UNITED STATESTable SECURITIESof AND EXCHANGE COMMISSIONContents

~~Washington,~~UNITED STATES SECURITIES AND EXCHANGE COMMISSION ~~DC 20549~~

~~FORM~~Washington, DC 20549 ~~10-Q~~

~~(Mark~~FORM 10-Q ~~One)~~

~~R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15~~(d)Mark ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~One)

~~For the~~þ ~~quarterly~~QUARTERLY ~~period~~REPORT ~~ended~~PURSUANT ~~December~~TO ~~31,~~SECTION ~~2009~~13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OrFor the quarterly period ended June 30, 2010

~~£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~Or

~~For the~~o ~~transition~~TRANSITION ~~period~~REPORT ~~from~~PURSUANT ~~_____________to~~TO ~~____________~~SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~000-51323~~For the ~~(Commission~~transition ~~File~~period ~~Number)~~from to

~~Micrus Endovascular Corporation~~000-51323

~~(Exact~~ ~~name~~(Commission ofFile ~~registrant as specified in its charter~~Number)

Delaware				23-2853441
(State or Other Jurisdiction				(IRS Employer
of Incorporation)				Identification No.)

Micrus Endovascular Corporation

821 Fox Lane, San Jose, California		95131
(Address of Principal Executive Offices)		(Zip Code)

(Exact name of registrant as specified in its charter)

(408) 433-1400 (Registrant’s Telephone Number, Including Area Code)


Delaware		23-2853441

(State or Other Jurisdiction of Incorporation)		(IRS Employer Identification No.)

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


821 Fox Lane, San Jose, California		95131

(Address of Principal Executive Offices)		(Zip Code)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (~~§ 232.405 of this chapter~~408) ~~during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £~~433-1400

~~Indicate by~~(Registrant’s ~~check~~Telephone ~~mark whether the registrant is a large accelerated filer~~Number, ~~an accelerated~~Including ~~filer,~~Area a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check oneCode):

~~£ Large~~ Indicate by check mark whether the registrant (1) has filed all reports required to be filed ~~accelerated~~by ~~filer R Accelerated~~Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or ~~filer £ Non-accelerated~~for such shorter period that the registrant was required to file such reports), and (2) has been ~~filer £ Smaller reporting~~subject ~~company~~to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Do§ 232.405 of this chapter) during the preceding 12 months ~~not~~(or ~~check~~for ifsuch ashorter ~~smaller~~period ~~reporting~~that ~~company~~the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a ~~shell~~large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. ~~(as~~See ~~defined~~the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). ~~Yes~~(Check ~~£ NoR~~one):

Aso ~~of February~~Large 3,accelerated ~~2010,~~filer ~~there~~þ ~~were~~Accelerated ~~16,152,675~~filer ~~shares~~o ofNon-accelerated ~~common~~filer ~~stock,~~o ~~par~~Smaller ~~value~~reporting ~~$0.01, of~~company ~~the~~(Do ~~registrant~~not ~~outstanding.~~check if a smaller reporting company)

~~MICRUS~~ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of ~~ENDOVASCULAR~~the ~~CORPORATION~~Exchange Act). Yes o Noþ

~~INDEX~~ As TOof ~~FORM~~August 2, ~~10-Q~~2010, there were 16,585,666 shares of common stock, par value $0.01, of the registrant outstanding.

	Page Number
Part I. Financial Information
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets as of December 31, 2009 and March 31, 2009		3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2009 and 2008		4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2009 and 2008		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		32
Item 4. Controls and Procedures		32
Part II. Other Information
Item 1. Legal Proceedings		33
Item 1A. Risk Factors		33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		49
Item 3. Defaults Upon Senior Securities		49
Item 4. Submission of Matters to a Vote of Security Holders		49
Item 5. Other Information		49
Item 6. Exhibits		49
Signatures		50
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

MICRUS ENDOVASCULAR CORPORATION

2INDEX TO FORM 10-Q

Table of Contents


	Page
	Number
Part I. Financial Information
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets as of June 30, 2010 and March 31, 2010		3
Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2010 and 2009		4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2010 and 2009		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		24
Item 4. Controls and Procedures		25
Part II. Other Information
Item 1. Legal Proceedings		26
Item 1A. Risk Factors		26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3. Defaults Upon Senior Securities		40
Item 4. Reserved		40
Item 5. Other Information		41
Item 6. Exhibits		41
Signatures		42
EX-31.1
EX-31.2
EX-32

~~PART I — FINANCIAL INFORMATION~~2

ItemTable 1.of Financial StatementsContents

~~MICRUS ENDOVASCULAR~~PART ~~CORPORATION~~I — FINANCIAL INFORMATION

~~Condensed~~Item 1. ~~Consolidated~~Financial ~~Balance Sheets~~Statements

~~(unaudited)~~MICRUS ENDOVASCULAR CORPORATION

~~(In thousands,~~Condensed ~~except~~Consolidated ~~share~~Balance ~~and per share amounts)~~Sheets

	December 31,			March 31,
	2009			2009
ASSETS
Current Assets:
Cash and cash equivalents	$	28,633		$	17,050
Accounts receivable, net of allowance for doubtful accounts
of $154 and $119 at December 31, 2009 and March 31, 2009, respectively		13,578			12,205
Inventories		14,190			11,857
Prepaid expenses and other current assets		1,217			1,237
Total current assets		57,618			42,349
Property and equipment, net		6,100			6,982
Goodwill		7,577			6,762
Intangible assets, net		3,741			4,684
Deferred tax assets		144			260
Other assets		470			469
Total assets	$	75,650		$	61,506
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	1,828		$	2,138
Accrued payroll and other related expenses		4,815			5,515
Short-term borrowings		2,500			2,500
Accrued liabilities		6,827			7,877
Total current liabilities		15,970			18,030
Other non-current liabilities		515			902
Total liabilities		16,485			18,932
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.01 par value;
Authorized: 1,000,000 shares; none issued and outstanding		-			-
Common stock, $0.01 par value;
Authorized: 50,000,000 shares
Issued and outstanding: 16,133,999 shares and 15,820,369 shares
at December 31, 2009 and March 31, 2009, respectively		161			158
Additional paid-in capital		133,853			127,121
Accumulated other comprehensive loss		(1,623	)		(2,289	)
Accumulated deficit		(73,226	)		(82,416	)
Total stockholders' equity		59,165			42,574
Total liabilities and stockholders' equity	$	75,650		$	61,506

(unaudited)
(In thousands, except share and per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.


	June 30,			March 31,
	2010			2010
ASSETS
Current Assets:
Cash and cash equivalents	$	34,664		$	30,072
Accounts receivable, net of allowance for doubtful accounts of $200 and $217 at June 30, 2010 and March 31, 2010, respectively		15,968			15,454
Inventories		13,743			13,769
Prepaid expenses and other current assets		1,475			1,760

Total current assets		65,850			61,055
Property and equipment, net		5,615			5,841
Goodwill		7,169			7,169
Intangible assets, net		5,092			5,394
Deferred tax assets		516			312
Other assets		459			465

Total assets	$	84,701		$	80,236


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,718		$	1,902
Accrued payroll and other related expenses		4,731			6,080
Income tax payable		452			417
Deferred tax liabilities		169			138
Accrued liabilities		5,918			5,917

Total current liabilities		12,988			14,454
Other non-current liabilities		405			446

Total liabilities		13,393			14,900

Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.01 par value;
Authorized: 1,000,000 shares; none issued and outstanding		—			—
Common stock, $0.01 par value;
Authorized: 50,000,000 shares
Issued and outstanding: 16,582,745 shares and 16,423,452 shares at June 30, 2010 and March 31, 2010, respectively		166			164
Additional paid-in capital		141,048			138,019
Accumulated other comprehensive loss		(2,097	)		(1,961	)
Accumulated deficit		(67,809	)		(70,886	)

Total stockholders’ equity		71,308			65,336

Total liabilities and stockholders’ equity	$	84,701		$	80,236

3The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Table of Contents~~3

MICRUS ENDOVASCULARTable CORPORATIONof Contents

~~Condensed~~MICRUS ~~Consolidated~~ENDOVASCULAR ~~Statements of~~CORPORATION ~~Operations~~

~~(unaudited)~~Condensed Consolidated Statements of Operations

(Inunaudited) (In thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	Three Months Ended June 30,
	December 31,						December 31,
	2010			2009
	2009			2008			2009			2008
Revenues	$	24,628		$	21,223
Revenues	$	22,793		$	18,322		$	65,526		$	57,438
Cost of goods sold		6,227			5,564
Cost of goods sold		5,499			4,777			15,968			14,984
Gross profit		18,401			15,659
Gross profit		17,294			13,545			49,558			42,454
Operating expenses:
Operating expenses:
Research and development		2,312			2,214
Research and development		2,110			2,403			7,073			8,253
Sales and marketing		6,436			6,216
Sales and marketing		6,382			6,942			19,227			23,021
General and administrative		5,872			5,266
General and administrative		5,437			5,892			15,821			21,818
Total operating expenses		14,620			13,696
Total operating expenses		13,929			15,237			42,121			53,092
Income from operations		3,781			1,963
Income (loss) from operations		3,365			(1,692	)		7,437			(10,638	)
Interest income		11			16
Interest income		10			49			38			239
Interest expense		—			(36	)
Interest expense		(39	)		(10	)		(104	)		(14	)
Other income (expense), net		(474	)		769
Other income (expense), net		25			(1,006	)		2,621			(1,689	)
Income before income taxes		3,318			2,712
Income (loss) before income taxes		3,361			(2,659	)		9,992			(12,102	)
Provision for income taxes		241			448
Provision (benefit) for income taxes		41			(367	)		802			(472	)
Net income	$	3,077		$	2,264
Net income (loss)		3,320		$	(2,292	)		9,190		$	(11,630	)
Net income per share
Net income (loss) per share
Basic	$	0.19		$	0.14
Basic	$	0.21		$	(0.15	)	$	0.58		$	(0.74	)
Diluted	$	0.17		$	0.14
Diluted	$	0.20		$	(0.15	)	$	0.56		$	(0.74	)
Weighted-average number of shares used in per share calculations:
Weighted-average number of shares used in per share calculations:
Basic		16,522			15,830
Basic		16,063			15,734			15,923			15,675
Diluted		17,607			16,140
Diluted		16,768			15,734			16,435			15,675

The accompanying notes are an integral part of these condensed consolidated financial statements.

MICRUS ENDOVASCULAR CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited) (In thousands)

(In thousands)


	Three Months Ended
	June 30,
	2010			2009 (1)
Cash flows from operating activities:
Net income	$	3,077		$	2,264
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		758			742
Provision for doubtful accounts		(15	)		2
Loss on disposal of equipment		2			45
Provision for excess and obsolete inventories		300			327
Stock-based compensation		1,289			1,868
Effect of foreign exchange rate changes on intercompany balances		150			(1,116	)
Deferred income taxes		(170	)		135
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		(620	)		638
Inventories		(341	)		(282	)
Prepaid expenses and other current assets		280			98
Other assets		3			5
Accounts payable		(176	)		(408	)
Accrued payroll and other related expenses		(1,323	)		(1,480	)
Accrued liabilities		357			611
Other non-current liabilities		(36	)		(297	)

Net cash provided by operating activities		3,535			3,152


Cash flows from investing activities:
Restricted cash in connection with forward contracts		—			(135	)
Acquisition of property and equipment		(236	)		(39	)
Earn-out payment in connection with acquisition of VasCon, LLC		(309	)		(882	)

Net cash used in investing activities		(545	)		(1,056	)


Cash flows from financing activities:
Proceeds from exercise of stock options		1,736			19

Net cash provided by financing activities		1,736			19


Effect of foreign exchange rate changes on cash and cash equivalents		(134	)		204
Net increase in cash and cash equivalents		4,726			2,115
Cash and cash equivalents at beginning of period		30,072			17,050

Cash and cash equivalents at end of period	$	34,664		$	19,369

	Nine Months Ended December 31,
	2009			2008 (1)
Cash flows from operating activities:
Net income (loss)	$	9,190		$	(11,630	)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization		2,337			2,466
Provision for doubtful accounts		31			17
Loss on disposal of equipment		43			14
Gain from sale of assets and technologies in connection with Merit Transaction		(1,866	)		-
Provision for excess and obsolete inventories		482			(53)
Stock-based compensation		4,790			4,307
Effect of foreign exchange rate changes on intercompany balances		(1,478	)		1,557
Deferred income taxes		149			(498	)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		(769	)		(183	)
Inventories		(2,387	)		(1,186	)
Prepaid expenses and other current assets		75			(131	)
Other assets		16			(26	)
Accounts payable		(384	)		(1,157	)
Accrued payroll and other related expenses		(769	)		(2,072	)
Accrued liabilities		1,271			(243	)
Other non-current liabilities		(105	)		(1,071	)
Net cash provided by (used in) operating activities		10,626			(9,889	)
Cash flows from investing activities:
Acquisition of property and equipment		(461	)		(2,500	)
Proceeds from sale of assets and technologies in connection with Merit Transaction		-			1,500
Earn-out payment in connection with acquisition of VasCon, LLC		(882	)		(378	)
Earn-out payment in connection with acquisition of Neurologic UK Ltd.		-			(3,454	)
Net cash used in investing activities		(1,343	)		(4,832	)
Cash flows from financing activities:
Borrowings under bank line of credit		-			2,500
Proceeds from exercise of stock options		1,543			624
Proceeds from employee stock purchase plan		351			527
Net cash provided by financing activities		1,894			3,651
Effect of foreign exchange rate changes on cash and cash equivalents		406			(353	)
Net increase (decrease) in cash and cash equivalents		11,177			(11,070	)
Cash and cash equivalents at beginning of period		17,050			25,526
Cash and cash equivalents at end of period	$	28,633		$	14,103
Supplemental schedule of non-cash investing and financing activities:
Accrued earn-out payment associated with the purchase of VasCon, LLC	$	309		$	-


(1)		Refer to Note 1 — Formation and Business of the Company regarding the revision of prior period’s cash flow presentation.

~~(1)~~The ~~Refer to~~accompanying ~~Note~~notes 1are –an ~~Formation~~integral ~~and~~part ~~Business~~ of ~~the~~these ~~Company~~condensed ~~regarding~~consolidated ~~the~~financial ~~revision of prior periods’ cash flow presentation~~statements.

~~The~~5 ~~accompanying notes are an integral part of these condensed consolidated financial statements.~~

5Table of Contents

~~Table~~MICRUS ofENDOVASCULAR ~~Contents~~CORPORATION

~~MICRUS~~NOTES TO CONDENSED ~~ENDOVASCULAR~~CONSOLIDATED ~~CORPORATION~~FINANCIAL STATEMENTS

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~(UNAUDITED)

~~(UNAUDITED)~~Note 1 — Formation and Business of the Company

~~Note~~ Micrus Endovascular Corporation (the “Company”) was incorporated under the laws of the state 1of —Delaware ~~Formation~~in June 1996. The Company develops, manufactures and ~~Business~~markets ofboth implantable and disposable medical devices used in the treatment of cerebral vascular diseases. The Company’s products are used by interventional neuroradiologists, interventional neurologists, and neurosurgeons to treat both cerebral aneurysms responsible for hemorrhagic stroke and intracranial atherosclerosis, which may lead to ischemic stroke. Hemorrhagic and ischemic stroke are both significant causes of death and disability worldwide.

~~Micrus Endovascular~~ Interim ~~Corporation~~unaudited ~~(the~~financial ~~“Company”) was incorporated under the laws of the~~information state of Delaware in June 1996. The Company develops, manufactures and markets both implantable and disposable medical devices used in the treatment of cerebral vascular diseases. The Company’s products are used by interventional neuroradiologists, interventional neurologists, and endovascularly-trained neurosurgeons to treat both cerebral aneurysms responsible for hemorrhagic stroke and intracranial atherosclerosis, which may lead to ischemic stroke. Hemorrhagic and ischemic stroke are both significant causes of death and disability worldwide.

~~Interim~~ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring and out of period adjustments) considered necessary for a fair presentation of the Company’s financial position as of the date of the interim balance sheet and results of operations and cash flows for the interim periods. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the preceding fiscal year included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010 which was filed with the SEC on June 8, 2010. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

The ~~accompanying~~ ~~unaudited~~results ~~condensed~~of ~~consolidated~~operations ~~financial~~for ~~statements have been prepared in accordance with generally accepted accounting principles in~~ the ~~United~~ ~~States (“GAAP”) for~~ interim ~~financial~~period ~~information~~ended ~~and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly~~June 30, ~~they~~2010 domay not ~~include~~necessarily ~~all of the~~be ~~information~~indicative and footnotes required by GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of ~~management,~~ the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring and out of period adjustments) considered necessary for a fair presentation of the Company’s financial position as of the date of the interim balance sheet and results ofthat ~~operations~~may ~~and cash flows for the interim periods. These financial statements should~~ be ~~read~~expected ~~in conjunction with the audited financial statements and notes thereto~~ for the ~~preceding~~ fiscal year ~~included~~ending ~~in the Company’s Annual Report on Form 10-K for the fiscal year ended~~ March 31, ~~2009 which was filed with the SEC on June 11~~2011, ~~2009. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed~~ or ~~omitted pursuant to such rules and regulations. The condensed~~any ~~consolidated~~future ~~balance sheet at March 31, 2009 was derived from audited financial statements, but does not include all disclosures required by GAAP~~period.

~~The results~~ Revision of ~~operations~~prior ~~for the interim~~ periods’ ~~ended~~cash ~~December~~flows ~~31, 2009 may not~~presentations ~~necessarily be indicative of the results that may be expected for the fiscal year ending March 31, 2010, or any future period.~~

~~Liquidity~~ The Company previously presented the remeasurement of foreign exchange differences on intercompany balances incorrectly in “Effect of foreign exchange rate changes on cash and cash equivalents” instead of as an “Adjustment to reconcile net income/(loss) to net cash provided by/(used in) operating activities.” Consequently, for prior periods presented, the Company is revising the impact by reclassifying the resulting amounts from “Effect of foreign exchange rate changes on cash and cash equivalents” to “Cash provided by/(used in) operating activities.” This revision does not impact the Company’s previously reported overall net change in cash and cash equivalents in its consolidated statements of cash flows for any period presented. The Company does not believe these adjustments are material to any of the periods impacted. This item has been adjusted in this Form 10-Q. The impact on the Company’s consolidated statements of cash flows data is as follows (in thousands):

On a cumulative basis, the Company has incurred net losses since its inception. While the Company has been profitable in the four most recent quarters, there are no assurances that the Company will continue to be profitable in the foreseeable future. Management believes that the Company’s current cash position as of December 31, 2009 and the cash expected to be generated from operations will be sufficient to meet the Company’s working capital and capital expenditure requirements for at least the next twelve months. To the extent that existing cash and cash generated from operations are insufficient to fund its future activities, the Company would seek to borrow funds under its credit facility. However, given that certain financial and other covenants of the Credit Agreement (see Note 6 - Line of Credit) are required to be met, these funds may not be available to the Company at such time. Accordingly, the Company may need to reduce discretionary spending and raise additional funds through public or private equity or debt financing. Any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve covenants that would restrict the Company. Additional funds may not be available on terms favorable to the Company or at all. Failure to manage discretionary spending or raise additional capital as required may adversely impact the Company’s ability to achieve its intended business objectives. The Company believes that it will be able to maintain compliance with the debt covenants of the Credit Agreement through its maturity date of August 1, 2010.


	As Previously
	Reported			As Revised
Three months ended June 30, 2009
Net cash provided by operating activities	$	4,268		$	3,152
Effect of foreign exchange rate changes on cash and cash equivalents	$	(912	)	$	204
Net increase in cash and cash equivalents	$	3,231		$	2,115

6Note 2 — Summary of Significant Accounting Policies

~~Table~~ The ofCompany’s ~~Contents~~significant accounting policies are fully described in Note 2 to the Consolidated Financial Statements included in the Company’s annual report filed on Form 10-K for the fiscal year ended March 31, 2010, as filed with the SEC on June 8, 2010.

~~Revision~~6 ~~of prior periods' cash flows presentations~~

The CompanyTable previously presented the remeasurement of foreign exchange differences on intercompany balances incorrectly in “Effect of foreign exchange rate changes on cash and cash equivalents” instead of as an “Adjustment to reconcile net income/(loss) to net cash provided by/(used in) operating activities.” Consequently, for periods presented or prior periods to be presented, the Company is revising the impact by reclassifying the resulting amounts from “Effect of foreign exchange rate changes on cash and cash equivalents” to “Cash provided by/(used in) operating activities.” This revision does not impact the Company's previously reported overall net change in cash and cash equivalents in its consolidated statements of cash flows for any period presented. The Company does not believe these adjustments are material to any of the periods impacted. This item has been adjusted in this Form 10-Q and will also be adjusted in the consolidated statements of cash flows for the fiscal years 2008 and 2009, nine months period ended December 31, 2008 and three months period ended June 30, 2009. The impact on the Company's consolidated statements of cash flows data is as follows (in thousands):Contents

	As previously
	reported			As revised
Fiscal year ended March 31, 2008
Net cash used in operating activities	$	(7,524	)	$	(8,820	)
Effect of foreign exchange rate changes on cash and cash equivalents	$	(1,214	)	$	82
Net decrease in cash and cash equivalents	$	(7,796	)	$	(9,092	)

Principles of consolidation

Fiscal year ended March 31, 2009
Net cash used in operating activities	$	(9,279	)	$	(7,048	)
Effect of foreign exchange rate changes on cash and cash equivalents	$	1,682		$	(549	)
Net decrease in cash and cash equivalents	$	(10,158	)	$	(7,927	)

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Nine months ended December 31, 2008
Net cash used in operating activities	$	(11,446	)	$	(9,889	)
Effect of foreign exchange rate changes on cash and cash equivalents	$	1,204		$	(353	)
Net decrease in cash and cash equivalents	$	(12,627	)	$	(11,070	)

The Company’s international subsidiaries use their local currency as the functional currency. Assets and liabilities are translated at exchange rates prevailing at the balance sheet date. Revenue, expense, gain and loss accounts are translated at average exchange rates during the period. The resulting translation adjustments are recorded directly to accumulated other comprehensive income (loss).

Three months ended June 30, 2009
Net cash provided by operating activities	$	4,268		$	3,152
Effect of foreign exchange rate changes on cash and cash equivalents	$	(912	)	$	204
Net increase in cash and cash equivalents	$	3,231		$	2,115

Out of period adjustments

~~Note~~ During the three months ended June 30, 2009, the Company recorded adjustments to cost of goods 2sold, —operating ~~Summary~~expenses and certain balance sheet accounts to record additional expenses primarily related to stock-based compensation expense that were not properly recorded in prior periods. The net adjustments resulted in the reporting of ~~Significant~~$281,000 ~~Accounting~~in ~~Policies~~additional pre-tax expenses. These adjustments reduced earnings per share by $0.02 for the three months ended June 30, 2009. These adjustments both individually and in the aggregate were not material to any of the fiscal 2010 interim or full year consolidated financial statements.

~~The Company’s~~ Use ~~significant~~of ~~accounting policies are fully described in Note 2 to the~~estimates ~~Consolidated Financial Statements included in the Company’s annual report filed on Form 10-K for the fiscal year ended March 31, 2009, as filed with the SEC on June 11, 2009.~~

~~Principles~~ Preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of ~~consolidation~~America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, and the revenues and expenses which are reported during the Company’s reporting periods. In addition, they affect the disclosure of contingent assets and liabilities, as reported on the dates of the Company’s consolidated financial statements. Actual results could differ from these estimates. These estimates and assumptions include reserves and write-downs related to accounts receivable and inventories, the recoverability and fair value of long-term assets, and deferred tax assets and related valuation allowances.

~~The consolidated~~ Product ~~financial statements include the accounts of the Company and its~~warranty ~~wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.~~

~~The Company’s~~ Once ~~international~~a ~~subsidiaries~~sale ~~use~~has ~~their~~occurred, ~~local~~the ~~currency~~customer ashas no right of return and the ~~functional~~Company provides its ~~currency.~~customers ~~Assets~~with ~~and~~limited ~~liabilities~~warranty ~~are~~privileges. ~~translated~~To atdate, ~~exchange~~product ~~rates~~returns ~~prevailing~~under ~~at the~~warranty ~~balance~~have ~~sheet~~not ~~date~~been significant. ~~Revenue,~~The ~~expense~~warranty accrual as of June 30, ~~gain~~2010 and ~~loss~~March 31, ~~accounts~~2010 ~~are~~was ~~translated~~immaterial to the atfinancial ~~average~~position ~~exchange~~of ~~rates~~the ~~during~~Company and the ~~period.~~change ~~The~~in ~~resulting~~the ~~translation~~accrual for both the current-year quarter ~~adjustments~~and ~~are~~prior-year ~~recorded~~quarter ~~directly~~was immaterial to ~~accumulated~~the ~~other~~Company’s ~~comprehensive~~results ~~income (loss)~~of operations and cash flows.

7 Foreign currency transactions

~~Table~~ Other income (expense), net, includes foreign currency gains or losses related to a loan with the Company’s Swiss subsidiary, and currency gains or losses resulting from differences in exchange rates between the time of ~~Contents~~recording of the transaction and the cash settlement of foreign currency denominated receivables and payables. The Company recorded currency gain (losses) for the three months ended June 30, 2010 and 2009 of ($462,000) and $0.8 million, respectively.

~~Out of~~ Comprehensive ~~period~~income ~~adjustments~~(loss)

~~During the~~ Comprehensive ~~three~~income ~~months ended June~~(loss) ~~30,~~generally ~~2009,~~represents ~~the~~all ~~Company~~changes ~~recorded~~in ~~adjustments~~stockholders’ toequity except ~~cost~~those ofresulting ~~goods~~from ~~sold,~~investments ~~operating~~or ~~expenses~~contributions ~~and~~by ~~certain~~stockholders. ~~balance~~The ~~sheet~~Company’s ~~accounts~~foreign tocurrency ~~record~~translation ~~additional~~adjustments ~~expenses~~and ~~primarily~~the ~~related~~Swiss topension ~~stock-based~~plan ~~compensation~~benefit ~~expense that~~adjustment ~~were~~represent ~~not~~the ~~correctly~~only ~~recorded in prior periods. The net adjustments resulted~~components inof ~~the~~comprehensive ~~Company~~income ~~reporting~~(loss) excluded ~~$281,000~~from inreported ~~additional~~net ~~pre-tax expenses~~income. ~~These adjustments~~Total ~~reduced~~comprehensive ~~earnings~~income ~~per share by $0.02~~ for the ~~nine~~three months ended ~~December~~ 31June 30, ~~2009.~~2010 ~~These~~and ~~adjustments~~2009 ~~both~~was ~~individually~~$2.9 million and in$3.1 million, ~~the~~respectively. ~~aggregate were~~This ~~not~~included ~~material~~other tocomprehensive ~~any~~income (loss) of ~~the~~($143,000) ~~fiscal~~and ~~2009~~$0.9 million, ~~interim~~respectively, orrelated ~~full year consolidated~~to ~~financial~~foreign ~~statements~~currency ~~nor~~translation ~~are they expected to be material to full year fiscal 2010 results~~adjustments.

~~Use of~~ Net ~~estimates~~income per share

~~The preparation~~ Basic ofnet ~~consolidated~~income ~~financial~~per ~~statements~~share inis ~~conformity~~computed ~~with~~by ~~GAAP requires~~dividing ~~management~~net toincome ~~make~~by ~~estimates and assumptions that affect~~ the ~~reported amounts~~weighted-average ~~of assets and liabilities and disclosure of contingent assets and~~number ~~liabilities at the dates~~ of ~~the~~common ~~consolidated~~shares ~~financial~~outstanding ~~statements and the reported amounts of revenues and expenses~~ during the ~~reporting periods~~period. ~~Actual results~~Diluted ~~could~~net ~~differ~~income ~~from~~per ~~these~~share ~~estimates.~~is ~~These~~computed ~~estimates~~by ~~and assumptions~~giving ~~include~~effect ~~reserves and write-downs related~~ to ~~accounts~~all ~~receivable~~potential ~~and~~dilutive ~~inventories, the~~common ~~recoverability of long-term assets~~shares, ~~deferred~~including ~~tax~~stock ~~assets~~options and ~~liabilities~~restricted ~~and related~~stock ~~valuation allowances~~units.

~~Revenue~~7 ~~recognition – sales made to Latin American distributors~~

SalesTable to the Company’s Latin American distributors are made according to similar contractual terms as sales to other distributors. However, due to historically longer delays in receiving payments and a higher level of write-offs relating to our Latin American distributors, the Company had concluded that through March 31, 2008 collectibility was not reasonably assured at the time that the distributor took title to the inventory. Accordingly, the Company had recognized revenues from its sales to Latin American distributors when cash was collected. The Company has evaluated its experience with its Latin American distributors and has concluded that collectibility is now reasonably assured upon shipment, and began recognizing revenue upon shipment to these distributors beginning in the quarter ended June 30, 2008. Revenues recognized upon shipment to the Company’s Latin American distributors were $0.8 million and $2.0 million for the three and nine months ended December 31, 2009, respectively, compared with revenues of $482,000 and $1.9 million for the three and nine months ended December 31, 2008, respectively. Additionally, the deferred revenue balance at March 31, 2008 of $0.7 million for these distributors and the related cost of goods sold of $273,000 that had been deferred were recognized as revenue and cost of goods sold, respectively, in the three months ended June 30, 2008.Contents

~~Product~~ Anti-dilutive securities ~~warranty~~

~~Once~~ The ~~a sale~~following ~~has~~outstanding ~~occurred,~~stock ~~the~~options ~~customer~~and ~~has~~restricted nostock ~~right~~units ofwere ~~return~~excluded ~~and~~from the ~~Company provides~~ ~~its~~computation ~~customers with limited warranty rights. To date, product returns under warranty have not been significant. The warranty accrual as~~ of ~~December~~diluted ~~31,~~net ~~2009~~income ~~and~~per ~~March~~common ~~31,~~share ~~2009~~for ~~was insignificant to~~ the ~~financial~~periods ~~position~~presented ofbecause ~~the~~their ~~Company and~~impact ~~the~~would ~~change~~have inbeen ~~the accrual for both the current~~anti-~~year quarter and prior-year~~dilutive ~~quarter~~(in ~~was insignificant to the Company’s results of operations and cash~~thousands): ~~flows.~~

Foreign currency transactions


	Three Months Ended June 30,
	2010		2009
Shares issuable upon exercise of common stock options		976		3,584
Shares issuable under employee stock purchase plan		24		51

		1,000		3,635

~~Other income~~ Stock-based ~~(expense), net, includes foreign currency gains or losses related to a~~compensation loan with the Company’s Swiss subsidiary, and currency gains or losses resulting from differences in exchange rates between the time of recording of the transaction and the cash settlement of foreign currency denominated receivables and payables. The Company recorded currency losses of $40,000 for the three months ended December 31, 2009 and currency gains of $0.8 million for the nine months ended December 31, 2009 compared with currency losses of $0.9 million and $1.6 million for the three and nine months ended December 31, 2008, respectively.

~~Comprehensive~~ The Company has adopted various stock plans that provide for the grant of stock awards to ~~income~~employees ~~(loss)~~and directors. The Company also has an employee stock purchase plan which enables employees to purchase the Company’s common stock.

~~Comprehensive income~~ Stock-based ~~(loss)~~compensation ~~generally~~cost ~~represents~~is ~~all~~measured ~~changes~~at inthe ~~stockholders’~~grant ~~equity~~date ~~except those~~based ~~resulting~~on ~~from~~the ~~investments~~fair orvalue ~~contributions~~of ~~by stockholders~~the award. ~~Accumulated other~~The ~~comprehensive~~fair ~~loss~~value as of ~~December~~the ~~31,~~option ~~2009~~is ~~and~~estimated ~~March~~at ~~31,~~the ~~2009~~date ~~was comprised~~ of ~~foreign~~grant ~~currency~~using ~~translation~~the ~~adjustments~~Black-Scholes option pricing model and is recognized as expense on a ~~Swiss~~straight-line ~~pension~~basis ~~plan benefit~~over ~~adjustment.~~the ~~Total~~requisite service ~~comprehensive~~period, ~~income~~which ~~for~~is generally the ~~three~~vesting ~~and~~period. ~~nine~~The ~~months~~Black-Scholes model requires the Company ~~ended~~to ~~December~~make ~~31,~~certain ~~2009~~assumptions ~~was~~that ~~$3.3~~are ~~million~~factored ~~and~~into ~~$9.9~~the ~~million~~valuation analysis, ~~respectively.~~including ~~This~~risk free ~~included~~interest ~~other~~rate, ~~comprehensive~~expected ~~income~~volatility, ~~(loss)~~forfeiture ~~of ($35~~rates,~~000)~~ dividend yield and $0expected term.7 ~~million,~~Risk free ~~respectively,~~interest ~~related~~rate tois ~~foreign~~based ~~currency~~on ~~translation adjustments~~U.S. ~~Total comprehensive~~Treasury ~~loss~~rates appropriate for the ~~three~~expected ~~and~~term. ~~nine~~The ~~months~~Company ~~ended~~uses combined ~~December~~volatility ~~31,~~including ~~2008~~that ~~was $3.7~~of ~~million~~peer group and ~~$13.3~~the ~~million,~~historical ~~respectively.~~volatility ~~This~~of ~~included~~its ~~other~~own ~~comprehensive~~stock. ~~loss~~Forfeiture ofrates ~~$1.5~~are ~~million~~based ~~and~~on ~~$1.7~~historical ~~million,~~factors ~~respectively,~~ related to ~~foreign~~the ~~currency~~Company common stock. The assumed ~~translation~~dividend ~~adjustments~~yield is zero as the Company does not expect to declare any dividends in the foreseeable future.

8 Prior to fiscal 2011, the Company used the simplified method for estimating the expected term. Beginning in fiscal 2011, the Company determined that it has sufficient historical exercise data and will use this historical data on employee exercise and post-vesting employment termination behavior to estimate the expected term. The impact of changing this methodology was not material to the Company’s interim consolidated financial statements.

~~Table~~ Some exercises result in tax deductions in excess of ~~Contents~~previously recorded benefits based on the option value at the time of grant (“windfall” tax benefits). The Company recognizes windfall tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from windfall tax benefits occurring from April 1, 2006 onward. A windfall tax benefit occurs when the actual tax benefit realized by the company upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that the company had recorded. When assessing whether a tax benefit relating to share-based compensation has been realized, the Company has elected to follow the with-and-without approach, under which net operating loss carryforwards and other tax attributes from continuing operations are utilized before utilizing share-based compensation deductions. Also, the Company has elected to ignore the indirect tax effects of share-based compensation deductions in computing our research and development tax credit. The Company will recognize the full effect of these deductions in the statements of operations when the valuation allowance is released.

