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INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on January 28, 2015

Registration No. 333-201322


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 2
to

FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933



AVINGER, INC.
(Exact name of Registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  3841
(Primary Standard Industrial
Classification Code Number)
  20-8873453
(I.R.S. Employer
Identification Number)

400 Chesapeake Drive
Redwood City, California 94063
(650) 241-7900

(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)



Jeffrey M. Soinski
Chief Executive Officer
Avinger, Inc.
400 Chesapeake Drive
Redwood City, CA 94063
(650) 241-7900
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Philip H. Oettinger
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300

 

Timothy R. Curry
Ruben A. Garcia
Jones Day
1755 Embarcadero Road
Palo Alto, CA 94303
(650) 739-3939



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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 one):

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  o
(Do not check if a
smaller reporting company)
  Smaller reporting company  ý



           The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated January 28, 2015

LOGO

4,615,384 Shares

Avinger, Inc.

Common Stock



       We are offering 4,615,384 shares of common stock. This is our initial public offering and no public market currently exists for our common stock. We anticipate the initial public offering price will be between $12 and $14 per share.

       We expect our common stock to be quoted on The NASDAQ Stock Market under the symbol "AVGR."



        We are an "emerging growth company" and a "smaller reporting company" as defined under the federal securities laws. Investing in our common stock involves a high degree of risk. Please see the section entitled "Risk Factors" starting on page 11 to read about risks you should consider carefully before buying shares of our common stock.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



 
  Per Share   Total  

Initial Public Offering Price

  $     $    

Underwriting Discount (1)

  $     $    

Proceeds to Avinger, Inc. 

  $     $    

(1)
See the section titled "Underwriting" for a description of the compensation payable to the underwriters.

       We have granted the underwriters a 30-day option to purchase up to an additional 692,307 shares of common stock at the initial public offering price, less the underwriting discount, to cover over-allotments.

       The underwriters expect to deliver the shares on or about            , 2015.




Joint Book-Running Managers

Canaccord Genuity   Cowen and Company


Co- Managers

Oppenheimer & Co.   BTIG   Stephens Inc.

   

The date of this prospectus is        , 2015


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GRAPHIC


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TABLE OF CONTENTS

Section
  Page

Prospectus Summary

  1

Risk Factors

  11

Cautionary Notes Regarding Forward-Looking Statements

  42

Market, Industry and Other Data

  44

Use of Proceeds

  45

Dividend Policy

  46

Capitalization

  47

Dilution

  49

Selected Financial Data

  52

Management's Discussion and Analysis of Financial Condition and Results of Operations

  54

Business

  73

Management

  101

Executive Compensation

  113

Certain Relationships and Related Transactions

  126

Principal Stockholders

  130

Underwriting

  133

Description of Capital Stock

  141

Shares Eligible for Future Sale

  147

Material U.S. Federal Income and Estate Tax Consequences for Non-U.S. Holders of Our Common Stock

  150

Legal Matters

  154

Experts

  154

Where You Can Find More Information

  154

Index to Financial Statements

  F-1



        You should rely only on the information contained in this prospectus or contained in any free writing prospectus prepared by or on behalf of us. Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of its date regardless of the time of delivery of this prospectus or of any sale of securities.

       For investors outside the United States, neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. Persons who come into possession of this prospectus and any free writing prospectus related to this offering in jurisdictions outside the U.S. are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.

        Until                         , all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions .

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PROSPECTUS SUMMARY

        This summary highlights selected information contained in greater detail elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read the entire prospectus, including "Risk Factors" beginning on page 11 and the financial statements and related notes. As used in this prospectus, references to "we," "our," "us" and "Avinger" refer to Avinger, Inc. unless the context requires otherwise.

       We are a commercial-stage medical device company that designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral arterial disease, or PAD. Patients with PAD have a build-up of plaque in the arteries that supply blood to the arms and legs. Our mission is to dramatically improve the treatment of vascular disease through the introduction of products based on our lumivascular platform, the only intravascular image-guided system available in this market. We manufacture and sell a suite of products in the United States and select European markets. Our current products include our Lightbox imaging console, as well as our Wildcat, Kittycat, and the Ocelot family of catheters, which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion, or CTO. We are also developing Pantheris, our image-guided atherectomy device, designed to allow physicians to remove arterial plaque in PAD patients with precision. Pantheris is currently undergoing a U.S. clinical trial intended to support a 510(k) submission in the second half of 2015 to the U.S. Food and Drug Administration, or FDA. We believe that Pantheris, if cleared by FDA, will significantly enhance our market opportunity within PAD and can expand the overall addressable market for PAD endovascular procedures.

       Current treatments for PAD, including bypass surgery, can be costly and may result in complications, high levels of post-surgery pain and lengthy hospital stays and recovery times. Minimally invasive, or endovascular, treatments include stents, angioplasty, and atherectomy devices, which are catheter-based products for the removal of plaque. These treatments also have limitations in their safety or efficacy profiles and frequently result in recurrence of the disease, also known as restenosis. We believe one of the main contributing factors to high restenosis rates for PAD patients treated with endovascular technologies is the amount of vascular injury that occurs during an intervention. Specifically, these treatments often disrupt the membrane between the outermost layers of the artery, which we refer to as the black line.

       Our lumivascular platform is the only technology that offers real-time visualization of the inside of the artery during PAD treatment. We believe this approach will significantly improve patient outcomes by providing physicians with a clearer picture of the artery using radiation-free image guidance during treatment, enabling them to better differentiate between plaque and healthy arterial structures. Our lumivascular platform is designed to improve patient safety by enabling physicians to direct treatment towards the plaque, while avoiding healthy portions of the artery.

       During the third quarter of 2014, we began enrolling, and we are continuing to enroll, patients in VISION, a clinical trial designed to support a filing with FDA for our Pantheris atherectomy device. VISION is designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging. Data collection from the VISION trial is ongoing and data monitoring and auditing of the acute procedural data and 30-day follow-up data is currently underway. As of January 12, 2015, preliminary acute procedural data were available for 116 patients, and 30-day follow-up data were available for 35 of these patients, and results reviewed by an independent core lab are available for 113 lesions. Based on the currently available data, we believe that we are on track to meet or exceed the requirements necessary to meet the trial's primary efficacy endpoint.

 

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Within the 116-patient group, we are aware of four potential material adverse events, or MAEs, consisting of two emboli and two target lesion revascularizations, or TLRs. We believe the final data from VISION will also allow us to demonstrate that avoiding the black line reduces the likelihood of restenosis in these patients. We expect to complete the VISION trial and submit for 510(k) clearance from FDA during the second half of 2015. If Pantheris is cleared by FDA, we plan to commercialize it as part of our lumivascular platform in the United States and in select European countries after obtaining any required marketing authorizations.

       We have assembled a team with extensive medical device development and commercialization capabilities, including our founder, John B. Simpson, Ph.D., M.D., who founded Advanced Cardiovascular Systems, FoxHollow Technologies and Perclose, among other vascular medical device companies. We design, develop and manufacture all of our products in-house at our headquarters in Redwood City, California using some components and sub-assemblies provided by third party suppliers. As of December 31, 2014, we had 116 employees.

Market Overview

       According to an article published in The Lancet, the global prevalence of PAD was estimated at 202 million people in 2010. The prevalence of PAD in the United States alone was estimated at 18 million people in 2010 and is projected to grow to 21 million people by 2020 according to the Sage Group. Despite its prevalence, PAD is underdiagnosed and undertreated relative to many other serious vascular conditions, including coronary artery disease, or CAD, in part because many PAD patients are asymptomatic or dismiss their symptoms as normal signs of aging. Despite the relative undertreatment of PAD, Millennium Research Group estimates that over 570,000 catheter-based PAD procedures in the pelvis and legs were performed in the United States in 2013, which corresponded to a $1.0 billion market. Millennium Research Group also estimates that the number of catheter-based PAD procedures will grow to 700,000 in 2017, representing a $1.2 billion market in the United States. Higher diagnosis and intervention rates resulting from greater physician and patient awareness of PAD, as well as higher prevalence, may significantly expand the market opportunity for PAD treatments, according to Millennium Research Group.

