has a proprietary modular design and consists of multiple 6mm stent segments. The segments are not physically attached to one another, but instead the ends of each segment are interdigitated. This allows for separation at each 6mm segment and the ability for the overall stent length to be customized during a procedure.

The Company’s delivery system consists of a catheter with a protective sheath that contains stent segments and balloon and a handle to control delivery of the catheter and deployment of the stent segments. The protective sheath covers the stent segments until the time of deployment and is designed to prevent the stent from scraping the artery wall as it is delivered to the targeted lesion. The Company’s sheath has a slippery coating and smooth outer surface to provide lubrication, and is designed with the column strength and flexibility needed to advance the catheter to the target lesion.

The distal end of the catheter contains a marker for visualization and the Company’s proprietary mechanism for separating the interdigitated segments. The method of action for separation is mechanical in nature and can be quickly repeated multiple times. The Company’s delivery system also has a handle attached to the catheter that is used by the physician to control the deployment and separation of the stents. A dial on the handle allows the precise deployment of the necessary length of stent by pulling back the outer sheath. After deployment, if needed, the physician can shorten and reposition the balloon within the stented segment to further expand a portion of the stent against the artery wall. This feature is not currently offered in any commercially available stent delivery system and is intended to simplify the procedure by avoiding the need for an additional balloon for post-deployment stent diameter adjustments. After treatment of a specific lesion, the Company’s Custom NX 60 is designed to be reset and used to treat additional lesions, provided that all stent segments have not been deployed.

Research and development expenses were $2.6 million for the three months ended March 31, 2005, compared to $3.3 million for the three months ended March 31, 2006, an increase of $656,000.

General and administrative expenses were $547,000 for the three months ended March 31, 2005, compared to $941,000 for the three months ended March 31, 2006, an increase of $395,000.

Interest income was $64,000 for the three months ended March 31, 2005, compared to $108,000 for the three months ended March 31, 2006, an increase of $44,000.