~~Net income~~ Recent ~~(loss)~~accounting ~~per share~~pronouncements

In January 2010, the FASB issued updated guidance related to fair value measurements and ~~Basic~~disclosures, ~~net~~which ~~income~~requires ~~(loss)~~a ~~per~~reporting ~~share~~entity isto ~~computed~~disclose byseparately ~~dividing~~the ~~net~~amounts ~~income~~of ~~(loss)~~significant transfers byin and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the ~~weighted-average~~transfers. In addition, in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of ~~common~~assets ~~shares~~and ~~outstanding~~liabilities ~~during~~and disclosures about the ~~period.~~valuation techniques and inputs ~~Diluted~~used ~~net~~to ~~income~~measure ~~per~~fair ~~share~~value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The updated guidance is ~~computed~~effective byfor ~~giving~~interim ~~effect~~or toannual financial ~~all~~reporting ~~potential~~periods beginning after December 15, 2009, except for the disclosures about ~~dilutive~~purchases, ~~common~~sales, ~~shares~~issuances and settlements in the roll forward activity in Level 3 fair value measurements, ~~including~~which ~~stock~~are ~~options~~effective for fiscal years beginning after December 15, 2010 and ~~restricted~~for interim ~~stock~~periods within those fiscal years. The Company adopted this guidance in the fourth quarter ~~units~~of fiscal 2010. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

~~Anti-dilutive~~8 ~~securities~~

The followingTable outstanding stock options and restricted stock units were excluded from the computation of diluted net income (loss) per common share for the periods presented because their impact would have been anti-dilutive (in thousands):Contents

	December 31,
	2009		2008
Shares issuable upon exercise of common stock options		2,021		4,059
Shares issuable upon settlement of restricted stock units		-		4
Shares issuable under employee stock purchase plan		50		28
		2,071		4,091

The remaining disclosure requirements of this pronouncement will be effective for the Company’s fourth quarter of fiscal 2011. The Company is currently evaluating the impact of the adoption of the remaining disclosure requirement of this pronouncement and does not expect the adoption to have a material impact on the Company’s consolidated financial statements.

~~Stock-based~~Note 3 — Fair Value Measurements ~~compensation~~

The FASB’s authoritative guidance for fair value measurement and disclosure for financial ~~Company~~assets ~~has~~and ~~adopted~~liabilities ~~various~~defines ~~stock~~fair ~~plans~~value as the exchange price that ~~provide~~would be received for an asset or paid to transfer a liability (an exit price) in the ~~grant~~principal ofor ~~stock~~most advantageous market for ~~awards~~the toasset ~~employees,~~or ~~non-employee~~liability ~~directors~~in ~~and~~an ~~consultants~~orderly transaction between market participants on the measurement date. The ~~Company~~guidance also ~~has~~ anprovides ~~employee~~a ~~stock~~fair ~~purchase~~value ~~plan~~hierarchy, which ~~enables~~requires ~~employees~~an entity to ~~purchase~~maximize the ~~Company’s~~use ~~common~~of ~~stock~~observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

On April 1, 2006, the Company adopted the provision of, and accounts for stock-based compensation in accordance with, the Financial Accounting Standard Board’s (“FASB”) authoritative guidance for stock-based compensation. Under the fair value recognition provisions of the guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company elected the modified-prospective method of transition, under which prior periods were not revised for comparative purposes. The valuation provisions apply to new grants and to grants that were outstanding prior to the effective date and are subsequently modified. Estimated compensation for grants that were outstanding as of the effective date is recognized over the remaining service period using the compensation cost estimated for the guidance pro forma disclosures.


Level 1		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2		Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3		Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

~~Recent~~ The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy ~~accounting~~because ~~pronouncements~~they are invested in money market funds and valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

~~In December~~ The ~~2008,~~Company ~~the~~enters ~~FASB~~into ~~issued~~foreign ~~authoritative~~currency ~~guidance~~forward ~~for~~contracts ~~employers’~~to ~~disclosures about~~buy ~~postretirement~~U.S. ~~benefit~~dollars ~~plan~~at ~~assets,~~fixed intervals ~~which~~in ~~provides~~the ~~guidance~~retail onmarket in an ~~employer’s~~ ~~disclosures~~over-the-counter ~~about~~environment. ~~plan~~As ~~assets~~ of aJune 30, ~~defined~~2010, ~~benefit~~the ~~pension~~Company had orforeign ~~other postretirement~~currency ~~plan,~~forward ~~including~~contracts ~~disclosures~~to ~~about~~sell ~~investment~~1.2 million ~~policies~~euros ~~and~~in exchange for approximately $1.5 ~~strategies,~~million ~~categories~~U.S. ofdollars ~~plan~~maturing ~~assets,~~in ~~fair~~July ~~value~~through ~~measurements~~September 2010. ofThe ~~plan~~counterparty ~~assets and~~to ~~significant~~these ~~concentrations~~contracts is ofUBS ~~risk~~AG. The ~~guidance~~Company’s isforeign ~~effective~~currency ~~for~~forward ~~fiscal~~contracts are classified within Level 2 as the ~~years~~valuation ~~ending~~inputs ~~after~~are ~~December~~based ~~2009~~on quoted prices of similar instruments in active markets and do not involve management judgment. The Company ~~does~~recorded ~~not~~the ~~expect~~fair ~~that~~value of the ~~adoption~~contracts in current assets on its consolidated balance sheet as of ~~the~~June 30, ~~guidance~~2010. ~~will~~The ~~have~~Company recorded a ~~material~~net ~~impact~~realized ongain of approximately $9,000 for the ~~Company’s~~three ~~consolidated financial~~months ~~statements~~ended June 30, 2010.

In The ~~August 2009,~~Swiss ~~the~~pension ~~FASB~~plan ~~issued~~unfunded ~~authoritative~~benefit ~~guidance~~obligation ~~for~~is ~~fair~~classified ~~value~~within ~~measurements~~Level ~~and disclosures,~~3 ~~which~~since ~~provide~~there ~~guidance for measuring fair value of the liabilities.~~is ~~This~~no ~~guidance~~observable ~~provides clarification that in circumstances in which a quoted price in an active~~ market for the ~~identical liability is not available, the reporting entity is required to measure fair value using valuation techniques such as quoted price of an identical or similar liability when traded as an~~ asset, ~~present value technique~~ or ~~a market approach technique. The guidance also clarifies that when estimating the fair value of a~~ liability, aand ~~reporting~~requires ~~entity is not required to include a separate input or adjustment to other inputs relating to~~ the ~~existence~~Company ~~of a restriction that prevents the transfer of the liability. The guidance further clarifies that if the fair value of a liability is determined by reference~~ to adevelop ~~quoted~~its ~~price in an active market for an~~relevant ~~identical liability, that price would be considered a Level 1 measurement in the fair value hierarchy~~assumptions. ~~Similarly, if the identical liability has a quoted price~~ when traded as an asset in an active market, it is also a Level 1 fair value measurement if no adjustments to the quoted price of the asset are required. This guidance is effective for the first reporting period (including interim periods) beginning after its issuance.

9 The following table presents assets and liabilities measured at fair value on a recurring basis at June 30, 2010 (in thousands):

Table of Contents


	Level 1		Level 2		Level 3		Total

Assets:
Money market funds	$	21,385	$	—	$	—	$	21,385
Foreign currency forward contracts		—		8		—		8

	$	21,385	$	8	$	—	$	21,393


Liabilities:
Swiss pension plan unfunded benefit obligation	$	—	$	—	$	152	$	152

~~Note~~ The following table presents assets and liabilities measured at fair value on a recurring 3basis —at March ~~License~~31, ~~and~~2010 ~~Development~~(in ~~Agreement~~thousands):

On August 21, 2009, the Company entered into a License, Development and Commercialization Agreement (the “FSS Agreement”) with Flexible Stenting Solutions, Inc. (“FSS”). Under the terms of the FSS Agreement, Micrus and FSS will jointly develop a flow diversion product for neurovascular indications using both Micrus and FSS technology, development capabilities and intellectual property. Micrus will be responsible for overseeing the regulatory and clinical process.


	Level 1		Level 2		Level 3		Total

Assets:
Money market funds	$	21,378	$	—	$	—	$	21,378

Liabilities:
Swiss pension plan unfunded benefit obligation	$	—	$	—	$	155	$	155

9 The transaction includes an initial up-front payment by the Company of $0.5 million, future development and regulatory milestone payments and royalties on potential future product sales. The initial up-front payment of $0.5 million was recorded as research and development expense upon the effective date of the FSS Agreement as the technology has yet to receive regulatory approvals and at the present time there is no commercial future use for the technology. The additional milestone payments will be recorded when triggered and the appropriate accounting treatment, whether to capitalize these costs or recognize them as expense, will be determined at that time.

Note 4Table — Fairof Value MeasurementsContents

~~Effective~~ The ~~April~~following 1,table ~~2008,~~presents ~~the~~a ~~Company~~reconciliation ~~adopted~~of ~~FASB’s authoritative guidance for fair value measurement and disclosures for financial assets and~~ liabilities, asmeasured ~~well as for any other assets and liabilities that are carried~~ at fair value on a recurring basis. ~~The~~using ~~adoption~~significant ofunobservable ~~this~~inputs ~~guidance~~(Level ~~did~~3) ~~not~~for ~~materially impact~~ the ~~Company’s consolidated~~three ~~financial~~months ~~position~~ended ~~and~~June 30, ~~results~~2010 ~~of operations.~~(in thousands):

This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:


	Level 3
Fair value at beginning of fiscal year	$	155
Change due to foreign currency translation		(3	)

Fair value at end of period	$	152

Level 1		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2		Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3		Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

Note 4 — Balance Sheet Components

~~The~~ Inventories Company’s cash equivalents are classified within Level 1 of the fair value hierarchy because they are invested in money market funds and valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

~~The Company~~ Inventories ~~entered~~consisted ~~into foreign currency forward contracts to buy U.S. dollars at fixed intervals in the retail market in an over-the-counter environment. As~~ of ~~December~~ ~~31, 2009,~~ the ~~Company~~following ~~had foreign currency forward contracts to sell 200,000 euros~~ (in ~~exchange for approximately $300,000 U.S. dollars~~thousands): maturing in January through February 2010. The counterparty to these contracts is UBS AG. The Company’s foreign currency forward contracts are classified within Level 2 as the valuation inputs are based on quoted prices of similar instruments in active markets and do not involve management judgment. The Company recorded the fair value of the contracts in current assets on its consolidated balance sheet as of December 31, 2009. The Company recorded a net realized gain of approximately $24,000 and $15,000 for the three and nine months ended December 31, 2009, respectively.

The Swiss pension plan unfunded benefit obligation is classified within Level 3 since there is no observable market for the asset or liability.


	June 30,		March 31,
	2010		2010
Raw materials	$	2,149	$	2,058
Work-in-progress		2,281		1,894
Finished goods		2,770		3,290
Consigned inventory		6,543		6,527

	$	13,743	$	13,769

10 Consigned inventory is held at customer locations, primarily hospitals, and is under the physical control of the customer. The Company retains title to the inventory until purchased by the customer, generally when used in a medical procedure.

~~Table~~ Property ofand ~~Contents~~equipment, net

~~The following~~ Property ~~table presents assets~~ and ~~liabilities~~equipment, ~~measured~~net, atconsisted ~~fair~~of ~~value~~the onfollowing ~~a recurring basis at December 31, 2009~~ (in thousands):

	Level 1			Level 2			Level 3		Total
	June 30,			March 31,
Assets:
	2010			2010
Money market funds	$	23,623		$	-		$	-	$	23,623
Computer equipment and software	$	1,860		$	1,814
Foreign currency forward contracts		-			13			-		13
Furniture, fixtures and equipment		7,919			7,707
	$	23,623		$	13		$	-	$	23,636
Leasehold improvements		2,166			2,168
Construction in progress		184			218
Total cost		12,129			11,907
Less accumulated depreciation and amortization		(6,514	)		(6,066	)
	$	5,615		$	5,841

Liabilities:
Swiss pension plan unfunded benefit obligation		$	-			$	-			$	164			$	164

Goodwill

~~The following~~ Activity ~~table~~related ~~summarizes~~to ~~the~~goodwill ~~change~~consisted ~~in fair value~~ of ~~Level~~the 3following ~~financial liabilities~~ (in thousands):

	Level 3
	June 30,		March 31,
Fair value at beginning of fiscal year	$	148
	2010		2010
Change due to foreign currency translation		16
Balance at beginning of fiscal year	$	7,169	$	6,762
Fair value at end of period	$	164
Foreign currency translation		—		407
Balance at end of period	$	7,169	$	7,169

~~Note 5~~ All —of ~~Balance~~the ~~Sheet~~Company’s ~~Components~~goodwill has been allocated to the United Kingdom reporting unit.

~~Inventories~~10

Inventories consistedTable of the following (in thousands):Contents

	December 31,		March 31,
	2009		2009
Raw materials	$	2,336	$	1,918
Work-in-progress		2,001		1,968
Finished goods		3,493		2,741
Consigned inventory		6,360		5,230
	$	14,190	$	11,857

Intangible assets, net

~~Consigned inventory~~ Intangible ~~is held at customer locations~~assets, ~~primarily hospitals~~net, ~~and~~consisted ~~is under the physical control~~ of the ~~customer.~~following ~~The Company retains title to the inventory until purchased by the customer, generally when used~~ (in ~~a medical~~thousands): ~~procedure.~~

Property and equipment, net


			Gross Carrying Amount						Accumulated Amortization											Net
	Useful				Foreign										Foreign
	Life		March 31,		currency		June 30,		March 31,						currency		June 30,			June 30,		March 31,
	(Years)		2010		translation		2010		2010			(Additions)			translation		2010			2010		2010
Existing process technology		7	$	4,590	$	—	$	4,590	$	(2,186	)	$	(164	)	$	—	$	(2,350	)	$	2,240	$	2,404
Distribution agreements		5		1,651		—		1,651		(1,556	)		(50	)		—		(1,606	)		45		95
Capitalized license fee		7		3,565		—		3,565		(783	)		(55	)		—		(838	)		2,727		2,782
Patents — microcoil		10		1,100		—		1,100		(1,100	)		—			—		(1,100	)		—		—
Non-compete agreements		6		470		—		470		(395	)		(13	)		—		(408	)		62		75
Customer relationships		5		647		—		647		(609	)		(20	)		—		(629	)		18		38

			$	12,023	$	—	$	12,023	$	(6,629	)	$	(302	)	$	—	$	(6,931	)	$	5,092	$	5,394

~~Property and~~ Amortization ~~equipment,~~of ~~net,~~intangible ~~consisted~~assets ofincluded in the ~~following~~Company’s results of operations is as follows (in thousands):

	December 31,			March 31,
	Three Months Ended June 30,
	2009			2009
	2010			2009
Computer equipment and software	$	1,790		$	1,955
Cost of goods sold	$	219		$	220
Furniture, fixtures and equipment		7,595			7,542
Operating expenses		83			111
Leasehold improvements		2,159			2,132
	$	302		$	331
Construction in progress		242			108
Total cost		11,786			11,737
Less accumulated depreciation and amortization		(5,686	)		(4,755	)
	$	6,100		$	6,982

11 The expected future amortization of intangible assets is as follows (in thousands):

Table of Contents


For Years Ending March 31,	Amortization
2011 (remaining 9 months)	$	760
2012		1,189
2013		1,165
2014		835
2015		1,143

	$	5,092

~~Goodwill~~ Accruals

~~Activity related~~ Accrued topayroll ~~goodwill~~and other related expenses consisted of the following (in thousands):

	December 31,		March 31,
	June 30,		March 31,
	2009		2009
	2010		2010
Balance at beginning of fiscal year	$	6,762	$	8,549
Accrued bonuses	$	457	$	1,226
Addition related to earn-out payment in connection with acquisition of Neurologic UK Ltd.		-		457
Accrued salaries		948		1,444
Foreign currency translation		815		(2,244	)
Accrued vacation		2,423		2,169
Balance at end of period	$	7,577	$	6,762
Accrued commissions		540		767
Accrued payroll taxes		363		474
	$	4,731	$	6,080

~~All of~~11 ~~the Company’s goodwill has been allocated to the United Kingdom reporting unit.~~

Intangible assets,Table netof Contents

~~Intangible assets,~~ Accrued ~~net,~~liabilities consisted of the following (in thousands):

			Gross Carrying Amount						Accumulated Amortization												Net
	June 30,		March 31,
	Useful Life		March 31,		Foreign currency		December 31,		March 31,			(Additions)			Foreign currency			December 31,			December 31,		March 31,
	2010		2010
	(Years)		2009		translation		2009		2009						translation			2009			2009		2009
Milestone payments to The Cleveland Clinic	$	1,500	$	1,500
Existing process technology		7	$	4,590	$	-	$	4,590	$	(1,530	)	$	(492	)	$	-		$	(2,022	)	$	2,568	$	3,060
Professional fees		638		936
Distribution agreements		5		1,558		187		1,745		(1,278	)		(160	)		(154	)		(1,592	)		153		280
Sales tax and VAT payable		568		506
Capitalized license fee		7		1,565		-		1,565		(559	)		(168	)		-			(727	)		838		1,006
Raw material inventory receipts not invoiced		554		345
Patents - microcoil		10		1,100		-		1,100		(990	)		(82	)		-			(1,072	)		28		110
Employee Stock Purchase Plan		398		57
Non-compete agreements		6		444		53		497		(325	)		(41	)		(38	)		(404	)		93		119
Travel and entertainment		397		305
Customer relationships		5		609		75		684		(500	)		(63	)		(60	)		(623	)		61		109
Earn-out payment in connection with acquisition of VasCon		—		309
			$	9,866	$	315	$	10,181	$	(5,182	)	$	(1,006	)	$	(252	)	$	(6,440	)	$	3,741	$	4,684
Other		1,863		1,959
	$	5,918	$	5,917

~~Amortization~~ The Company is required to pay The Cleveland Clinic Foundation (“The Cleveland Clinic”) up to $5.0 million in payments upon the achievement of ~~intangible~~certain ~~assets~~milestones ~~included~~set forth in the ~~Company’s~~Stock ~~results~~Purchase Agreement with The Cleveland Clinic dated October 26, 2007 (the “ReVasc Agreement”), with minimum milestone payments of ~~operations~~at isleast as$2.0 million due to the Cleveland Clinic by October 2010. The ~~follows~~Company (paid a $0.5 million milestone payment in ~~thousands):~~March 2008. The Company has accrued an additional $1.5 million as of June 30, 2010 for the remaining milestone payments that will become due by October 26, 2010, regardless of whether the related milestones are achieved.

	Three Months Ended December 31,				Nine Months Ended December 31,
	2009		2008		2009		2008
Cost of goods sold	$	220	$	220	$	660	$	660
Operating expenses		116		220		346		653
	$	336	$	440	$	1,006	$	1,313

Other non-current liabilities

~~The expected~~ Other ~~future~~non-current ~~amortization~~liabilities consisted of ~~intangible~~the ~~assets~~following ~~is as follows~~ (in thousands):

For Years Ending March 31,	Amortization
	June 30,		March 31,
2010 (remaining 3 months)	$	335
	2010		2010
2011		1,073
Swiss pension plan unfunded benefit obligation	$	152	$	155
2012		905
Income taxes payable		94		95
2013		879
Deferred revenue from Goodman Co., Ltd. distribution agreement		28		56
2014		549
Other non-current liabilities		131		140
	$	~~3,741~~405	$	446

12Note 5— Line of Credit

~~Table~~ On November 5, 2008, the Company entered into a credit agreement with Wells Fargo Bank to provide the Company with a revolving line of ~~Contents~~credit (the “Credit Agreement”). The Credit Agreement provides for maximum borrowings in an amount up to $15.0 million. If borrowings under the Credit Agreement exceed $7.5 million, all borrowings are subject to a borrowing base which is based on eligible accounts receivable. Borrowings are collateralized by a first priority security interest in all of the Company’s assets (except for certain permitted liens that are senior to Wells Fargo Bank’s security interest).

~~Accruals~~ At the Company’s option, borrowings bear interest at either 2.25% over the bank’s prime rate or 3.50% over the one-month, two-month or three-month LIBOR. The interest rate on the borrowings as of March 31, 2010 was 4.0%. The Credit Agreement requires that the Company comply with certain financial and other covenants for borrowings to be permitted. The more significant financial covenants include (i) a minimum modified quick ratio and (ii) a minimum profitability, excluding certain non-cash items. On May 20, 2009, the Company amended the Credit Agreement with Wells Fargo Bank extending the maturity date to August 1, 2010 and adjusting the minimum limits for the financial covenants based on the Company’s financial forecast for fiscal 2010.

~~Accrued payroll~~ At June 30, 2010, the Company had no outstanding borrowings under the line of credit and ~~other~~was in ~~related~~compliance ~~expenses~~with ~~consisted~~all covenants of the ~~following~~Credit ~~(in~~Agreement. ~~thousands):~~

	December 31,		March 31,
	2009		2009
Accrued bonuses	$	883	$	1,437
Accrued salaries		814		1,106
Accrued vacation		2,132		2,000
Accrued commissions		616		544
Accrued payroll taxes		370		428
	$	4,815	$	5,515

Note 6 — Income Taxes

~~Accrued liabilities~~ The ~~consisted~~Company recorded a provision for income taxes of approximately $241,000 for the ~~following~~three months ~~(in~~ended ~~thousands):~~June 30, 2010.

	December 31,		March 31,
	2009		2009
Milestone payments to The Cleveland Clinic	$	1,500	$	1,500
Sales tax and VAT payable		1,016		876
Income taxes payable		652		-
Professional fees		553		277
Raw material inventory receipts not invoiced		457		363
Earn-out payment in connection with acquisition of VasCon		309		886
Travel and entertainment		274		270
Clinical trial expenses		268		217
Royalties		136		169
Deferred gain from Merit Transaction		-		1,866
Other		1,662		1,453
	$	6,827	$	7,877

On January 31,Table 2008, the Company entered into an Asset Purchase and Supply Agreement (the “Merit Agreement”) with Merit Medical Systems, Inc. (“Merit”) pursuant to which the Company sold its non-neurological, cardiac and peripheral catheter assets and technology (the “Merit Transaction”). The majority of the assets sold were originally acquired by the Company in November 2006 in connection with its purchase of VasCon, LLC (“VasCon”). Pursuant to the Merit Agreement, the Company received an up-front payment of $1.5 million and received an additional payment of $1.5 million in December 2008 upon the completion of its obligation to help Merit build a production line for coronary guide catheters and get it fully operational. Though certain elements of this transaction (namely the acquired assets and licensing rights, and the production line assistance for coronary guide catheters) had been delivered as of March 31, 2009, the Company was still obligated to deliver the regulatory documentation and production line assistance for the peripheral guiding sheaths and/or cardiovascular microcatheters. Because the Company lacked the ability to separate the multiple obligations of this transaction, the up-front payment of $1.5 million and the additional payment of $1.5 million, net of direct and incremental costs incurred and the net book value of assets transferred to Merit, had been deferred until such time as all obligations of the transaction were delivered. The Company’s remaining obligations to Merit terminated on September 30, 2009 and therefore, the deferred gain of $1.9 million was recognized as other income in the quarter ended September 30, 2009.Contents

~~The~~ As of March 31, 2010, the Company ishad ~~required~~federal, tostate ~~pay~~and ~~The~~foreign ~~Cleveland~~net ~~Clinic~~operating ~~Foundation~~loss carryforwards (“~~The Cleveland Clinic~~NOLs”) upof toapproximately $536.09 million, in$28.8 million ~~payments~~and ~~upon~~$2.1 million, respectively. ~~the~~The ~~achievement~~federal ofNOLs ~~certain milestones~~will ~~set~~expire ~~forth~~at various dates beginning in 2022, the ~~Stock~~state ~~Purchase~~NOLs expire ~~Agreement~~beginning ~~with~~in ~~The~~2015 ~~Cleveland~~and ~~Clinic dated~~the ~~October~~foreign ~~26,~~NOLs ~~2007~~will ~~(the~~expire ~~“ReVasc~~beginning ~~Agreement”)~~in 2016. The ~~Company~~benefit ~~paid~~of approximately a $012.54 million and $8.4 million of federal and state loss carryforwards, respectively, ~~milestone~~will ~~payment~~be incredited ~~March~~to ~~2008~~equity when realized. The Company ~~has~~also ~~accrued~~had anfederal ~~additional~~and state research and development tax credit carryforwards of approximately $1.5 9 million and $1.7 million, respectively, as of ~~December~~ March 31, ~~2009~~2010. ~~for~~The ~~milestone~~federal ~~payments~~credits ~~that~~ will ~~become~~expire ~~due~~beginning byin 2019 and the state credits can ~~October~~be ~~26,~~carried ~~2010~~forward indefinitely. The Company has recorded a full valuation allowance against its U.S. federal and state gross deferred tax assets, ~~regardless~~as the Company’s history of losses and all other evidence available provide uncertainty as to whether ~~the~~it ~~related~~is ~~milestones~~more ~~are~~likely than not that its U.S. ~~achieved~~federal and state gross deferred tax assets will be realized.

13 Since the adoption of the FASB’s authoritative guidance for accounting for uncertainty in income taxes (ASC 740-10-5-6, formerly known as “FIN48”), the Company has recognized a $444,000 increase in its unrecognized tax benefits. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months. At June 30, 2010, the Company had $22,000 of accrued interest or penalties related to tax contingencies.

~~Table~~Note of7 ~~Contents~~— Commitments and Contingencies

~~Other~~ Indemnification ~~non-current liabilities~~

~~Other~~ In the normal course of business, the Company enters into contracts and agreements that ~~non-current~~contain ~~liabilities~~a ~~consisted~~variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the ~~following~~Company (in ~~thousands):~~the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations, and accordingly, the Company has not accrued any amounts for such indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

	December 31,		March 31,
	2009		2009
Swiss pension plan unfunded benefit obligation	$	164	$	148
Income taxes payable		99		74
Deferred revenue from Goodman Co., Ltd. distribution agreement		84		169
Contingent purchase price in connection with acquisition of VasCon		-		332
Other non-current liabilities		168		179
	$	515	$	902

Merger Agreement

~~Note~~ On July 13, 2010, a plaintiff filed a putative class action entitled Robert Sauser v. Micrus 6—Endovascular ~~Line~~Corporation et al., Case No. 110-CV-176769, in the Superior Court of ~~Credit~~the State of California, Santa Clara County. The defendants are the Company and the members of its board of directors. The complaint alleges that the individual defendants breached their fiduciary duties to the Company’s stockholders in connection with the merger agreement and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed transaction arises out of a flawed process and that the individual defendants engaged in self-dealing in relation to the merger agreement, which resulted in a failure to maximize shareholder value. The suit further alleges that the Company aided and abetted the individual defendants’ breaches of fiduciary duties and that the consideration offered in the merger does not fairly reflect the Company’s true value. The plaintiff seeks, among other things, an order enjoining the consummation of the merger, attorneys’ fees and costs.

On July 19, 2010, a plaintiff filed a putative class action entitled Claire Houston v. John ~~November~~Kilcoyne 5et al., ~~2008~~Case No. 110-CV-177667, in the ~~Company~~Superior ~~entered~~Court ~~into~~of ~~a credit~~the ~~agreement~~State ~~with~~of ~~Wells~~California, Santa ~~Fargo~~Clara ~~Bank~~County. toThe ~~provide~~defendants are the Company ~~with~~and athe ~~revolving~~members ~~line~~of its board of ~~credit~~directors (together with the Company, the “~~Credit Agreement~~Micrus Defendants”), Johnson & Johnson and Cope Acquisition Corp. ~~The~~(a ~~Credit~~wholly owned ~~Agreement~~subsidiary ~~provides~~of ~~for~~Johnson ~~maximum~~& ~~borrowings~~Johnson, inand antogether ~~amount up~~with toJohnson ~~$15.0~~& ~~million~~Johnson, the “J&J Defendants”). This Ifaction ~~borrowings~~alleges ~~under~~that the ~~Credit~~individual ~~Agreement~~defendants ~~exceed~~breached $7their fiduciary duties to the Company’s stockholders in connection with the merger.5 Specifically, the complaint alleges, among other ~~million~~things, ~~all~~that ~~borrowings~~the ~~are~~proposed ~~subject~~transaction toarises out of a ~~borrowing~~flawed ~~base~~process, ~~which~~that isthe ~~based~~individual defendants onfailed to maximize shareholder value and that the consideration offered in the merger is ~~eligible~~inadequate ~~accounts~~and ~~receivable.~~does ~~Borrowings~~not ~~are~~fairly ~~collateralized~~reflect bythe aCompany’s ~~first~~true ~~priority~~value. The plaintiff also alleges that ~~security~~the ~~interest~~individual defendants agreed to no-solicitation and termination provisions in ~~all~~the merger agreement in violation of our board’s fiduciary duties. The suit further alleges that the Company and the J&J Defendants aided and abetted the individual defendants’s ~~assets~~breaches ~~(except~~of ~~for~~fiduciary ~~certain~~duties. The ~~permitted~~plaintiff seeks, among other things, an order enjoining the Micrus Defendants and the J&J ~~liens~~Defendants ~~that~~from ~~are~~consummating ~~senior~~the tomerger, ~~Wells~~damages ~~Fargo~~in ~~Bank~~the event the merger is consummated prior to the court’s ~~security~~entry ~~interest)~~of a final judgment, and attorneys’ fees and costs.

At The ~~the~~ Company’s ~~option,~~believes ~~borrowings~~that ~~bear~~the ~~interest~~lawsuits atare ~~either~~wholly ~~2.25%~~without ~~over~~merit ~~the~~and ~~bank’s~~intends ~~prime~~to defend ~~rate~~vigorously oragainst 3them.~~50%~~ ~~over the one-month~~However, ~~two-month~~because orthe ~~three-month~~litigation ~~LIBOR.~~is ~~The~~in ~~interest rate on~~ the ~~borrowings~~early ~~as of December 31~~stages, ~~2009 was 4.3%. The Credit Agreement requires that~~ the Company ~~comply with certain financial and other covenants for~~ ~~borrowings~~cannot topredict bethe ~~permitted.~~outcome ~~The~~at ~~more~~this ~~significant~~time, ~~financial covenants include (i) a minimum modified quick ratio~~ and ~~(ii)~~cannot aprovide ~~minimum profitability,~~assurance ~~excluding~~that ~~certain~~the ~~non-cash~~actions ~~items.~~will ~~On May 20, 2009, the Company~~not ~~amended~~delay the ~~Credit~~consummation ~~Agreement~~of ~~with Wells Fargo Bank extending~~ the ~~maturity~~merger ~~date to~~or ~~August~~result 1,in ~~2010~~substantial ~~and~~costs; ~~adjusting~~even ~~the~~a ~~minimum~~meritless ~~limits~~lawsuit ~~for~~may potentially ~~the~~delay ~~financial~~consummation ~~covenants based~~of on the ~~Company’s financial forecast for fiscal 2010~~merger.

At13 ~~December 31, 2009, the Company had outstanding borrowings of $2.5 million under the line of credit and was in compliance with all covenants of the Credit Agreement.~~

Note 7Table —of Income TaxesContents

~~The Company~~ Other ~~recorded a provision for income taxes of approximately $41,000 and $0.8~~General million for the three and nine months ended December 31, 2009, respectively. The provision for the three months ended December 31, 2009 was partially offset by a reduction in the U.S federal income tax due to recently passed legislation enabling the Company to utilize additional net operating loss carryforwards for Alternative Minimum Tax purposes.

As The ~~of March 31, 2009, the~~ Company ~~had~~is ~~federal,~~participating ~~state~~in ~~and~~other ~~foreign~~litigation ~~net operating loss carryforwards (“NOLs”) of approximately $49.4 million, $30.5 million~~ and ~~$4.6 million,~~responding ~~respectively, which are available~~ to ~~reduce~~other ~~future~~claims ~~taxable~~arising ~~income. The federal NOLs will expire at various dates beginning~~ in ~~2012, and~~ the ~~state and~~ ~~foreign~~ordinary ~~NOLs~~course ~~will~~of ~~expire beginning in 2013~~business. The Company ~~also~~intends ~~has~~to ~~federal~~defend ~~and state~~itself ~~research~~vigorously ~~and~~in ~~development~~these ~~tax credit carryforwards of approximately $1~~matters.~~6 million~~ ~~and $1.4 million, respectively.~~ The ~~federal tax credit carryforwards~~ ~~will~~Company’s ~~expire~~management ~~beginning~~believes inthat ~~2012.~~it ~~The~~is ~~state~~unlikely ~~tax~~that ~~credit~~the ~~carryforwards~~outcome ~~can~~of bethese ~~carried forward~~matters ~~indefinitely.~~will ~~The~~have ~~Company has recorded~~ a ~~full valuation allowance~~ ~~against~~material ~~its~~adverse ~~U.S.~~effect ~~federal~~on ~~and state gross deferred tax assets, as~~ the Company'’s ~~history~~financial ofstatements, ~~losses~~although ~~and~~there ~~all~~can ~~other~~be ~~evidence~~no ~~available provide uncertainty~~assurance asin tothis ~~whether it is more likely than not that its U~~regard.~~S. federal and state gross~~ ~~deferred tax assets will be realized.~~

~~Since~~Note ~~the adoption~~8 of— ~~the~~Stock-based ~~FASB’s authoritative guidance for accounting for uncertainty in~~Compensation income taxes, the Company has recognized a $431,000 increase in its unrecognized tax benefits. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months. At December 31, 2009, the Company had $23,000 of accrued interest or penalties related to tax contingencies.

14 Stock options

~~Table~~ The Company’s stock option program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors and to align stockholder and employee interests. The Company considers the stock option program critical to its operations and productivity. As of ~~Contents~~June 30, 2010, the Company had two stock option plans: the 1998 Stock Plan (the “1998 Plan”) and the 2005 Equity Incentive Plan (the “2005 Plan”). Currently, the Company grants options from the 2005 Plan, which permits the Company to grant options to all employees, including executive officers, and outside consultants, and directors. Effective June 16, 2005, no new options were granted under the 1998 Plan.

~~Note~~ As of June 30, 2010, there were 826,729 outstanding options under the 1998 Plan. As of June 830, —2010, ~~Commitments~~there were 5,192,386 remaining shares reserved for issuance under the 2005 Plan, of which 2,066,086 were available for grant and ~~Contingencies~~3,126,300 shares were subject to outstanding options. Stock options issued under the Company’s stock option plans generally vest based on 4 years of continuous service and have 10-year contractual terms.

~~Indemnification~~ 2005 Employee Stock Purchase Plan

In The ~~the normal~~2005 ~~course~~Employee ofStock ~~business,~~Purchase Plan (the ~~Company~~“Purchase ~~enters~~Plan”) ~~into~~became ~~contracts~~effective ~~and~~upon ~~agreements that~~the ~~contain a variety of representations and warranties and provide for general indemnification. The~~ Company’s ~~exposure~~initial ~~under~~public ~~these~~offering. ~~agreements~~The isPurchase ~~unknown because~~Plan itprovides ~~involves~~employees ~~claims~~with ~~that~~an ~~may~~opportunity beto purchase ~~made against~~ the Company’s incommon ~~the~~stock ~~future, but~~through ~~have~~accumulated ~~not~~payroll ~~yet been made~~deductions. ToAs ~~date~~of June 30, ~~the Company has not paid any claims or been~~2010, ~~required~~there towere ~~defend any action related to its indemnification obligations~~863,689 ~~and accordingly,~~shares ~~the~~reserved ~~Company has not accrued any amounts~~ for ~~such~~issuance ~~indemnification obligations.~~under ~~However,~~ the ~~Company~~Purchase ~~may record charges in the future as a result of these indemnification obligations~~Plan.