Current Treatments and Their Limitations

       Physicians currently have the following options available to treat PAD:

    Medical Management —The large majority of cases of diagnosed PAD in the United States are medically managed through lifestyle changes and drug treatment. Although these measures can be effective, many people are unable to sustain them and will ultimately require more aggressive treatments.

    Bypass Surgery —This procedure entails using a synthetic graft or harvesting a healthy vessel from another area of the body and grafting it around a blocked portion of an artery. General anesthesia and the potential for surgical infections make this approach less suitable for patients with conditions such as high blood pressure, heart failure, chronic obstructive pulmonary disease or poor kidney function.

    Amputation Physicians may recommend full or partial amputation of the leg or foot for patients with critical limb ischemia, or CLI. The Transatlantic Intersociety Consensus for the Management of Peripheral Arterial Disease estimates that 30% of patients with CLI will require an amputation within one year of diagnosis.

    Balloon Angioplasty —In an angioplasty procedure, a miniature balloon attached to the tip of the treatment catheter opens the blood vessel by expanding the vessel and compressing

 

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      plaque against the arterial wall. While angioplasty catheters are relatively easy to use, they stretch the arterial wall, often leading to dissections of, and damage to, the black line.

    Stenting —A stent is a wire-mesh tube that acts as a scaffold inside the artery to maintain adequate blood flow. Since stents rely on a similar expansion mechanism as balloons, we believe they also cause injury to the arterial wall and disrupt the black line during placement. Once a stent is implanted, it cannot be removed, which may limit future treatment options.

    Atherectomy —Atherectomy is a procedure in which plaque is cleared from the arterial walls using a catheter-based technology with a mechanism to remove or displace diseased tissue. Current atherectomy technologies can damage the black line, which we believe increases the risk of restenosis.

Our Solution

       We believe the combination of enhanced visualization and the ability to precisely target the diseased portion of an artery will allow physicians to access difficult to treat areas and significantly improve the safety and efficacy of endovascular procedures for patients. We believe that our lumivascular platform provides the following benefits to physicians, hospitals and patients:

    Improved efficacy through reduced risk of restenosis.   Our lumivascular platform is designed to provide physicians with a clear picture from inside the artery during treatment. This visualization helps physicians to avoid disrupting the black line during an intervention, which we believe reduces the risk of restenosis.

    Safety of endovascular procedures.   Serious adverse events such as perforations and dissections may be reduced during endovascular procedures using our lumivascular platform.

    Expanded patient population eligible for endovascular treatment of PAD.   Our lumivascular platform is designed to allow physicians to treat complex PAD cases due to our increased CTO crossing success rates. Due to improved safety of our lumivascular platform products, we believe physicians will be more likely to use our products to treat patients who would otherwise be medically managed.

    Decreased radiation exposure for physicians and patients.   Our lumivascular platform, which utilizes radiation-free OCT imaging, provides real-time visualization from the inside of the artery. When using our lumivascular platform, physicians may elect to use less fluoroscopy during a procedure as a result of having an additional means of visualization that does not involve radiation.

    Reduced use of balloons and stents and preservation of future treatment options.   Pantheris, if cleared by FDA, is designed to enable physicians to successfully perform atherectomy procedures and remove plaque blockages in PAD patients using fewer balloons and stents. By avoiding the use of stents in atherectomy procedures, we believe that Pantheris better preserves future treatment options.

    Lumivascular platform designed for ease of adoption by physicians and hospitals.   Our lumivascular platform products, while providing image-guided assistance to physicians, are used in a similar fashion to traditional catheters. We believe the more than 10,000 interventional cardiologists, vascular surgeons and interventional radiologists in the United States that are trained in endovascular techniques can generally adopt our lumivascular platform and products without extensive training.

       Risks of using the lumivascular platform include the risks that are common to endovascular procedures and generally may include perforation, dissection, embolization, bleeding, infection,

 

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restenosis and limb loss. We are aware of certain characteristics and features of our lumivascular platform that may prevent widespread market adoption, including that the current model of Pantheris may require two physicians to operate the catheter and that training for technicians and physicians will be required to enable them to effectively operate our lumivascular platform products. Our Pantheris product is not cleared or approved by FDA for commercial sale. Pantheris may not be sold in the United States without clearance from FDA. Our current products are contraindicated, and therefore should not be used, in the iliac, coronary, cerebral, renal and carotid arteries.

Our Strategy

       Our goal is to become the leading provider of image-guided medical devices for physicians to treat vascular diseases. The key elements of our strategy are to:

    Successfully complete the Pantheris VISION clinical trial.   We are currently enrolling patients in the VISION clinical trial to evaluate the safety and effectiveness of Pantheris in performing atherectomy procedures. We intend to use the data from our VISION trial to support an FDA 510(k) submission in the second half of 2015 for Pantheris.

    Increase the installed base and penetration of our lumivascular platform.   Our current sales efforts focus on establishing new lumivascular platform sites by marketing our products to physicians and hospital administrators. Additionally, we seek to increase the use of our lumivascular platform products by our current customers through case coverage, clinical training and other programs. We expect to grow our sales force in preparation for the commercial launch of Pantheris in order to increase the base of customers using our lumivascular platform products.

    Perform additional post-market studies to demonstrate the clinical and economic benefits of our lumivascular platform . We intend to initiate post-market studies that will examine clinical outcomes of our lumivascular platform products compared to other endovascular treatments for PAD, and demonstrate the benefits of our lumivascular platform. We plan to conduct studies comparing the safety, efficacy and cost of our lumivascular platform products to competitive products and may also conduct studies to gain additional clinical indications.

    Assist hospitals in raising awareness of our lumivascular platform for patients suffering from PAD . We work with our hospital customers to build a lumivascular platform-based program through clinical training, public relations and physician education. The main focus of our clinical value proposition is to demonstrate how the lumivascular platform allows physicians to avoid injury to the black line during intervention, while addressing the other limitations of competing endovascular approaches.

    Leverage our technology platform to develop new products and further enhance our intellectual property portfolio . We intend to continue to invest in initiatives to improve the safety, efficacy and ease of use of our lumivascular platform, as well as to reduce costs and procedure times. We have also identified a number of future expansion opportunities, including within the coronary artery market, to position our lumivascular platform as the standard of care for vascular disease. We believe we have a strong intellectual property portfolio and will continue to enhance this portfolio as we develop new technologies.

    Optimize our manufacturing operations to achieve cost and production efficiencies while maintaining quality . We design, develop and manufacture all of our products in-house at our headquarters using some components and sub-assemblies provided by third party suppliers. We believe that controlling the manufacturing and assembly of our products allows us to innovate more quickly and produce higher quality products than if we outsourced manufacturing. We have the capacity to significantly increase our manufacturing volume within our current facilities and improve our gross margins.

 

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Risks Associated with Our Business

       Our business is subject to numerous risks, as more fully described in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, among others:

    We have a history of net losses and we may not be able to achieve or sustain profitability.

    Our limited commercialization experience and number of approved products makes it difficult to evaluate our current business, predict our future prospects and forecast our financial performance and growth.

    Our success depends in large part on our ability to obtain FDA clearance for, and successfully commercialize, Pantheris. This device is still in clinical trials, has been used in only a limited number of procedures and there is no long-term data on its safety and efficacy.

    We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs and our failure to obtain additional financing when needed could force us to delay, reduce or eliminate our product development programs and commercialization efforts.

    We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the future.

    We depend on a limited number of products, which we only recently introduced in the United States. If these products fail to gain, or lose, market acceptance, our business will suffer.

    We compete against companies that have longer operating histories, more established products and greater resources, which may prevent us from achieving significant market penetration, increasing our revenues or becoming profitable.

    We may in the future be a party to intellectual property litigation or administrative proceedings that could be costly and could interfere with our ability to sell our lumivascular platform products.