~~Litigation~~ Stock-based compensation

The Company iscurrently ~~from~~uses ~~time~~the toBlack-Scholes ~~time~~option ~~subject~~pricing model to ~~various~~determine ~~lawsuits.~~the ~~The~~fair ~~Company~~value of ~~does~~employee ~~not believe~~stock ~~that~~options itand isemployee ~~probable~~stock ~~that~~purchase ~~resolution~~plan ofshares. ~~pending~~The ~~claims~~determination orof ~~litigation~~the ~~will~~fair ~~have~~value aof ~~material~~employee ~~adverse~~stock ~~effect~~options onand ~~the~~employee ~~Company’s~~stock ~~condensed~~purchase ~~consolidated~~plan ~~financial statements;~~shares ~~however,~~has ~~the~~been ~~outcome~~estimated ofusing the ~~claims~~following orweighted-average ~~litigation~~valuation ~~is inherently~~assumptions: ~~uncertain.~~

Note 9 — Stock-based Compensation


	Three Months Ended June 30,
	2010		2009
Employee Stock Option Plans
Expected term (in years)		5		6
Volatility		49%		44%
Risk-free interest rate		2.2%		2.6%
Expected dividend yield		0%		0%
Weighted average fair value at date of grant	$	8.39	$	3.91

Employee Stock Purchase Plan
Expected term (in years)		0.5		0.5
Volatility		33%		83%
Risk-free interest rate		0.2%		0.6%
Expected dividend yield		0%		0%

~~Stock~~ The fair value of each purchase right granted under the Company’s Purchase Plan during the ~~options~~three months ended June 30, 2010 was estimated at the date of grant using the Black-Scholes option pricing model, and is not subject to revaluation as a result of subsequent stock price fluctuations.

~~The Company’s stock option program is intended to retain our executives and other key employees and to provide them additional incentives to maximize long~~ Stock-~~term stockholder~~based ~~value.~~compensation ~~The~~expense ~~Company~~included ~~considers~~in the ~~stock~~results ~~option~~of ~~program critical to its~~ operations ~~and~~is ~~productivity.~~as Asfollows ~~of December 31, 2009, the Company has two stock option plans: the 1998 Stock Plan~~ (~~the “1998 Plan”) and the 2005 Equity~~in ~~Incentive Plan (the “2005 Plan”~~thousands)~~. Currently, the Company grants options from the~~: 2005 Plan, which permits the Company to grant options to all employees, including executive officers, and outside consultants, and directors. Effective June 16, 2005, no new options were granted under the 1998 Plan.

~~As of~~14 December 31, 2009, there were 896,392 outstanding options under the 1998 Plan. As of December 31, 2009, there were 4,834,280 remaining shares reserved for issuance under the 2005 Plan, of which 1,462,256 were available for grant and 3,372,024 shares were subject to outstanding options. Stock options issued under the Company’s stock option plans generally vest based on 4 years of continuous service and have 10-year contractual terms.

2005 EmployeeTable Stockof Purchase PlanContents

The 2005 Employee Stock Purchase Plan (the “Purchase Plan”) became effective upon the Company’s initial public offering. The Purchase Plan provides employees with an opportunity to purchase the Company’s common stock through accumulated payroll deductions. As of December 31, 2009, there were 711,990 shares reserved for issuance under the Purchase Plan.


	Three Months Ended June 30,
	2010		2009

Cost of goods sold	$	139	$	131
Research and development		172		242
Sales and marketing		318		509
General and administrative		660		986

	$	1,289	$	1,868

~~Stock~~ Approximately $14,000 and $55,000 in stock-based compensation expense has been capitalized in inventory for the three months ended June 30, 2010 and 2009, respectively.

~~The Company~~ As ~~currently~~of ~~uses~~June 30, ~~the~~2010, ~~Black-Scholes~~there ~~option~~was ~~pricing~~approximately ~~model~~$6.6 million ~~to determine the fair value~~ of ~~employee~~total stock-based ~~options and employee stock purchase plan shares.~~compensation ~~The~~expense, ~~determination~~after ofestimated ~~the~~forfeitures, ~~fair~~related ~~value~~to ofunvested employee stock options, ~~and~~which ~~employee~~is ~~stock~~expected ~~purchase~~to ~~plan~~be ~~shares~~recognized ~~has~~over ~~been~~an estimated ~~using the following~~ weighted-average amortization period of 2.3 years for employee ~~valuation~~stock ~~assumptions:~~options.

15 General stock option information

~~Table~~ The following table sets forth the summary of ~~Contents~~stock options activity for the three months ended June 30, 2010:

	Three Months Ended December 31,						Nine Months Ended December 31,
							Weighted-
	2009			2008			2009			2008
				Weighted-			Average
Employee Stock Option Plans
				Average			Remaining			Aggregate
Expected term (in years)		6			6			6			6
				Exercise			Contractual			Intrinsic
Volatility		45	%		40	%		44	%		35	%
	Shares			Price			Term			Value
Risk-free interest rate		2.6	%		2.9	%		2.6	%		3.2	%
	(In thousands)						(In years)			(In thousands)
Expected dividend yield		0	%		0	%		0	%		0	%
Options outstanding at March 31, 2010		4,074		$	12.50
Weighted average fair value at date of grant	$	5.99		$	4.89		$	4.47		$	4.65
Options granted		77		$	18.98
Employee Stock Purchase Plan
Options exercised		(159	)	$	10.91
Expected term (in years)		0.5			0.5			0.5			0.5
Options forfeited		(19	)	$	12.13
Volatility		50	%		41	%		50	%		45	%
Options expired		(20	)	$	23.39
Risk-free interest rate		0.3	%		1.9	%		0.3	%		2.5	%
Options outstanding at June 30, 2010		3,953		$	12.63			6.8		$	32,909
Expected dividend yield		0	%		0	%		0	%		0	%
Options exercisable at June 30, 2010		2,759		$	12.24			6.1		$	24,128

The ~~fair value~~total ofaggregate ~~each~~intrinsic ~~purchase~~value ~~right~~of ~~granted~~options ~~under~~exercised during the ~~Company’s~~three ~~Purchase~~months ~~Plan~~ended ~~during~~June ~~the~~30, ~~three~~2010 and ~~nine~~2009 ~~months~~was ~~ended~~$1.3 million ~~December~~and 31$163,000, ~~2009~~respectively. ~~and~~The ~~2008~~closing ~~was~~market ~~estimated~~value atper ~~the~~share ~~date~~ of ~~grant~~the ~~using~~Company’s ~~the~~common ~~Black-Scholes~~stock ~~option~~as ~~pricing~~of ~~model~~June 30, ~~and~~2010 iswas ~~not~~$20.79 ~~subject to~~per ~~revaluation~~share as areported ~~result~~by ofThe ~~subsequent~~NASDAQ Stock ~~stock price fluctuations~~Market.

~~The stock-based~~Note ~~compensation~~9 ~~expense~~— ~~included~~Segment inand ~~the~~Geographic ~~results of operations is as~~Information ~~follows (in thousands):~~

	Three Months Ended December 31,				Nine Months Ended December 31,
	2009		2008		2009		2008
Cost of goods sold	$	156	$	188	$	457	$	450
Research and development		138		95		548		435
Sales and marketing		365		272		1,231		1,112
General and administrative		793		642		2,554		2,310
	$	1,452	$	1,197	$	4,790	$	4,307

Revenues from unaffiliated customers by geographic area, based on the customer’s shipment locations were as follows (in thousands):

Approximately $16,000 in stock-based compensation expense has been capitalized in inventory for the nine months ended December 31, 2009 as compared to $25,000 that has been released from inventory for the nine months ended December 31, 2008.


	Three Months Ended June 30,
	2010		2009

United States	$	10,747	$	10,083
Japan		4,120		3,364
United Kingdom		1,682		1,754
Rest of the world		8,079		6,022

	$	24,628	$	21,223

~~As of~~15 December 31, 2009, there was approximately $7.8 million of total stock-based compensation expense, after estimated forfeitures, related to unvested employee stock options, which is expected to be recognized over an estimated weighted-average amortization period of 2.33 years for employee stock options.

16Table of Contents

~~Table~~ The ofCompany’s ~~Contents~~long lived assets, excluding goodwill and intangible assets, by geographic area were as follows (in thousands):

General stock option information


	June 30,		March 31,
	2010		2010
United States	$	5,391	$	5,602
United Kingdom		58		57
Rest of the world		166		182

	$	5,615	$	5,841

The Company identifies its operating segments based on how management views and evaluates the ~~following~~Company’s ~~table~~operations, ~~sets~~which ~~forth~~are primarily based on geographic location. The Company has determined it operates in three business segments: the ~~summary~~Americas, ofEurope ~~stock~~and ~~options~~Asia ~~activity~~Pacific. ~~for~~The products and services sold by each segment are substantially the ~~nine~~same and the Company evaluates performance and ~~months~~allocates ~~ended~~resources ~~December~~primarily ~~31,~~based ~~2009:~~on revenues and gross profit.

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
	(In thousands)					(In years)		(In thousands)
Options outstanding at March 31, 2009		4,018		$	12.69
Options granted		726		$	9.77
Options exercised		(242	)	$	6.38
Options forfeited		(151	)	$	15.68
Options expired		(83	)	$	18.40
Options outstanding at December 31, 2009		4,268		$	12.34		6.9	$	17,074
Options exercisable at December 31, 2009		2,783		$	12.13		6.1	$	11,877

Revenues and gross profit for these segments were as follows (in thousands):

The total aggregate intrinsic value of options exercised during the three months ended December 31, 2009 and 2008 was $1.0 million and $22,000, respectively. The total aggregate intrinsic value of options exercised during the nine months ended December 31, 2009 and 2008 was $1.5 million and $299,000, respectively. The closing market value per share of the Company’s common stock as of December 31, 2009 was $15 per share as reported by The NASDAQ Stock Market.


	Three Months Ended June 30,
	2010		2009

Revenues:
Americas	$	12,644	$	11,156
Europe		7,491		6,362
Asia Pacific		4,493		3,705

	$	24,628	$	21,223


Gross Profit:
Americas	$	9,865	$	8,610
Europe		5,216		4,507
Asia Pacific		3,320		2,542

	$	18,401	$	15,659

~~The following~~ Total ~~table~~assets ~~sets~~by ~~forth~~operating ~~the~~segment ~~summary~~were ofas ~~restricted~~follows ~~stock~~(in ~~units activity for the nine months ended December 31, 2009~~thousands):

						Weighted-
	June 30,			March 31,
				Weighted-		Average
	2010			2010
				Average		Remaining		Aggregate
Americas	$	63,379		$	60,525
				Exercise		Contractual		Intrinsic
Europe		21,322			19,711
	Shares			Price		Term		Value
	$	84,701		$	80,236
	(In thousands)					(In years)		(In thousands)
Non-vested restricted stock units at March 31, 2009		4		$	-
Awarded		-		$	-
Released		(4	)	$	-
Forfeited		-		$	-
Non-vested restricted stock units at December 31, 2009		-		$	-		0.0	$	-

Note 10 — ~~Segment~~Subsequent ~~and Geographic~~Events ~~Information~~

~~Revenues from~~ On ~~unaffiliated~~July 6, ~~customers~~2010, bythe ~~geographic~~Company ~~area,~~elected ~~based~~to onextend the ~~customer’s~~Exclusive ~~shipment~~License and Option Agreement with ~~locations~~Bay ~~were~~Street asMedical, ~~follows~~Inc. ~~(in~~for ~~thousands):~~six months and paid an additional $0.5 million.

	Three Months Ended December 31,				Nine Months Ended December 31,
	2009		2008		2009		2008
United States	$	11,015	$	9,889	$	32,331	$	28,906
Japan		2,460		1,477		8,247		6,302
United Kingdom		1,743		1,715		5,082		5,903
Rest of the world		7,575		5,241		19,866		16,327
	$	22,793	$	18,322	$	65,526	$	57,438

On July 11, 2010, the Company, Johnson & Johnson (“J&J”) and Cope Acquisition Corp. (a wholly-owned subsidiary of J&J) entered into a definitive agreement whereby the Company will be acquired for $23.40 per share in cash. The boards of directors of J&J and the Company have approved the transaction, which is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, similar regulation in other countries, the Company’s stockholder approval and other customary closing conditions.

1716

~~The Company~~Item 2. Management’s ~~long~~Discussion ~~lived assets, excluding goodwill~~ and ~~intangible~~Analysis ~~assets,~~of ~~by geographic~~Financial ~~area~~Condition ~~were~~and asResults ~~follows~~of ~~(in thousands):~~Operations

	December 31,		March 31,
	2009		2009
United States	$	5,830	$	6,691
United Kingdom		64		69
Rest of the world		206		222
	$	6,100	$	6,982

Forward-Looking Statements

~~The Company~~ Some ~~identifies~~of ~~its~~the ~~operating~~statements ~~segments~~under ~~based~~the onsections ~~how~~entitled ~~management~~“Management’s ~~views~~Discussion and ~~evaluates~~ ~~the~~Analysis ~~Company’s~~of Financial ~~operations,~~Condition ~~which~~and ~~are~~Results ~~primarily~~of ~~based~~Operations” onand ~~geographic location. The~~“Risk ~~Company~~Factors” ~~has~~and ~~determined~~elsewhere ~~it operates~~ in ~~three~~this ~~business~~Quarterly ~~segments:~~Report ~~the~~on ~~Americas,~~Form ~~Europe~~10-Q ~~and~~forward-looking ~~Asia~~statements ~~Pacific.~~within ~~The~~the ~~products~~meaning ~~and~~of ~~services~~the ~~sold~~Private Securities byLitigation ~~each~~Reform ~~segment~~Act ~~are~~of ~~substantially~~1995, ~~the~~as ~~same~~amended, and ~~the~~should ~~Company~~be ~~evaluates~~read ~~performance and~~in ~~allocates~~conjunction ~~resources~~with ~~primarily~~the ~~based~~condensed consolidated onfinancial ~~revenues~~statements and ~~gross~~the ~~profit.~~related ~~Prior~~notes ~~to the~~included ~~Company’s~~elsewhere ~~quarterly~~in this report, onand ~~Form~~with other ~~10-Q~~factors ~~for~~described ~~the~~from ~~quarter~~time ~~ended~~to ~~June~~time ~~30,~~in ~~2009, the~~our ~~Company’s~~other ~~Europe~~filings ~~(excluding~~with the ~~United~~SEC. ~~Kingdom)~~Forward-looking statements ~~and~~are ~~the~~typically ~~United~~identified ~~Kingdom reporting~~by ~~units~~words ~~were~~or ~~segregated~~phrases such as ~~two~~“may,” ~~business~~“will,” ~~segments.~~“expect,” “anticipate,” ~~Prior~~“estimate,” ~~year~~“predict,” ~~information in~~“project,” ~~the~~“plan,” ~~tables~~“believe,” ~~that~~“target,” ~~follow~~“forecast,” ~~has~~“should,” “could,” ~~been~~“would,” ~~conformed~~“intends” toand ~~the~~other ~~current~~words ~~year classification~~and terms of similar meaning.

~~Revenues~~ The Company cautions that forward-looking statements are subject to numerous assumptions, risks and ~~gross~~uncertainties, ~~profit~~which ~~for~~change ~~these~~over ~~segments~~time. ~~were~~Forward-looking statements speak only as ~~follows~~of (the date they are made, and, subject to applicable law, the Company assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in ~~thousands)~~forward-looking statements and future results could differ materially from historical performance. In addition to factors previously disclosed in the Company’s documents filed with or furnished to the SEC, and those identified elsewhere in this Quarterly Report on Form 10-Q, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

	Three Months Ended December 31,				Nine Months Ended December 31,
	2009		2008		2009		2008
Revenues:
Americas	$	12,554	$	10,788	$	36,067	$	32,728
Europe		7,432		5,664		20,150		17,349
Asia Pacific		2,807		1,870		9,309		7,361
	$	22,793	$	18,322	$	65,526	$	57,438
Gross Profit:
Americas	$	10,070	$	8,170	$	28,850	$	24,601
Europe		5,388		4,078		14,446		12,767
Asia Pacific		1,836		1,297		6,262		5,086
	$	17,294	$	13,545	$	49,558	$	42,454

	•		the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

	•		the cost or outcome of any legal proceedings that have been or may be instituted against Mircus and others relating or unrelated to the merger;

	•		the inability to complete the merger due to the failure to obtain stockholder approval, governmental or regulatory clearances or the failure to satisfy other conditions to the closing of the merger;

	•		the failure of the merger to be completed for any other reason;

	•		required governmental and regulatory approvals may delay the merger or result in the imposition of conditions that could cause the parties to abandon the merger;

	•		risks that the proposed merger disrupts current plans and operations and the potential difficulties in employee retention as a result of the merger;

	•		the effect of the announcement of the merger on the Company’s business relationships, operating results and business generally;

	•		the amount of the costs, fees, expenses and charges related to the merger;

	•		adverse developments in general business, economic, regulatory and political conditions or any outbreak or escalation of hostilities on a national, regional or international basis;

	•		the impact of healthcare reform and any other changes to applicable governmental laws and regulations;

	•		the timing of receipt of regulatory approvals;

	•		our failure to comply with regulations and any changes in regulations;

	•		the loss of any of our senior management;

	•		the expected weighted-average remaining period for recognition of compensation costs, which may be affected by the acceleration of stock options if the proposed merger is consummated;

	•		changes in factors impacting our estimates of market growth, the timing of launch of our products or their introduction into new markets;

17 ~~The Company’s total assets by operating segment were as follows (in thousands):~~

	December 31,		March 31,
	2009		2009
Americas	$	55,705	$	43,537
Europe		19,945		17,969
	$	75,650	$	61,506

18• changes in our working capital and capital expenditure requirements; • changes in the percentage of our revenues denominated in currencies other than the U.S. dollar; and • other risks detailed in our current filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2010, and this Quarterly Report on Form 10-Q.

~~Table~~ You should not place undue reliance on forward-looking statements. We cannot guarantee any future results, levels of ~~Contents~~activity, performance or achievements.

~~Note~~Overview ~~11 — Subsequent Events~~

~~The Company~~ We ~~has~~develop, ~~performed~~manufacture anand ~~evaluation~~market implantable and disposable medical devices used in the treatment of ~~subsequent~~cerebral ~~events~~vascular ~~through~~diseases. ~~February~~Our 5products are used by interventional neuroradiologists, ~~2010,~~interventional neurologists and endovascularly trained neurosurgeons to treat both cerebral aneurysms responsible for hemorrhagic stroke and intracranial atherosclerosis which ismay lead to ischemic stroke. Hemorrhagic and ischemic stroke are both significant causes of death and disability worldwide. Our product lines consist of endovascular systems that enable a physician to gain access to the ~~date~~brain in a minimally invasive manner through the ~~interim~~vessels ~~financial~~of ~~statements~~the arterial system. We believe that our products provide a safe and reliable alternative to more invasive neurosurgical procedures for ~~the~~treating aneurysms. Our proprietary three-dimensional, embolic coils anatomically conform and ~~nine~~rapidly deploy within an aneurysm, forming a scaffold that conforms to a wide diversity ~~months~~of ~~ended~~aneurysm ~~December~~shapes 31and sizes. We also supply accessories for use with our microcoils and other products for the treatment of neurovascular disease including microcatheters, ~~2009~~balloon ~~were~~catheters, guidewires ~~issued~~and stents.

~~On January~~ Our 8,revenues ~~2010,~~are ~~the~~derived ~~Company~~primarily ~~entered~~from ~~into~~sales anof ~~Exclusive~~our ~~License~~microcoils. ~~and~~We ~~Option Agreement~~also ~~(the~~sell ~~“BSI Agreement”) with Bay Street Medical~~stents, ~~Inc. (“BSI”). Pursuant~~access toproducts ~~the~~and ~~terms~~accessories offor ~~the~~use ~~BSI~~with ~~Agreement~~our microcoils, ~~BSI~~which ~~granted~~accounted ~~the~~for ~~Company~~approximately a8% ~~worldwide exclusive license~~ and ~~option to purchase intellectual property assets held by BSI related~~5% toof ~~its~~our ~~proprietary~~revenues ~~stent~~in ~~delivery and locking technology (~~the ~~“BSI~~first ~~Assets”).~~quarter ~~The transaction~~of ~~included~~fiscal an2011 ~~initial~~and ~~up-front~~2010, ~~payment of $0~~respectively.5 ~~million~~Geographically, ~~and the~~our ~~exclusive~~revenues ~~license~~are ~~agreement~~generally ~~will~~from ~~terminate~~sales into ~~six~~customers ~~months~~in ~~following~~ the ~~effective date~~Americas, ofEurope ~~the~~and ~~BSI~~Asia ~~Agreement~~Pacific. ~~unless~~Our products ~~the~~are ~~Company~~shipped ~~exercises~~from anour ~~option~~facilities toin ~~extend~~ the ~~exclusive~~ ~~license~~United ~~for~~States anand ~~additional~~a ~~six~~logistics ~~months~~facility ~~upon~~in ~~paying~~the Netherlands, to ~~BSI~~either anhospitals ~~option payment~~or ~~of $0~~distributors.5 ~~million.~~In ~~The~~select ~~Company~~hospitals, ~~has~~our ~~the~~products ~~option~~are toheld ~~purchase~~on consignment, ~~the~~and ~~BSI~~remain ~~Assets before~~on ~~the~~site, ~~option~~free ~~period~~of ~~ends~~charge ~~pursuant~~until toused. anRevenue ~~Asset~~is ~~Purchase~~generally ~~Agreement~~recognized ~~that will~~upon beshipment anafter ~~addendum~~the toreceipt ~~the~~of ~~BSI~~a ~~Agreement~~purchase order. ~~Under~~In ~~the~~arrangements ~~terms~~which ofspecify the ~~Asset~~title ~~Purchase~~transfer ~~Agreement~~upon delivery, ~~the~~revenue ~~Company~~is ~~would~~not berecognized ~~required~~until tothe ~~pay~~product anis ~~initial~~delivered. ~~purchase~~In ~~payment~~the case of ~~$1.0~~ ~~million~~consigned goods, arevenue ~~future~~is ~~sales-based~~recognized ~~milestone~~when ~~payment~~a ~~and~~replenishment ~~royalties~~order onis ~~future product sales~~made.

~~The initial~~ We ~~up-front~~anticipate ~~payment~~that our cost of ~~$0.5~~goods ~~million~~sold ~~was~~will ~~recorded~~generally asincrease ~~research~~in ~~and~~absolute dollars during ~~development~~those ~~expense~~quarters ~~upon~~in ~~the~~which ~~effective~~our ~~date~~sales increase or we incur additional manufacturing costs in anticipation of the ~~BSI~~commercial ~~Agreement~~introduction of new products. ~~Any~~Furthermore, ~~additional~~our gross margin ~~payments~~percentage ~~will~~may bedecrease ~~recorded~~in ~~when~~those ~~triggered~~quarters ~~and~~in ~~the~~which ~~appropriate~~we ~~accounting~~initiate sales of new products or product ~~treatment~~lines, ~~whether~~or toenter ~~capitalize~~new ~~these~~geographic ~~costs~~territories. orOur ~~recognize~~gross ~~them~~margin aspercentage ~~expense,~~may ~~will~~also decrease in those bequarters ~~determined~~in atwhich ~~that~~we ~~time~~have a higher proportion of sales to distributors with lower average selling prices.

On Our product development efforts are primarily focused on expanding our product offerings for ~~January~~the 19hemorrhagic and ischemic stroke markets. In August 2004, ~~2010~~we introduced our Cerecyte® microcoil product line and we have launched eight new products in the last 24 months, including microcoils, stents, microcatheters, guidewires and balloon catheters. During fiscal 2009, we launched the Neuropath® ~~Company~~guide ~~paid~~catheter, ~~The~~which ~~Cleveland~~combines ~~Clinic~~robust proximal support with a ~~milestone~~highly ~~payment~~flexible ofand ~~$2.0~~visible ~~million~~tip ~~pursuant~~designed to ~~the~~facilitate ~~ReVasc~~atraumatic ~~Agreement~~vascular access. The ~~amount~~Neuropath® ~~has~~guide ~~been~~catheter is ~~capitalized into~~used ~~intangible~~as ~~assets~~a conduit for delivery of the microcatheter or other devices, such as coils, stents and balloons, to the aneurysm.

19 In fiscal 2009, we also launched Cerecyte and stretch resistant versions of our DeltaPaq® microcoil system for the treatment of cerebral aneurysms. Our DeltaPaq microcoil system is designed to enable physicians to achieve greater coil packing density within the aneurysm which may reduce the rate of recanalization and the need for re-treatment. The DeltaPaq microcoil system supplements our framing and finishing coils in the filling segment of the coil market. Additionally, we launched the PHAROS® Vitesse™ intracranial stent, our second generation balloon-expandable stent for the treatment of intracranial ischemic stenosis and in wide-neck aneurysms for commercial distribution in the European Union and all other countries recognizing the CE Mark. We have received U.S. FDA conditional approval of our investigational device exemption for the PHAROS VISSIT study. The VISSIT study is the first industry sponsored, randomized, prospective clinical trial designed to compare the clinical outcomes between patients who are stented for intracranial ischemic stenosis versus treated with medical therapy. We are in the process of initiating study sites in the United States, Europe and China.

~~Table~~ In ofJanuary 2010, ~~Contents~~we launched our DeltaPlush® microcoil which has been designed to be our softest finishing coil, enabling more efficient and safer aneurysm treatment. The DeltaPlush microcoil system incorporates our exclusive Delta Wind™ technology resulting in a microcoil with the softness and flexibility to find and fill gaps, helping to provide superior finishing at

~~Item 2. Management’s Discussion and Analysis of Financial Condition~~18 ~~and Results of Operations~~

Forward-Looking StatementsTable of Contents

~~The following discussion and analysis of~~ the ~~financial~~aneurysm ~~condition~~neck. ~~and~~It ~~results~~is ~~of operations~~available ~~of the Company should be read~~ in ~~conjunction~~bare ~~with~~platinum ~~the condensed consolidated financial statements~~ and ~~the~~Cerecyte®. ~~related~~In ~~notes included elsewhere in this report~~January 2010, ~~and~~we ~~with~~launched ~~other factors described from time to time in~~ our ~~other~~ ~~filings~~Ascent® ~~with~~Occlusion ~~the SEC. In addition to current and historical information, this~~Balloon ~~Quarterly~~Catheter ~~Report~~which onis ~~Form~~intended ~~10-Q~~for ~~contains~~use ~~forward-looking statements as defined~~ in ~~Section~~ ~~27.A of~~ the ~~Securities~~blood ~~Act~~vessels of ~~1933, as amended, and Section 21E of~~ the ~~Securities~~ ~~Exchange~~peripheral ~~Act of 1934, as amended that involve risks~~ and ~~uncertainties.~~ ~~These statements can, in some cases, be identified by the use of~~neurovasculature ~~terms~~where ~~such~~temporary asocclusion ~~“may,”~~is “will,” “expects,” “anticipates,” “estimates,” “predicts,” “continues,” “plans,” “believes,” “projects,” “should,” “could,” “would,” “intends” or statements concerning “potential” or “opportunity,” and any variations thereof, comparable terminology or the negative thereofdesired. ~~Actual results~~The ~~and~~Ascent ~~the~~balloon ~~timing~~catheter ofoffers ~~events~~a ~~may~~vessel ~~differ materially from those contained in~~selective ~~the~~technique ~~forward-looking statements due to a number~~ of ~~factors,~~temporary ~~including~~arterial ~~those discussed~~occlusion inwhich ~~Part~~is ~~II,~~useful ~~Item 1A “Risk Factors”~~ in ~~this~~selectively ~~Quarterly~~stopping ~~Report~~or ~~on Form~~controlling ~~10-Q.~~blood ~~We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Quarterly Report to reflect actual results or future events or circumstances~~flow.

~~Overview~~ In March 2006, we launched our sales and marketing efforts in Japan through our distribution partner, Goodman. In December 2007, we received regulatory approval to sell our stretch-resistant microcoils in Japan, and in July 2008, we received regulatory approval to sell our Cerecyte microcoils in Japan. We recorded product sales to Goodman of $4.1 million in the first quarter of fiscal 2011 and $11.0 million, $9.3 million and $6.3 million in fiscal 2010, 2009 and 2008, respectively. We plan to begin selling our products in China upon receiving regulatory and reimbursement approvals. The timing of these approvals is uncertain. We did not have any sales in China during the first quarter of fiscal 2011.

We ~~develop,~~ ~~manufacture~~introduced ~~and~~our ~~market~~first ~~implantable~~proprietary, ~~and~~three-dimensional ~~disposable~~microcoil ~~medical devices used~~ in ~~the treatment of cerebral vascular diseases~~May 2000. Our ~~products are used by~~revenues ~~interventional~~have ~~neuroradiologists,~~grown ~~interventional~~from ~~neurologists~~$1.8 million ~~and endovascularly-trained neurosurgeons~~in tofiscal ~~treat~~2001 ~~both cerebral aneurysms responsible for hemorrhagic stroke and intracranial atherosclerosis, which may lead~~ to ~~ischemic stroke~~$91.1 million ~~Hemorrhagic~~in ~~and~~fiscal ~~ischemic stroke are both significant causes of death and disability worldwide~~2010. ~~Our~~We ~~product~~achieved ~~lines~~our ~~consist of~~first ~~endovascular~~profitable ~~systems~~year ~~that~~in ~~enable~~fiscal a2010, ~~physician~~with ~~to gain access to the brain in~~ a ~~minimally~~ ~~invasive~~profit ~~manner through the vessels~~ of ~~the arterial system~~$11.5 million Weas ~~believe that our products provide~~ a ~~safe~~result ~~and~~of ~~reliable~~our ~~alternative~~revenue ~~to more invasive~~growth ~~neurosurgical~~and ~~procedures~~effective ~~for~~cost ~~treating aneurysms. Our proprietary three-dimensional~~management, ~~embolic coils anatomically conform~~ and ~~rapidly~~we ~~deploy~~expect ~~within an aneurysm, forming a scaffold that conforms~~ to aachieve ~~wide~~another ~~diversity~~profitable ofyear ~~aneurysm shapes~~in ~~and~~fiscal ~~sizes~~2011. ~~We also supply accessories for use with our microcoils and~~Net ~~other~~income ~~products~~ for the ~~treatment~~first quarter of ~~neurovascular~~fiscal ~~disease~~2011 ~~including microcatheters,~~was ~~occlusion balloon catheters, guidewires and stents~~$3.1 million. WeAs ~~plan~~of ~~on growing~~June 30, ~~our business by continuing to penetrate our existing hemorrhagic and ischemic stroke markets~~2010, ~~bringing~~we ~~new~~had ~~products~~cash and ~~technologies to~~ ~~interventional~~cash ~~neuroradiologists,~~equivalents ~~interventional~~of ~~neurologists~~$34.7 million and ~~endovascularly-trained~~ ~~neurosurgeons,~~an ~~and~~accumulated bydeficit ~~entering~~of ~~new geographic territories in Asia Pacific where we commenced selling our products in Japan through our distribution partner, Goodman, Co~~$67.~~, Ltd~~8 million. ~~(“Goodman”), in March 2006. We also~~ ~~plan to market our products in China upon receiving regulatory and reimbursement approvals.~~

~~Our revenues~~Recent ~~are derived primarily from sales of our microcoils. We also sell~~Developments stents, access products, and accessories for use with our microcoils, which accounted for approximately 6% of our revenues in the first nine months of both fiscal 2010 and 2009. Geographically, our revenues are generally from sales to customers in the Americas, Europe and Asia Pacific. Our products are shipped primarily from our facilities in the United States and a logistics facility in the Netherlands, to either hospitals or distributors. Revenue is generally recognized upon shipment after the receipt of a purchase order. In arrangements which specify the title transfer upon delivery, revenue is not recognized until the product is delivered. In select hospitals, our products are held on consignment, and remain on site, free of charge until used. In the case of consigned goods, revenue is recognized when a replenishment order is made.

~~We anticipate~~ On ~~that~~July 11, ~~our~~2010, ~~cost~~we ofentered ~~goods~~into ~~sold~~a ~~will~~definitive ~~generally~~agreement ~~increase~~with inJ&J ~~absolute dollars~~and ~~during~~Cope ~~those~~Acquisition ~~quarters~~Corp. (a inwholly-owned ~~which~~subsidiary ~~our~~of ~~sales~~J&J) ~~increase~~whereby orwe inwill ~~which~~be ~~we incur~~acquired ~~additional~~for ~~manufacturing~~$23.40 ~~costs~~per share in ~~anticipation~~cash. ofThe ~~the~~boards ~~commercial~~of ~~introduction~~directors of ~~new~~ ~~products.~~J&J ~~Furthermore,~~and ~~our~~the ~~gross~~Company ~~margin~~have ~~percentage~~approved ~~may~~the ~~decrease~~transaction, ~~in those quarters in~~ which weis ~~initiate~~subject to ~~sales~~clearance ofunder ~~new~~the ~~products~~Hart-Scott-Rodino orAntitrust ~~product~~Improvements ~~lines~~Act, orsimilar ~~enter new~~regulation ~~geographic territories. Our gross margin percentage may also decrease~~ in other ~~those~~countries, ~~quarters~~our instockholders ~~which~~approval weand ~~have~~other acustomary ~~higher~~closing ~~proportion of sales to distributors with lower average selling prices~~conditions.

20Results of Operations

~~Table~~ The following table sets forth the results of ~~Contents~~our operations, expressed as percentages of revenues, for the three months ended June 30, 2010 and 2009:

Our development efforts are primarily focused on expanding our product offerings for the hemorrhagic and ischemic stroke markets. As of December 31, 2009, we have launched seven new products in the last 24 months, including microcoils, stents, microcatheters and guidewires. During fiscal 2009, we launched the Neuropath® guide catheter, which combines robust proximal support with a highly flexible and visible tip designed to facilitate atraumatic vascular access. The Neuropath® guide catheter is used as a conduit for delivery of the microcatheter or other devices, such as microcoils, stents and balloons, to the aneurysm. We intend to continue to pursue this non-embolic product line expansion with the goal of increasing our revenue opportunity per procedure. We also launched Cerecyte® and bare platinum versions of our DeltaPaq™ microcoil for the treatment of cerebral aneurysms. Our DeltaPaq™ microcoil is based on the proprietary Delta Wind™ technology which is designed to enable physicians to achieve greater coil packing density within the aneurysm which may reduce the rate of recanalization and the need for re-treatment. The DeltaPaq™ microcoil supplements our framing and finishing coils in the filling segment of the coil market.


	Three Months Ended June 30,
	2010		2009
Consolidated Statements of Operations Data:
Revenues		100%		100%
Cost of goods sold		25%		26%

Gross profit		75%		74%

Operating expenses:
Research and development		9%		11%
Sales and marketing		26%		29%
General and administrative		24%		25%

Total operating expenses		59%		65%

Income from operations		16%		9%
Interest income		0%		0%
Interest expense		0%		0%
Other income (expense), net		(2)%		4%

Income before income taxes		14%		13%
Provision for income taxes		1%		2%

Net income		13%		11%

~~Additionally,~~19 we launched the PHAROS® Vitesse™ intracranial stent for commercial distribution in the European Union and all other countries recognizing the CE Mark. The PHAROS® Vitesse™ is our second generation balloon-expandable stent for intracranial ischemic stenosis and wide-neck aneurysm treatment. We have received from the U.S. Food and Drug Administration (“FDA”) conditional approval of our investigational device exemption for the PHAROS® Vitesse™ Intracranial Stent Study for Ischemic Therapy (“VISSIT”) study. The VISSIT study is the first industry-sponsored, randomized, prospective clinical trial designed to compare the clinical outcomes between patients who are stented for intracranial ischemic stenosis versus treated with medical therapy. We are in the process of initiating study sites in the United States, Europe and China. In the fourth quarter of fiscal 2010, we are fully launching the DeltaPlush™ microcoil which has been designed to be our softest finishing coil, enabling more efficient and safe aneurysm treatment. The DeltaPlush™ microcoil combines our exclusive Delta Wind™ technology with our softest platinum wire. The result is a microcoil with the softness and flexibility to find and fill gaps, helping to provide superior finishing at the aneurysm neck. It is available in bare platinum and Cerecyte®. In January of 2010, we launched our Ascent® occlusion balloon catheter which is intended for use in the blood vessels of the peripheral and neurovasculature where temporary occlusion is desired. The Ascent® balloon catheter offers a vessel selective technique of temporary arterial occlusion which is useful in selectively stopping or controlling blood flow.

WeTable intend to continue to expand our direct sales force in North America, Europe and Asia Pacific as necessary and further increase our presence in the Asia Pacific markets through distributors. In March 2006, we launched our sales and marketing efforts in Japan through our distribution partner, Goodman. In December 2007, we received regulatory approval to sell our stretch-resistant microcoils in Japan, and in July 2008, we received regulatory approval to sell our Cerecyte® microcoils in Japan. We recorded product sales to Goodman of $8.2 million in the first nine months of fiscal 2010 and $9.3 million, $6.3 million and $8.7 million in fiscal 2009, 2008 and 2007, respectively. We plan to begin selling our products in China upon receiving regulatory and reimbursement approvals. The timing of these approvals is uncertain. We did not recognize revenues from sales in China during the first nine months of fiscal 2010 and we do not anticipate recognizing revenues from sales in China in this fiscal year.Contents

~~On September~~Three ~~30,~~Months ~~2009,~~Ended we terminated our distribution agreement with Beijing Tian Xin Fu Medical Appliance Co. LTD (“TXF”) and entered into a Distribution Agreement (the “IDS Distribution Agreement”) with IDS (Hong Kong) Ltd. (“June ~~IDS ”). Pursuant to the IDS Distribution Agreement~~30, ~~IDS~~2010 ~~will serve as our exclusive distributor to promote~~ and ~~market our products of implantable~~2009 ~~and disposable medical devices used in the treatment of neurovascular diseases (the “Products”) in China.~~

~~We have~~Revenues incurred annual net losses since our inception, including net losses of $11.1 million, $16.3 million, and $5.5 million in fiscal 2009, 2008, and 2007, respectively. In the fourth quarter of fiscal 2009 we achieved our first profitable quarter with $0.6 million of net income and in the third quarter of fiscal 2010 we reported our fourth consecutive profitable quarter with $3.3 million of net income, which we achieved as result of our continued revenue growth and effective cost management. Net income for the first nine months ended December 31, 2009 was $9.2 million, and we expect to achieve profitability for the full year in fiscal 2010. There is no assurance that we will continue to be profitable in the foreseeable future as we expand our research and development, manufacturing, and sales activities and enter new geographic territories. As of December 31, 2009, we had an accumulated deficit of $73.2 million.

As of December 31, 2009, we had cash and cash equivalents of $28.6 million. We believe that our current cash position and the cash expected to be generated from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. We have a revolving line of credit with Wells Fargo Bank that provides for maximum borrowings of $15.0 million with a maturity date of August 1, 2010, amended as of May 20, 2009. As of December 31, 2009, we had outstanding borrowings of $2.5 million under the line of credit, unchanged from March 31, 2009.


	Three Months Ended
	June 30,				Change
	2010		2009		$		%
	(In thousands, except percentages)
Americas	$	12,644	$	11,156	$	1,488		13%
Europe		7,491		6,362		1,129		18%
Asia Pacific		4,493		3,705		788		21%

	$	24,628	$	21,223	$	3,405		16%

21 Our revenues are derived primarily from sales of our microcoils used in the treatment of cerebral vascular diseases. The overall increase in revenues in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010 was primarily due to an increase in the number of microcoil products sold. Factors driving the increase included growth in the procedure volumes, continued market penetration of the DeltaPaq and DeltaPlush microcoils along with the revenues generated from sales of new non-embolic products such as the PHAROS Vitesse intracranial stent and the Ascent Occlusion Balloon Catheter.

~~Table~~ Revenues from the Americas increased 13% to $12.6 million and revenues from Europe increased 18% to $7.5 million for the first quarter of ~~Contents~~fiscal 2011, both compared to the first quarter of fiscal 2010. Our revenues increased in the Americas and Europe primarily due to continued market penetration of the DeltaPaq and the DeltaPlush microcoils. Revenues from Asia Pacific increased 21% to $4.5 million in the first quarter of fiscal 2011 and included sales to our distributor in Japan of $4.1 million, compared with revenues of $3.7 million for the first quarter of fiscal 2010 which included sales to our distributor in Japan of $3.4 million.

~~Recent~~ Revenues from embolic coils increased 13% to $22.7 million for the first quarter of fiscal ~~Developments~~2011 as compared to the first quarter of fiscal 2010 primarily due to increased in procedure volumes and market penetration of the DeltaPaq and the DeltaPlush microcoil system. Revenues from our non-embolic and accessories products increased to $2.0 million in the first quarter of fiscal 2011 compared with revenues of $1.1 million in the first quarter of fiscal 2010 primarily due to continued market penetration of our PHAROS Vitesse stent and Ascent Occlusion Balloon Catheter.

On New ~~August 21,~~products ~~2009,~~continue weto ~~entered~~represent ~~into~~an ~~the~~important ~~FSS~~component ~~Agreement.~~of ~~Under~~our ~~the~~growth ~~terms~~strategy, ofwith ~~the~~46% ~~FSS~~of ~~Agreement,~~our ~~Micrus~~revenues ~~and~~in ~~FSS~~the ~~will~~first ~~jointly~~quarter ~~develop~~of afiscal ~~flow~~2011 ~~diversion~~coming ~~product~~from ~~for neurovascular~~products ~~indications~~introduced ~~using~~in ~~both~~the ~~Micrus~~past ~~and~~24 months. ~~FSS~~Among ~~technology~~these, ~~development capabilities~~our ~~and~~DeltaPaq ~~intellectual~~microcoil ~~property.~~line Werepresented ~~will~~18% beof ~~responsible for overseeing~~ the ~~regulatory~~total ~~and~~revenue ~~clinical~~for ~~process~~the ~~and will manufacture neurovascular products~~first ~~developed~~quarter ~~based~~of onfiscal ~~this collaborative agreement~~2011. ~~The~~Our ~~transaction~~newly ~~includes~~launched ~~an initial~~DeltaPlush ~~up-front~~microcoil ~~payment~~system bycomprised ~~the~~21% ~~Company~~ of ~~$0.5~~the ~~million, future development and~~first ~~regulatory~~quarter ~~milestone~~of ~~payments~~fiscal ~~and~~2011 ~~royalties on potential future product sales~~revenues.

~~On September~~Gross ~~30, 2009, we terminated our distribution agreement with TXF and~~Profit entered into a Distribution Agreement with IDS. Pursuant to the IDS Distribution Agreement, IDS will serve as our exclusive distributor of implantable and disposable medical devices used in the treatment of neurovascular diseases in China.

Pursuant to the IDS Distribution Agreement, IDS will promote and market our products in China and is required to purchase a certain amount of our products over the five year term of the agreement in order to maintain its exclusive distributor status in such territories, escalating over the five year term. The minimum purchase requirement commences on the date when our products are included in the National Reimbursement List of Interventional Medical Devices issued by the Minister of Health of the People’s Republic of China. We will supply IDS with its requirements for our products and have granted IDS a license to use certain of our trademarks in connection with IDS’ sale and distribution of our products in China. The term of the IDS Distribution Agreement is five years, subject to the right of the parties to terminate earlier based upon the occurrence of certain events. In connection with the IDS Distribution Agreement, we have also entered into an agreement with IDS whereby we have agreed to provide marketing and sales support to IDS.


	Three Months Ended
	June 30,				Change
	2010		2009		$		%
	(In thousands, except percentages)
Cost of goods sold	$	6,227	$	5,564	$	663		12%
Gross profit	$	18,401	$	15,659	$	2,742		18%

~~On January~~ Cost 8,of ~~2010,~~goods wesold ~~entered~~consists ~~into~~primarily anof ~~Exclusive~~materials, ~~License~~direct ~~and~~labor, ~~Option~~depreciation, ~~Agreement~~overhead ~~(the~~costs ~~“BSI~~associated ~~Agreement”)~~ with ~~Bay Street Medical~~manufacturing, ~~Inc.~~impairments ~~(“BSI”). Pursuant to the terms~~ of ~~the~~ ~~BSI Agreement~~inventory, ~~BSI~~warranty ~~granted~~expenses, usamortization ~~a worldwide exclusive license and option to~~of ~~purchase~~intangible ~~intellectual~~assets ~~property~~that ~~assets~~were ~~held~~acquired by ~~BSI~~us ~~related~~as topart ~~its~~of ~~proprietary stent delivery and locking technology (~~the ~~“BSI~~acquisition ~~Assets”). The transaction included an initial up-front payment~~ of ~~$0.5~~VasCon, ~~million~~amortization ~~and the exclusive license agreement will terminate in six months following the effective date~~ of ~~the BSI~~ ~~Agreement~~capitalized ~~unless~~license wetechnology ~~exercise~~associated anwith ~~option~~our toPHAROS ~~extend~~stent ~~the~~product ~~exclusive~~and ~~license~~royalties ~~for~~related anto ~~additional~~certain ~~six~~access ~~months~~device ~~upon~~products. ~~paying~~The toincrease ~~BSI~~in ancost ~~option payment~~ of ~~$0.5~~goods ~~million.~~sold ~~We have~~during the ~~option~~first toquarter ~~purchase the BSI Assets before the option period ends~~of ~~pursuant~~fiscal to2011 anas ~~Asset~~compared ~~Purchase Agreement that will be an addendum~~ to the ~~BSI Agreement.~~first ~~Under~~quarter ~~the terms~~ of ~~the~~fiscal ~~Asset~~2010 ~~Purchase~~was ~~Agreement,~~primarily werelated ~~would~~to bethe ~~required~~increase toin ~~pay~~sales ~~an initial purchase payment~~ of ~~$1.0~~our ~~million,~~embolic aand ~~future sales~~non-~~based milestone~~embolic ~~payment and royalties on future product sales~~products.

On Our gross margin was 75% in the first quarter of fiscal 2011 as compared to 74% in the first ~~January~~quarter ~~19, 2010,~~of wefiscal ~~paid~~2010. The ~~Cleveland~~increase ~~Clinic~~was aprimarily ~~milestone~~due ~~payment~~to sales of ~~$2.0~~higher margin products partially ~~million~~offset ~~pursuant~~by tohigher ~~the~~levels ~~ReVasc~~of ~~Agreement~~distributor sales of lower margin products primarily in Japan and Latin America.

2220

~~Results~~Operating ~~of Operations~~Expenses

~~The following~~Research ~~table sets forth the results of our operations, expressed as percentages of revenues, for the three~~ and ~~nine months ended December 31, 2009~~Development ~~and 2008:~~

	Three Months Ended						~~Nine Months Ended~~
	December 31,						December 31,
	June 30,						Change
	2009			2008			2009			2008
	2010			2009			$			%
	%			%			%			%
	(In thousands, except percentages)
Consolidated Statements of Operations Data:
Research and development	$	2,312		$	2,214		$	98			4%
Revenues		100	%		100	%		100	%		100	%
Cost of goods sold		24	%		26	%		24	%		26	%
Gross profit		76	%		74	%		76	%		74	%
Operating expenses:
Research and development		9	%		13	%		11	%		14	%
Sales and marketing		28	%		38	%		30	%		40	%
General and administrative		24	%		32	%		24	%		38	%
Total operating expenses		61	%		83	%		65	%		92	%
Income (loss) from operations		15	%		(9	)%		11	%		(18	)%
Interest income		0	%		0	%		0	%		0	%
Interest expense		0	%		0	%		0	%		(0	)%
Other income (expense), net		0	%		(6	)%		4	%		(3	)%
Income (loss) before income taxes		15	%		(15	)%		15	%		(21	)%
Provision (benefit) for income taxes		0	%		2	%		1	%		(1	)%
Net income (loss)		15	%		(13	)%		14	%		(20	)%

~~Three~~ Research and development expenses consist primarily of costs associated with the design, ~~Months~~development, ~~Ended~~and ~~December~~testing 31of new products. Such costs are expensed as they are incurred and include salaries and related personnel costs, ~~2009~~fees paid to outside consultants, and ~~2008~~other direct and indirect costs related to research and product development. Research and development expenses increased in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010 primarily due to an increase of $240,000 in personnel and travel expenses. These increases were partially offset by a decrease of $157,000 in material and supplies expenses.

~~Revenues~~Sales and Marketing

	Three Months Ended December 31,				Change
	Three Months Ended
	2009		2008		$			%
	June 30,				Change
	2010		2009		$		%
	(In thousands, except percentages)
Americas	$	12,554	$	10,788	$	1,766		16	%
Sales and marketing	$	6,436	$	6,216	$	220		4%
Europe		7,432		5,664		1,768		31	%
Asia Pacific		2,807		1,870		937		50	%
	$	22,793	$	18,322	$	4,471		24	%

~~Our revenues~~ Sales ~~are~~and ~~derived~~marketing expenses consist primarily ~~from~~of ~~sales~~compensation costs of our ~~microcoils~~direct ~~used~~sales ~~in the~~force ~~treatment~~and ofmarketing ~~cerebral~~personnel, ~~vascular~~as ~~diseases~~well as overhead costs related to these activities. ~~Our~~Also ~~total~~included ~~revenues~~are costs inassociated ~~the~~with ~~third~~promotional ~~quarter~~literature and videos, trade show participation, and education and training of ~~fiscal~~physicians. ~~2010~~Sales and marketing expenses increased asin the first quarter of fiscal 2011 compared ~~with~~to the ~~third~~first quarter of fiscal ~~2009~~ 2010 primarily due to an increase of $209,000 in meetings ~~the~~and ~~number~~conference expenses, an increase of ~~microcoil~~$138,000 ~~products~~in ~~sold~~travel expenses and ~~the introduction~~an increase of $104,000 ~~new~~in ~~embolic~~sales ~~coil~~incentives ~~products~~resulting ~~such~~from as the ~~DeltaPaq™~~higher ~~and~~level ~~the DeltaPlush™~~of ~~microcoils~~sales ~~along~~during ~~with~~ the ~~revenues~~quarter. ~~generated~~These increases ~~from~~were ~~sales~~partially ofoffset ~~new non-embolic~~by ~~products~~a ~~such~~decrease asof ~~the~~$191,000 ~~PHAROS®~~in ~~Vitesse™~~stock-based ~~intracranial stent~~compensation expenses.

~~Revenues from~~General the Americas increased 16% to $12.6 million compared with the third quarter of fiscal 2009. Revenues from Europe increased 31% to $7.4 million compared with the third quarter of fiscal 2009. The revenues increased in the Arnericas and ~~Europe~~ ~~primarily due to continued market penetration of the DeltaPaq™ microcoil~~Administrative and the introduction of the DeltaPlush™ microcoil. Revenues from Asia Pacific increased to $2.8 million in the third quarter of fiscal 2010 and included product sales to our distributor in Japan of $2.5 million, compared with revenues of $1.9 million in the third quarter of fiscal 2009, which included higher quarterly sales to our distributor in Japan of $1.5 million due to an increase in the number of Cerecyte® microcoil products sold during the quarter. We will also begin selling our products in China upon receiving regulatory and reimbursement approvals. We did not recognize revenues from sales to China during the third quarter of fiscal 2010, and we do not anticipate recognizing revenues from sales in China in this fiscal year.


	Three Months Ended
	June 30,				Change
	2010		2009		$		%
	(In thousands, except percentages)
General and administrative	$	5,872	$	5,266	$	606		12%

~~Table~~ General and administrative expenses consist primarily of ~~Contents~~compensation and related costs for finance, human resources, facilities, information technology, insurance, and professional services. Professional services principally relate to fees for outside legal, audit and compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). General and administrative expenses increased in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010 primarily due to an increase of $0.5 million in primarily legal expenses related to the acquisition agreement with J&J (see Note 10, Subsequent Events, in the Notes to Condensed Consolidated Financial Statements), an increase of $160,000 in consulting fees and an increase of $134,000 in bonus expenses. These increases were partially offset by a decrease of $326,000 in stock-based compensation expenses.

~~Revenues from~~Other ~~sales~~Income of embolic products increased by 27% to $21.5 million for the third quarter of fiscal 2010 as compared to revenues of $16.9 million in the third quarter of fiscal 2009 primarily due to increased market penetration of the DeltaPaq™ microcoil and the introduction of the DeltaPlush™ microcoil. Sales of non-embolic products were 6% of our total revenues in the third quarter of both fiscal 2010 and 2009. We expect our embolic and non-embolic sales to increase in the future as a result of market growth and continued market penetration of products released during the past 24 months(Expense), ~~such as our~~Net ~~DeltaPaq™ microcoil and new products such as our DeltaPlush™ microcoil and Ascent® occlusion balloon catheter.~~

New products continue to represent an important component of our growth strategy, with 28% of our revenues in the third quarter of fiscal 2010 coming from products introduced in the past 24 months. We are pleased with the strong reception for our DeltaPaq™ microcoil, which comprised 18% of third quarter revenues. New products such as our DeltaPaq™ filling microcoil with proprietary Delta Wind™ technology are important to our growth. In the fourth quarter of fiscal 2010, we are fully launching our extra-soft finishing DeltaPlush™ finishing microcoil, which also incorporates our proprietary Delta Wind™ technology and our family of Ascent® occlusion balloon catheters, which will be used to assist interventionalists when delivering coils for the treatment of aneurysms. With the launch of the Neuropath® guide catheter and the Ascent® occlusion balloon catheter, we will be in a position to capture an increased percentage of the hemorrhagic procedural revenue opportunity.


	Three Months Ended
	June 30,						Change
	2010			2009			$			%
	(In thousands, except percentages)
Interest income	$	11		$	16		$	(5	)		(31)%
Interest expense		—			(36	)		36			0%
Other income (expense), net		(474	)		769			(1,243	)		(162)%

Total other income (expense), net	$	(463	)	$	749		$	(1,212	)		(162)%

~~Gross~~21 ~~Profit~~

	Three Months Ended December 31,				Change
	2009		2008		$		%
	(In thousands, except percentages)
Cost of goods sold	$	5,499	$	4,777	$	722	15	%
Gross profit	$	17,294	$	13,545	$	3,749	28	%

~~Cost~~ There ~~of goods~~was ~~sold~~no ~~consists~~interest ~~primarily~~expense of materials, direct labor, depreciation, overhead costs associated with manufacturing, provision for estimated obsolescence or excess inventories, warranty expenses, amortization of intangible assets that were acquired by us as part of the acquisition of VasCon, amortization of capitalized license technology associated with our PHAROS® stent products and royalties related to certain access device products. The increase in ~~cost of goods sold during~~ the ~~third~~first quarter of fiscal ~~2010~~2011 as ~~compared~~we topaid ~~the~~off ~~third quarter of fiscal 2009 was primarily due to an increase in sales of~~ our ~~microcoil~~borrowings ~~products as well as an increase~~ of $~~134,000~~2.5 million in ~~inventory provisions primarily related to expiring products~~March 2010.

~~Gross margin~~ Other ~~was~~income ~~76%~~(expense), innet, ~~the~~consists ~~third~~primarily ~~quarter~~ of ~~fiscal~~foreign ~~2010~~exchange ~~compared~~gains ~~with~~and ~~74%~~losses resulting from differences in exchange rates between the ~~third~~ ~~quarter~~time of ~~fiscal~~recording ~~2009.~~of ~~The~~the ~~increase~~transaction ~~was~~and ~~primarily~~the settlement ~~due~~of toforeign ancurrency ~~increase~~denominated ~~in revenue~~receivables ~~from~~and ~~sales~~payables. ofOther ~~higher~~income ~~margin~~(expense), ~~products~~net, decreased by $1.2 million Wein ~~expect~~the ~~our~~first ~~gross~~quarter ~~margin~~of fiscal 2011 compared to the first quarter of ~~fluctuate~~fiscal in2010 ~~future~~primarily ~~periods~~due ~~based~~to onlosses resulting from the ~~mix~~remeasurement of ~~our~~foreign ~~product~~currency transactions ~~and~~in ~~distributor sales~~the first quarter of fiscal 2011.

~~Operating~~ Income Taxes ~~Expenses~~

Research and Development


	Three Months Ended
	June 30,
	2010		2009
	(In thousands, except percentages)
Provision for income taxes	$	241	$	448
Effective tax rate		7%		17%

	Three Months Ended December 31,				Change
	2009		2008		$			%
	(In thousands, except percentages)
Research and development	$	2,110	$	2,403	$	(293	)	(12	)%

We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period in which they occur. The provision for income taxes we calculated differs from the amount if computed by applying the statutory United States federal tax rate principally due to the utilization of previously reserved net operating losses.

~~Research and~~ The ~~development~~decrease ~~expenses~~in ~~consist~~the ~~primarily~~effective oftax ~~costs~~rate ~~associated~~for ~~with~~ the ~~design, development,~~first ~~and~~quarter ~~testing~~ of ~~new~~fiscal ~~products.~~2011 ~~Such costs are expensed~~ as ~~they~~compared ~~are incurred and include salaries and related personnel costs, fees paid~~ to ~~outside~~the ~~consultants,~~same ~~and~~period ~~other~~of ~~direct~~the ~~and~~prior ~~indirect~~year ~~costs~~primarily ~~related~~results tofrom ~~research~~a ~~and~~reduction ~~product development. Research and development expenses decreased~~ in the ~~third~~U.S. ~~quarter~~federal ~~of fiscal~~income ~~2010~~tax ~~compared to the third quarter of fiscal 2009 primarily~~ due to ~~a decrease~~recently ofpassed ~~$258,000~~legislation inenabling ~~personnel~~the ~~costs~~Company ~~due~~ to ~~lower~~utilize ~~headcount~~additional ~~and~~net aoperating ~~decrease of~~loss ~~$183,000~~carryforwards infor ~~material~~Alternative ~~and~~Minimum ~~supplies~~Tax ~~expenses~~purposes. ~~These decreases were partially~~ ~~offset by an increase of $187,000 in consulting fees and product testing.~~

24Liquidity and Capital Resources

Table of Contents


	Three Months Ended
	June 30,
	2010			2009
	(In thousands)
Cash flow activities:
Net cash provided by operating activities	$	3,535		$	3,152
Net cash used in investing activities	$	(545	)	$	(1,056	)
Net cash provided by financing activities	$	1,736		$	19

~~Sales~~ As of June 30, 2010, we had cash and ~~Marketing~~cash equivalents of $34.7 million, compared to $30.1 million at March 31, 2010.

	Three Months Ended December 31,				Change
	2009		2008		$			%
	(In thousands, except percentages)
Sales and marketing	$	6,382	$	6,942	$	(560	)	(8	)%

Net cash provided by operating activities was $3.5 million during the first quarter of fiscal 2011 compared to net cash provided by operating activities of $3.2 million during the first quarter of fiscal 2010. Net cash provided by operating activities during the first quarter of fiscal 2011 resulted primarily from net income adjusted by non-cash items such as stock-based compensation expense, depreciation and amortization, provision for excess and obsolete inventories, deferred income taxes, the effect of foreign exchange rate changes on intercompany balances; a decrease in prepaid expenses and other current assets and an increase in accrued liabilities. These factors were partially offset by an increase in accounts receivable resulting from higher level of sales, an increase in inventory due to a ramp up in production, a decrease in accounts payable due to the timing of payments made to our vendors, and a decrease in accrued payroll and related expenses attributable primarily to the payment of fiscal 2010 employee cash bonuses in the first quarter of fiscal 2011.

~~Sales~~ Net ~~and marketing~~cash ~~expenses~~provided ~~consist~~by ~~primarily~~operating ofactivities ~~compensation~~during ~~costs~~the first quarter of ~~our~~fiscal ~~direct~~2010 ~~sales~~resulted ~~force~~primarily ~~and~~from ~~marketing~~operating ~~personnel~~income, asa ~~well~~decrease asin ~~overhead~~accounts ~~costs~~receivable ~~related~~due to ~~these~~improved receivables ~~activities.~~collection, ~~Also~~an ~~included~~increase ~~are~~in ~~costs~~accrued ~~associated~~liabilities ~~with~~due ~~promotional~~to ~~literature~~a ~~and videos,~~change ~~trade~~in ~~show~~classification ~~participation,~~of ~~and~~contingent purchase ~~education~~price ~~and~~liability ~~training~~from oflong-term ~~physicians~~to short-term. These factors were partially offset by an ~~Sales~~increase ~~and~~in ~~marketing~~inventory ~~expenses~~due ~~decreased~~to an increase in the ~~third~~number ~~quarter~~ of ~~fiscal~~consignment ~~2010 compared~~locations toand ~~the~~an ~~third~~increase ~~quarter~~in the number of ~~fiscal~~units ~~2009~~in ~~primarily~~existing asconsignment alocations ~~result~~due ofto ~~our expense~~new ~~management~~products ~~efforts~~released, ~~including~~ a decrease in accounts payable due to the timing of ~~$343,000~~payments inmade ~~travel~~to ~~and personnel~~our ~~costs~~vendors, a decrease in accrued payroll and related expenses attributable primarily to the payment of ~~$239,000~~fiscal 2009 employee cash bonuses in the ~~meeting~~first ~~and~~quarter ~~conference~~of ~~costs~~fiscal 2010 and a decrease ofin ~~$151,000~~other non-current liabilities primarily due to a change in ~~consulting~~classification of ~~costs.~~contingent ~~These~~purchase ~~decreases~~price ~~were~~liability ~~partially~~from ~~offset~~long-term to short-term and non-cash items such as bystock-based ancompensation ~~increase~~expense ofrelated ~~$176~~to SFAS 123R,~~000~~ indepreciation ~~sales~~and ~~incentives~~amortization, ~~resulting~~provision ~~from~~for excess ~~the~~and ~~higher~~obsolete ~~level of~~inventories ~~sales~~and ~~during~~deferred ~~the~~income ~~quarter~~taxes.

~~General~~22 ~~and Administrative~~

	Three Months Ended December 31,				Change
	2009		2008		$			%
	(In thousands, except percentages)
General and administrative	$	5,437	$	5,892	$	(455	)	(8	)%

~~General and~~ Net ~~administrative~~cash ~~expenses~~used ~~consist~~in ~~primarily~~investing ofactivities ~~compensation~~was ~~and~~$0.5 million ~~related~~during ~~costs for~~the ~~finance,~~first ~~human~~quarter ~~resources,~~of ~~regulatory, insurance,~~fiscal ~~and professional~~2011 ~~services.~~compared ~~Professional services principally relate~~ to ~~fees~~$1.1 million ~~for~~during ~~outside legal, audit and compliance with~~ the ~~Sarbanes-Oxley~~first ~~Act~~quarter of ~~2002~~fiscal ~~(the “Sarbanes-Oxley Act”)~~2010. ~~General~~Net ~~and~~cash ~~administrative~~used ~~expenses~~in ~~decreased~~investing activities induring the ~~third~~first quarter of fiscal ~~2010~~2011 ~~compared~~was related to the ~~third~~earn-out ~~quarter~~payment ofassociated with ~~fiscal~~the ~~2009~~purchase ~~primarily due to a decrease~~ of ~~$447,000~~VasCon inand ~~legal~~the ~~and~~purchase ~~professional~~of ~~fees~~capital equipment.

~~Other~~ Net cash used in investing activities during the first quarter of fiscal 2010 was related to ~~Income~~the ~~(Expense)~~earn-out payment associated with the purchase of VasCon, ~~Net~~an increase in restricted cash due to a pledged asset requirement in connection with forward contracts and the purchase of capital equipment.

	Three Months Ended December 31,						Change
	2009			2008			$			%
	(In thousands, except percentages)
Interest income	$	10		$	49		$	(39	)	(80	)%
Interest expense		(39	)		(10	)		(29	)	290	%
Other income (expense), net		25			(1,006	)		1,031		(102	)%
Total other income (expense), net	$	(4	)	$	(967	)	$	963		(100	)%

Net cash provided by financing activities was $1.7 million during the first quarter of fiscal 2011 compared to $19,000 during the first quarter of fiscal 2010. Net cash provided by financing activities during the first quarter of fiscal 2011 and fiscal 2010 consisted of proceeds from the exercise of stock options.

~~Interest and~~ To ~~investment~~the ~~income~~extent ~~consists~~that ofexisting ~~interest~~cash ~~earned~~and oncash ~~interest~~generated ~~bearing~~from ~~accounts. Interest~~operations ~~and~~are ~~investment~~insufficient ~~income~~to ~~decreased~~fund our infuture ~~the~~activities, ~~third~~we ~~quarter~~would ofseek ~~fiscal~~to ~~2010 compared~~borrow tofunds ~~the~~under ~~third~~our ~~quarter~~credit offacility. ~~fiscal~~We ~~2009~~have ~~primarily~~a ~~due~~revolving line toof ~~lower~~credit ~~interest rates,~~with ~~partially~~Wells ~~offset~~Fargo byBank ~~higher~~with ~~average~~a ~~cash~~maximum ~~and~~borrowing ~~investment~~in ~~balances~~the ~~earning interest~~amount up to $15.0 million.

~~Interest expense~~ On ~~consists~~July 11, of2010, ~~finance~~we ~~charges~~entered ininto ~~connection~~a definitive agreement with ~~our~~J&J ~~line~~and ofCope ~~credit~~Acquisition atCorp. ~~Wells~~(a ~~Fargo~~wholly-owned ~~Bank~~subsidiary ~~entered~~of ~~into~~J&J) inwhereby ~~November~~we ~~2008~~will ~~and~~be ~~other~~acquired ~~financing~~for ~~arrangements~~$23. ~~Interest~~40 ~~expense~~per ~~increased~~share in ~~the~~cash. ~~third~~The boards ~~quarter~~ of ~~fiscal~~directors ~~2010~~of ~~compared~~J&J toand the ~~third~~ ~~quarter~~Company ofhave ~~fiscal~~approved ~~2009~~the ~~primarily~~transaction, ~~due~~which tois ~~interest~~subject ~~charges~~to clearance ~~from~~under the ~~outstanding~~ ~~borrowings~~Hart-Scott-Rodino ofAntitrust ~~$2.5~~Improvements ~~million~~Act, ~~under~~similar ~~the~~regulation ~~line~~in ofother countries, ~~credit~~our stockholders approval and other customary closing conditions.

~~Other income~~Critical ~~(expense),~~Accounting ~~net,~~Policies ~~consists primarily of foreign exchange gains~~ and ~~losses~~Estimates resulting from differences in exchange rates between the time of recording of the transaction and the settlement of foreign currency denominated receivables and payables. Other income (expense), net, increased in the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009 primarily due to losses resulting from the remeasurement of foreign currency transactions in the third quarter of fiscal 2009.

25 We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. In many cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below. Our management has reviewed our critical accounting policies and estimates with our accounting advisors, audit committee and board of directors.

~~Table~~ Our ofcritical ~~Contents~~accounting policies and estimates are fully described in Critical Accounting Policies and Estimates in our annual report on Form 10-K for the fiscal year ended March 31, 2010, that was filed with the SEC on June 8, 2010. There were no significant changes in our critical accounting policies or estimates since March 31, 2010.

~~Income~~Recent Accounting Pronouncements ~~Taxes~~

	Three Months Ended December 31,
	2009			2008
	(In thousands, except percentages)
Provision (benefit) for income taxes	$	41		$	(367	)
Effective tax rate		1	%		(14	)%

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. We adopted this guidance in the fourth quarter of fiscal 2010. The adoption of this pronouncement did not have a material impact on our consolidated financial statements.

We23 provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period in which they occur. The provision for income taxes we calculated differs from the amount if computed by applying the statutory United States federal tax rate principally due to the utilization of previously reserved net operating losses.

The increaseTable in the effective tax rate for the third quarter of fiscal 2010 as compared to the same period of the prior year primarily resulted from an increase in income tax on profits arising in the United States and Switzerland. The provision for income tax for the three months ended December 31, 2009 was partially offset by a reduction in the U.S federal income tax due to recently passed legislation enabling us to utilize additional net operating loss carryforwards for Alternative Minimum Tax purposes.Contents

As The ~~of March 31,~~remaining ~~2009,~~disclosure werequirements ~~had federal, state and foreign net operating loss carryforwards (“NOLs”)~~ of ~~approximately~~this ~~$49.4 million,~~pronouncement ~~$30.5 million and $4.6 million, respectively. The federal NOLs~~ will ~~expire~~be ateffective ~~various dates~~for ~~beginning~~us in ~~2012 and~~ the fourth ~~state~~quarter ~~and~~of ~~foreign~~fiscal ~~NOLs will expire beginning in 2013~~2011. We ~~also~~are ~~have~~currently ~~federal~~evaluating ~~and~~the ~~state~~impact ~~research~~of ~~and~~the ~~development~~adoption ~~tax credit carryforwards~~ of ~~approximately $1.6 million and $1.4 million,~~the ~~respectively.~~remaining ~~The~~disclosure ~~federal~~requirement ~~tax~~of ~~credit~~this ~~carryforwards~~pronouncement ~~will~~and ~~expire~~do ~~beginning~~not ~~in 2012.~~expect ~~The~~the ~~state~~adoption ~~tax~~to ~~credit carryforwards can be carried forward indefinitely. We~~ have ~~recorded~~ a ~~full valuation allowance against our U.S. federal and state~~ ~~gross~~material ~~deferred~~impact ~~tax~~on ~~assets, as~~ our ~~history~~consolidated offinancial ~~losses and all other evidence available to us provide uncertainty as to whether it is more likely than not that our U~~statements.~~S. federal and state gross deferred tax assets will be~~ ~~realized.~~

~~Nine Months~~Off-Balance ~~Ended~~Sheet ~~December 31, 2009 and 2008~~Arrangements

~~Revenues~~ We do not have any off-balance sheet arrangements as of June 30, 2010.

	Nine Months Ended December 31,				Change
	2009		2008		$		%
	(In thousands, except percentages)
Americas	$	36,067	$	32,728	$	3,339	10	%
Europe		20,150		17,349		2,801	16	%
Asia Pacific		9,309		7,361		1,948	26	%
	$	65,526	$	57,438	$	8,088	14	%

Contractual Obligations

~~The overall~~ We ~~increase~~have inobligations ~~total~~under ~~revenues~~non-cancelable inoperating ~~the~~leases ~~first nine months of fiscal 2010 as compared~~ with ~~the~~various ~~first~~expiration ~~nine months of fiscal 2009 was primarily due to an~~dates ~~increase~~through in2013 ~~the~~and ~~number~~purchase ofcommitments ~~microcoil~~for ~~products~~inventory, ~~sold~~capital ~~during~~equipment ~~the period~~ and ~~the introduction~~operating ofexpenses, ~~new embolic coil products~~ such as ~~the~~materials ~~DeltaPaq™~~for research and ~~the DeltaPlush™~~development ~~microcoils~~and ~~along with the revenues generated from sales of new non-embolic products such as the PHAROS® Vitesse™ intracranial stent~~consulting.