Company Information

       We were incorporated in Delaware on March 8, 2007. Our principal executive offices are located at 400 Chesapeake Drive, Redwood City, CA 94063, and our telephone number is (650) 241-7900. Our website address is www.avinger.com. The information on, or that may be accessed through, our website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.

       We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (2) the last day of the fiscal year in which we have total annual gross revenues of at least $1.0 billion, (3) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We are also a "smaller reporting company," as defined by applicable rules of the Securities and Exchange Commission, or SEC. We will remain eligible for the exemptions from various reporting requirements available to emerging growth companies, other than with respect to stockholder approval of golden

 

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parachute payments, after we are no longer an emerging growth company for as long as we remain a smaller reporting company. We will remain a smaller reporting company until we have a public float, or value attributable to stock held by non-affiliates, of at least $75 million, as measured on the prior June 30 th .

        "Avinger" and "Pantheris" are trademarks of our company. Our logo and our other trade names, trademarks and service marks appearing in this prospectus are our property. Other trade names, trademarks and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ™ symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames. Certain market and industry data used in this prospectus, where noted, is attributable to Millennium Research Group, Inc. Millennium Research Group asserts copyright protection over the use of such information and reserves all rights with respect to its use. This information has been reprinted with Millennium Research Group's permission and the reproduction, distribution, transmission or publication of such information is prohibited without its consent.

 

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THE OFFERING

Common stock offered by us

 

4,615,384 shares

Common stock outstanding prior to the offering

 

5,229,806 shares

Common stock outstanding after this offering

 

9,845,190 shares

Underwriters over-allotment option

 

692,307 shares

Estimated initial public offering price per share

 

$12.00 to $14.00

Directed Share Program

 

The underwriters have reserved, at the initial public offering price, up to 5% of the shares of our common stock in this offering for sale to our directors, officers, employees, consultants and other parties related to us as part of a directed share program. We will offer these shares to the extent permitted under applicable regulations. The number of shares available for sale in this offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased will be offered by the underwriters on the same terms as the other shares in this offering.

Use of proceeds

 

We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including payment of scheduled interest and principal on our credit facility with PDL Biopharma. See "Use of Proceeds."

Risk Factors

 

See "Risk Factors" beginning on page 11 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Proposed NASDAQ Stock Market symbol

 

AVGR

       The number of shares of common stock that will be outstanding prior to and after this offering is based on 5,229,806 shares outstanding as of September 30, 2014 (including preferred stock then outstanding on an as-converted basis), and excludes:

    1,050,971 shares of common stock underlying warrants that are exercisable at $12.60 per share and outstanding as of September 30, 2014;

    746,593 shares of common stock underlying warrants that are exercisable at $12.60 per share that were issued between November 2014 and January 2015 in connection with our Series E preferred stock financing;

    632,381 shares of common stock underlying warrants that are exercisable at $12.60 per share that were issued in connection with an amendment to the terms of our Series E preferred stock financing in January 2015;

    1,123,649 shares of common stock issuable upon the conversion of principal and accrued interest of approximately $12.4 million underlying outstanding convertible promissory notes as

 

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      of September 30, 2014, which are convertible at the option of the holders of such notes into shares of our common stock at a price equal to 85% of the initial public offering price;

    316,733 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2014 under our 2009 Stock Plan at a weighted-average exercise price of approximately $16.15 per share;

    1,874,160 and 838,250 shares of common stock issuable upon the exercise of options granted on December 31, 2014 at an exercise price of $4.50 and $4.95 per share, respectively. We are in the process of obtaining an external valuation report related to our stock option grants made on December 31, 2014 in connection with preparing our year-end financial statements. If there is a difference between the grant date exercise price of the options and their fair market value on the grant date, additional stock-based compensation will be recorded and amortized to expense ratably on a straight-line basis over the vesting period, which is generally four years. For example, based on an assumed fair value of $13.00 per share as of December 31, 2014, which is the midpoint of the estimated price range in this offering, we would record stock-based compensation charges of $26.7 million ratably over the vesting period of four years.;

    1,139,530 shares of common stock issuable upon the conversion of 1,139,530 shares of Series E preferred stock issued between November 2014 and January 2015;

    487,992 shares of common stock issuable upon conversion of preferred stock as a result of anti-dilution adjustments resulting from issuances of Series E preferred stock between November 2014 and January 2015;

    1,320,000 shares of common stock to be reserved for future issuance upon the exercise of options available for grant under our 2015 Equity Incentive Plan; and

    500,000 shares to be reserved for future issuance under our 2015 Employee Stock Purchase Plan.

       Unless otherwise indicated, all information in this prospectus assumes:

    a 1-for-45 reverse split of our common stock to be effected prior to this offering;

    the conversion, in accordance with our existing amended and restated certificate of incorporation, of all shares of preferred stock outstanding as of September 30, 2014 into 4,986,823 shares of our common stock upon the closing of this offering;

    the underwriters do not exercise their over-allotment option;

    we price our offering at the mid-point of the price range on the front cover of this prospectus; and

    the adoption of our amended and restated certificate of incorporation and amended and restated bylaws upon the completion of this offering.

 

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SUMMARY FINANCIAL DATA

       The following table presents summary historical, pro forma and pro forma as adjusted financial data. We derived the summary statements of operations data for the years ended December 31, 2012 and 2013, and the balance sheet data as of December 31, 2012 and 2013, from our audited financial statements appearing elsewhere in this prospectus. The summary statements of operations data for the nine months ended September 30, 2013 and 2014, and the balance sheet data as of September 30, 2014, are derived from our unaudited interim financial statements included elsewhere in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. You should read this data together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information under the captions "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The summary financial data included in this section are not intended to replace the financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results and our interim results are not necessarily indicative of results to be expected for the full year ending December 31, 2014, or any other period.

 
  Years Ended
December 31,
  Nine Months
Ended September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands, except per share data)
 

Statements of Operations Data:

                         

Revenues

  $ 8,560   $ 12,964   $ 9,568   $ 8,140  

Cost of revenues

    4,151     8,205     5,860     4,941  
                   

Gross profit

    4,409     4,759     3,708     3,199  
                   

Operating expenses:

                         

Research and development

    15,416     15,973     12,664     8,350  

Selling, general and administrative

    22,848     25,758     20,578     12,900  
                   

Total operating expenses

    38,264     41,731     33,242     21,250  
                   

Loss from operations

    (33,855 )   (36,972 )   (29,534 )   (18,051 )

Interest income (expense), net

    19     (2,923 )   (1,763 )   (4,904 )

Other income (expense), net

    (19 )   5     8     (837 )
                   

Loss before provision for income taxes

    (33,855 )   (39,890 )   (31,289 )   (23,792 )

Provision for income taxes

    9     11     12     37  
                   

Net loss and comprehensive loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )
                   
                   

Net loss per share, basic and diluted

  $ (162.03 ) $ (170.52 ) $ (134.92 ) $ (98.88 )
                   
                   

Weighted average common shares used to compute net loss per share, basic and diluted

    209     234     232     241  
                   
                   

Pro forma net loss per share, basic and diluted (unaudited) (1)

        $ (14.12 )       $ (7.74 )
                       
                       

Weighted average common shares used to compute pro forma net loss per share, basic and diluted (unaudited) (1)

          2,825           3,077  
                       
                       

 

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  As of September 30, 2014  
 
  As of December 31,  
 
   
   
  Pro Forma
As Adjusted (2)
 
 
  2012   2013   Actual   Pro Forma (1)  
 
   
   
  (unaudited)
  (unaudited)
  (unaudited)
 
 
  (in thousands)
   
 

Balance Sheet Data:

                               

Cash and cash equivalents

  $ 20,617   $ 12,221   $ 12,213   $ 12,213   $ 64,459  

Working capital

    22,462     15,874     13,271     13,271     65,838  

Total assets

    30,324     25,008     23,064     23,064     74,973  

Borrowings

        20,052     20,323     20,323     20,323  

Convertible notes and accrued interest

        13,731     12,416     12,416     12,416  

Convertible preferred stock

    99,659     99,654     119,769          

Accumulated deficit

    (74,668 )   (114,569 )   (138,398 )   (138,398 )   (138,398 )

Total stockholders' equity (deficit)

    (73,644 )   (112,782 )   (135,915 )   (16,146 )   36,084  

(1)
Reflects (i) the filing of our amended and restated certificate of incorporation, which will become effective immediately prior to the consummation of this offering, (ii) the automatic conversion of all outstanding shares of our preferred stock into 4,986,823 shares of our common stock, and (iii) a 1-for-45 reverse split of our common stock to be effected prior to this offering;

(2)
Reflects (i) the filing of our amended and restated certificate of incorporation, which will become effective immediately prior to the consummation of this offering, (ii) the automatic conversion of all outstanding shares of our preferred stock into 4,986,823 shares of common stock, (iii) a 1-for-45 reverse split of our common stock to be effected prior to this offering and (iv) the sale by us of 4,615,384 shares of common stock at an assumed initial public offering price of $13.00 per share less the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks or other risks actually occur, our business, financial condition, results of operations and future prospects could be materially harmed. In that event, the market price of our common stock could decline, and you could lose all or part of your investment. Please also see "Cautionary Notes Regarding Forward-Looking Statements."