~~Revenues from~~ As ~~the Americas increased 10% to $36.1 million compared with the first nine months~~ of ~~fiscal 2009. Revenues from Europe increased 16% to $20.2 million compared with the first nine months of fiscal 2009. The revenues increased in the Americas and Europe primarily due to~~June ~~continued~~30, ~~market penetration of the DeltaPaq™ microcoil and the introduction of the DeltaPlush™ microcoil. Revenues from Asia Pacific increased 26% to $9.3 million in the first nine months of fiscal~~ 2010 ~~and included product sales to our distributor in Japan of $8.2 million~~, ~~compared with revenues of $7.4 million in the first nine months of fiscal 2009, which included sales to~~ our ~~distributor~~contractual incommitments ~~Japan~~were ofas ~~$6.3~~follows ~~million. We did not recognize revenues from sales to China during the first nine months of fiscal 2010, and we do not anticipate recognizing revenues from sales~~ (in ~~China~~ ~~in this fiscal year.~~thousands):


	Payments due by period
			Less than		1-3		3-5		More than
Contractual obligations:	Total		1 year		Years		Years		5 years
Non-cancelable operating lease obligations	$	5,446	$	1,072	$	2,470	$	1,048	$	856
Purchase obligations		3,048		3,048		—		—		—
Milestone payments to The Cleveland Clinic		1,500		1,500		—		—		—
Royalty payments to Vascular FX, LLC		833		250		583		—		—

Total	$	10,827	$	5,870	$	3,053	$	1,048	$	856

~~Table~~ We are required to pay The Cleveland Clinic up to $5.0 million in payments upon the achievement of ~~Contents~~certain milestones set forth in the ReVasc Agreement. We paid a $0.5 million milestone payment in March 2008 and an additional $2.0 million milestone payment in January 2010. We have accrued an additional $1.5 million as of June 30, 2010 for milestone payments that will become due on October 26, 2010, regardless of whether the related milestones are achieved.

~~Revenues from~~ We ~~the~~are ~~Americas~~required ~~include product sales~~ to ~~our~~pay ~~distributors~~Vascular inFX, ~~Latin~~LLC ~~America. Revenue~~(“Vascular ~~from~~FX”) ~~Latin~~a ~~America~~royalty ~~decreased~~equal to ~~$2.0 million~~25% inof the ~~first nine~~greater ~~months~~ of ~~fiscal~~(i) the ~~2010~~applicable ~~compared~~aggregate ~~with~~mandatory ~~revenues~~minimum sales of $21.6 0 million inor (ii) the ~~first~~actual ~~nine~~net ~~months~~sales of ~~fiscal 2009 due to a change in~~ our ~~revenue~~Courier®Enzo® ~~recognition~~deflectable ~~policy~~catheter inproduct, ~~the first~~both ~~quarter~~on ofan ~~fiscal~~annual ~~2009 for sales made to Latin American distributors from a cash collection~~ basis. toThe ~~upon shipment basis (see Note 2 - Summary of~~royalty ~~Significant~~period ~~Accounting~~is ~~Policies~~six ofyears ~~the~~beginning ~~“Notes to Condensed Consolidated Financial Statements,” which are included~~ in ~~“Part I, Item~~November ~~1 – Condensed Consolidated Financial Statements (unaudited)”)~~2007. As ~~a result~~ of ~~the~~June 30, ~~change in our revenue recognition policy for sales made to Latin American distributors~~2010, we ~~recognized~~ ~~deferred~~had ~~revenue~~accrued royalty payments of approximately $~~0.7~~153,000 ~~million~~to ~~from~~Vascular ~~Latin America in the first quarter of fiscal 2009~~FX.

~~Revenues from~~ We ~~sales~~are ofrequired ~~embolic products increased by 15%~~ to ~~$61.9 million~~pay ~~for~~Biotronik ~~the first~~royalties ~~nine~~equal ~~months of fiscal 2010 as compared~~ to ~~revenues~~15% of ~~$53.8 million~~ the ~~first~~ ~~nine~~actual ~~months~~net ofsales ~~fiscal 2009 primarily due to increased market penetration~~ of ~~the~~our ~~DeltaPaq™ microcoil, along with the introduction of the DeltaPlush™~~PHAROS ~~microcoil.~~stent ~~Sales~~on ofa ~~non-embolic~~quarterly ~~products were 6% of total revenues in the first nine months of both fiscal 2010 and 2009~~basis.

~~New products~~ We ~~represented~~are ~~23%~~required ofto ~~our~~pay ~~revenues~~FSS up to $2.0 million in ~~the~~payments ~~first~~upon ~~nine~~the ~~months~~achievement of ~~fiscal 2010~~certain ~~coming~~milestones ~~from~~set ~~products~~forth ~~introduced~~ in the ~~past~~FSS 24Agreement ~~months~~and royalties on potential future product sales. ~~Among~~The additional ~~these,~~milestone ~~our~~payments are contingent on certain events. We did not accrue any milestone ~~DeltaPaq™~~payment ~~microcoil~~to ~~represented~~FSS ~~17%~~as of ~~total~~June 30, ~~revenues~~2010 insince the ~~first~~dates ~~nine~~upon ~~months~~which these milestones will be achieved are ofnot ~~fiscal~~certain ~~2010~~at this time.

~~Gross~~Item 3. Quantitative and Qualitative Disclosures About Market Risk ~~Profit~~

	Nine Months Ended December 31,				Change
	2009		2008		$		%
	(In thousands, except percentages)
Cost of goods sold	$	15,968	$	14,984	$	984	7	%
Gross profit	$	49,558	$	42,454	$	7,104	17	%

Foreign Currency Exchange Risks. We are exposed to risks from fluctuations in currency exchange rates due to intercompany loans made to Micrus Endovascular SA (“Micrus SA”), our Swiss subsidiary, in 2001 in connection with its incorporation. These loans are denominated in Swiss francs and will fluctuate in value against the U.S. dollar, causing us to recognize foreign exchange gains and losses. The functional currency of our Swiss subsidiary is the Swiss franc. The functional currency of Micrus Endovascular UK Limited (“Micrus UK”), our UK subsidiary, is the British pound. In Europe, our revenues are denominated in the Swiss franc, euro, British pound and other currencies. Accordingly, we are exposed to market risk related to changes between these currencies. For example, if the Swiss franc appreciates against the currencies in which our receivables are denominated, we will recognize foreign currency losses. For the preparation of our consolidated financial statements, the financial results of our subsidiaries are translated into U.S. dollars based on average exchange rates during the applicable period. A hypothetical 10% decline in the value of the Swiss franc versus the U.S. dollar would cause us to recognize a loss of $187,000 related to our loan with Micrus SA and a $22,000 increase in our comprehensive loss from our investment in Micrus SA as of June 30, 2010.

~~The~~24 increase in cost of goods sold during the first nine months of fiscal 2010 as compared to the first nine months of fiscal 2009 was primarily related to the increase in sales of our microcoil products as well as an increase of $0.6 million in inventory provisions primarily related to excess inventories for certain slow moving products.

Gross marginTable was 76% in the first nine months of fiscal 2010 compared with 74% in the first nine months of fiscal 2009. The increase was primarily due to an increase in revenue from sales of higher margin products.Contents

A hypothetical 10% decline in the value of the British pound versus the U.S. dollar would cause us to recognize a $0.5 ~~Operating~~million increase in our comprehensive loss from our investment in ~~Expenses~~Micrus UK as of June 30, 2010. A hypothetical 10% decline in the value of the euro versus the Swiss franc would cause us to recognize a loss of $367,000 based on our foreign denominated receivables as of June 30, 2010.

~~Research~~ In the first quarter of fiscal 2011, approximately 33% of our revenues were denominated in currencies other than the U.S. dollar. In future periods, we believe that a greater portion of our revenues could be denominated in currencies other than the U.S. dollar, thereby increasing our exposure to exchange rate gains and ~~Development~~losses on non-U.S. currency transactions.

	Nine Months Ended December 31,				Change
	2009		2008		$			%
	(In thousands, except percentages)
Research and development	$	7,073	$	8,253	$	(1,180	)	(14	)%

In the first quarter of fiscal 2011, we continued to enter into foreign currency forward contracts to buy U.S. dollars to minimize the impact of the currency movements on intercompany payables for our Micrus SA subsidiary. The use of foreign currency forward contracts allows us to offset exposure to rate fluctuations because the gains or losses incurred on the derivative instruments will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. We use derivative instruments only for risk management purposes and do not use them for speculation or for trading.

~~Research and~~ As ~~development~~of ~~expenses~~June 30, ~~decreased~~2010, inwe ~~the~~had ~~first~~outstanding ~~nine~~foreign ~~months~~currency offorward ~~fiscal~~contracts ~~2010~~to sell 1.2 million ~~compared~~euros tofor ~~the~~approximately ~~first~~$1.5 million, ~~nine~~expiring ~~months~~through ofSeptember 24, ~~fiscal~~2010. ~~2009~~If ~~primarily~~we ~~due~~were to asettle ~~decrease of~~our ~~$0.9~~euro-based ~~million~~contracts inat ~~personnel~~the ~~costs~~reporting ~~due~~date, toan aimmaterial ~~change~~unrealized inincome ~~the~~or ~~employee~~expense ~~bonus~~would ~~program~~need ~~and~~to ~~lower~~be ~~headcount~~recognized. ~~and~~A asensitivity ~~decrease~~analysis of ~~$430,000~~changes in ~~material~~the ~~and~~fair ~~supplies~~value of our euro forward contracts ~~expenses.~~at ~~These~~June 30, ~~decreases~~2010 ~~were~~indicates ~~partially~~that, ~~offset~~if bythe anU.S. ~~increase~~dollar ofuniformly ~~$359,000 primarily~~strengthened/weakened ~~due~~by to10% aagainst the ~~$0.5~~euro, ~~million~~the ~~upfront~~fair ~~payment~~value toof ~~FSS~~these tocontracts ~~jointly~~would ~~develop~~decrease/increase aby ~~flow diversion~~$147,000, ~~product~~respectively.

~~Sales~~ Interest Rate Risk. Our cash is invested in bank deposits and money market funds denominated in U.S. dollars. The carrying value of these cash equivalents approximates fair market value. Our investments in marketable securities are subject to interest rate risk, which is the risk that our financial condition and ~~Marketing~~results of operations could be adversely affected due to movements in interest rates.

	Nine Months Ended December 31,				Change
	2009		2008		$			%
	(In thousands, except percentages)
Sales and marketing	$	19,227	$	23,021	$	(3,794	)	(16	)%

At June 30, 2010, our cash and cash equivalent balance was $34.7 million. Based on our annualized average interest rate, a 10% decrease in the interest rate on such balances would result in a reduction in interest income of approximately $6,000 on an annual basis.

27 As of June 30, 2010, we do not invest in or trade market risk sensitive instrument or have any debt subject to interest rate fluctuations.

~~Table~~Item 4. ofControls ~~Contents~~and Procedures

Sales and marketing expenses decreased in the first nine months of fiscal 2010 compared to the first nine months of fiscal 2009 primarily as a result of our expense management efforts, including a decrease of $(1.6) ~~million~~Disclosure inControls ~~travel~~ and ~~personnel~~Procedures ~~costs, a decrease of $1.0 million in meeting and conference costs and a decrease of $0.5 million in consulting costs.~~

~~General~~ With the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of our disclosure controls and ~~Administrative~~procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

	Nine Months Ended December 31,				Change
	2009		2008		$			%
	(In thousands, except percentages)
General and administrative	$	15,821	$	21,818	$	(5,997	)	(27	)%

(2) Changes in Internal Controls Over Financial Reporting

~~General and~~ There ~~administrative~~were ~~expenses~~no ~~decreased~~changes in ~~the~~our ~~first~~internal ~~nine~~control ~~months~~over offinancial ~~fiscal~~reporting ~~2010 compared~~(as todefined ~~the first nine months of fiscal 2009 primarily due to a $4.2 million reduction~~ in ~~legal and professional service fees primarily related to the~~Rules ~~settlement~~13a-15(f) ~~cost of the patent litigation with Boston Scientific~~ and ~~the conclusion~~15d-15(f) ofunder the ~~United~~Exchange ~~States~~Act) ~~Department~~during ~~of Justice monitorship, as well as a decrease of $1.2 million in personnel and travel costs due to a change in~~ the ~~employee~~ ~~bonus~~quarter ~~program~~ended ~~and lower headcount~~June 30, a2010 ~~decrease~~that ~~of $337,000 in consulting~~have ~~and~~materially ~~outside services costs~~affected, asor ~~well~~are asreasonably alikely ~~decrease~~to ofmaterially ~~$306~~affect,~~000~~ ~~due~~our tointernal ~~lower amortization~~control ~~of intangible assets. These decreases were partially offset by an~~over ~~increase~~financial ~~of $244,000 in stock-based compensation~~reporting.

~~Out~~25 ~~of Period Adjustments~~

InTable the first quarter of fiscal 2010, we recorded adjustments to cost of goods sold, operating expenses and certain balance sheet accounts to record additional expenses primarily related to stock-based compensation expense that were not correctly recorded in prior periods. The net adjustments resulted in our reporting $281,000 in additional pre-tax expenses. These adjustments both individually and in the aggregate were not material to any of the fiscal 2009 interim or full year consolidated financial statements nor are they expected to be material to full year fiscal 2010 results.Contents

~~Other Income~~Part ~~(Expense),~~II ~~Net~~— OTHER INFORMATION

	Nine Months Ended December 31,						Change
	2009			2008			$			%
	(In thousands, except percentages)
Interest income	$	38		$	239		$	(201	)	(84	)%
Interest expense		(104	)		(14	)		(90	)	643	%
Other income (expense), net		2,621			(1,689	)		4,310		(255	)%
Total other income (expense), net	$	2,555		$	(1,464	)	$	4,019		(275	)%

Item 1. Legal Proceedings.

~~Interest and~~ Merger ~~investment income decreased in the first nine months of fiscal 2010 compared~~Agreement ~~to the first nine months of fiscal 2009 primarily due to lower interest rates, partially offset by higher average cash and investment balances earning interest.~~

~~Interest~~ On July 13, 2010, a plaintiff filed a putative class action entitled Robert Sauser v. Micrus ~~expense~~Endovascular ~~increased~~Corporation et al., Case No. 110-CV-176769, in the ~~first~~Superior ~~nine~~Court ~~months~~of the State of California, ~~fiscal~~Santa ~~2010~~Clara ~~compared~~County. The defendants are the Company and the members of our board of directors. The complaint alleges that the individual defendants breached their fiduciary duties to our stockholders in connection with the ~~first~~merger agreement and the transactions contemplated thereby. ~~nine~~Specifically, ~~months~~the complaint alleges, among other things, that the proposed transaction arises out of ~~fiscal~~a ~~2009~~flawed ~~primarily~~process ~~due~~and tothat ~~interest~~the ~~charges~~individual ~~from~~defendants engaged in self-dealing in relation to the ~~outstanding~~merger ~~borrowings~~agreement, which resulted in a failure to maximize shareholder value. The suit further alleges that we aided and abetted the individual defendants’ breaches of $2fiduciary duties and that the consideration offered in the merger does not fairly reflect our true value.5 ~~million~~The ~~under~~plaintiff seeks, among other things, an order enjoining the ~~line~~consummation of ~~credit~~the merger, attorneys’ fees and costs.

~~Other income~~ On ~~(expense)~~July 19, ~~net~~2010, ~~increased~~a byplaintiff $4filed a putative class action entitled Claire Houston v.3 ~~million~~John Kilcoyne et al., Case No. 110-CV-177667, in the ~~first~~Superior ~~nine~~Court ~~months~~of the State of California, Santa ~~fiscal~~Clara ~~2010~~County. ~~compared~~The todefendants are the ~~first~~Company ~~nine~~and ~~months~~the members of ~~fiscal~~our ~~2009.~~board ~~This~~of ~~increase~~directors is(together ~~primarily~~with ~~due~~the toCompany, the ~~recognition~~“Micrus ofDefendants”), ~~the~~Johnson ~~deferred~~& ~~gain~~Johnson and Cope Acquisition Corp. (a wholly owned subsidiary of $1Johnson & Johnson, and together with Johnson & Johnson, the “J&J Defendants”).9 This ~~million~~action inalleges that the individual defendants breached their fiduciary duties to our stockholders in connection with the ~~sale~~merger. Specifically, the complaint alleges, among other things, that the proposed transaction arises out of ~~non-neurological~~a flawed process, ~~cardiac~~that the individual defendants failed to maximize shareholder value and ~~peripheral~~that ~~catheter~~the consideration offered in the merger is ~~assets~~inadequate and ~~technology~~does ~~assets~~not fairly reflect our true value. The plaintiff also alleges that the individual defendants agreed to ~~Merit~~no-solicitation and ~~gains~~termination ~~resulting~~provisions in the merger agreement in violation of our board’s fiduciary duties. The suit further alleges that we and the J&J Defendants aided and abetted the individual defendants’ breaches of fiduciary duties. The plaintiff seeks, among other things, an order enjoining the Micrus Defendants and the J&J Defendants from consummating ~~foreign~~the ~~currency~~merger, damages in the event the merger is consummated prior to the court’s entry ~~translations~~of a final judgment, and attorneys’ fees and costs.

28 We believe that the lawsuits are wholly without merit and intend to defend vigorously against them. However, because the litigation is in the early stages, we cannot predict the outcome at this time, and we cannot provide assurance that the actions will not delay the consummation of the merger or result in substantial costs; even a meritless lawsuit may potentially delay consummation of the merger.

~~Table~~ Other ~~of Contents~~General

~~Income~~ We are participating in other litigation and responding to other claims arising in the ~~Taxes~~ordinary course of business. We intend to defend ourselves vigorously in these matters. Our management believes that it is unlikely that the outcome of these matters will have a material adverse effect on our financial statements, although there can be no assurance in this regard.

	Nine Months Ended December 31,
	2009			2008
	(In thousands, except percentages)
Provision (benefit) for income taxes	$	802		$	(472	)
Effective tax rate		8	%		(4	)%

Item 1A. Risk Factors.

~~We provide~~ In ~~for~~addition ~~income~~to ~~taxes~~the ~~during~~other ~~interim~~information ~~periods~~set ~~based~~forth onin ~~our~~this ~~estimate~~report, ofyou should consider the risk ~~effective~~factors ~~tax~~discussed ~~rate~~in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year. ~~Discrete~~ended ~~items~~March 31, ~~and~~2010, ~~changes~~which incould materially affect our ~~estimate~~business, offinancial condition ~~the~~or ~~annual~~future ~~effective~~results. ~~tax~~The ~~rate~~risk ~~are~~factors ~~recorded~~ in ~~the~~our ~~period~~Form in10-K ~~which~~have ~~they~~not ~~occur~~materially changed. The ~~provision~~risk ~~for~~factors set ~~income~~forth ~~taxes~~below weand ~~calculated~~those ~~differs~~described ~~from~~in our Form 10-K are not the ~~amount~~only ifrisks ~~computed~~facing our Company. byAdditional ~~applying~~risks ~~the~~and ~~statutory~~uncertainties ~~United~~not ~~States~~currently ~~federal~~known ~~tax~~to ~~rate~~us ~~principally~~or ~~due~~that we currently deem to ~~the~~be ~~utilization~~immaterial ofalso ~~previously~~may ~~reserved~~materially ~~net~~adversely ~~operating~~affect ~~losses~~our business, financial conditions and/or operating results.

~~The~~ ~~increase~~Failure ~~in the effective tax rate for the first nine months of fiscal 2010 as compared~~ to ~~the~~complete, ~~same~~or ~~period~~delay ~~of the prior year primarily resulted from an increase~~ in ~~income~~completing, ~~tax on profits arising in~~ the ~~United~~merger ~~States~~with ~~and~~Johnson ~~Switzerland. The~~& ~~increase~~Johnson ~~was partially offset by a reduction in the U.S federal income tax~~could ~~due~~materially toand ~~recently~~adversely ~~passed~~affect ~~legislation~~our ~~enabling~~results usof tooperations ~~utilize~~and ~~additional net~~our ~~operating~~stock ~~loss carryforwards for Alternative Minimum Tax purposes~~price.

~~Liquidity~~ On July 11, 2010, we entered into a definitive merger agreement with Johnson & Johnson and Cope Acquisition Corp. (a wholly-owned subsidiary of Johnson & Johnson). Consummation of the merger is subject to customary closing conditions such as the adoption of the merger agreement by our stockholders and ~~Capital~~various ~~Resources~~regulatory approvals and clearances. We cannot assure you that the necessary approvals will be obtained, or that regulatory approvals will not subject us to additional regulatory obligations, or that we will be able to consummate the merger as currently contemplated under the merger agreement. Risks related to the proposed merger include the following:

	Nine Months Ended December 31,
	2009			2008
Cash flow activities:	(In thousands)
Net cash provided by (used in) operating activities	$	10,626		$	(9,889	)
Net cash used in investing activities	$	(1,343	)	$	(4,832	)
Net cash provided by financing activities	$	1,894		$	3,651

•

we will remain liable for significant transaction costs, including legal, accounting, financial advisory and other costs

~~Since~~26 our inception, we have funded our operations primarily through issuances of stock and related warrants, and product sales. As of December 31, 2009, we had cash and cash equivalents of $28.6 million, compared to $17.1 million at March 31, 2009. We believe that our current cash position and the cash expected to be generated from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Net cashTable provided by operating activities was $10.6 million during the first nine months of fiscal 2010 compared to net cash used in operating activities of $9.9 million during the first nine months of fiscal 2009. Net cash provided by operating activities during the first nine months of fiscal 2010 resulted primarily from net income adjusted by non-cash items such as stock-based compensation expense, depreciation and amortization, provision for excess and obsolete inventories, deferred income taxes, the recognition of the deferred gain in connection with the sale of non-neurological, cardiac and peripheral catheter assets and technology assets to Merit, the effect of foreign exchange rate changes on intercompany balances, and an increase in accrued liabilities due to an increase in income taxes on profits arising in the United States and Switzerland. These factors were partially offset by an increase in accounts receivable resulting from higher level of sales, an increase in inventory due to an increase in the number of consignment locations and an increase in the number of units in existing consignment locations primarily due to new products released, a decrease in accounts payable due to the timing of payments made to our vendors, a decrease in accrued payroll and related expenses attributable primarily to the payment of fiscal 2009 employee cash bonuses in the first quarter of fiscal 2010.Contents

~~Net~~relating ~~cash~~to ~~used~~the inmerger ~~operating~~if ~~activities~~it ~~during~~does ~~the~~not ~~first~~close; ~~nine~~• ~~months~~under ofspecified ~~fiscal 2009~~circumstances, ~~resulted~~we ~~primarily~~may ~~from~~have ~~net~~to ~~loss~~pay ~~adjusted~~a bytermination ~~non-cash~~fee ~~items~~to ~~such~~Johnson ~~as stock-based~~& ~~compensation~~Johnson ~~expense,~~in ~~depreciation~~the ~~and~~amount ~~amortization~~of $13,250,000; • the ~~effect~~attention of ~~foreign~~ ~~exchange~~our ~~rate~~management ~~changes~~and onour ~~intercompany~~employees ~~balances~~may ~~and~~be ~~deferred~~diverted ~~tax~~from ~~benefit, and~~day-to-day anoperations; ~~increase~~• inthe ~~finished~~customer ~~goods~~sales process may be disrupted by customer and ~~consigned~~salesperson ~~inventory~~uncertainty ~~due~~over towhen or if the ~~launch~~merger ~~of new~~will ~~products,~~be aconsummated; ~~decrease~~• inour ~~accounts~~supply ~~payable~~chain ~~due~~process tomay be disrupted by the ~~timing~~uncertainty of ~~payments~~our ~~made to~~third ~~our~~party ~~vendors,~~service aproviders ~~decrease~~over inwhen ~~accrued~~or ~~payroll~~if the merger will be consummated; and ~~related~~• ~~expenses~~our ~~attributable primarily~~ability to ~~the~~attract ~~payment~~new ofemployees ~~fiscal~~and ~~2008~~retain ~~employee~~existing ~~cash~~employees ~~bonuses~~may inbe ~~the~~difficult ~~first quarter~~as ofa ~~fiscal~~result ~~2009~~of ~~and~~uncertainties ~~lower~~associated ~~accrued~~with ~~commissions~~the merger.

29 The occurrence of any of these events individually or in combination could reduce our revenues, increase our expenses, and harm our stock price. In addition, our stock price rose upon announcement of our proposed merger with Johnson & Johnson and any failure to consummate the merger could result in a drop in our stock price.

~~Table~~ We have been named as a defendant in two putative shareholder class action lawsuits, which could cause our business, financial condition, results of ~~Contents~~operations and cash flows to suffer.

~~Net~~ We ~~cash~~and ~~used~~certain of our officers and directors are named defendants in ~~investing~~two ~~activities~~putative ~~was~~class $action lawsuits that allege breaches of fiduciary duty under state law, a description of which can be found in Item 1.3, ~~million~~Legal ~~during~~Proceedings, ~~the~~under ~~first~~Part II ~~nine~~in this report for further information. Subject ~~months~~to ofcertain ~~fiscal~~limitations, ~~2010~~we ~~compared~~are obligated to $4indemnify our current and former directors, officers and employees in connection with such lawsuits.8 ~~million~~While ~~during~~we have director and officer insurance, amounts under the ~~first~~policy ~~nine~~may ~~months~~not be sufficient to cover our indemnification obligations. Regardless of the outcome, these lawsuits, and any other litigation that may be brought against us or our ~~fiscal~~directors ~~2009.~~and ~~Net~~officers, ~~cash~~could ~~used~~be time consuming, result in ~~investing~~significant ~~activities~~expense, ~~during~~and divert the attention ~~first~~and ~~nine~~resources ~~months~~ of ~~fiscal~~our ~~2010~~management ~~was~~and ~~related~~other tokey ~~the~~employees. ~~earn-out~~An ~~payment~~unfavorable ~~associated~~outcome in any such litigation could delay or prohibit consummation of our merger with ~~the~~Cope ~~purchase~~Acquisition Corp, a wholly-owned subsidiary of ~~VasCon~~Johnson ~~and~~& ~~the~~Johnson, ~~purchase~~or otherwise have a material adverse effect on our business, financial condition, results of ~~capital~~operations ~~equipment~~and cash flows.

~~Net~~Current ~~cash~~worldwide ~~used~~economic inconditions ~~investing~~may ~~activities~~adversely ~~during~~affect ~~the~~our ~~first~~business, ~~nine~~operating ~~months~~results ~~of fiscal~~and ~~2009~~financial ~~was~~condition, ~~related~~as towell ~~the~~as ~~earn-out~~further ~~payment~~decrease ~~associated~~our ~~with~~stock ~~the purchase of Neurologic UK Ltd~~price. ~~and VasCon and the purchase of capital equipment, partially~~ ~~offset by proceeds from the sale of certain assets and technologies in~~ ~~connection with the Merit Transaction.~~

General worldwide economic conditions have experienced a downturn due to the effects of the ~~Net~~subprime ~~cash~~lending ~~provided~~crisis, byEuropean ~~financing~~sovereign ~~activities~~debt ~~was~~crisis, ~~$1.9~~general ~~million~~credit ~~during~~market crisis, collateral effects on the ~~first~~finance ~~nine~~and banking industries, concerns about inflation, slower economic activity, ~~months~~decreased ofconsumer ~~fiscal~~confidence, ~~2010~~reduced ~~compared~~corporate toprofits $3and capital spending, adverse business conditions and liquidity concerns.7 ~~million~~Our ~~during~~business ~~the~~is ~~first~~not ~~nine~~immune. ~~months~~Some of the procedures that use our ~~fiscal~~products ~~2009.~~are ~~Net~~elective ~~cash~~and ~~provided~~therefore can be deferred by ~~financing~~patients. ~~activities~~In ~~during~~light of the ~~first~~current ~~nine~~economic ~~months~~conditions, ofpatients ~~fiscal~~who ~~2010~~do ~~consisted~~not ofhave ~~proceeds~~insurance ~~from~~covering the ~~exercise~~total cost of ~~stock~~elective ~~options~~procedures may ~~and~~choose to defer or forego them. In addition, in the ~~purchase~~U.S. and other countries where healthcare coverage is heavily dependent on employment status, increasing numbers of ~~common~~patients ~~stock~~may ~~under~~have ~~our~~no ~~employee~~or reduced ~~stock~~healthcare ~~purchase~~coverage. Furthermore, government instability may cause certain governments to ~~plan~~delay, withhold or reduce reimbursement for our products which could adversely affect our revenues.

~~Net~~ The ~~cash~~worldwide ~~provided~~economic bydownturn ~~financing~~also ~~activities~~may ~~during~~have ~~the~~other ~~first~~adverse ~~nine~~implications ~~months~~for ofour ~~fiscal~~business. For ~~2009~~example, ~~consisted~~our ofcustomers’ ~~proceeds~~and distributors’ ability to borrow money from ~~the~~their ~~exercise~~existing oflenders, ~~stock~~or to ~~options~~obtain credit from other sources to purchase our products may be impaired. Though we maintain allowances for doubtful accounts that are sufficient to cover estimated losses which may occur when customers cannot make their required payments and though such estimated losses have historically been within our expectations and the ~~purchase~~provisions established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past, especially given the current turmoil in the worldwide economy. A significant change in the liquidity or financial condition of our ~~common~~customers ~~stock~~or ~~under~~those governments that reimburse our ~~employee~~customers ~~stock~~for ~~purchase~~our ~~plan,~~products could cause unfavorable trends in our receivable collections and ~~borrowings~~additional ~~under~~allowances may be required, thus adversely affecting our operating results. In addition, the worldwide economic crisis may adversely ~~line~~impact ofour ~~credit~~suppliers’ ability to provide us with ~~Wells~~materials ~~Fargo~~and ~~Bank~~components, which could adversely affect our business and operating results.

As ~~discussed~~Our infuture ~~Note~~success 6is –dependent ~~Line~~on ~~of Credit of~~ the ~~“Notes~~continued togrowth ~~Condensed Consolidated Financial Statements,” which are included~~ in ~~“Part~~embolic I,coiling ~~Item 1~~procedures –and ~~Condensed~~our ~~Consolidated~~ability ~~Financial~~to ~~Statements~~convince ~~(unaudited) of this Quarterly Report, on November 5, 2008 we entered into~~ a ~~Credit~~concentrated ~~Agreement~~customer ~~with~~base ~~Wells~~of ~~Fargo~~neurointerventionalists ~~Bank~~ to ~~provide~~ ususe ~~with~~our aproducts ~~revolving line of credit. The Credit Agreement provides for~~as ~~maximum borrowings in~~ an ~~amount~~alternative up to $15 million. If borrowings under the Credit Agreement exceed $7.5 million, all borrowings are subject to a borrowing base which is based on eligible accounts receivable. The Credit Agreement requires that we comply with certain financial and other ~~covenants~~available ~~for borrowings to be permitted~~products. ~~On May 20, 2009, we amended the Credit Agreement~~ ~~with Wells Fargo Bank extending the maturity date to August 1, 2010, and~~ adjusting the minimum limits for the financial covenants based on our financial forecast for fiscal 2010. At December 31, 2009, we had outstanding borrowings of $2.5 million under the line of credit and were in compliance with all covenants of the Credit Agreement. We believe that we will be able to maintain compliance with the debt covenants of the Credit Agreement through the fiscal year ending March 31, 2010.

~~To the~~27 extent that existing cash and cash generated from operations are insufficient to fund our future activities, we would seek to borrow funds under our credit facility. However, given that certain financial and other covenants of the credit agreement are required to be met, these funds may not be available to us at such time. Accordingly, we may need to reduce discretionary spending and raise additional funds through public or private equity or debt financing. Although we are currently not a party to any definitive agreement with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, we may enter into such agreements in the future. Additional funds may not be available on terms favorable to us, or at all. Failure to manage our discretionary spending or raise additional capital as required may adversely impact our ability to achieve our intended business objectives.

Critical AccountingTable Policiesof and EstimatesContents

~~We prepare~~ Our ~~our~~future ~~consolidated~~success ~~financial~~and ~~statements~~revenue ingrowth ~~accordance~~are ~~with~~significantly ~~GAAP.~~dependent Inupon ~~doing so,~~an weincrease ~~have~~in tothe ~~make estimates and assumptions that affect our reported amounts~~use of ~~assets,~~embolic ~~liabilities,~~coiling ~~revenues and expenses,~~ as ~~well~~a asprocedure related disclosure of contingent assets and liabilities. In many cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to ~~occur~~treat ~~from~~cerebral ~~period to period~~aneurysms. ~~Accordingly,~~ ~~actual~~If ~~results could differ materially from our estimates. To~~ the ~~extent~~ ~~that~~number ~~there~~of ~~are~~embolic ~~material differences between these estimates and actual~~coiling ~~results,~~procedures ~~our~~does ~~financial~~not ~~condition~~increase or ~~results~~if ofa ~~operations~~new ~~will~~procedure ~~be affected. We base our estimates on past experience and other assumptions~~ that wedoes ~~believe~~not ~~are reasonable~~employ ~~under~~our ~~the~~products ~~circumstances,~~becomes ~~and~~a ~~we evaluate these estimates on an~~more ~~ongoing~~acceptable ~~basis.~~alternative Weamong ~~refer to accounting estimates of this type as critical accounting policies and estimates~~neurointerventionalists, ~~which we discuss below. Our management has reviewed~~ our ~~critical~~business ~~accounting~~would ~~policies~~be ~~and~~seriously ~~estimates with our accounting advisors, audit committee and board of directors~~harmed.

~~Our~~ The number of interventional neuroradiologists and neurosurgeons trained to conduct embolic ~~significant~~coiling ~~accounting~~procedures ~~policies~~is relatively small, both in the United States and abroad. There are ~~fully~~currently approximately ~~described~~300-400 neurointerventionalists in ~~Note~~the 2United toStates who perform embolic coiling procedures. We believe that less than one-third of these physicians perform a substantial majority of the total number of embolic coiling procedures per year. For the first quarter of fiscal 2011, a substantial portion of our product sales in the United States were to an estimated 111 hospitals. ~~Consolidated~~The ~~Financial~~growth ~~Statements~~in ~~included~~the number of interventional neuroradiologists and neurosurgeons in the United States is constrained by the lengthy training programs required to educate these physicians. Accordingly, our ~~annual~~revenue ~~report~~growth ~~filed~~will be primarily dependent on ~~Form~~our ability to increase sales of our products to ~~10-K~~our ~~for~~existing ~~the~~customers ~~fiscal~~and ~~year~~to ~~ended~~increase ~~March~~sales 31of products to trained neurointerventionalists that currently use products offered by our competitors. We believe that neurointerventionalists who do not currently use our products will not widely adopt our products unless they determine, ~~2009~~based on experience, clinical data and published peer reviewed journal articles, that ~~was~~our ~~filed~~products ~~with~~provide benefits or an attractive alternative to the ~~SEC~~clipping onof aneurysms or the use of competitors’ ~~June~~products. 11We believe that neurointerventionalists base their decision to use an alternative procedure or product on the following criteria, ~~2009.~~among others:

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

~~Table~~ In addition, we believe that recommendations and support of ~~Contents~~our products by influential physicians are essential for market acceptance and adoption. That support may be influenced by the results of clinical studies of our products or those of our competitors. If we do not receive continued support from such influential physicians, neurointerventionalists and hospitals may not use our products. In such circumstances, we may not achieve expected revenue levels and our business will suffer.

~~Recent~~ ~~Accounting~~The ~~Pronouncements~~results of clinical trials could negatively impact our business.

~~In December~~ We ~~2008,~~believe ~~the~~that ~~FASB~~neurointerventionalists ~~issued~~base ~~authoritative~~their ~~guidance~~decision ~~for~~to ~~employers’~~use ~~disclosures about~~an ~~postretirement~~alternative ~~benefit~~procedure ~~plan~~or product ~~assets,~~in ~~which~~part ~~provides guidance~~ on ~~an employer’s~~the ~~disclosures~~result ~~about~~of ~~plan~~clinical ~~assets~~evidence ofsupporting apatient ~~defined~~benefits. ~~benefit~~Consequently, results ~~pension~~of orclinical ~~other postretirement~~research ~~plan,~~and ~~including~~trials ~~disclosures~~on ~~about~~our ~~investment~~existing ~~policies~~products and ~~strategies,~~ ~~categories~~new ofproducts ~~plan~~in ~~assets~~development, as ~~fair~~well ~~value~~as ~~measurements~~those of ~~plan~~our ~~assets and~~competitors, ~~significant~~will ~~concentrations~~influence ofdemand ~~risk.~~for ~~The~~our ~~guidance~~products. isTo ~~effective~~the ~~for~~extent ~~fiscal~~that ~~years~~clinical ~~ending~~trials ~~after~~report ~~December~~negative ~~2009.~~news Weabout doour ~~not~~products ~~expect~~or ~~that~~positive ~~the~~news ~~adoption~~about ofour ~~the~~competitors ~~guidance~~products ~~will~~we ~~have~~may alose ~~material impact on our consolidated financial statements~~sales.

In For ~~August 2009~~example, ~~the~~we ~~FASB~~recently ~~issued~~announced ~~authoritative~~some ~~guidance~~interim ~~for~~data ~~fair~~from ~~value~~an ~~measurements~~ongoing ~~and~~clinical study comparing ~~disclosures,~~results ~~which~~of ~~provide~~coiling ~~guidance~~with ~~for~~our ~~measuring~~Cerecyte® ~~fair~~microcoils ~~value~~against ofMicrus ~~the~~bare ~~liabilities~~platinum microcoils. Dr. ~~This~~Molyneux, ~~guidance~~the ~~provides~~principal ~~clarification~~investigator ~~that~~of inthe ~~circumstances~~trial, inhas ~~which~~presented ainterim ~~quoted price~~data indemonstrating anthat, based ~~active~~on ~~market for~~ the ~~identical~~core ~~liability~~lab isassessment ~~not~~of ~~available~~angiographic success, the ~~reporting~~ ~~entity~~Cerecyte® isand ~~required~~Micrus tobare ~~measure~~platinum groups ~~fair~~are ~~value~~superior ~~using~~to ~~valuation~~those ~~techniques such~~of asthe ~~quoted~~ISAT ~~price~~study ofand anthat ~~identical~~the orsafety ~~similar~~outcomes ~~liability~~for ~~when~~Micrus ~~traded~~Cerecyte® and asMicrus ~~an asset,~~bare ~~present~~platinum ~~value~~coils ~~technique~~are oralso asuperior ~~market~~to ~~approach~~the ~~technique.~~coiling ~~The~~results ~~guidance~~reported ~~also~~in the ISAT study, ~~clarifies~~as ~~that~~well ~~when~~as ~~estimating~~all ~~the~~other ~~fair~~published ~~value~~randomized ofdata. aIn ~~liability~~addition, aDr. Molyneux ~~reporting~~has ~~entity is~~advised ~~not~~us ~~required~~that due to ~~include~~the astrong ~~separate~~performance ~~input~~of orMicrus ~~adjustment~~bare toplatinum ~~other~~coils, ~~inputs relating~~it tois unlikely that the ~~existence~~data ofwill demonstrate a ~~restriction~~statistically ~~that~~significant ~~prevents~~difference ~~the~~in ~~transfer~~angiographic ofoutcome between the ~~liability~~ two groups. Our ~~The~~Cerecyte® ~~guidance~~coils ~~further~~are ~~clarifies~~more ~~that~~expensive ifthan ~~the~~our ~~fair~~bare ~~value~~platinum ofcoils, aalthough ~~liability is~~we ~~determined~~believe bythat ~~reference~~our bare toplatinum acoils ~~quoted~~are ~~price~~priced inlower anthan ~~active~~many ~~market~~of ~~for~~our ~~an identical~~large ~~liability,~~competitors. ~~that~~It ~~price~~is ~~would~~unclear bewhether ~~considered~~the impact aof ~~Level~~this 1study ~~measurement~~will result in ~~the fair~~a ~~value~~decline ~~hierarchy.~~in ~~Similarly,~~our ifsales ~~the~~of ~~identical~~Cerecyte® ~~liability~~coils ~~has~~or aan ~~quoted~~increase ~~price~~in our ~~when~~overall ~~traded~~sales as ana ~~asset~~result inof anthe ~~active~~superior ~~market,~~performance itof isour ~~also~~coils agenerally. ~~Level~~If 1we ~~fair~~experience ~~value~~a ~~measurement~~decline ifin nosales ~~adjustments~~of toour ~~the~~Cerecyte® ~~quoted~~coils ~~price~~which ofis ~~the~~not ~~asset~~offset ~~are~~by ~~required. This~~increases ~~guidance~~in isrevenue ~~effective~~generated ~~for~~from our ~~the~~bare ~~first~~platinum ~~reporting~~coils ~~period~~our ~~(including~~operating ~~interim periods)~~results ~~beginning~~will ~~after~~be ~~its issuance~~harmed.

~~Contractual~~ ~~Obligations~~Our industry is experiencing increased scrutiny by governmental authorities, which has led to increased compliance costs and potentially more rigorous regulation.

We The ~~have obligations~~medical ~~under~~device ~~non-cancelable~~industry ~~operating~~is ~~leases~~subject ~~with~~to ~~various~~rigorous ~~expiration~~regulation ~~dates~~by the FDA and numerous other ~~through~~federal, ~~2013~~state and ~~purchase~~foreign ~~commitments~~governmental ~~for~~authorities. ~~inventory,~~These ~~capital~~authorities ~~equipment~~have ~~and operating~~been ~~expenses,~~increasing ~~such~~their scrutiny asof ~~materials~~certain ~~for~~activities ~~research~~of ~~and~~medical ~~development~~device ~~and~~companies, ~~consulting.~~

~~As of~~28 ~~December 31, 2009, our contractual commitments were as follows (in thousands):~~

	Payments due by period
			Less than			1-3		3-5	More than
Contractual obligations:	Total		1 year		Years		Years		5 years
Non-cancelable operating lease obligations	$	5,814	$	1,075	$	2,612	$	1,036	$	1,091
Purchase obligations		3,214		3,214		-		-		-
Milestone payments to The Cleveland Clinic		3,500		3,500		-		-		-
Royalty payments to Vascular FX, LLC		958		250		708		-		-
Earn-out payment to VasCon		309		309		-		-		-
Total	$	13,795	$	8,348	$	3,320	$	1,036	$	1,091

~~The~~including their conduct of clinical trials, their handling of conflicts of interests and ~~future~~financial ~~earn-out~~arrangements ~~payments~~with health care providers (“HCPs”) and their product promotional practices. We are about to ~~the~~commence ~~former~~our ~~VasCon~~first ~~shareholders~~human clinical trials which will berequire anus ~~amount~~to ~~not~~comply with topatient ~~exceed~~safety ~~$10~~and enrollment regulations.~~0 million~~ ~~based~~We onanticipate ~~the~~that ~~sales~~government authorities will continue to scrutinize our industry closely and ~~manufacturing~~we ~~performance~~may asbe subject to more rigorous regulation by ~~set~~governmental ~~forth~~authorities in the ~~asset~~future. ~~purchase~~This ~~agreement.~~increased ~~These~~government ~~future~~scrutiny ~~earn-out~~has ~~payments~~led ~~will~~us to incur beincreased ~~paid~~costs ~~over~~on ~~three~~compliance, ~~years.~~human Weresources ~~paid~~costs and the ~~first~~diversion of management and ~~second~~employee focus ~~year~~and ~~earn-out~~we ~~amounts~~anticipate that such costs will continue to increase. We have adopted a number of ~~$378,000~~compliance procedures and ~~$0.9~~provide ~~million~~regular incompliance ~~April~~training ~~2008~~to ~~and~~our ~~June~~employees ~~2009,~~who ~~respectively.~~interact ~~The~~with ~~earn-out~~HCPs ~~period~~but ~~ended~~we ~~November~~cannot ~~30,~~assure ~~2009~~that ~~and~~our ~~the~~activities ~~final~~will ~~earn-out~~not ofbe ~~$309,000~~subject ~~will~~to inquiry or greater action or oversight by governmental authorities or that we will be ~~paid~~able to comply with any new regulations. Any failure by us to adopt appropriate compliance procedures and ensure that our employees and agents comply with applicable laws and regulations could result in ~~the~~substantial ~~first~~penalties ~~quarter~~and/or restrictions in our business activities and the sales of ~~fiscal~~our ~~2011~~products.

We ~~are required~~have tobeen ~~pay~~profitable ~~The Cleveland Clinic up to $5.0 million~~ in ~~payments upon~~ the ~~achievement~~last offiscal ~~certain~~year, ~~milestones~~but ~~set~~there ~~forth~~is inno ~~the~~assurance ~~ReVasc~~that ~~Agreement.~~we Wewill ~~paid~~continue ato ~~$0.5~~be ~~million~~profitable ~~milestone payment~~ in ~~March~~the ~~2008 and an additional $2~~future.~~0 million~~ ~~milestone payment in January 2010. We have accrued an additional $1.5 million as~~ ~~of December 31, 2009 for milestone payments that will become due by October 26,~~ ~~2010, regardless of whether the related milestones are achieved.~~

We ~~are required~~were toincorporated ~~pay~~in ~~Vascular~~the ~~FX,~~State ~~LLC~~of ~~(“Vascular~~Delaware ~~FX”)~~in a1996, ~~royalty~~and ~~equal~~began tocommercial ~~25%~~sales of ~~the~~our ~~greater~~microcoil ofproducts ~~(i)~~in ~~the~~2000. ~~applicable~~In ~~aggregate~~fiscal ~~mandatory~~2010 ~~minimum~~we ~~sales~~reported ofour first profitable fiscal year with $111.~~0 million~~5 ormillion ~~(ii)~~of ~~the~~net ~~actual~~income. ~~net~~Net ~~sales~~income for the first quarter of ~~our~~fiscal ~~Courier®Enzo®~~2011 ~~deflectable~~was ~~catheter~~$3.1 million. ~~product,~~At June ~~both~~30, on2010, anwe ~~annual~~reduced ~~basis.~~our ~~The~~accumulated ~~royalty~~deficit ~~period~~to isapproximately ~~six~~$67.8 million. ~~years~~There ~~beginning~~is inno ~~November~~assurance ~~2007.~~that Aswe ofwill ~~December~~continue ~~31,~~to ~~2009,~~be weprofitable ~~had~~in ~~accrued~~the ~~royalty~~future. ~~payments~~We ofexpect ~~approximately~~our operating expenses to increase ~~$48~~as we,~~000~~ toamong ~~Vascular~~other ~~FX.~~things:

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

~~Table~~ As a result of ~~Contents~~these activities, we may not be able to sustain or increase profitability on an ongoing basis.

~~We are~~ ~~required~~Our toquarterly ~~pay~~operating ~~FSS~~and upfinancial toresults ~~$2.0 million~~and inour ~~payments~~gross ~~upon~~margins ~~the~~are ~~achievement~~likely ofto fluctuate ~~certain~~significantly ~~milestones set forth~~ in ~~the FSS Agreement and royalties on potential~~ future ~~product sales~~periods. ~~The additional milestone payments are~~ ~~contingent on certain events.~~

~~Item~~ Our 3quarterly operating and financial results are difficult to predict and may fluctuate significantly from period to period. ~~Quantitative~~The level of our revenues, gross margins and ~~Qualitative~~results ~~Disclosures~~of operations ~~About~~at ~~Market~~any given time will be based primarily on the following factors: ~~Risk~~

~~Foreign~~• ~~Currency~~neurointerventionalist Exchange Risks. Historically, we have been exposed to risks from fluctuations in currency exchange rates due to intercompany loans made to Micrus Endovascular SA (“Micrus SA”), our Swiss subsidiary, in 2001 in connection with its incorporation. These loans are denominated in Swiss francs and ~~will~~patient ~~fluctuate~~acceptance ~~in value against the U.S. dollar, causing us to recognize foreign exchange gains and losses. The functional currency~~ of our ~~Swiss~~products; ~~subsidiary~~• ischanges ~~the Swiss franc. The functional currency of Micrus Endovascular UK Limited (“Micrus UK”), our UK subsidiary, is the British pound. In Europe, our revenues are denominated~~ in the ~~Swiss~~number ~~franc,~~of ~~euro,~~embolic ~~British~~coiling ~~pound~~procedures ~~and~~performed ~~other currencies. Accordingly, we are exposed~~ to ~~market~~treat ~~risk~~cerebral ~~related~~aneurysms; to• ~~changes between~~ the ~~Swiss~~seasonality ~~franc and these other currencies. If the Swiss franc appreciates against the currencies in which our receivables are denominated, we will recognize foreign currency losses. For the preparation~~ of our ~~consolidated~~product ~~financial~~sales; ~~statements,~~• the ~~financial~~mix ~~results~~ of our ~~Swiss~~products ~~subsidiary~~sold; ~~are~~• ~~translated~~stocking ~~into~~patterns ~~U.S. dollars~~for ~~based~~distributors; on• ~~average exchange rates during~~ the ~~applicable~~development ~~period. A hypothetical 10% decline in the value~~ of ~~the~~new ~~Swiss~~procedures ~~franc~~to ~~versus~~prevent ~~the~~and ~~U.S. dollar~~treat ~~would~~hemorrhagic ~~cause~~and usischemic tostroke; ~~recognize a~~• ~~loss~~results of ~~$196,000~~clinical ~~related~~research ~~to our loan with Micrus SA~~ and atrials ~~$74,000~~on ~~increase in~~ our ~~comprehensive~~existing ~~loss~~products ~~from~~and ~~our~~products ~~investment~~ in ~~Micrus~~development SAor asthose of ~~December 31, 2009. A hypothetical 10% decline in the value of the British pound versus the U.S. dollar would cause us to recognize a $0.5 million increase in~~ our ~~comprehensive~~ ~~loss~~competitors; ~~from~~• ~~our~~demand ~~investment~~for, inand ~~Micrus~~pricing ~~UK as~~ of ~~December 31~~, ~~2009.~~our ~~A hypothetical~~products; ~~10%~~• ~~decline~~levels ~~in the value~~ of ~~the~~third-party ~~euro~~reimbursement ~~versus~~for ~~the Swiss franc would cause us to recognize a loss of $338,000 based on~~ our ~~foreign denominated receivables as of December 31, 2009.~~products;

~~In the~~29 first nine months of fiscal 2010, approximately 31% of our revenues were denominated in currencies other than the U.S. dollar. In future periods, we believe that a greater portion of our revenues could be denominated in currencies other than the U.S. dollar, thereby increasing our exposure to exchange rate gains and losses on non-U.S. currency transactions.

InTable the third quarter of fiscal 2010, we continued to enter into foreign currency forward contracts to buy U.S. dollars to minimize the impact of the currency movements on intercompany payables for our Micrus SA subsidiary. The use of foreign currency forward contracts allows us to offset exposure to rate fluctuations because the gains or losses incurred on the derivative instruments will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. We use derivative instruments only for risk management purposes and do not use them for speculation or for trading.Contents

As• timing of ~~December~~ 31new product offerings, ~~2009~~acquisitions, welicenses ~~had~~or ~~outstanding~~other significant events involving us or our competitors; • increases in the costs of manufacturing and selling our products; • the amount and timing of our operating expenses; • potential litigation expenses; • fluctuations in foreign currency ~~forward~~exchange ~~contracts~~rates; to• ~~sell 200,000~~regulatory ~~euros~~approvals ~~for~~and ~~approximately~~legislative ~~$300,000,~~changes ~~expiring~~affecting ~~through~~the ~~February~~products ~~25, 2010. If~~ we ~~were~~may tooffer ~~settle~~or ~~our~~those ~~euro-based~~of ~~contracts~~our atcompetitors; • the ~~reporting~~effect ~~date, an~~of ~~immaterial~~competing ~~unrealized~~technological ~~income~~and market developments; • changes in our ability to obtain and maintain FDA and other domestic and foreign regulatory approval or ~~expense~~clearance ~~would~~for ~~need~~our products; • inventory adjustments we may have to bemake ~~recognized.~~in ~~A sensitivity~~any ~~analysis~~quarter; of• ~~changes~~interruption in the ~~fair~~manufacturing ~~value~~or distribution of our ~~euro~~products; ~~forward~~• ~~contracts at~~our ~~December~~ability ~~31,~~to ~~2009~~maintain ~~indicates~~and ~~that,~~expand ifour ~~the~~sales ~~U.S.~~force ~~dollar~~and ~~uniformly strengthened/weakened~~operational bypersonnel; ~~10%~~• ~~against~~developments ~~the~~related ~~euro,~~to our announced definitive agreement with J&J; • the ~~fair~~ability ~~value~~of our suppliers to timely provide us with an adequate supply of ~~these~~materials ~~contracts would~~and ~~decrease/increase~~components; byand ~~$30,000,~~• ~~respectively~~amount and timing of capital expenditures and other costs relating to any potential expansion of our operations.

~~Interest~~ Many ~~Rate~~of ~~Risk. Our cash~~the isproducts ~~invested~~we inmay ~~bank~~seek ~~deposits~~to develop and ~~money~~introduce ~~market~~in ~~funds~~the ~~denominated~~future inwill require FDA ~~U.S. dollars.~~approval ~~The~~or ~~carrying~~clearance ~~value~~and ofwill ~~these~~be ~~cash~~required ~~equivalents~~to ~~approximates~~meet similar regulatory requirements in other ~~fair~~countries where we seek to market ~~value~~our products, without which we cannot begin to commercialize them. ~~Our~~Forecasting ~~investments~~the intiming ~~marketable~~of ~~securities~~sales ~~are~~of ~~subject~~our products is difficult due to the delay inherent in ~~interest~~seeking ~~rate~~FDA ~~risk,~~and ~~which~~other isclearance or approval, or the ~~risk~~failure ~~that~~to obtain such clearance or approval. In addition, we will be increasing our ~~financial~~operating ~~condition~~expenses ~~and~~as ~~results~~we build our commercial capabilities. Accordingly, we may experience significant, unanticipated quarterly losses. Because of ~~operations~~these factors, ~~could~~our beoperating ~~adversely~~results ~~affected~~in ~~due~~one or more future quarters may fail to ~~movements~~meet inthe ~~interest~~expectations of ~~rates~~securities analysts or investors, which could cause our stock price to decline significantly.

At ~~December~~We ~~31,~~may ~~2009,~~not ~~our~~be ~~cash~~able ~~and~~to ~~cash~~develop ~~equivalent~~new ~~balance~~products ~~was~~or ~~$28.6~~product ~~million.~~enhancements ~~Based on~~that ~~our~~will ~~annualized~~be ~~average~~accepted ~~interest~~by ~~rate, a 10% decrease in~~ the ~~interest rate on~~ ~~such balances would result in a reduction in interest income of approximately $4,000 on an annual basis~~market.

~~Item~~ Our ~~4. Controls~~success will depend in part on our ability to develop and ~~Procedures~~introduce new products and enhancements to our existing products. We cannot assure that we will be able to successfully develop or market new products or that any of our future products will be accepted by the neurointerventionalists who use our products or the payors who reimburse for many of the procedures performed with our products. The success of any new product offering or enhancement to an existing product will depend on several factors, including:

~~(1)~~• ~~Disclosure~~our ~~Controls~~ability to properly identify and ~~Procedures~~anticipate neurointerventionalist and patient needs; • our ability to develop new products or enhancements in a timely manner; • our ability to leverage the results of clinical and multi-center trial evidence supporting patient benefits; • our ability to obtain the necessary regulatory approvals for new products or product enhancements; • our ability to provide adequate training to potential users of our products; • our ability to receive adequate reimbursement for our procedures;

~~With the~~30 participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

32Table of Contents

~~Table~~• results of ~~Contents~~clinical research and trials on our existing products and products in development and those of our competitors; • demand for, and pricing of, our products; • levels of third-party reimbursement for our products; and • our ability to develop an effective marketing and distribution network.

~~(2)~~ If ~~Changes~~we do not develop new products or product enhancements in ~~Internal~~time ~~Controls~~to ~~Over~~meet ~~Financial~~market ~~Reporting~~demand or if there is insufficient demand for our products or enhancements, we may not achieve expected revenue levels and our business will suffer.

~~There~~ ~~were~~Our norelationships ~~changes~~with inphysicians ~~our internal control over financial reporting (as defined in Rules 13a-15(f)~~ and ~~15d-15(f)~~other ~~under~~consultants ~~the~~require ~~Exchange~~us ~~Act)~~to ~~during~~comply ~~the~~with ~~quarter~~a ~~ended December~~number ~~31, 2009 that have materially affected, or are reasonably likely to~~of ~~materially~~United ~~affect,~~States ~~our~~and ~~internal~~international ~~control over financial reporting~~regulations.

~~Part~~ We IIare —required ~~OTHER~~to ~~INFORMATION~~comply with a number of United States and international laws and regulations related to our financial relationships with physicians and other healthcare providers. In addition, we must comply with the Foreign Corrupt Practices Act (“FCPA”) which prohibits United States companies or their agents and employees from providing anything of value to a foreign official for the purposes of influencing him or her to help obtain or retain business, direct business to any person or corporate entity, or obtain any unfair advantage. While we have taken numerous steps to ensure compliance with these laws and regulations, they are subject to evolving interpretations, making it difficult to ensure compliance. If we are found to be in violation of any of these laws or regulations, we may face serious consequences, including civil and criminal penalties for us and our officers and directors, exclusion of our products from government-funded healthcare programs, termination of customer contracts, and reputational harm.

~~Item~~ We 1.operate ~~Legal~~in ~~Proceedings~~a highly competitive market segment, face competition from large, well-established medical device manufacturers with significant resources, and may not be able to increase penetration in our markets or otherwise compete effectively.

~~None~~ The market for medical devices for treatment of cerebral vascular diseases is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. We compete primarily with the neurovascular division of Boston Scientific, the market leader, as well as Codman Neurovascular, ev3, a division of Covidien plc and MicroVention. At any time, other companies may develop alternative treatments, products or procedures for the treatment of cerebral aneurysms that compete directly or indirectly with our products. If alternative treatments prove to be superior to our microcoil or other products, continued use or adoption of our products could be negatively affected and our future revenues could suffer.

~~Item~~ In ~~1A.~~addition, ~~Risk~~most ~~Factors~~of our current and potential competitors are either large publicly traded companies or divisions or subsidiaries of large publicly traded companies and enjoy several competitive advantages over us, including:

~~Certain Factors~~• ~~that~~greater ~~May~~financial ~~Affect~~and ~~Our~~personnel ~~Business~~resources; • greater name recognition; • established relationships with neurointerventionalists; • established distribution networks; • greater experience in obtaining and ~~Future~~maintaining ~~Results~~FDA, and other regulatory approvals for products and product enhancements, and greater experience in developing compliance programs for compliance with numerous federal, state, local and similar laws in non-United States jurisdictions; • greater resources for product research and development; • greater experience in, and resources for, launching, marketing, distributing and selling products; and • broader product lines.

~~Some~~ Except ~~of the~~for ~~information~~our ~~included~~agreements ~~herein~~with contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on the beliefs of, estimates made by and information currently available to our ~~management and are subject to certain risks~~distributors, ~~uncertainties and assumptions. Any statements contained herein (including, without limitation, statements to the effect that the Company,~~ we~~, or~~ ~~management~~have ~~“may,”~~no ~~“will,”~~material “expects,” “anticipates,” “estimates,” “predicts,” “continues,” “plans,” “believes,” or “projects,” “should,” “could,” “would,” “intends” or statements concerning “potential” or “opportunity,” and any variations thereof, comparable terminology or the negative thereof) that are not statements of historical fact should be construed as forwardlong-~~looking statements.~~term ~~Our actual results may vary materially from those expected in these~~purchase ~~forward-looking~~agreements ~~statements.~~with ~~The~~our ~~realization of such forward-looking statements may be impaired by risks including~~customers, ~~but not limited to the~~who ~~following:~~

~~Current~~31 ~~worldwide economic conditions may adversely affect our business, operating results and financial condition, as well as further decrease our stock price.~~

General worldwideTable economic conditions have experienced a downturn due to the effects of the subprime lending crisis, general credit market crisis, collateral effects on the finance and banking industries, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. Our business is not immune. Some of the procedures that use our products are elective and therefore can be deferred by patients. In light of the current economic conditions, patients who do not have insurance covering the total cost of elective procedures may choose to defer or forego them. In addition, in the U.S. and other countries where healthcare coverage is heavily dependent on employment status, increasing numbers of patients may have no or reduced healthcare coverage.Contents

~~The worldwide economic crisis also~~ may ~~have~~at ~~other~~any ~~adverse~~time ~~implications~~switch ~~on our business. For example, our customers’ and distributors’ ability~~ to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired. Although we maintain allowances for doubtful accounts for estimated losses resulting from the ~~inability~~use of our customers to make required payments and such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past, especially given the current turmoil in the worldwide economy. A significant change in the liquidity or financial condition of our customers could cause unfavorable trends in our receivable collections and additional allowances may be required, which could adversely affect our operating results. In addition, the worldwide economic crisis may adversely impact our supplierscompetitors’ ~~ability to provide us with materials and components, which could adversely affect our business and operating results~~products. ~~Like the stock prices of many other companies, our stock~~ price has decreased substantially recently and if investors have concerns that our business, operating results and financial condition will be negatively impacted by a worldwide economic downturn, our stock price could further decrease.

~~Our~~ For ~~future~~these ~~success~~reasons, iswe ~~dependent~~may ~~on the~~not ~~continued~~be ~~growth~~able into ~~embolic~~compete ~~coiling~~successfully ~~procedures~~against ~~and~~ our ~~ability~~current toor ~~convince a~~potential ~~concentrated~~future ~~customer~~competitors ~~base~~and sales of ~~neurointerventionalists to use~~ our products asand ~~an alternative~~our torevenues ~~other~~may ~~available products~~decline.

~~Our~~ ~~future~~ Our ~~success~~sales ~~and revenue growth are significantly dependent upon an increase~~ in ~~the~~international ~~use~~markets ofsubject ~~embolic~~us ~~coiling as a procedure~~ to ~~treat~~foreign ~~cerebral~~currency ~~aneurysms.~~exchange Ifand ~~the number~~other ofrisks ~~embolic coiling procedures does not increase or if a new procedure~~and costs that ~~does~~could ~~not~~harm ~~employ~~ our ~~products becomes a more acceptable alternative among neurointerventionalists, our~~ business ~~would be seriously harmed~~.

A substantial portion of our revenues are derived from outside the United States. For the fiscal years ended March 31, 2010, 2009 and 2008, revenues from customers outside the United States represented approximately 51%, 50% and 51%, respectively, of our revenues. For the first quarter of fiscal 2011, revenues from customers outside the United States represented approximately 56% of our revenues, We anticipate that revenues from international customers will continue to represent a substantial portion of our revenues as we continue to expand in new international markets including China and Japan. Because we generate revenues in foreign currencies, we are subject to the effects of exchange rate fluctuations. For the first quarter of fiscal 2011, approximately 33% of our revenues were denominated in currencies other than the U.S. dollar. The functional currency of our Swiss subsidiary is the Swiss franc. The functional currency of our UK subsidiary is the British pound.

~~Table~~ In Europe, our revenues are denominated in Swiss francs, euros, British pounds and U.S. dollars. Accordingly, we are exposed to market risk related to changes between those currencies in which we conduct business. For the preparation of ~~Contents~~our consolidated financial statements, the financial results of our Swiss and UK subsidiaries are translated into U.S. dollars based on average exchange rates during the applicable period. If the U.S. dollar appreciates against the Swiss franc and British pound, the revenues we recognize from sales by our European subsidiaries will be adversely impacted.

~~The number~~ Historically, ofwe ~~interventional~~have ~~neuroradiologists~~also ~~and~~been ~~endovascular~~exposed ~~neurosurgeons trained~~ to ~~conduct~~risks ~~embolic~~from ~~coiling~~fluctuations ~~procedures~~in iscurrency ~~relatively~~exchange ~~small,~~rates due ~~both~~to inintercompany ~~the United~~loans ~~States~~made ~~and~~to ~~abroad.~~Micrus ~~There~~Endovascular ~~are~~SA ~~currently~~(“Micrus ~~approximately~~SA”), ~~300 neurointerventionalists~~our inSwiss ~~the~~subsidiary, ~~United~~in 2001 ~~States~~in ~~who~~connection ~~perform~~with ~~embolic~~its ~~coiling procedures~~incorporation. WeThese ~~believe~~loans ~~that~~are ~~less~~denominated ~~than~~in ~~one-third~~Swiss offrancs ~~these~~and ~~physicians perform a~~will ~~substantial~~fluctuate ~~majority~~in ofvalue against the ~~total number of embolic coiling procedures per year~~U. ~~For~~S. ~~the~~dollar, ~~first~~causing ~~nine~~us ~~months~~to ofrecognize ~~fiscal~~foreign ~~2010,~~exchange agains ~~substantial portion of our product~~and ~~sales~~losses. inForeign ~~the~~exchange ~~United~~gains ~~States~~or ~~were~~losses toas ~~approximately~~a ~~112~~result ~~hospitals. The growth in the number~~ of ~~interventional~~exchange ~~neuroradiologists~~rate ~~and~~fluctuations ~~endovascular~~in ~~neurosurgeons~~any ingiven ~~the~~period ~~United~~could ~~States~~harm isour ~~constrained~~operating byresults ~~the~~and ~~lengthy~~negatively ~~training~~impact ~~programs~~our ~~required to educate these physicians~~revenues. ~~Accordingly~~Additionally, ~~our~~if ~~revenue growth will be primarily~~the ~~dependent~~effective onprice of our ~~ability~~products were to increase ~~sales~~as ofa ~~our~~result ~~products~~of tofluctuations ~~our~~in ~~existing~~foreign currency ~~customers~~exchange ~~and~~rates, todemand ~~increase~~for ~~sales~~our of products tocould ~~trained~~decline ~~neurointerventionalists that~~and ~~currently~~adversely ~~use~~affect ~~products~~our ~~offered~~results byof operations ~~our~~and ~~competitors~~financial condition.

We ~~believe~~ ~~that~~are ~~neurointerventionalists~~subject who do not currently use our products will not widely adopt our products unless they determine, based on clinical experience, clinical data and published peer reviewed journal articles, that our products provide benefits or an attractive alternative to ~~the~~various ~~clipping~~additional ~~of aneurysms~~risks oras ~~the~~a ~~use~~consequence of ~~competitors’~~doing ~~products.~~business ~~We believe that~~internationally ~~neurointerventionalists~~which ~~base~~could ~~their~~harm ~~decision~~our tobusiness, ~~use~~including ~~an alternative procedure or product on~~ the following ~~criteria, among others~~:

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

• If ~~their~~we ~~level~~fail ofto ~~experience~~increase ~~with~~our ~~the~~direct ~~alternative~~sales ~~product;~~force in a timely manner, our business could suffer.

• We ~~perceived~~have ~~liability~~a ~~risks~~limited ~~generally~~domestic ~~associated~~and ~~with~~international direct sales force. We also have a distribution network for sales in the ~~use~~major ofmarkets in Europe, Latin America, Asia Pacific and the Middle East. As we launch new products and ~~procedures;~~increase our marketing efforts with respect to existing products, we will need to expand the number of our direct sales personnel on a worldwide basis. The establishment and development of a more extensive sales force will be expensive and time consuming. There is significant competition for sales personnel experienced in interventional medical device sales. If we are unable to attract, motivate and retain qualified sales personnel and thereby increase our sales force, we may not be able to increase our revenues.

~~• availability of reimbursement within healthcare payment systems; and~~32

•Table costs associated with the purchase of new products and equipment.Contents

In ~~addition, we believe that recommendations and support of our products by influential physicians are essential for market acceptance and adoption.~~ If we do ~~not~~fail ~~receive~~to ~~continued~~properly ~~support~~manage ~~from such influential physicians, neurointerventionalists and hospitals may not use~~ our ~~products.~~anticipated ~~In such circumstances~~growth, ~~we may not achieve expected revenue levels and~~ our business ~~will~~ could suffer.

~~Our industry~~ We ishave ~~experiencing~~experienced, ~~increased~~and ~~scrutiny~~may bycontinue ~~governmental~~to ~~authorities~~experience, ~~which~~periods of rapid growth and expansion, ~~has~~which ~~led~~have placed, and will likely continue to ~~increased~~place, ~~compliance~~a ~~costs~~significant strain on our limited personnel and ~~potentially~~other ~~more~~resources. ~~rigorous~~In particular, the expansion of our fabrication facility and the continuing ~~regulation~~expansion of our direct sales force will require significant management, technical and administrative resources. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals.

~~The medical~~ To ~~device~~achieve ~~industry~~our isrevenue ~~subject to rigorous regulation by the FDA and numerous other federal~~goals, ~~state~~we ~~and~~must ~~foreign~~successfully ~~governmental~~increase ~~authorities. These authorities~~production ~~have~~in ~~been~~our ~~increasing their scrutiny of certain activities of medical~~fabrication ~~device~~facility ~~companies,~~as ~~including~~required ~~their~~by ~~conduct~~customer ~~of clinical trials, their handling of conflicts of interests and financial arrangements with health care providers (“HCP”), and their product promotional practices~~demand. We ~~anticipate that government authorities will continue to scrutinize our industry closely and we~~ may ~~be subject to more rigorous regulation by governmental authorities~~ in the future~~. This~~ ~~increased~~experience ~~government~~difficulties ~~scrutiny~~in ~~has led us to incur increased~~increasing ~~costs~~production, onincluding ~~compliance,~~problems ~~human~~with ~~resources~~production ~~costs~~yields and ~~the~~quality ~~diversion~~control ~~of management~~ and ~~employee~~ ~~focus~~assurance and ~~we anticipate that such costs will continue to~~in ~~increase. Though~~satisfying weand ~~have~~maintaining ~~adopted a number of~~ compliance ~~procedures and have trained those employees who interact~~ with ~~HCPs~~regulatory in response to the increased scrutiny, we cannot assure that our activities will not be subject to inquiry or greater action or oversight by governmental authorities or that we will be able to comply with any new regulationsrequirements. ~~Any~~ ~~failure~~These byproblems uscould toresult ~~adopt appropriate~~in ~~compliance~~delays ~~procedures~~in ~~and~~product ~~ensure~~availability ~~that our employees~~ and ~~agents~~increases ~~comply~~in ~~with applicable~~expenses. ~~laws~~Any ~~and~~such ~~regulations~~delay ~~could~~or ~~result~~increased inexpense ~~substantial penalties and/or~~could ~~restrictions~~adversely inaffect our ~~business~~ability ~~activities~~to ~~and~~generate ~~the sales of our products~~revenues.

~~We have~~ Future ~~been~~growth ~~profitable~~will ~~for~~also ~~each~~impose ofsignificant added responsibilities on management, including the need ~~last~~to ~~four~~identify, ~~quarters~~recruit, ~~but~~train ~~there~~and isintegrate noadditional employees. In addition, rapid and ~~assurance~~significant ~~that~~growth will place a strain on our administrative and operational infrastructure. In order to manage our operations and growth we will need to continue to improve our operational, financial and management controls, reporting systems and procedures. If we are unable to manage our growth effectively, it may be ~~profitable~~difficult infor ~~the~~us ~~foreseeable~~to execute our business strategy and our operating ~~future~~results and business could suffer.