Risks Related to Our Business

Our quarterly and annual results may fluctuate significantly, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock.

       Our quarterly and annual results of operations, including our revenues, profitability and cash flow, may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter or period should not be relied upon as an indication of future performance. Our quarterly and annual financial results may fluctuate as a result of a variety of factors, many of which are outside our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly and annual results may decrease the value of our common stock. Factors that may cause fluctuations in our quarterly and annual results include, without limitation:

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We have a history of net losses and we may not be able to achieve or sustain profitability.

       We have incurred significant losses in each period since our inception in 2007. We incurred net losses of $33.9 million in 2012, $39.9 million in 2013 and $23.8 million in the nine months ended September 30, 2014. As of September 30, 2014, we had an accumulated deficit of approximately $138.4 million. These losses and our accumulated deficit reflect the substantial investments we have made to develop our lumivascular platform and acquire customers.

       We expect our costs and expenses to increase in the future due to anticipated increases in cost of revenues, sales and marketing expenses, research and development expenses and general and administrative expenses and, therefore, we expect our losses to continue for the foreseeable future as we continue to make significant future expenditures to develop and expand our business. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. Accordingly, we cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability. Our failure to achieve and sustain profitability would negatively impact the market price of our common stock.

Our limited commercialization experience and number of approved products makes it difficult to evaluate our current business, predict our future prospects and forecast our financial performance and growth.

       We were incorporated in 2007, began commercializing our initial non-lumivascular platform products in 2009 and introduced our first lumivascular platform products in the United States in late 2012. Our limited commercialization experience and number of approved products make it difficult to evaluate our current business and predict our future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by companies in rapidly-changing industries. These risks and uncertainties include the risks inherent in clinical trials and increasing and unforeseen expenses as we continue to attempt to grow our business.

       Our short commercialization experience and limited number of approved products also make it difficult for us to forecast our future financial performance and growth and such forecasts are limited and subject to a number of uncertainties, including our ability to successfully complete our VISION clinical trial and obtain FDA clearance for, and successfully commercialize, Pantheris in the United States. If our assumptions regarding the risks and uncertainties we face, which we use to plan our business, are incorrect or change due to circumstances in our business or our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.

Our success depends in large part on our ability to obtain FDA clearance for, and successfully commercialize, Pantheris. This device is still in clinical trials, has been used in only a limited number of procedures and there is no long-term data on its safety and efficacy.

       The long-term viability of our company is largely dependent on the successful development and commercialization of Pantheris. We are currently enrolling patients in a clinical study called VISION that will be used to support regulatory clearance of Pantheris, and we do not have significant long term data on Pantheris' safety and efficacy. While we expect to successfully complete the on-going study and file our 510(k) submission for Pantheris in the second half of 2015 with FDA, there can be no guarantee that the study will be completed, that the primary endpoints will be achieved, or that we will receive regulatory clearance for the sale and marketing of Pantheris in the United States. Although we have collected preliminary data for our VISION trial, this preliminary data may not be predictive of its final results and failure of the trial can occur at any time. A number of companies in the medical device field have suffered significant setbacks during clinical trials due to lack of efficacy

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or unacceptable safety issues, notwithstanding promising preliminary results. Because we are depending heavily on sales of Pantheris to achieve our revenue goals, failure to successfully complete the study and receive FDA clearance, in a timely manner or at all, will harm our financial results and ability to become profitable. Even if we obtain regulatory clearance, our ability to successfully market this product will be limited due to a number of factors including regulatory restrictions in our labeling. In addition, there can be no guarantee that Pantheris will be accepted by the medical community as a valid alternative to currently available devices. If we cannot sell Pantheris as planned, our financial results will be harmed.

       Failure to successfully complete our Pantheris clinical study would significantly impair our financial results. Such a failure could (i) delay or prevent Pantheris from obtaining regulatory clearance, (ii) require us to perform another clinical trial, which will be expensive, may not be successful and will significantly delay our ability to commercialize Pantheris and (iii) impair our ability to convince hospitals and physicians of the benefits of our lumivascular platform products.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs and our failure to obtain additional financing when needed could force us to delay, reduce or eliminate our product development programs and commercialization efforts.

       We believe that the net proceeds from this offering together with our cash and cash equivalents at September 30, 2014, total cash proceeds of $14.4 million from our Series E preferred stock financing in December 2014 and January 2015 and expected revenues from operations will be sufficient to satisfy our capital requirements and fund our operations for at least 18 months following this offering. We will likely need additional funds to meet our operational needs and capital requirements for product development, clinical trials and commercialization.

       To date, we have financed our operations primarily through sales of our products, net proceeds from the issuance of our preferred stock and debt financings. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital in order to (i) continue to conduct research and development activities, (ii) conduct post-market clinical studies, as well as clinical trials to obtain regulatory clearances and approvals necessary to commercialize our lumivascular platform products, (iii) expand our sales and marketing infrastructure and (iv) acquire complementary business technology or products; or (v) respond to business opportunities, challenges, a decline in sales, increased regulatory obligations or unforeseen circumstances. Our future capital requirements will depend on many factors, including:

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       We may raise funds in equity or debt financings following our initial public offering or enter into credit facilities in order to access funds for our capital needs. Any debt financing obtained by us in the future would cause us to incur additional debt service expenses and could include restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may terminate or delay the development of one or more of our products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products. If this were to occur, our ability to continue to grow and support our business and to respond to business challenges could be significantly limited.

We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the future.

       As of September 30, 2014, we had $21.4 million in principal and interest outstanding under our credit facility, or the credit agreement, with PDL Biopharma, or PDL, and $12.4 million in principal plus interest outstanding under convertible promissory notes, or the notes. We must make significant annual debt payments under the credit agreement, which diverts resources from other activities. Our debt with PDL is collateralized by substantially all of our assets and contains customary financial and operating covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate, enter into certain transactions with affiliates, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions. In addition to the interest and principal payments due under the credit agreement, we are obligated to pay PDL a royalty at the rate of 1.8% of our quarterly revenues through the maturity date of April 18, 2018. To the extent that we prepay the borrowings under the credit agreement, our royalty obligations will continue and will be payable through the maturity date at the higher of a reduced rate of 0.9% of our quarterly revenues or certain minimum amounts. During this period, we must continue to comply with covenants limiting our ability to, among other things, undergo a change in control and dispose of assets, in each case subject to certain exceptions. These covenants may make it difficult to operate our business. We are also subject to standard event of default provisions both under the credit agreement and the notes that, if triggered, would allow the debt to be accelerated, which could significantly deplete our cash resources, cause us to raise additional capital at unfavorable terms, require us to sell portions of our business or result in us becoming insolvent. The existing collateral pledged under the credit agreement, the covenants to which we are bound and the obligation to pay a certain percentage of our future revenues to PDL, even after the PDL debt is repaid, may prevent us from being able to secure additional debt or equity financing on favorable terms, or at all, or to pursue business opportunities, including potential acquisitions. In addition, we are obligated to pay our former financial advisor a transaction fee of $650,000 plus $35,000 for reimbursement of their out-of-pocket expenses.