We ~~were incorporated~~are inrequired ~~the~~to ~~State~~evaluate ~~of Delaware in 1996, and began commercial sales of~~ our ~~microcoil~~ ~~products~~internal incontrol ~~2000.~~over Wefinancial ~~have~~reporting ~~incurred~~under ~~annual~~Section 404 ~~net losses since our inception, including net losses~~ of ~~$11.1 million, $16.3 million, and $5.5 million in fiscal 2009, 2008, and 2007, respectively. In~~ the ~~fourth quarter of~~ ~~fiscal~~Sarbanes-Oxley ~~2009~~Act ~~we achieved our first profitable quarter with $0.6 million of net income~~ and inare ~~the~~exposed third quarter of fiscal 2010 we reported our fourth consecutive profitable quarter with $3.3 million of net income. We had net income of $9.2 million for the first nine months of fiscal 2010. At December 31, 2009, we had an accumulated deficit of approximately $73.2 million. There is no assurance that we will continue to ~~be profitable in the foreseeable~~ future as werisks ~~expect~~of ~~our~~non- ~~operating expenses to increase as we, among other things:~~compliance.

34 Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we are required to furnish a report by our management on our internal control over financial reporting. The report contains, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. The report must also contain a statement that our independent registered public accounting firm has issued an attestation report on the effectiveness of internal control over financial reporting.

~~Table~~ We completed our assessment of ~~Contents~~our internal control over financial reporting as required by Section 404 for the fiscal year ended March 31, 2010. Our assessment, testing and evaluation resulted in our conclusion that as of March 31, 2010, our internal control over financial reporting was effective. Our independent registered accounting firm has also expressed the opinion that our internal controls over financial reporting were effective during that period. However, our controls may not prove to be adequate for future periods, and we cannot predict the outcome of our testing in future periods. If our internal controls are deemed to be ineffective in future periods, our financial results and the market price of our stock could be adversely affected. In any event, we will incur additional expenses and commitment of management’s time in connection with further evaluations, which may adversely affect our future operating results and financial condition.

• Our ~~grow~~future ~~our~~capital ~~internal~~needs ~~and~~are ~~third-party~~uncertain ~~sales~~ and ~~marketing~~we ~~forces~~may need to ~~expand~~raise additional funds in the ~~sales~~future, and ofsuch ~~our~~funds ~~products~~may innot ~~the~~be ~~United~~available ~~States~~on ~~and~~acceptable ~~internationally;~~terms or at all.

• We ~~increase~~believe that our ~~research~~current cash position, together with the cash to be generated from expected product sales and ~~development~~the ~~efforts~~funds available under our credit facility (subject to ~~improve~~compliance with ~~upon~~conditions and covenants of the credit agreement) will be sufficient to meet our ~~existing~~projected operating ~~products~~requirements for at least the next 12 months. However, after such period we may be required to seek additional funds from public and ~~develop~~private ~~new~~stock ~~products;~~or debt offerings, borrowings under lease lines or other sources. Our capital requirements will depend on many factors, including:

• ~~perform~~the ~~clinical~~revenues ~~research~~generated by sales of our products; • the costs associated with expanding our sales and ~~trials~~marketing onefforts; • the expenses we incur in manufacturing and selling our ~~existing~~products; • the costs of developing and acquiring new products or technologies; • the cost of obtaining and ~~product~~maintaining ~~candidates~~FDA and other domestic and foreign approval or clearance of our products and products in development;

~~• expand our regulatory resources in order to obtain governmental approvals for our existing product enhancements and new products;~~33

•Table acquireof and/or license new technologies; andContents

• ~~expand~~the ~~manufacturing~~expenses we incur related to compliance with the United States FCPA and laws and regulations in non-United States jurisdictions; • costs associated with compliance with the Sarbanes-Oxley Act and rules and regulations affecting public companies promulgated by the SEC and The NASDAQ Stock Market; • the costs associated with our facilities expansion, if any; and • the costs associated with increased capital expenditures.

As a result of these ~~activities~~factors, we may need to raise additional funds, and such funds may not be available ~~able~~on favorable terms, or at all. Furthermore, if we issue equity or debt securities to raise ~~sustain~~additional funds, our existing stockholders may experience dilution, and the new equity or debt ~~increase~~securities may have rights, preferences and privileges senior to those of our existing ~~profitability~~stockholders. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on anterms ~~ongoing~~that ~~basis~~are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. In these events, our ability to achieve our development and commercialization goals would be adversely affected.

~~Our~~If ~~quarterly operating~~we ~~and~~choose ~~financial~~to ~~results~~acquire new and ~~our~~complementary businesses, ~~gross~~products ~~margins~~or ~~are~~technologies ~~likely~~instead of developing them ourselves, we may be unable to ~~fluctuate~~complete these acquisitions or to successfully ~~significantly~~integrate them in ~~future~~a ~~periods~~cost-effective and non-disruptive manner.

Our ~~quarterly~~ ~~operating~~success depends on our ability to continually enhance and ~~financial~~broaden ~~results~~our ~~are~~product ~~difficult~~offerings in response to ~~predict~~changing customer demands, competitive pressures and technologies. We may in the future ~~fluctuate~~pursue ~~significantly~~the ~~from~~acquisition ~~period~~of additional complementary businesses, products or technologies instead of developing them ourselves. We do not know if we will be able to ~~period~~successfully complete any such acquisitions, or whether we will be able to successfully integrate any acquired business, product or technology or retain any key employees. ~~The~~Integrating ~~level~~any ofbusiness, product or technology we acquire could be expensive and time consuming, disrupt our ~~revenues~~ongoing business, ~~gross margins~~distract our management and expose ~~results~~us ofto ~~operations~~unanticipated atliabilities. If we are unable to integrate any ~~given~~acquired ~~time~~businesses, products or technologies effectively, our business will besuffer. ~~based~~In ~~primarily~~addition, onany amortization or charges resulting from the ~~following~~costs ~~factors:~~of acquisitions could harm our business and operating results.

•Our ~~neurointerventionalist~~operations are subject to environmental, health and ~~patient~~safety, ~~acceptance~~and ofother ~~our~~laws ~~products;~~and regulations, with which compliance is costly and which expose us to penalties for non-compliance.

• Our ~~changes~~business, inproperties and products are subject to foreign, federal, state and local laws and regulations relating to the ~~number~~protection of ~~embolic~~the ~~coiling~~environment, ~~procedures~~natural ~~performed~~resources and worker health and safety and the use, management, storage, and disposal of hazardous substances, wastes, and other regulated materials. Because we operate real property, various environmental laws may also impose liability on us for the costs of cleaning up and responding to ~~treat~~hazardous ~~cerebral~~substances ~~aneurysms;~~that may have been released on our property, including releases unknown to us. These environmental laws and regulations also could require us to pay for environmental remediation and response costs at third-party locations where we disposed of or recycled hazardous substances. The costs of complying with these various environmental requirements, as they now exist or may be altered in the future, could adversely affect our financial condition and operating results.

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

• We rely on third-party suppliers for components and materials used in our products and rely on a single source for many of the ~~mix~~microcoil and delivery system components, including tubing and connectors. Our dependence on third-party suppliers involves several risks, including limited control over pricing, availability, quality, delivery schedules and supplier compliance with regulatory requirements. Any delays in delivery of such components or provision of such services or shortages of such components could cause delays in the shipment of our products, ~~sold;~~which could significantly harm our business. We generally acquire our single source components pursuant to purchase orders placed in the ordinary course of business, and we have no guaranteed supply arrangements with any of our single source suppliers. Because of our reliance on these vendors, we may also be subject to increases in component costs. These increases could significantly harm our business. For us to be successful, our third-party suppliers must also be able to provide us with the materials and components of our products in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable cost and on a timely basis. Our anticipated growth may strain the ability of suppliers to deliver an increasingly large supply of materials and components.

~~• stocking patterns for distributors;~~34

•Table the development of new procedures to treat hemorrhagic and ischemic stroke;Contents

• If ~~results~~we are unable to obtain sufficient quantities of ~~clinical~~high ~~research~~quality components and ~~trials~~materials to meet customer demand on a timely basis, we could lose customers, our ~~existing~~reputation ~~products~~may be harmed and our ~~products~~business could suffer. If any one or more of our third-party suppliers cease to provide us with sufficient quantities of our materials or components in ~~development;~~a timely manner or on terms acceptable to us, we would have to seek alternative sources of supply. We could incur delays while we locate and engage alternative qualified suppliers and we might be unable to engage alternative suppliers on favorable terms. Any such disruption or increased expenses could harm our commercialization efforts and adversely affect our ability to generate revenues.

•We ~~demand~~rely on independent contract manufacturers for the manufacture and assembly of certain of our products and components. Reliance on independent contract manufacturers involves several risks, including the potential inadequacy of capacity, the unavailability of or interruptions in access to certain process technologies and ~~pricing~~reduced control over product quality, compliance with regulatory requirements, delivery schedules, manufacturing yields and costs. Such manufacturers have possession of and at times title to molds for certain manufactured components of our products. Shortages of raw materials, production capacity constraints or delays by our contract manufacturers could negatively affect our ability to meet our production obligations and result in increased prices for affected parts. Any such reduction, constraint or delay may result in delays in shipments of our products; or increases in the prices of components, either of which could have a material adverse effect on our business, operating results and financial condition. We have no supply agreements with our current contract manufacturers and utilize purchase orders which are subject to supplier acceptance. The unanticipated loss of any of our contract manufacturers could cause delays in our ability to deliver product while we identify and qualify a replacement manufacturer. If our current or future independent contract manufacturers are unable to meet our requirements for manufactured components, our business could suffer.

•Our ~~levels~~operations ofare ~~third-party~~currently ~~reimbursement~~conducted ~~for~~at ~~our~~several ~~products;~~locations that may be at risk from earthquakes or other natural disasters.

• We ~~timing~~currently conduct our manufacturing, development and management activities in San Jose, California, near known earthquake fault zones, and in Miramar, Florida, where there is a risk of hurricanes. ~~new~~We ~~product~~have ~~offerings~~taken precautions to safeguard our facilities, ~~acquisitions~~including insurance, ~~licenses~~health and safety protocols, and off-site storage of computer data. However, any future natural disaster, such as an earthquake or ~~other~~hurricane, ~~significant~~could ~~events~~cause ~~involving~~substantial usdelays in our operations, damage or destroy our ~~competitors;~~equipment or inventory, and cause us to incur additional expenses. A disaster could seriously harm our business and results of operations.

•If ~~increases~~we inare ~~the~~unable ~~costs~~to ofeffectively ~~manufacturing~~manage ~~and~~our ~~selling~~inventory held on consignment by our ~~products;~~intended customers, we will not achieve our expected results.

• A significant portion of our inventory is held on consignment by hospitals that purchase the inventory ~~amount~~as they use it. In these consignment locations, we do not have physical possession of the consigned inventory. We therefore have to rely on information from our customers as well as periodic inspections by our sales personnel to determine when our products have been used. We have in the past experienced problems managing appropriate consigned inventory levels and ~~timing~~as a result we recorded an impairment of inventory for anticipated obsolescence in fiscal 2004 and an impairment of excess inventory in both fiscal 2004 and 2005. If we are not able to effectively manage appropriate consigned inventory levels, we may suffer inventory losses that will reduce our ~~operating~~gross profit ~~expenses;~~levels. There can be no assurance that any efforts to strengthen our monitoring and management of consigned inventory will be adequate to meaningfully reduce the risk of inventory loss.

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

• Our ~~fluctuations~~continued success depends in ~~foreign~~part ~~currency~~upon ~~exchange~~the ~~rates;~~continued availability and contributions of our senior management team and the continued participation of our key clinical advisors. We have entered into agreements with certain members of our senior management team, but none of these agreements guarantee the services of the individual for a specified period of time. We also rely on the skills and talents of our scientific personnel because of the complexity of our products. The loss of members of our senior management, key clinical advisors or scientific personnel, or our inability to attract or retain other qualified personnel or advisors could have a material adverse effect on our results of operations and financial condition.

• We ~~regulatory~~face ~~approvals~~certain ~~and~~litigation ~~legislative~~risks ~~changes~~that ~~affecting~~could ~~the~~harm ~~products we may offer or those of~~ our ~~competitors;~~business.

• At any given time we are likely to have one or more lawsuits filed against us asserting various claims. We have been named as defendant in two putative shareholder class action lawsuits, described above. The results of complex legal proceedings are difficult to predict. Moreover, many of the ~~effect~~complaints filed against us do not specify the amount of ~~competing~~damages ~~technological~~that plaintiffs seek, and ~~market~~we ~~developments;~~therefore are unable to estimate the possible range of damages that might be incurred should these lawsuits be resolved against us. An unfavorable outcome or settlement of one or more of these lawsuits could have a material adverse effect on our financial condition, liquidity and results of operations. Even if these lawsuits are not resolved against us, the uncertainty and

~~• changes in our ability to obtain and maintain FDA and other domestic and foreign regulatory approval or clearance for our products;~~35

35Table of Contents

~~Table~~expense associated with unresolved lawsuits could seriously harm our business, financial condition and reputation. Litigation is costly, time-consuming and disruptive to normal business operations. The costs of ~~Contents~~defending lawsuits have been significant, will continue to be costly and may not be covered by our insurance policies. The defense of these lawsuits could also result in continued diversion of our management’s time and attention away from business operations, which could harm our business.

•The ~~inventory~~medical ~~adjustments~~device weindustry ~~may~~is ~~have~~characterized toby ~~make~~patent litigation, which could be costly, result in ~~any~~the ~~quarter;~~diversion of management’s time and efforts and require us to pay damages.

~~• interruption~~ The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Accordingly, we may in the ~~manufacturing~~future be subject to further litigation and administrative proceedings over such rights with other companies in our industry. Our competitors may assert that at least one of our products, its components, or ~~distribution~~the methods we employ in the use or manufacture of our products; are covered by and infringe the competitors’ United States or foreign patents held by them. In addition, should our patents or applications have claims that encompass the same scope as claims pending or issued to a third party competitor, that third party may claim that its claims have priority over ours because they invented the claimed subject matter first. Because patent applications generally take many years to issue, there may be third party applications presently pending of which we are unaware, that may in the future result in issued patents that at least one of our products, its components, or the methods we employ in the use or manufacture of our product(s) may infringe. There could also be issued patents that one or more components of our products may inadvertently be infringing, of which we are unaware. As the number of participants in the market for cerebral vascular treatments and the number of issued patents in this technology area grows, the possibility of being charged with patent infringement increases.

• Any ~~our~~infringement ~~ability~~claims against us may cause us to ~~maintain~~incur substantial costs, could place a significant strain on our financial resources, divert the attention of management from our core business and ~~expand~~harm our ~~sales~~reputation. ~~force~~If the relevant patent claims are upheld as valid and ~~operational~~enforceable and ~~personnel;~~we are found to infringe, we could be required to pay substantial damages and/or royalties and could be prevented from selling our products unless we could obtain a license or were able to redesign our products to avoid infringement. Any such license may not be available on reasonable terms, if at all. If we fail to obtain any required licenses or make any necessary changes to our products or technologies, we may be unable to commercialize one or more of our products or practice the methods we employ in the use or manufacture of our products.

•Our ~~the~~ ability ~~of our suppliers~~ to ~~timely~~protect ~~provide~~our usintellectual ~~with~~property anand ~~adequate~~proprietary ~~supply~~technology ofthrough ~~materials~~patents and other ~~components;~~means ~~and~~is uncertain.

• Our ~~amount~~success ~~and~~depends ~~timing~~significantly on our ability to procure proprietary rights to the technologies used in our products. We rely on patent protection, as well as a combination of copyright, ~~capital~~trade ~~expenditures~~secret and trademark laws, and nondisclosure, confidentiality and other contractual ~~costs~~restrictions ~~relating~~to protect our proprietary technology. However, these legal means afford only limited protection and may not be sufficient to adequately protect our intellectual property or permit us to gain or keep any ~~potential~~competitive ~~expansion~~advantage. For example, any of our ~~operations~~pending United States or foreign patent applications may ultimately not issue as a patent or, alternatively, may issue with claims that are of little or no value to us. In addition, once issued, a valuable patent may be challenged successfully by third parties and invalidated. In addition, our patent protection for material aspects of our products and methods is presently being pursued with applications that have been filed but not issued, such that these material aspects are not presently protected by patents. Competitors may further be able to get around having to license our technology in order to avoid infringement by designing around our issued and published patent claims, thereby staying clear of our proprietary rights. Similarly, competitors may develop products and methods that are equivalent or superior to ours. Our confidentiality agreements and intellectual property assignment agreements with our employees, consultants and advisors may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States. Both the process of procuring patent rights and the process of managing patent disputes can be time consuming and expensive.

~~Many~~ In of the ~~products~~event wea ~~may~~competitor ~~seek~~infringes toupon ~~develop~~our ~~and~~patent ~~introduce~~or inother ~~the~~intellectual ~~future~~property ~~will require FDA~~rights, ~~approval~~enforcing orthose ~~clearance~~rights ~~and~~may ~~will~~ be ~~required~~difficult toand ~~meet~~time ~~similar~~consuming. ~~regulatory requirements~~Even inif ~~other~~successful, ~~countries~~litigation ~~where we seek~~ to enforce ~~market~~ our ~~products,~~intellectual ~~without which~~property werights ~~cannot~~or ~~begin~~ to ~~commercialize~~defend ~~them. Forecasting the timing of sales of~~ our ~~products~~patents isagainst ~~difficult~~challenge ~~due~~could ~~to the delay inherent in seeking FDA and other~~be ~~clearance or approval~~prolonged, orcostly ~~the~~and ~~failure~~could todivert ~~obtain such clearance or approval. In addition, we will be increasing~~ our ~~operating~~management’s ~~expenses as we build our commercial capabilities~~attention. ~~Accordingly,~~We we may ~~experience~~not ~~significant, unanticipated~~have ~~quarterly~~sufficient ~~losses.~~resources to ~~Because~~enforce ~~of these factors,~~ our ~~operating~~intellectual ~~results in~~property ~~one~~rights or ~~more future quarters may fail~~ to ~~meet~~defend ~~the expectations of securities analysts or investors, which could cause~~ our ~~stock~~patents ~~price~~against toa ~~decline significantly~~challenge.

WeIf ~~may~~we ~~not~~fail ~~be able~~ to ~~develop~~obtain, ~~new~~or experience significant delays in obtaining, FDA clearances or approvals for our future products or product enhancements, ~~that~~or ~~will~~to becomply ~~accepted~~with bysimilar ~~the~~regulatory requirements in other countries where we market our products, our ability to commercially distribute and market our products could suffer.

Our ~~success~~ ~~will~~medical ~~depend~~devices inare ~~part~~subject onto ~~our~~rigorous ~~ability~~regulation toby ~~develop~~the FDA and ~~introduce~~numerous ~~new~~other ~~products~~federal, state and ~~enhancements~~foreign togovernmental ~~our existing products~~authorities. WeOur ~~cannot~~failure ~~assure that we will be able~~ to ~~successfully~~comply ~~develop~~with orsuch ~~market~~regulations ~~new~~could ~~products or that any of our future~~lead ~~products~~to ~~will be accepted by~~ the ~~neurointerventionalists~~imposition ~~who use our products or the payors who reimburse for many~~ of ~~the~~injunctions, ~~procedures~~suspensions ~~performed with our products. The success of any new product offering~~ or ~~enhancement to an existing product~~ ~~will depend on several factors, including:~~

~~• our ability to properly identify and anticipate neurointerventionalist and patient needs;~~36

•Table ourof ability to develop new products or enhancements in a timely manner;Contents

•loss ~~our~~of ~~ability~~regulatory clearances or approvals, product recalls, termination of distribution or product seizures or the need to ~~obtain~~invest substantial resources to comply with various existing or new requirements. In the ~~necessary~~more egregious cases, criminal sanctions, civil penalties, disgorgement of profits or closure of our manufacturing facilities are possible. The process of obtaining regulatory clearances or approvals to market a medical device, particularly from the FDA, can be costly and time consuming, and there can be no assurance that such clearances or approvals will be granted on a timely basis, if at all. In particular, the FDA permits commercial distribution of most new medical devices only after the device has received 510(k) clearance or is the subject of an approved pre-market approval application, or PMA. The FDA will clear the marketing of a medical device through the 510(k) process if it is demonstrated that the new product has the same intended use, is substantially equivalent to another legally marketed device, including a 510(k)-cleared product, and otherwise meets the FDA’s requirements. The PMA approval process is more costly, lengthy and uncertain than the 510(k) clearance process and requires the development and submission of clinical studies supporting the safety and effectiveness of the device. Product modifications may also require the submission of a new 510(k) clearance, or the approval of a PMA before the modified product can be marketed. Changes in labeling and manufacturing site for a PMA approved device may require the submission and approval of a PMA supplement. Any products we develop that require regulatory clearance or approval may be delayed, if approved at all. In addition, we believe that some of our new products will require an approved PMA before we can commercially distribute the device and we cannot assure that any new products or any product enhancements; we develop will be subject to the shorter 510(k) clearance process instead of the more lengthy PMA requirements. Additionally, certain of our products under development may involve both device and drug or biologic regulation and we will need to comply with drug and biologic regulations in addition to medical device requirements.

• Accordingly, ~~our~~we ~~ability~~anticipate tothat ~~provide~~the ~~adequate~~regulatory ~~training~~review toand ~~potential~~approval ~~users~~process for some of our future products; or product enhancements may take significantly longer than anticipated or what we have experienced in the past. We will also be required to pay a medical device user fee and may also be required to pay a drug or biologic user fee. There is no assurance that the FDA will not require that a certain new product or product enhancement go through the lengthy and expensive PMA approval process.

• We ~~our~~have ~~ability~~no experience in obtaining PMA approval. We also have no experience in obtaining drug or biologic approval, and will need to ~~receive~~rely ~~adequate~~on ~~reimbursement~~third party assistance in navigating the regulatory approval pathway for ~~our~~future ~~procedures;~~combination products.

• Further, ~~results~~pursuant ofto ~~clinical~~FDA ~~research~~regulations, ~~and~~we ~~trials~~can ononly market our ~~existing~~products for cleared or approved uses. Certain of our products ~~and~~may be used by physicians for indications other than those cleared or approved by the FDA, but we cannot promote the products infor ~~development;~~such off-label uses.

• Modifications ~~demand~~to ~~for,~~our ~~and~~marketed ~~pricing~~products ofmay require new 510(k) clearances or pre-market approvals, or ~~our~~may require us to cease marketing or recall the modified products; until clearances are obtained.

• Any ~~levels~~modification ofto ~~third~~a 510(k)-~~party~~cleared ~~reimbursement~~device that could significantly affect its safety or effectiveness, or that would constitute a change in its intended use, requires a new 510(k) clearance or, possibly, PMA approval. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review a manufacturer’s decision. The FDA may not agree with any of our past or future decisions regarding whether new clearances or approvals are necessary. If the FDA requires us to seek 510(k) clearance or PMA approval for any modification to a previously cleared product, we may be required to cease marketing and/or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. Further, our products; could be subject to recall if the FDA determines that our products are not safe for any reason including but not limited to new safety data from use of the product, or manufacturing defects. Any recall or FDA requirement that we seek additional approvals or clearances could result in delays, fines, costs associated with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA.

• If we or our ~~ability~~suppliers fail to ~~develop~~comply anwith ~~effective~~the ~~marketing~~FDA’s ~~and~~quality ~~distribution~~system ~~network~~regulations, the manufacture of our products could be delayed.

If We weand doour suppliers are required to comply with the FDA’s quality system regulations, which ~~not~~cover ~~develop~~the ~~new~~methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our products. The FDA enforces these quality system regulations through unannounced inspections. If we or ~~product~~one ~~enhancements~~of inour ~~time~~suppliers tofail ~~meet~~a ~~market~~quality ~~demand~~system regulations inspection or if ~~there~~any corrective action plan is ~~insufficient~~not ~~demand~~sufficient, ~~for~~or is very expensive or time consuming to implement, the manufacture of our products orcould ~~enhancements~~be delayed until satisfactory corrections are made, or in the event we are unable to correct the problems we may not ~~achieve~~ ~~expected~~be ~~revenue~~able ~~levels~~to continue manufacturing and distributing the particular device or devices. Such a delay could potentially disrupt our business, ~~will~~harm ~~suffer~~our reputation and adversely affect our sales and revenues.

~~Our relationships~~ ~~with~~If ~~physicians~~hospitals ~~and~~are ~~other~~unable ~~consultants require~~to usobtain tosufficient ~~comply~~reimbursement for procedures performed with aour products, ~~number~~it ofis ~~United~~unlikely ~~States~~that ~~and~~our ~~international regulations~~products will be widely used.

3637

We Successful ~~are required~~sales toof ~~comply~~our ~~with~~products awill ~~number~~depend ofon ~~United~~the ~~States~~availability ~~and~~of ~~international~~adequate ~~laws and~~reimbursement ~~regulations~~from ~~related~~third-party topayors. ~~our~~Healthcare ~~financial~~institutions ~~relationships~~that ~~with~~purchase ~~physicians~~medical ~~and~~devices ~~other healthcare~~for ~~providers.~~treatment Inof their ~~addition,~~patients wegenerally ~~must~~rely ~~comply~~on ~~with~~third-party ~~the~~payors ~~Foreign~~to ~~Corrupt Practices~~cover ~~Act~~the ~~(“FCPA”)~~use ~~which~~of ~~prohibits~~the ~~United~~product ~~States~~for ~~companies~~the particular orprocedure ~~their agents~~ and ~~employees~~reimburse ~~from~~all ~~providing~~or ~~anything~~part of ~~value~~the tocosts aand ~~foreign~~fees ~~official~~associated ~~for~~with the procedures ~~purposes~~performed ofwith ~~influencing~~these ~~him~~devices. orCurrently, ~~her~~the tocosts ~~help~~of ~~obtain~~our orproducts ~~retain~~distributed ~~business,~~domestically ~~direct~~are ~~business~~being toreimbursed ~~any~~by ~~person~~third orparty ~~corporate~~payors. ~~entity,~~There oris ~~obtain~~no ~~any~~guarantee ~~unfair advantage. While~~that wecoverage ~~have~~and ~~taken~~adequate reimbursement ~~numerous~~will ~~steps~~be toavailable ~~ensure~~in ~~compliance~~the ~~with these~~future ~~laws~~for ~~and~~our ~~regulations,~~existing ~~they~~and/or ~~are~~new ~~subject~~products. toBoth ~~evolving~~public ~~interpretations, making~~and itprivate ~~difficult~~insurance toreimbursement ~~ensure~~plans ~~compliance. If we~~ are ~~found~~central to benew inproduct ~~violation~~acceptance. ~~of any~~Hospitals ofare ~~these~~unlikely to ~~laws~~use orour ~~regulations,~~products weif ~~may~~they ~~face~~do ~~serious~~not ~~consequences,~~receive ~~including civil~~reimbursement ~~and~~adequate ~~criminal~~to ~~penalties~~cover ~~for~~the uscost ~~and~~of our ~~officers and directors, exclusion of our~~ products ~~from government-funded healthcare programs, termination of customer~~ ~~contracts,~~ and ~~reputational~~related ~~harm~~procedures.

In ~~August 2004~~international markets, ~~while~~market ~~reviewing~~acceptance ~~our~~may ~~sales~~depend, ~~and~~in ~~payment procedures~~part, weupon ~~identified~~the ~~certain~~availability of ~~payments~~reimbursement wewithin ~~made~~prevailing tohealthcare ~~physicians~~payment ~~located~~systems. inReimbursement ~~France, Germany, Spain~~ and ~~Turkey~~healthcare ~~that~~payment ~~may~~systems ~~have violated the applicable laws~~ in ~~those~~international ~~foreign~~markets ~~jurisdictions~~vary ~~and~~significantly ~~may possibly~~by ~~have violated laws in Switzerland~~country, ~~where~~and ~~our~~include ~~Swiss~~both ~~subsidiary is~~government ~~located.~~sponsored Wehealthcare ~~are~~and ~~not~~private ~~able~~insurance. toCurrently, ~~determine~~the atcosts ~~this~~of ~~time~~our ~~what~~products ~~penalties or other~~distributed ~~sanctions~~internationally, ifother ~~any,~~than ~~authorities~~ in ~~France,~~some ~~Germany,~~Latin ~~Spain,~~American ~~or Turkey may impose on us~~countries, asare abeing ~~result~~reimbursed ofby ~~such~~public ~~violations. Such amounts could be material to our~~and ~~financial~~private ~~position,~~healthcare ~~results of operations or cash flows~~insurers. We ~~have~~may ~~been notified by the Swiss Federal Prosecutor that it does~~ not ~~intend~~obtain tointernational ~~bring~~reimbursement ~~any~~approvals ~~action~~in ora timely ~~impose~~manner, ~~any~~if ~~penalties~~at onall, usand ~~relating~~our failure to ~~our~~receive ~~activities~~international inreimbursement ~~Switzerland.~~approvals ~~The~~would ~~payments~~negatively ~~were~~impact ~~disclosed~~market toacceptance ~~the United States Department~~ of ~~Justice~~our inproducts ~~2004 and resulted~~ in ~~our~~the ~~entry~~international ~~into~~markets ain ~~Deferred Prosecution Agreement,~~ which ~~is described~~those inapprovals ~~our~~are ~~prior filings with the SEC and which expired in 2008~~sought.

We In ~~operate~~addition, in ~~a highly~~certain ~~competitive~~countries, ~~market~~such ~~segment~~as France, ~~face~~Germany, ~~competition~~China ~~from~~and ~~large~~Japan, ~~well-established~~we are required ~~medical~~to ~~device~~obtain ~~manufacturers~~regulatory ~~with~~clearance ~~significant~~for ~~resources,~~our ~~and~~products ~~may~~to ~~not~~ be ~~able~~eligible tofor reimbursements by third party ~~increase~~payors, ~~penetration~~even inthough ~~our~~reimbursement ~~markets~~for orembolic ~~otherwise~~coiling ~~compete effectively~~procedures is already in place.

~~The market~~ Healthcare ~~for~~costs ~~medical~~have ~~devices~~risen ~~for~~significantly ~~treatment~~over ofthe ~~cerebral~~past ~~vascular~~decade. ~~diseases~~There ~~is intensely~~have ~~competitive,~~been ~~subject~~and continue to ~~rapid~~be ~~change~~proposals by legislators, regulators and ~~significantly~~third-party ~~affected~~payors byto ~~new~~keep these costs down. Certain ~~product~~proposals, ~~introductions~~if ~~and~~passed, ~~other~~may ~~market~~impose ~~activities~~limitations on the amounts of ~~industry~~reimbursement ~~participants.~~available Wefor our ~~compete~~products ~~primarily~~from ~~with~~governmental ~~the~~agencies ~~neurovascular~~or ~~division~~third-party ofpayors, ~~Boston~~or ~~Scientific,~~additional ~~the~~taxes on medical devices. ~~market~~These ~~leader,~~proposals ascould ~~well~~have asa ~~Cordis~~negative ~~Neurovascular,~~impact ~~ev3~~on ~~Neurovascular~~the demand for our products and services, and ~~MicroVention~~therefore on our financial position and results of operations.

At In ~~any time~~March 2010, ~~other~~President ~~companies~~Obama ~~may~~signed ~~develop~~into ~~alternative~~law ~~treatments,~~major ~~products~~health orcare ~~procedures~~reform legislation under the ~~for~~Patient Protection and Affordable Health Care Act of 2010 (the ~~treatment~~“PPACA”), which was modified by the Health Care and Education Reconciliation Act. The PPACA imposes a 2.3% excise tax on domestic sales of ~~cerebral~~medical ~~aneurysms~~devices beginning on January 1, 2013. PPACA also implements provisions that ~~compete~~could ~~directly~~affect the orway ~~indirectly~~in ~~with~~which physicians and hospitals are compensated for performing medical procedures involving our products in the future. IfThe ~~alternative~~PPACA ~~treatments~~also ~~prove~~expands tothe bescope ~~superior~~of tothe ~~our~~Federal ~~microcoil~~False orClaims act and increases fraud and abuse penalties and other ~~products~~government enforcement tools, ~~continued~~which ~~use~~could adversely impact healthcare companies, including us. Various healthcare reform proposals also have emerged at the state level. We cannot predict what healthcare initiatives, if any, will be implemented at the state level or ~~adoption~~the ofexact effect newly enacted laws or any future legislation or regulation will have on us. However, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our products, ~~could~~reduce bemedical ~~negatively affected~~procedure volumes and adversely affect our ~~future~~business ~~revenues~~and results of operations, possibly materially. In addition, the enacted excise tax on medical devices could ~~suffer~~materially and adversely affect our operating results.

~~In addition,~~ Future ~~most~~reimbursement ofmay ~~our~~be ~~current~~subject to increased restrictions both in the United States and ~~potential~~in international ~~competitors~~markets. ~~are~~Third-party ~~either~~reimbursement ~~large~~and coverage may not be available or adequate in ~~publicly~~either ~~traded~~the ~~companies~~United States or ~~divisions~~international markets. Future legislation, regulation or ~~subsidiaries~~reimbursement policies of ~~large~~third-party ~~publicly~~payors ~~traded~~may adversely affect, possibly materially, the demand for our ~~companies~~existing products or our products currently under development and ~~enjoy~~limit ~~several~~our ~~competitive~~ability ~~advantages~~to ~~over~~sell ~~us,~~our ~~including:~~products on a profitable basis.

• Changes ~~greater~~to ~~financial~~existing accounting pronouncements or taxation rules or practices may affect how we conduct our business and ~~personnel~~affect ~~resources;~~our reported results of operations.

• New ~~significantly~~accounting ~~greater~~pronouncements ~~name~~or ~~recognition;~~tax rules and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. A change in accounting pronouncements or interpretations or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. Changes to existing rules and pronouncements, future changes, if any, or the questioning of current practices or interpretations may adversely affect our reported financial results or the way we conduct our business.

• We ~~established~~may ~~relationships~~become ~~with~~subject ~~neurointerventionalists;~~to product liability claims which could require us to pay damages that exceed our insurance coverage.

• Our ~~established~~business ~~distribution~~exposes ~~networks;~~us to potential product liability claims that are inherent in the testing, manufacture and sale of medical devices for neurointerventional procedures. These procedures involve significant risk of serious complications, including intracranial bleeding, brain injury, paralysis and even death. Any product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance rates or the inability to secure coverage in the future. In addition, we

• greater experience in obtaining and maintaining FDA, and other regulatory approvals for products and product enhancements, and greater experience in developing compliance programs for compliance with numerous federal, state, local and similar laws in non-United States jurisdictions;38

•Table greaterof resources for product research and development;Contents

•could ~~greater~~have ~~experience~~to pay an amount in excess of policy limits, which would have to be paid out of cash reserves. If longer-term patient results and ~~resources~~experience ~~for~~indicate that our products or any component cause tissue damage, ~~launching~~motor impairment or other adverse effects, ~~marketing~~we could be subject to significant liability. Finally, ~~distributing~~even ~~and~~a ~~selling~~meritless ~~products;~~or unsuccessful product liability claim could harm our reputation in the industry, lead to significant legal fees and could result in the diversion of management’s attention from managing our business.

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

~~Except for~~ Many of our ~~agreements~~employees ~~with~~were previously employed at other medical device companies, including our ~~distributors~~competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees have nowrongfully ~~material~~used ~~long-term~~or ~~purchase~~disclosed alleged trade ~~agreements~~secrets ~~with~~of ~~our~~their ~~customers,~~former ~~who~~employers or that we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may atbe necessary ~~any~~to ~~time~~defend ~~switch~~against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to ~~the~~management. ~~use~~If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of ~~our~~key research personnel or their work product could hamper ~~competitors’~~or ~~products~~prevent our ability to commercialize product candidates, which could severely harm our business.