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We depend on a limited number of products, which we only recently introduced in the United States. If these products fail to gain, or lose, market acceptance, our business will suffer.

       Ocelot, Ocelot PIXL, Ocelot MVRX, Lightbox, Wildcat and Kittycat 2 are our only products currently cleared for sale, and our current revenues are wholly dependent on them. Sales of Wildcat and Kittycat 2 have declined and are continuing to decline as we focus on the promotion of our lumivascular platform products. We expect that sales of our current and future lumivascular platform products in the United States will account for substantially all of our revenues for the foreseeable future. Because of their recent commercial introduction, our lumivascular platform products have limited product and brand recognition. We do not know if our lumivascular platform products will be successful over the long term and market acceptance may be hindered if physicians are not presented with compelling data from long-term studies of the safety and efficacy of our lumivascular platform products compared to alternative procedures, such as angioplasty, stenting, bypass surgery or other atherectomy procedures. For example, if patients undergoing treatment with our lumivascular platform products have retreatment rates higher than or comparable with the retreatment rates of alternative procedures, it will be difficult to demonstrate the value of our lumivascular platform products. Any studies we may conduct comparing our lumivascular platform with alternative procedures will be expensive, time consuming and may not yield positive results. Physicians will also need to appreciate the value of real-time imaging in improving patient outcomes in order to change current methods for treating PAD patients. In addition, demand for our lumivascular platform products may decline or may not increase as quickly as we expect. Failure of our lumivascular platform products to significantly penetrate current or new markets would harm our business, financial condition and results of operations.

       We are also aware of certain characteristics and features of our lumivascular platform that may prevent widespread market adoption. For example, the current model of Pantheris may require two physicians to operate the catheter and a technician to operate the Lightbox, making it less financially attractive for physicians. It may take significant time and expense to modify our products to allow a single physician to operate the entire system and we can provide no guarantee that we will be able to make such modifications, or obtain any additional and necessary regulatory clearances for such modifications. Also, although the OCT images created by our Lightbox may make it possible for physicians to reduce the degree to which fluoroscopy and contrast dye are used when using our lumivascular platform products compared to competing endovascular products, physicians are still using both fluoroscopy and contrast dye, particularly with Pantheris. As a result, risks of complications from radiation and contrast dye are still present and may limit the commercial success of our products. Finally, it will require training for technicians and physicians to effectively operate our lumivascular platform products, including interpreting the OCT images created by our Lightbox, which may affect adoption of our products by physicians. These or other characteristics and features of our lumivascular platform may cause our products not to be widely adopted and harm our business, financial condition and results of operation.

Our ability to compete is highly dependent on demonstrating the benefits of our lumivascular platform to physicians, hospitals and patients.

       In order to generate sales, we must be able to clearly demonstrate that our lumivascular platform is both a more effective treatment system and less costly than the alternatives offered by our competitors. If we are unable to convince physicians that our lumivascular platform leads to significantly lower restenosis, or narrowing of the artery, rates and fewer adverse events during surgery than those using competing technologies, our business will suffer. In order to use our Ocelot family of catheters or, if cleared, Pantheris, hospitals must make an investment in our Lightbox.

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Accordingly, we must convince hospitals and physicians that our lumivascular platform results in significantly better patient outcomes at a competitive overall cost. For example, we may need to demonstrate that the investment hospitals must make when purchasing our Lightbox and the incremental costs of having up to two physicians operate Pantheris can be justified based on the benefits to patients, physicians and hospitals. If we are unable to develop robust clinical data to support these claims we will be unable to convince hospitals and third party payors of these benefits and our business will suffer.

       Our value proposition to physicians and hospitals is largely dependent upon our contention that the rate of disruption of the black line when physicians are using our products is lower than with competing products. If minimizing disruption to the black line does not significantly impact patient outcomes, meaning either (i) that restenosis is often triggered without disrupting the black line, or (ii) the black line can often be disrupted without triggering restenosis, then we may be unable to demonstrate our lumivascular platform's benefits are any different than competing technologies. Furthermore, physicians may find our imaging system difficult to use and we may not provide physicians with adequate training to be able to realize the benefits of our lumivascular platform. If physicians do not value the benefits of on-board imaging and the enhanced visualization enabled by our products during an endovascular intervention as compared to our competitor's products, or do not believe that such benefits improve clinical outcomes, our lumivascular platform products may not be widely adopted.

The use, misuse or off-label use of the products in our lumivascular platform may result in injuries that lead to product liability suits, which could be costly to our business.

       We require limited training in the use of our lumivascular platform products because we market primarily to physicians who are experienced in the interventional techniques required to use our device. If demand for our lumivascular platform continues to grow, less experienced physicians will likely use the device, potentially leading to more injury and an increased risk of product liability claims. The use or misuse of our lumivascular platform products has in the past resulted, and may in the future result, in complications, including damage to the treated artery, infection, internal bleeding, and limb loss, potentially leading to product liability claims. Our lumivascular platform products are not FDA-cleared or approved for use in the carotid, cerebral, coronary, iliac, or renal arteries. Our sales force does not promote the use of our products for off-label indications, and our U.S. instructions for use specify that our lumivascular platform products are not intended for use in the carotid, cerebral, coronary, iliac or renal arteries. However, we cannot prevent a physician from using our lumivascular platform products for these off-label applications. The application of our lumivascular platform products to coronary arteries, as opposed to peripheral arteries, is more likely to result in complications that have serious consequences. For example, if excised plaque were not captured properly in our device, it could be carried by the bloodstream to a more narrow location, blocking a coronary artery, leading to a heart attack, or blocking an artery to the brain, leading to a stroke. If our lumivascular platform products are defectively designed, manufactured or labeled, contain defective components or are misused, we may become subject to costly litigation initiated by our customers or their patients. Product liability claims are especially prevalent in the medical device industry and could harm our reputation, divert management's attention from our core business, be expensive to defend and may result in sizable damage awards against us. Although we maintain product liability insurance, the amount or breadth of our coverage may not be adequate for the claims that are made against us.

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The expense and potential unavailability of insurance coverage for liabilities resulting from our products could harm us and our ability to sell our lumivascular platform products.

       We may not have sufficient insurance coverage for future product liability claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation in the industry, significantly increase our expenses, and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and operating results.

       Some of our customers and prospective customers may have difficulty in procuring or maintaining liability insurance to cover their operations and use of our lumivascular platform products. Medical malpractice carriers are withdrawing coverage in certain states or substantially increasing premiums. If this trend continues or worsens, our customers may discontinue using our lumivascular platform products and potential customers may opt against purchasing our lumivascular platform products due to the cost or inability to procure insurance coverage.

Our ability to compete depends on our ability to innovate successfully.

       The market for medical devices in general, and in the PAD market in particular, is highly competitive, dynamic, and marked by rapid and substantial technological development and product innovation. There are few barriers that would prevent new entrants or existing competitors from developing products that compete directly with ours. Demand for our lumivascular platform products could be diminished by equivalent or superior products and technologies offered by competitors. If we are unable to innovate successfully, our lumivascular platform products could become obsolete and our revenues would decline as our customers purchase our competitors' products.

       The medical device market is characterized by extensive research and development and rapid technological change. Technological progress or new developments in our industry could harm sales of our products. Our products could be rendered obsolete because of future innovations in the treatment of PAD. In order to remain competitive, we must continue to develop new product offerings and enhancements to our existing lumivascular platform products. Maintaining adequate research and development personnel and resources to meet the demands of the market is essential. If we are unable to develop products, applications or features due to certain constraints, such as insufficient cash resources, inability to raise sufficient cash in future equity or debt financings, high employee turnover, inability to hire sufficient research and development personnel or a lack of other research and development resources, we may miss market opportunities. Furthermore, many of our competitors expend a considerably greater amount of funds on their research and development programs than we do, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors' research and development programs. Our failure or inability to devote adequate research and development resources or compete effectively with the research and development programs of our competitors could harm our business.

We compete against companies that have longer operating histories, more established products and greater resources, which may prevent us from achieving significant market penetration, increasing our revenues or becoming profitable.

       Our products compete with a variety of products and devices for the treatment of PAD, including other CTO crossing devices, stents, balloons and atherectomy catheters, as well as products used in vascular surgery. Large competitors in the CTO crossing, stent and balloon markets include Abbott

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Laboratories, BARD, Boston Scientific, Cook Medical, Covidien, Johnson & Johnson and Medtronic. Competitors in the atherectomy market include Boston Scientific, Cardiovascular Systems, Covidien, Spectranetics and Volcano. Some competitors have previously attempted to combine intravascular imaging with atherectomy and may have current programs underway to do so. These and other companies may attempt to incorporate on-board visualization into their products in the future and may remain competitive with us in marketing traditional technologies. Other competitors include pharmaceutical companies that manufacture drugs for the treatment of symptoms associated with mild to moderate PAD and companies that provide products used by surgeons in peripheral and coronary bypass procedures. These competitors and other companies may introduce new products that compete with our products. Many of our competitors have significantly greater financial and other resources than we do and have well-established reputations, as well as broader product offerings and worldwide distribution channels that are significantly larger and more effective than ours. Competition with these companies could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial condition and results of operations.

       Our ability to compete effectively depends on our ability to distinguish our company and our lumivascular platform from our competitors and their products, and includes such factors as:

       In addition, competitors with greater financial resources than ours could acquire other companies to gain enhanced name recognition and market share, as well as new technologies or products that could effectively compete with our existing products, which may cause our revenues to decline and would harm our business.

If our clinical trials are unsuccessful or significantly delayed, or if we do not complete our clinical trials, our business may be harmed.

       Clinical development is a long, expensive, and uncertain process and is subject to delays and the risk that products may ultimately prove unsafe or ineffective in treating the indications for which they are designed. Completion of clinical trials may take several years or more. We cannot provide any assurance that we will successfully, or in a timely manner, enroll our clinical trials, that our clinical trials will meet their primary endpoints or that such trials or their results will be accepted by the FDA or foreign regulatory authorities. Even if we achieve positive early or preliminary results in clinical trials, these results do not necessarily predict final results, and positive results in early trials may not indicate success in later trials. Many companies in the medical device industry have suffered significant setbacks in late-stage clinical trials, even after receiving promising results in earlier trials or in the preliminary results from these late-stage clinical trials.

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       We may experience numerous unforeseen events during, or because of, the clinical trial process that could delay or prevent us from receiving regulatory clearance or approval for new products or modifications of existing products, including new indications for existing products, including:

       Failures or perceived failures in our clinical trials will delay and may prevent our product development and regulatory approval process, damage our business prospects and negatively affect our reputation and competitive position.

From time to time, we engage outside parties to perform services related to certain of our clinical studies and trials, and any failure of those parties to fulfill their obligations could increase costs and cause delays.

       From time to time, we engage consultants to help design, monitor, and analyze the results of certain of our clinical studies and trials. The consultants we engage interact with clinical investigators to enroll patients in our clinical trials. We depend on these consultants and clinical investigators to help facilitate the clinical studies and trials and monitor and analyze data from these studies and trials under the investigational plan and protocol for the study or trial and in compliance with applicable regulations and standards, commonly referred to as good clinical practices. We may face delays in our regulatory approval process if these parties do not perform their obligations in a timely, compliant or competent manner. If these third parties do not successfully carry out their duties or meet expected deadlines, or if the quality, completeness or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical trial protocols or for other reasons, our clinical studies or trials

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may be extended, delayed or terminated or may otherwise prove to be unsuccessful, and we may have to conduct additional studies, which would significantly increase our costs, in order to obtain the regulatory clearances that we need to commercialize our products.

We have no long-term data regarding the safety and efficacy of our lumivascular platform products. Any long-term data that is generated by clinical trials involving our lumivascular platform may not be positive or consistent with our short-term data, which would harm our ability to obtain clearance to market and sell our products.

       Our lumivascular platform is a novel system, and our success depends on its acceptance by the medical community as being safe and effective, and improving clinical outcomes. Important factors upon which the efficacy of our lumivascular platform products will be measured are long-term data on the rate of restenosis following our procedure, and the corresponding duration of patency, or openness of the artery, and publication of that data in peer-reviewed journals. Another important factor that physicians will consider is the rate of reintervention, or retreatment, following the use of our lumivascular platform products. The long-term clinical benefits of procedures that use our lumivascular platform products are not known.

       The results of short-term clinical experience of our lumivascular platform products do not necessarily predict long-term clinical benefit. Restenosis rates typically increase over time. We believe that physicians will compare the rates of long-term restenosis and reintervention for procedures using our lumivascular platform products against alternative procedures, such as angioplasty, stenting, bypass surgery and other atherectomy procedures. If the long-term rates of restenosis and reintervention do not meet physicians' expectations, our lumivascular platform products may not become widely adopted and physicians may recommend alternative treatments for their patients. Another significant factor that physicians will consider is acute safety data on complications that occur during the use of our lumivascular platform products. If the results obtained from our VISION trial or any post-market studies that we conduct or post-clearance surveillance indicate that the use of our lumivascular platform products are not as safe or effective as other treatment options or as current short-term data would suggest, adoption of our product may suffer and our business would be harmed. Even if we believe the data collected from clinical studies or clinical experience indicate positive results, each physician's actual experience with our products will vary. Physicians who are technically proficient participate in our clinical trials and are high-volume users of our lumivascular platform products. Consequently, the results of our clinical trials and their experiences using our products may lead to better patient outcomes than those of physicians that are less proficient, perform fewer procedures or who use our products infrequently.

Our ability to market our current products in the United States is limited to use in peripheral vessels, and if we want to market our products for other uses, we will need to file for FDA clearances or approvals and may need to conduct trials in addition to VISION to support expanded use, which would be expensive, time-consuming and may not be successful.

       Our current products are cleared in the United States solely for crossing sub-total and chronic total occlusions in the peripheral vasculature. This clearance prohibits our ability to market or advertise our products for any other indication within the peripheral vasculature, which restricts our ability to sell these products and could affect our growth. Additionally, our products are contraindicated for use in the cerebral, carotid, coronary, iliac, and renal arteries. While off-label uses of medical devices are common and FDA does not regulate physicians' choice of treatments, FDA does restrict a manufacturer's communications regarding such off-label use. We are not allowed to actively promote or advertise our products for off-label uses. In addition, we cannot make

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comparative claims regarding the use of our products against any alternative treatments without conducting head-to-head comparative clinical studies, which would be expensive and time consuming. If our promotional activities fail to comply with FDA's regulations or guidelines, we may be subject to FDA warnings or enforcement action by FDA and other government agencies. In the future, if we want to market a variation of Ocelot or Pantheris in the United States for use in coronary arteries, we will need to make modifications to these products, conduct further clinical trials and obtain new clearances or approvals from FDA. There can be no assurance that we will successfully develop these modifications, that future clinical studies will be successful or that the expense of these activities will be offset by additional revenues.

The continuing development of many of our products, including Pantheris, depends upon maintaining strong working relationships with physicians.

       The development, marketing, and sale of our products, including Pantheris, depends upon our ability to maintain strong working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing and sale of our products. Physicians assist us in clinical trials and as researchers, marketing and product consultants and public speakers. If we cannot maintain our strong working relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could harm our business, financial condition and results of operations. The medical device industry's relationship with physicians is under increasing scrutiny by the Health and Human Services Office of Inspector General, or OIG, the Department of Justice, or DOJ, state attorneys general, and other foreign and domestic government agencies. Our failure to comply with laws, rules and regulations governing our relationships with physicians, or an investigation into our compliance by the OIG, DOJ, state attorneys general and other government agencies, could significantly harm our business.

If we fail to grow our sales and marketing capabilities and develop widespread brand awareness cost effectively, our growth will be impeded and our business may suffer.