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

~~Table~~ The market price of ~~Contents~~our common stock has been and we expect will continue to be highly volatile and may fluctuate substantially due to many factors, including:

~~For~~• ~~these reasons,~~developments werelated ~~may~~to ~~not~~our beannounced ~~able~~definitive toagreement ~~compete~~with ~~successfully~~J&J; ~~against~~• volume and timing of orders for our ~~current~~products; • the outcome of clinical and multi-center trial evidence supporting patient benefits; • the introduction of new products or ~~potential~~ ~~future~~product enhancements by us or our competitors; • disputes or other developments with respect to intellectual property rights; • our ability to develop, obtain regulatory clearance for, and market, new and enhanced products on a timely basis; • product liability claims or other litigation; • quarterly variations in our or our competitors’ results of operations; • sales of large blocks of our common stock, including sales by our executive officers and directors; • changes in governmental regulations or in the status of our regulatory approvals or applications; • changes in the availability of third-party reimbursement in the United States or other countries; • the results of clinical research and trials on our existing products and products in development or those of our competitors; • changes in revenues ~~may decline~~or earnings estimates or recommendations by securities analysts; and • general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

~~Our~~ Furthermore, ~~sales~~to inthe extent there is an inactive market for our common stock, the value of your ~~international~~shares ~~markets~~and ~~subject~~your usability to ~~foreign~~sell ~~currency~~your ~~exchange~~shares ~~and~~at ~~other~~the time you wish to sell them may be impaired. An ~~risks~~inactive market may also impair our ability to raise capital by selling shares and may impair our ~~costs~~ability ~~that~~to ~~could~~acquire ~~harm~~other companies, products or technologies by using our ~~business~~shares as consideration.

A39 substantial portion of our revenues is derived from outside the United States. For the fiscal years ended March 31, 2009, 2008 and 2007, revenues from customers outside the United States represented approximately 50%, 51% and 51%, respectively, of our revenues. For the first nine months of fiscal 2010, revenues from customers outside the United States represented 51% of our revenues. We anticipate that revenues from international customers will continue to represent a substantial portion of our revenues as we continue to expand in new international markets including China and Japan. Because we generate revenues in foreign currencies, we are subject to the effects of exchange rate fluctuations. For the first nine months of fiscal 2010, approximately 31% of our revenues were denominated in currencies other than the U.S. dollar. The functional currency of our Swiss subsidiary is the Swiss franc. The functional currency of our UK subsidiary is the British pound.

In Europe,Table our revenues are denominated in Swiss francs, euros, British pounds and U.S. dollars. Accordingly, we are exposed to market risk related to changes between the Swiss franc and these other currencies in which we conduct business. If the Swiss franc appreciates against the currencies in which our receivables are denominated, we will recognize foreign currency losses. For the preparation of our consolidated financial statements, the financial results of our Swiss and UK subsidiaries are translated into U.S. dollars based on average exchange rates during the applicable period. If the U.S. dollar appreciates against the Swiss franc and British pound, the revenues we recognize from sales by our European subsidiaries will be adversely impacted.Contents

~~Historically,~~ weBecause ~~have~~of ~~also~~their ~~been~~significant ~~exposed~~stock ~~to risks from fluctuations in currency exchange rates due to intercompany loans made to Micrus SA~~ownership, our ~~Swiss~~executive ~~subsidiary~~officers, indirectors ~~2001~~and inprincipal ~~connection~~stockholders ~~with~~may ~~its~~be ~~incorporation.~~able ~~These~~to ~~loans~~exert ~~are~~control ~~denominated~~over ~~in Swiss francs and fluctuate in value against the U.S. dollar, causing~~ us ~~to recognize foreign exchange gains~~ and ~~losses. Foreign exchange gains or losses as a result of exchange rate fluctuations in any given period could harm~~ our ~~operating~~ ~~results~~significant ~~and~~corporate ~~negatively impact our revenues~~decisions. ~~Additionally, if the~~ ~~effective price of our products were to increase as a result of fluctuations in~~ ~~foreign currency exchange rates, demand for our products could decline and~~ ~~adversely affect our results of operations and financial condition.~~

~~We entered~~ Based ~~into~~on ~~foreign~~shares ~~currency~~outstanding ~~forward~~at ~~contracts~~June 30, to2010, ~~buy~~our ~~U.S.~~executive ~~dollars~~officers, todirectors, ~~minimize~~and ~~the~~stockholders ~~impact~~holding more than 5% of ~~the~~our ~~currency~~outstanding ~~movements~~common onstock ~~intercompany~~and ~~payables~~their ~~for~~affiliates, in the aggregate, beneficially owned approximately 40.8% of our ~~Micrus~~outstanding ~~SA subsidiary~~common stock. WeAs ~~use~~a ~~derivative~~result, these ~~instruments~~stockholders, ~~only~~acting ~~for~~together, ~~risk~~may ~~management~~have ~~purposes~~the ~~and do~~ability ~~not~~to ~~use~~determine ~~them~~the ~~for~~outcome ~~speculation~~of ormatters submitted to our stockholders for ~~trading. Our~~approval, ~~hedging~~including ~~activities involve~~the ~~risk~~election and ~~may~~removal ~~not~~of ~~limit~~directors ~~our~~and ~~underlying~~any merger, ~~exposure~~consolidation, ~~from~~or ~~currency fluctuations~~sale of all or ~~minimize~~substantially all of our ~~net~~assets. ~~sales~~This ~~and~~concentration ~~earnings~~of ownership ~~volatility~~may ~~associated~~harm ~~with foreign~~the ~~currency~~market ~~exchange~~price ~~rate~~of ~~changes.~~our common stock by, among other things:

We• ~~are subject~~delaying, todeferring ~~various~~or ~~additional~~preventing ~~risks~~a aschange ain ~~consequence~~control of ~~doing~~our ~~business internationally~~company; ~~which~~• ~~could~~impeding ~~harm~~a ~~our~~merger, ~~business~~consolidation, ~~including~~takeover or other business combination involving our company; or • causing us to enter into transactions or agreements that are not in the ~~following:~~ best interests of all stockholders.

• Future ~~unexpected~~sales ~~delays~~of orour ~~changes~~common instock ~~regulatory~~may ~~requirements;~~depress our stock price.

• Our ~~local~~current ~~economic~~stockholders ~~and~~hold ~~political~~a ~~instability~~substantial number of shares of our common stock that they are able to sell in the public market. A significant portion of these shares are held by a small number of stockholders. Sales by our current stockholders of a substantial number of shares could significantly reduce the market price of our common stock. Moreover certain holders of our common stock have the right to require us to file registration statements covering their shares or ~~other~~to include ~~potentially~~their ~~adverse~~shares ~~conditions;~~in registration statements that we may file for ourselves or other stockholders.

• We ~~lack~~have registered 8,527,739 shares of ~~experience~~common stock that we may issue under our 1998 Stock Plan (“1998 Plan”), 2005 Equity Incentive Plan (“2005 Plan”) and 2005 Employee Stock Purchase Plan (“Purchase Plan”). These shares can be freely sold in ~~certain~~the ~~geographical~~public ~~markets;~~market upon issuance. The sale by any of these holders of a large number of securities in the public market could reduce the trading price of our common stock and impede our ability to raise future capital.

• We ~~increased~~do ~~difficulty~~not inintend ~~collecting~~to ~~accounts~~pay ~~receivables~~cash ~~in certain foreign countries;~~dividends.

• We ~~delays~~have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and ~~expenses~~any ~~associated~~future ~~with~~earnings ~~tariffs~~for us in the operation and ~~other~~expansion ~~trade~~of ~~barriers;~~our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of any future debtor credit facility may preclude us from paying any dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain for the foreseeable future.

• We ~~difficulties~~may ~~and~~become ~~costs~~involved ~~associated~~in ~~with~~securities ~~attracting~~class ~~and~~action ~~maintaining~~litigation ~~third~~that ~~party~~could ~~distributors;~~divert management’s attention and harm our business.

• The ~~compliance~~stock ~~with~~market ~~foreign~~in ~~laws~~general, The NASDAQ Stock Market and ~~regulations;~~the market for medical device companies in particular, continues to experience extreme price and volume fluctuations that are unrelated or disproportionate to companies’ operating performance. Further, the market prices of securities of medical device companies have been particularly volatile. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could materially harm our financial condition and results of operations.

•Item 2. ~~adverse~~Unregistered ~~tax~~Sales ~~consequences~~of orEquity ~~overlapping~~Securities ~~tax~~and ~~structures.~~Use of Proceeds

38None.

~~Table~~Item 3. ofDefaults ~~Contents~~Upon Senior Securities

~~If we fail to increase our direct sales force in a timely manner, our business could suffer~~None.

~~We have a limited domestic and international direct sales force~~Item 4. ~~We also have a~~Reserved distribution network for sales in the major markets in Europe, Latin America, Asia Pacific and the Middle East. As we launch new products and increase our marketing efforts with respect to existing products, we will need to expand the number of our direct sales personnel on a worldwide basis. The establishment and development of a more extensive sales force will be expensive and time-consuming. There is significant competition for sales personnel experienced in interventional medical device sales. If we are unable to attract, motivate and retain qualified sales personnel and thereby increase our sales force, we may not be able to increase our revenues.

~~If we fail to properly manage our anticipated growth, our business could suffer~~None.

~~We have~~40 experienced, and may continue to experience, periods of rapid growth and expansion, which have placed, and will likely continue to place, a significant strain on our limited personnel and other resources. In particular, the expansion of our fabrication facility and the continuing expansion of our direct sales force will require significant management, technical and administrative resources. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals.

To achieveTable ourof revenue goals, we must successfully increase production in our fabrication facility as required by customer demand. We may in the future experience difficulties in increasing production, including problems with production yields and quality control and assurance and in satisfying and maintaining compliance with regulatory requirements. These problems could result in delays in product availability and increases in expenses. Any such delay or increased expense could adversely affect our ability to generate revenues.Contents

~~Future growth will also impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees~~Item 5. InOther ~~addition, rapid and significant growth will place a strain on our~~Information administrative and operational infrastructure. In order to manage our operations and growth, we will need to continue to improve our operational, financial and management controls, reporting systems and procedures. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our operating results and business could suffer.

~~We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act and are exposed to future risks of non-compliance~~None.

~~Pursuant to Section~~Item ~~404 of the Sarbanes-Oxley Act (“Section 404”), we are required to furnish a report by our management on our internal control over financial reporting~~6. ~~The report contains, among other matters, an assessment of~~Exhibits the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. The report must also contain a statement that our independent registered public accounting firm has issued an attestation report on the effectiveness of internal control over financial reporting.

~~We completed~~See ~~our assessment of our internal control over financial reporting as required by Section 404 for~~ the ~~fiscal~~Index year ended March 31, 2009. Our assessment, testing and evaluation resulted in our conclusion that as of March 31, 2009, our internal control over financial reporting was effective. Our independent registered accounting firm has also expressed the opinion that our internal controls over financial reporting were effective during that period. However, our controls may not prove to beExhibits ~~adequate~~on ~~for future~~Page ~~periods,~~43 ~~and we cannot predict the outcome~~ of ~~our~~this ~~testing in future periods~~report. ~~If our internal controls are deemed to be ineffective in future~~ periods, our financial results and the market price of our stock could be adversely affected. In any event, we will incur additional expenses and commitment of management’s time in connection with further evaluations, which may adversely affect our future operating results and financial condition.

~~Our future~~41 ~~capital needs are uncertain and we may need to raise additional funds in the future, and such funds may not be available on acceptable terms or at all.~~

We believeTable that our current cash position, together with the cash to be generated from expected product sales and the funds available under our credit facility (subject to compliance with conditions and covenants of the Credit Agreement) will be sufficient to meet our projected operating requirements for at least the next twelve months. However, after such period we may be required to seek additional funds from public and private stock or debt offerings, borrowings under lease lines or other sources. Our capital requirements will depend on many factors, including:Contents

39SIGNATURES

~~Table~~Pursuant to the requirements of ~~Contents~~the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

• the revenues generated by sales of our products;


	MICRUS ENDOVASCULAR CORPORATION
Date: August 6, 2010	By:	/s/ John T. Kilcoyne
		John T. Kilcoyne
		Chairman and Chief Executive Officer


Date: August 6, 2010	By:	/s/ Gordon T. Sangster
		Gordon T. Sangster
		Chief Financial Officer

~~• the costs associated with expanding our sales and marketing efforts;~~42

•Table theof expenses we incur in manufacturing and selling our products;Contents

•INDEX ~~the~~TO ~~costs of developing and acquiring new products or technologies;~~EXHIBITS

• the cost of obtaining and maintaining FDA and other domestic and foreign approval or clearance of our products and products in development;


Exhibit
Number		Description
3.1		Certificate of Incorporation (incorporated by reference to Exhibit 3.2 of Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 filed on May 17, 2005 Registration No. 333-123154) (“Amendment No. 3”)

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 of Amendment No. 3)

4.1		Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 filed on March 4, 2005 (Registration No. 333-123154) (“Form S-1”)

4.2		Warrant dated as of December 11, 2000 among the Registrant and Roberts Mitani Capital, LLC (incorporated by reference to Exhibit 4.2 of Form S-1)

4.3		Amended and Restated Stockholders’ Rights Agreement dated as of February 21, 2005 among the Registrant and the parties listed therein (incorporated by reference to Exhibit 4.3 of Form S-1)

4.4		Form of Common Stock Warrant issued in connection with the Series E Preferred Stock and Warrant Purchase Agreement dated February 21, 2005, among the Registrant and the purchasers of the Registrant’s Series E Preferred Stock (incorporated by reference to Exhibit 4.4 of Form 10-Q filed on February 14, 2006)

31.1#		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2#		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32#		Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

•# ~~the~~Filed ~~expenses we incur related to compliance with the United States FCPA and laws and regulations in non-United States jurisdictions;~~herewith

~~• costs associated with compliance with the Sarbanes-Oxley Act and rules and regulations affecting public companies promulgated by the SEC and The NASDAQ Stock Market;~~43

• the costs associated with our facilities expansion, if any; and

• the costs associated with increased capital expenditures.

As a result of these factors, we may need to raise additional funds, and such funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. In these events, our ability to achieve our development and commercialization goals would be adversely affected.

We face a risk of non-compliance with certain financial covenants in our credit agreement with Wells Fargo Bank.

On November 5, 2008, we entered into a Credit Agreement with Wells Fargo Bank to provide us with a revolving line of credit. The Credit Agreement provides for maximum borrowings outstanding at any time in an amount of up to $15.0 million. As of December 31, 2009, we had outstanding borrowings of $2.5 million under the Credit Agreement. If borrowings under the Credit Agreement exceed $7.5 million, all borrowings are subject to a borrowing base which is based on eligible accounts receivable.

Borrowings are secured by a first priority security interest in all of our assets (except for certain permitted liens that are senior to the Wells Fargo Bank’s security interest). At our option, borrowings bear interest at either 2.25% over the bank’s prime rate or 3.50% over the one-month, two-month or three-month LIBOR. The interest rate on the borrowings as of December 31, 2009 was 4.3%. The Credit Agreement requires that we comply with certain financial and other covenants for borrowings to be permitted. The more significant financial covenants include (i) maintaining a minimum modified quick ratio and (ii) achieving not more than a certain amount of loss through March 31, 2009, and thereafter a minimum profitability, in each case excluding certain non-cash items. On May 20, 2009, we amended the Credit Agreement with Wells Fargo Bank extending the maturity date to August 1, 2010 and adjusting the minimum limits for the financial covenants based on our financial forecast for fiscal 2010.

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Although we were in compliance with all covenants at December 31, 2009, it is possible that we may not be in compliance or may fail to comply with certain covenants or other agreements in the future. If we are unable to meet the financial or other covenants under the Credit Agreement or negotiate future waivers or amendments of such covenants, an event of default could occur under the Credit Agreement. Upon the occurrence and during the continuance of an event of default under the Credit Agreement, Wells Fargo Bank has available a range of remedies customary in these circumstances, including without limitation declaring all outstanding debt, together with accrued and unpaid interest thereon, to be immediately due and payable, foreclosing on the assets securing the obligations arising under the Credit Agreement and/or ceasing to provide additional revolving loans, which could have a material adverse effect on us.

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

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing customer demands, competitive pressures and technologies. We may in the future pursue the acquisition of additional complementary businesses, products or technologies instead of developing them ourselves. We do not know if we will be able to successfully complete any such acquisitions, or whether we will be able to successfully integrate any acquired business, product or technology or retain any key employees. Integrating any business, product or technology we acquire could be expensive and time-consuming, disrupt our ongoing business and distract our management. If we are unable to integrate the acquired businesses, products or technologies effectively, our business will suffer. In addition, any amortization or charges resulting from the costs of acquisitions could harm our business and operating results.

Our operations are subject to environmental, health and safety, and other laws and regulations, with which compliance is costly and which expose us to penalties for non-compliance.

Our business, properties and products are subject to foreign, federal, state and local laws and regulations relating to the protection of the environment, natural resources and worker health and safety and the use, management, storage, and disposal of hazardous substances, wastes, and other regulated materials. Because we operate real property, various environmental laws may also impose liability on us for the costs of cleaning up and responding to hazardous substances that may have been released on our property, including releases unknown to us. These environmental laws and regulations could also require us to pay for environmental remediation and response costs at third-party locations where we disposed of or recycled hazardous substances. The costs of complying with these various environmental requirements, as they now exist or may be altered in the future, could adversely affect our financial condition and operating results.

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

We rely on third-party suppliers for components and materials used in our products and rely on single sources for many of the microcoil and delivery system components, including tubing and connectors. Our dependence on third-party suppliers involves several risks, including limited control over pricing, availability, quality, delivery schedules and supplier compliance with regulatory requirements. Any delays in delivery of such components or provision of such services or shortages of such components could cause delays in the shipment of our products, which could significantly harm our business. We generally acquire our single source components pursuant to purchase orders placed in the ordinary course of business, and we have no guaranteed supply arrangements with any of our single source suppliers. Because of our reliance on these vendors, we may also be subject to increases in component costs. These increases could significantly harm our business. For us to be successful, our third-party suppliers must also be able to provide us with the materials and components of our products in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable cost and on a timely basis. Our anticipated growth may strain the ability of suppliers to deliver an increasingly large supply of materials and components.

If we are unable to obtain sufficient quantities of high quality components and materials to meet customer demand on a timely basis, we could lose customers, our reputation may be harmed and our business could suffer. If any one or more of our third-party suppliers cease to provide us with sufficient quantities of our materials or components in a timely manner or on terms acceptable to us, we would have to seek alternative sources of supply. We could incur delays while we locate and engage alternative qualified suppliers and we might be unable to engage alternative suppliers on favorable terms. Any such disruption or increased expenses could harm our commercialization efforts and adversely affect our ability to generate revenues.

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We rely on independent contract manufacturers for the manufacture and assembly of certain of our products and components. Reliance on independent contract manufacturers involves several risks, including the potential inadequacy of capacity, the unavailability of or interruptions in access to certain process technologies and reduced control over product quality, compliance with regulatory requirements, delivery schedules, manufacturing yields and costs. Such manufacturers have possession of and at times title to molds for certain manufactured components of our products. Shortages of raw materials, production capacity constraints or delays by our contract manufacturers could negatively affect our ability to meet our production obligations and result in increased prices for affected parts. Any such reduction, constraint or delay may result in delays in shipments of our products or increases in the prices of components, either of which could have a material adverse effect on our business, operating results and financial condition. We have no supply agreements with our current contract manufacturers and utilize purchase orders which are subject to supplier acceptance. The unanticipated loss of any of our contract manufacturers could cause delays in our ability to deliver our products while we identify and qualify a replacement manufacturer. If our current or future independent contract manufacturers are unable to meet our requirements for manufactured components, our business could suffer.

Our operations are currently conducted at several locations that may be at risk from earthquakes or other natural disasters.

We currently conduct our manufacturing, development and management activities at two locations in Silicon Valley, California, near known earthquake fault zones, and in Miramar, Florida, where there is a risk of hurricanes. We have taken precautions to safeguard our facilities, including insurance, health and safety protocols, and off-site storage of computer data. However, any future natural disaster, such as an earthquake or hurricane, could cause substantial delays in our operations, damage or destroy our equipment or inventory, and cause us to incur additional expenses. A disaster could seriously harm our business and results of operations.

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

A significant portion of our inventory is held on consignment by hospitals that purchase the inventory as they use it. At these consignment locations, we do not have physical possession of the consigned inventory. We therefore have to rely on information from our customers as well as periodic inspections by our sales personnel to determine when our products have been used. We have in the past experienced problems managing appropriate consigned inventory levels and as a result we recorded an impairment of inventory for anticipated obsolescence in fiscal 2004 and an impairment of excess inventory in both fiscal 2004 and 2005. If we are not able to effectively manage appropriate consigned inventory levels, we may suffer inventory losses that will reduce our gross profit levels. There can be no assurance that any efforts to strengthen our monitoring and management of consigned inventory will be adequate to meaningfully reduce the risk of inventory loss.

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

Our continued success depends in part upon the continued availability and contributions of our senior management team and the continued participation of our key clinical advisors. We have entered into agreements with certain members of our senior management team, but none of these agreements guarantee the services of the individual for a specified period of time. We also rely on the skills and talents of our scientific personnel because of the complexity of our products. The loss of members of our senior management, key clinical advisors or scientific personnel, or our inability to attract or retain other qualified personnel or advisors could have a material adverse effect on our results of operations and financial condition.

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

The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Accordingly, we may in the future be subject to further litigation and administrative proceedings over such rights with other companies in our industry. Our competitors may assert that at least one of our products, its components, or the methods we employ in the use or manufacture of our products are covered by and infringe the competitors’ United States or foreign patents held by them. In addition, should our patents or applications have claims that encompass the same scope as claims pending or issued to a third party competitor, that third party may claim that its claims have priority over ours because they invented the claimed subject matter first. Because patent applications generally take many years to issue, there may be third party applications presently pending of which we are unaware, that may in the future result in issued patents that at least one of our products, its components, or the methods we employ in the use or manufacture of our product(s) may infringe. There could also be issued patents that one or more components of our products may inadvertently be infringing, of which we are unaware. As the number of participants in the market for cerebral vascular treatments and the number of issued patents in this technology area grows, the possibility of being charged with patent infringement increases.

Any infringement claims against us may cause us to incur substantial costs, could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation. If the relevant patent claims are upheld as valid and enforceable and we are found to infringe, we could be required to pay substantial damages and/or royalties and could be prevented from selling our products unless we could obtain a license or were able to redesign our products to avoid infringement. Any such license may not be available on reasonable terms, if at all. If we fail to obtain any required licenses or make any necessary changes to our products or technologies, we may be unable to commercialize one or more of our products or practice the methods we employ in the use or manufacture of our products.

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

Our success depends significantly on our ability to procure proprietary rights to the technologies used in our products. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not be sufficient to adequately protect our intellectual property or permit us to gain or keep any competitive advantage. For example, any of our pending United States or foreign patent applications may ultimately not issue as a patent or, alternatively, may issue with claims that are of little or no value to us. In addition, once issued, a valuable patent may be challenged successfully by third parties and invalidated. In addition, our patent protection for material aspects of our products and methods is presently being pursued with applications that have been filed but not issued, such that these material aspects are not presently protected by patents. Competitors may further be able to get around having to license our technology in order to avoid infringement by designing around our issued and published patent claims, thereby staying clear of our proprietary rights. Similarly, competitors may develop products and methods that are equivalent or superior to ours. Our confidentiality agreements and intellectual property assignment agreements with our employees, consultants and advisors may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States. Both the process of procuring patent rights and the process of managing patent disputes can be time-consuming and expensive.

In the event a competitor infringes upon our patent or other intellectual property rights, enforcing those rights may be difficult and time-consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be prolonged, costly and could divert our management’s attention. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against a challenge.

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

Our medical devices are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. Our failure to comply with such regulations could lead to the imposition of injunctions, suspensions or loss of regulatory clearances or approvals, product recalls, termination of distribution or product seizures or the need to invest substantial resources to comply with various existing or new requirements. In the more egregious cases, criminal sanctions, civil penalties, disgorgement of profits or closure of our manufacturing facilities are possible. The process of obtaining regulatory clearances or approvals to market a medical device, particularly from the FDA, can be costly and time-consuming, and there can be no assurance that such clearances or approvals will be granted on a timely basis, if at all. In particular, the FDA permits commercial distribution of most new medical devices only after the device has received 510(k) clearance or is the subject of an approved pre-market approval application, or PMA. The FDA will clear the marketing of a medical device through the 510(k) process if it is demonstrated that the new product has the same intended use, is substantially equivalent to another legally marketed device, including a 510(k)-cleared product, and otherwise meets the FDA’s requirements. The PMA approval process is more costly, lengthy and uncertain than the 510(k) clearance process and requires the development and submission of clinical studies supporting the safety and effectiveness of the device. Product modifications may also require the submission of a new 510(k) clearance, or the approval of a PMA before the modified product can be marketed. Changes in labeling and manufacturing site for a PMA approved device may require the submission and approval of a PMA supplement. Any products we develop that require regulatory clearance or approval may be delayed, if approved at all. In addition, we believe that some of our new products will require an approved PMA before we can commercially distribute the device and we cannot assure that any new products or any product enhancements we develop will be subject to the shorter 510(k) clearance process instead of the more lengthy PMA requirements. Additionally, certain of our products under development may involve both device and drug or biologic regulation and we will need to comply with drug and biologic regulations in addition to medical device requirements. Accordingly, we anticipate that the regulatory review and approval process for some of our future products or product enhancements may take significantly longer than anticipated or what we have experienced in the past. We will also be required to pay a medical device user fee and may also be required to pay a drug or biologic user fee. There is no assurance that the FDA will not require that a certain new product or product enhancement go through the lengthy and expensive PMA approval process. We have no experience in obtaining PMA approval. We also have no experience in obtaining drug or biologic approval, and will need to rely on third party assistance in navigating the regulatory approval pathway for future combination products.

Further, pursuant to FDA regulations, we can only market our products for cleared or approved uses. Certain of our products may be used by physicians for indications other than those cleared or approved by the FDA, but we cannot promote the products for such off-label uses.

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

Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a change in its intended use, requires a new 510(k) clearance or, possibly, PMA approval. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review a manufacturer’s decision. The FDA may not agree with any of our past or future decisions regarding whether new clearances or approvals are necessary. If the FDA requires us to seek 510(k) clearance or PMA approval for any modification to a previously cleared product, we may be required to cease marketing and/or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. Further, our products could be subject to recall if the FDA determines that our products are not safe for any reason including but not limited to new safety data from use of the product, or manufacturing defects. Any recall or FDA requirement that we seek additional approvals or clearances could result in delays, fines, costs associated with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA.

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

We and our suppliers are required to comply with the FDA’s quality system regulations, which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our products. The FDA enforces these quality system regulations through unannounced inspections. If we or one of our suppliers fail a quality system regulations inspection or if any corrective action plan is not sufficient, or is very expensive or time-consuming to implement, the manufacture of our products could be delayed until satisfactory corrections are made, or in the event we are unable to correct the problems we may not be able to continue manufacturing and distributing the particular device or devices. Such a delay could potentially disrupt our business, harm our reputation and adversely affect our sales and revenues.

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

Successful sales of our products will depend on the availability of adequate reimbursement from third-party payors. Healthcare institutions that purchase medical devices for treatment of their patients generally rely on third-party payors to cover the use of the product for the particular procedure and reimburse all or part of the costs and fees associated with the procedures performed with these devices. Currently, the costs of our products distributed domestically are being reimbursed by third party payors. There is no guarantee that coverage and adequate reimbursement will be available in the future for our existing and/or new products. Both public and private insurance reimbursement plans are central to new product acceptance. Hospitals are unlikely to use our products if they do not receive reimbursement adequate to cover the cost of our products and related procedures.

In international markets, market acceptance may depend, in part, upon the availability of reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country, and include both government sponsored healthcare and private insurance. Currently, the costs of our products distributed internationally, other than in some Latin American countries, are being reimbursed by public and private healthcare insurers. We may not obtain international reimbursement approvals in a timely manner, if at all, and our failure to receive international reimbursement approvals would negatively impact market acceptance of our products in the international markets in which those approvals are sought.

In addition, in certain countries, such as France, Germany, China and Japan, we are required to obtain regulatory clearance for our products to be eligible for reimbursements by third party payors, even though reimbursement for embolic coiling procedures is already in place.

Healthcare costs have risen significantly over the past decade. There have been and continue to be proposals by legislators, regulators and third-party payors to keep these costs down. Certain proposals, if passed, may impose limitations on the amounts of reimbursement available for our products from governmental agencies or third-party payors, or additional taxes on medical devices. These proposals could have a negative impact on the demand for our products and services, and therefore on our financial position and results of operations.

On November 7, 2009, the U.S. House of Representatives passed the Affordable Health Care for America Act, and on December 24, 2009, the U.S. Senate passed the Patient Protection and Affordable Care Act. We cannot predict whether legislation will be enacted, the final form any legislation might take or the effects of such legislation. The current versions of both the House and Senate proposals would impose significant new taxes on medical device makers. These taxes, if implemented, would result in a significant increase in our tax burden, which could have a material, negative impact on our results of operations and our cash flows. Legislation under consideration in the U.S. Congress would, if enacted, also impose new payroll taxes, excise taxes, income taxes and other taxes; provide for taxes/fees based upon domestic sales of devices; implement changes to Medicare and Medicaid; establish a government health insurance option and allow the government to mandate minimum levels of coverage and make comparative effectiveness recommendations.

We are unable to predict what healthcare reform legislation or regulations, if any, will be enacted in the United States or elsewhere; whether other healthcare legislation or regulations affecting our business may be proposed or enacted in the future; what effect any such legislation or regulation would have on our business; or the effect ongoing uncertainty surrounding these matters will have on our customer’s purchasing decisions.

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Future reimbursement may be subject to increased restrictions both in the United States and in international markets. Third-party reimbursement and coverage may not be available or adequate in either the United States or international markets. Future legislation, regulation or reimbursement policies of third-party payors may adversely affect, possibly materially, the demand for our existing products or our products currently under development and limit our ability to sell our products on a profitable basis.

Changes to existing accounting pronouncements or taxation rules or practices may affect how we conduct our business and affect our reported results of operations.

New accounting pronouncements or tax rules and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. A change in accounting pronouncements or interpretations or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. Changes to existing rules and pronouncements, future changes, if any, or the questioning of current practices or interpretations may adversely affect our reported financial results or the way we conduct our business. As discussed above, the pending U.S. healthcare reform bills contain a tax on medical device firms that, if implemented, could require us to pay significant additional taxes on our annual revenues, which could adversely impact our results of operations and cash flows, possibly materially.

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

Our business exposes us to potential product liability claims that are inherent in the testing, manufacture and sale of medical devices for neurointerventional procedures. These procedures involve significant risk of serious complications, including intracranial bleeding, brain injury, paralysis and even death. Any product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance rates or the inability to secure coverage in the future. In addition, we could have to pay an amount in excess of policy limits, which would have to be paid out of cash reserves. If longer-term patient results and experience indicate that our products or any component cause tissue damage, motor impairment or other adverse effects, we could be subject to significant liability. Finally, even a meritless or unsuccessful product liability claim could harm our reputation in the industry, lead to significant legal fees and could result in the diversion of management’s attention from managing our business.

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

Many of our employees were previously employed at other medical device companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees have wrongfully used or disclosed alleged trade secrets of their former employers or that we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could severely harm our business.

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

The market price of our common stock has been and we expect will continue to be highly volatile and may fluctuate substantially due to many factors, including:

• volume and timing of orders for our products;

• the introduction of new products or product enhancements by us or our competitors;

• disputes or other developments with respect to intellectual property rights;

• our ability to develop, obtain regulatory clearance for, and market, new and enhanced products on a timely basis;

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• product liability claims or other litigation;

• quarterly variations in our or our competitors’ results of operations;

• sales of large blocks of our common stock, including sales by our executive officers and directors;

• changes in governmental regulations or in the status of our regulatory approvals or applications;

• changes in the availability of third-party reimbursement in the United States or other countries;

• changes in revenues or earnings estimates or recommendations by securities analysts; and

• general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

Furthermore, to the extent there is an inactive market for our common stock, the value of your shares and your ability to sell your shares at the time you wish to sell them may be impaired. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies, products or technologies by using our shares as consideration.

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

Based on shares outstanding at December 31, 2009, our executive officers, directors, and stockholders holding more than 5% of our outstanding common stock and their affiliates, in the aggregate, beneficially owned approximately 38% of our outstanding common stock. As a result, these stockholders, acting together, may have the ability to determine the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets. This concentration of ownership may harm the market price of our common stock by, among other things:

• delaying, deferring or preventing a change in control of our company;

• impeding a merger, consolidation, takeover or other business combination involving our company; or

• causing us to enter into transactions or agreements that are not in the best interests of all stockholders.

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

Our current stockholders hold a substantial number of shares of our common stock that they are able to sell in the public market. A significant portion of these shares are held by a small number of stockholders. Sales by our current stockholders of a substantial number of shares could significantly reduce the market price of our common stock. Moreover certain holders of our common stock have the right to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

We have registered 8,527,739 shares of common stock that we may issue under the 1998 Plan, 2005 Plan and Purchase Plan. These shares can be freely sold in the public market upon issuance. The sale by any of these holders of a large number of securities in the public market could reduce the trading price of our common stock and impede our ability to raise future capital.

We do not intend to pay cash dividends.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for us in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of any future debtor credit facility may preclude us from paying any dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain for the foreseeable future.

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

The stock market in general, The NASDAQ Stock Market and the market for medical device companies in particular, continues to experience extreme price and volume fluctuations that are unrelated or disproportionate to companies’ operating performance. Further, the market prices of securities of medical device companies have been particularly volatile. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could materially harm our financial condition and results of operations.

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

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions:

• authorize the issuance of preferred stock which can be created and issued by the board of directors without prior stockholder approval, with rights senior to those of the common stock;

• provide for a classified board of directors, with each director serving a staggered three-year term;

• prohibit our stockholders from filling board vacancies, calling special stockholder meetings, or taking action by written consent;

• prohibit our stockholders from making certain changes to our amended and restated certificate of incorporation or amended and restated bylaws except with 66 2/3% stockholder approval; and

• require advance written notice of stockholder proposals and director nominations.

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

See the Index to Exhibits on Page 51 of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MICRUS ENDOVASCULAR CORPORATION
Date: February 5. 2010	By:	/s/ John T. Kilcoyne
		John T. Kilcoyne
		Chairman and Chief Executive Officer
Date: February 5, 2010	By:	/s/ Gordon T. Sangster
		Gordon T. Sangster
		Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit
Number		Description
3.1		Certificate of Incorporation (incorporated by reference to Exhibit 3.2 of Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 filed on May 17, 2005 Registration No. 333-123154) (“Amendment No. 3”)
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 of Amendment No. 3)
4.1		Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 filed on March 4, 2005 (Registration No. 333-123154) (“Form S-1”)
4.2		Warrant dated as of December 11, 2000 among the Registrant and Roberts Mitani Capital, LLC (incorporated by reference to Exhibit 4.2 of Form S-1)
4.3		Amended and Restated Stockholders’ Rights Agreement dated as of February 21, 2005 among the Registrant and the parties listed therein (incorporated by reference to Exhibit 4.3 of Form S-1)
4.4		Form of Common Stock Warrant issued in connection with the Series E Preferred Stock and Warrant Purchase Agreement dated February 21, 2005, among the Registrant and the purchasers of the Registrant’s Series E Preferred Stock (incorporated by reference to Exhibit 4.4 of Form 10-Q filed on February 14, 2006)
31.1#		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32#		Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________

# Filed herewith

Filing Compare · MICRUS ENDOVASCULAR CORP