       We plan to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. Identifying and recruiting qualified personnel and training them in the use of our lumivascular platform, and on applicable federal and state laws and regulations and our internal policies and procedures, requires significant time, expense and attention. It can take several months before our sales representatives are fully trained and productive. Our business may be harmed if our efforts to expand and train our sales force do not generate a corresponding increase in revenues. In particular, if we are unable to hire, develop and retain talented sales personnel or if new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenues.

       Our ability to increase our customer base and achieve broader market acceptance of our lumivascular platform will depend to a significant extent on our ability to expand our marketing operations. We plan to dedicate significant financial and other resources to our marketing programs. Our business will be harmed if our marketing efforts and expenditures do not generate an increase in revenue.

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       In addition, we believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our lumivascular platform and attracting new customers. Brand promotion activities may not generate customer awareness or increase revenues, and even if they do, any increase in revenues may not offset the costs and expenses we incur in building our brand. If we fail to successfully promote, maintain and protect our brand, we may fail to attract or retain the customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our lumivascular platform.

If we are unable to manage the anticipated growth of our business, our future revenues and operating results may be harmed.

       Any growth that we experience in the future could provide challenges to our organization, requiring us to expand our sales personnel and manufacturing operations and general and administrative infrastructure. We expect to grow our sales force in anticipation of obtaining marketing clearance for Pantheris. Rapid expansion in personnel could mean that less experienced people produce and sell our products, which could result in inefficiencies and unanticipated costs and disruptions to our operations. We noted a material weakness in our internal controls in connection with our December 31, 2012 and 2013 audits. The material weakness that was identified was that we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements. If we do not effectively remediate this weakness or if we or our auditors identify additional material weaknesses in the future, it could result in restatements of our financial statements and a decrease in the value of our stock due to a loss of confidence in the reliability of our financial statements.

We have limited experience manufacturing our lumivascular platform products in commercial quantities, which could harm our business.

       Because we have only limited experience in manufacturing our lumivascular platform products in commercial quantities, we may encounter production delays or shortfalls. Such production delays or shortfalls may be caused by many factors, including the following:

       If we are unable to keep up with demand for our lumivascular platform products, our revenues could be impaired, market acceptance for our lumivascular platform products could be harmed and

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our customers might instead purchase our competitors' products. Our inability to successfully manufacture our lumivascular platform products would materially harm our business.

       Our manufacturing facilities and processes and those of our third party suppliers are subject to unannounced FDA and state regulatory inspections for compliance with Quality System regulations. Developing and maintaining a compliant quality system is time consuming and expensive. Failure to maintain, or not fully comply with the requirements of, a quality system could result in regulatory authorities initiating enforcement actions against us and our third party suppliers, which could include the issuance of warning letters, seizures, prohibitions on product sales, recalls and civil and criminal penalties, any one of which could significantly impact our manufacturing supply and impair our financial results.

If our manufacturing facility becomes damaged or inoperable, or we are required to vacate the facility, our ability to manufacture and sell our lumivascular platform products and to pursue our research and development efforts may be jeopardized.

       We currently manufacture and assemble our lumivascular platform products in-house. Our products are comprised of components sourced from a variety of contract manufacturers, with final assembly completed at our facility in Redwood City, California. Our facility and equipment, or those of our suppliers, could be harmed or rendered inoperable by natural or man-made disasters, including fire, earthquake, terrorism, flooding and power outages. Any of these may render it difficult or impossible for us to manufacture products for some period of time. If our facility is inoperable for even a short period of time, the inability to manufacture our current products, and the interruption in research and development of any future products, may result in harm to our reputation, increased costs, lower revenues and the loss of customers. Furthermore, it could be costly and time-consuming to repair or replace our facilities and the equipment we use to perform our research and development work and manufacture our products.

We depend on third party vendors to manufacture some of our components and sub-assemblies, which could make us vulnerable to supply shortages and price fluctuations that could harm our business.

       We currently manufacture some of our components and sub-assemblies at our Redwood City facility and rely on third party vendors for other components and sub-assemblies used in our lumivascular platform. Our reliance on third party vendors subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, including:

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       Any significant delay or interruption in the supply of components or sub-assemblies, or our inability to obtain substitute components, sub-assemblies or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and harm our business.

We depend on single and limited source suppliers for some of our product components and sub-assemblies, and if any of those suppliers are unable or unwilling to produce these components and sub-assemblies or supply them in the quantities that we need, we would experience manufacturing delays.

       We rely on single and limited source suppliers for several of our components and sub-assemblies. For example, we rely on single vendors for our optical fiber and drive cables, that are key components of our catheters, and we rely on a single vendor for our data acquisition card in Lightbox. These components are critical to our products and there are relatively few alternative sources of supply. We do not carry a significant inventory of these components. Identifying and qualifying additional or replacement suppliers for any of the components or sub-assemblies used in our products could involve significant time and cost. Any supply interruption from our vendors or failure to obtain additional vendors for any of the components or sub-assemblies incorporated into our products would limit our ability to manufacture our products and could therefore harm our business, financial condition and results of operations.

Our future growth depends on physician adoption of our lumivascular platform products, which may require physicians to change their current practices.

       We intend to educate physicians on the capabilities of our lumivascular platform products and advances in treatment for PAD patients. We target our sales efforts to interventional cardiologists, vascular surgeons and interventional radiologists because they are often the physicians diagnosing and treating both coronary artery disease and PAD. However, the initial point of contact for many patients may be general practitioners, podiatrists, nephrologists and endocrinologists, each of whom commonly treat patients experiencing complications or symptoms resulting from PAD. If these physicians are not made aware of our lumivascular platform products, they may not refer patients to interventional cardiologists, vascular surgeons and interventional radiologists for treatment using our lumivascular platform procedure, and those patients may instead be surgically treated or treated with an alternative interventional procedure. In addition, there is a significant correlation between PAD and coronary artery disease, and many physicians do not routinely screen for PAD while screening for coronary artery disease. If we are not successful in educating physicians about screening for PAD and about the capabilities of our lumivascular platform products, our ability to increase our revenues may be impaired.

We depend on our senior management team and the loss of one or more key employees or an inability to attract and retain highly skilled employees could harm our business.

       Our success largely depends upon the continued services of our executive management team and key employees and the loss of one or more of our executive officers or key employees could harm us and directly impact our financial results. Our employees may terminate their employment with us at any time. Changes in our executive management team resulting from the hiring or departure of executives, including the recent addition of our chief executive officer, could disrupt our business. In particular, our founder, Dr. John Simpson, is the visionary behind many of our product development activities and he actively supports our clinical trials and physician education and training efforts. If

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Dr. Simpson was no longer working at our company, our industry credibility, product development efforts and physician relationships would be harmed. We do not currently maintain key person life insurance policies on any of our employees, including Dr. Simpson.

       Our officers and directors could become distracted by other activities that would prevent them from devoting their full time and attention to our company. For example, John D. Simpson, our Vice President of Sales, is also the Chief Executive Officer of Recreation, Inc., a full service creative, digital and media agency focused on brand strategy and implementation. Periodically, Mr. Simpson may have obligations to Recreation which interfere with his obligations to the Company.

       To execute our growth plan, we must attract and retain highly qualified personnel. Competition for skilled personnel is intense, especially for engineers with high levels of experience in designing and developing medical devices and for sales executives. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached legal obligations, resulting in a diversion of our time and resources and, potentially, damages. In addition, job candidates and existing employees, particularly in the San Francisco Bay Area, often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, either because we are a public company or otherwise, it may harm our ability to recruit and retain highly skilled employees. In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects would be harmed.

We do not currently intend to devote significant additional resources in the near-term to market our lumivascular platform internationally, which will limit our potential revenues from our lumivascular platform products.

       Marketing our lumivascular platform outside of the United States would require substantial additional sales and marketing, regulatory and personnel expenses. As part of our product development and regulatory strategy, we plan to expand into select European markets, but we do not currently intend to devote significant additional resources to market our lumivascular platform internationally in order to focus our resources and efforts on the U.S. market. Our decision to market our products primarily in the United States in the near-term will limit our ability to reach all of our potential markets and will limit our potential sources of revenue. In addition, our competitors will have an opportunity to further penetrate and achieve market share outside of the United States until such time, if ever, that we devote significant additional resources to market our lumivascular platform products or other products internationally.

Our ability to utilize our net operating loss carryovers may be limited.

       As of December 31, 2013, we had federal and state net operating loss carryforwards, or NOLs, due to prior period losses of $104.5 million and $99.7 million, respectively, which if not utilized will begin to expire in 2027 for federal purposes and 2014 for state purposes. We may use these NOLs to offset against taxable income for U.S. federal income tax purposes. However, Section 382 of the Internal Revenue Code of 1986, as amended, may limit the NOLs we may use in any year for U.S. federal income tax purposes in the event of certain changes in ownership of our company. A Section 382 "ownership change" generally occurs if one or more stockholders or groups of

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stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. This offering or future issuances or sales of our stock (including certain transactions involving our stock that are outside of our control) could cause an "ownership change." If an "ownership change" occurs, Section 382 would impose an annual limit on the amount of pre-ownership change NOLs and other tax attributes we can use to reduce our taxable income, potentially increasing and accelerating our liability for income taxes, and also potentially causing those tax attributes to expire unused. Any limitation on using NOLs could (depending on the extent of such limitation and the NOLs previously used) result in our retaining less cash after payment of U.S. federal income taxes during any year in which we have taxable income (rather than losses) than we would be entitled to retain if such NOLs were available as an offset against such income for U.S. federal income tax reporting purposes, which could harm our profitability.

The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not grow at similar rates, if at all.

       Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts in this prospectus relating to, among other things, the expected growth in PAD prevalence, diagnosis and endovascular PAD procedures and the markets therefor and increased awareness, higher diagnosis, and intervention rates, may prove to be inaccurate.

       Even if these markets experience the forecasted growth described in this prospectus, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including whether the market for PAD treatments continues to grow, our ability to successfully complete the VISION trial, obtain 510(k) clearance for Pantheris and commercialize Pantheris, the rate of market acceptance of our lumivascular platform products versus the products of our competitors and our success in implementing our business strategies, each of which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

We may acquire other companies or technologies, which could divert our management's attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

       We may in the future seek to acquire or invest in businesses, applications or technologies that we believe could complement or expand our lumivascular platform, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various costs and expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. We may not be able to identify desirable acquisition targets or be successful in entering into an agreement with any particular target or obtain the expected benefits of any acquisition or investment.

       To date, the growth in our business has been organic, and we have no experience in acquiring other businesses. In any acquisition, we may not be able to successfully integrate acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.

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We have identified a material weakness in our internal control over financial reporting as of December 31, 2012 and 2013, and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remedy any material weakness, or if we fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be harmed.

       Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. During the course of preparing for this offering, we determined that material adjustments to various accounts were necessary for our financial statements for the years ended December 31, 2012 and 2013. These adjustments led us to conclude that we had a material weakness in internal control over financial reporting as of December 31, 2012 and 2013. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness that we identified was that we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements. This material weakness contributed to adjustments to our financial statements in the following principal areas, among others: accounting for debt issuances, stock-based compensation, and accounting for inventory costs and fixed assets. There can be no assurance that we will be able to hire sufficient personnel with the required skills to remediate this weakness, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. Competition to hire such personnel is intense, and we will incur significant additional compensation expense in connection with the hiring and retention of these additional employees. If we are unable to successfully remediate this material weakness, and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected, our reputation may be harmed and we may be unable to maintain compliance with applicable NASDAQ Stock Market listing requirements.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.

       As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our annual report for the year ending December 31, 2015, provide a management report on our internal control over financial reporting, which must be attested to by our independent registered public accounting firm to the extent we are no longer an "emerging growth company," as defined by the Jumpstart Our Businesses Act of 2012, or the JOBS Act, or a smaller reporting company under the Securities Act.

       Currently and in the future, if we have material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing our internal control over financial reporting, which process will be time consuming, costly and complicated. Until such time as we are no longer an "emerging growth company" or a smaller reporting company, our auditors will not be required to attest as to our internal control over financial reporting. If we continue to identify material weaknesses in our internal control over financial reporting, if we are unable to comply with

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the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or, once required, if our independent registered public accounting firm is unable to attest that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decrease. We could also become subject to stockholder or other third party litigation as well as investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, trading suspensions or other remedies.

The report of our independent registered public accounting firm on our 2013 financial statements contains an explanatory paragraph regarding our ability to continue as a going concern, and we will need additional financing to execute our business plan, to fund our operations and to continue as a going concern.

       Since inception, we have experienced recurring operating losses and negative cash flows and we expect to continue to generate operating losses and consume significant cash resources for the foreseeable future. These conditions raise substantial doubt about our ability to continue as a going concern without additional financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2013 financial statements with respect to this uncertainty. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and we may have a more difficult time obtaining financing.

       We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our 2013 financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.


Risks Related to Our Intellectual Property

We may in the future be a party to intellectual property litigation or administrative proceedings that could be costly and could interfere with our ability to sell our lumivascular platform products.

       The medical device industry has been characterized by extensive litigation regarding patents, trademarks, trade secrets, and other intellectual property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. It is possible that U.S. and foreign patents and pending patent applications or trademarks controlled by third parties may be alleged to cover our products, or that we may be accused of misappropriating third parties' trade secrets. Additionally, our products include hardware and software components that we purchase from vendors, and may include design components that are outside of our direct control. Our competitors, many of which have substantially greater resources and have made substantial investments in patent portfolios, trade secrets, trademarks, and competing technologies, may have applied for or obtained or may in the future apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, use, sell and/or export our products or to use product names. We may become a party to patent or trademark infringement or trade secret claims and litigation as a result of these and other third party intellectual property rights being asserted against us. The defense and prosecution of these matters are both costly and time consuming. Vendors from whom we purchase hardware or software may not indemnify us in the event that such hardware or software is accused of infringing a third party's patent or trademark or of misappropriating a third party's trade secret.

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       Further, if such patents, trademarks, or trade secrets are successfully asserted against us, this may harm our business and result in injunctions preventing us from selling our products, license fees, damages and the payment of attorney fees and court costs. In addition, if we are found to willfully infringe third party patents or trademarks or to have misappropriated trade secrets, we could be required to pay treble damages in addition to other penalties. Although patent, trademark, trade secret, and other intellectual property disputes in the medical device area have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. We may be unable to obtain necessary licenses on satisfactory terms, if at all. If we do not obtain necessary licenses, we may not be able to redesign our lumivascular platform products to avoid infringement.

       Similarly, interference or derivation proceedings provoked by third parties or brought by the U.S. Patent and Trademark Office, or USPTO, may be necessary to determine the priority of inventions or other matters of inventorship with respect to our patents or patent applications. We may also become involved in other proceedings, such as re-examination, inter partes review, or opposition proceedings, before the USPTO or other jurisdictional body relating to our intellectual property rights or the intellectual property rights of others. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our lumivascular platform products or using product names, which would have a significant adverse impact on our business.

       Additionally, we may need to commence proceedings against others to enforce our patents or trademarks, to protect our trade secrets or know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. These proceedings would result in substantial expense to us and significant diversion of effort by our technical and management personnel. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. We may not be able to stop a competitor from marketing and selling products that are the same or similar to our products or from using product names that are the same or similar to our product names, and our business may be harmed as a result.

We are aware of patents held by third parties that may be asserted against us in litigation that could be costly and could limit our ability to sell our lumivascular platform products.

       We are aware of patent families related to catheter positioning, optical coherence tomography, occlusion cutting and atherectomy owned by third parties. With regard to atherectomy patents, one of our founders, Dr. John Simpson, founded FoxHollow Technologies prior to founding our company. FoxHollow Technologies developed an atherectomy device that is currently sold by Covidien, and Dr. Simpson and our Chief Technology Officer, Himanshu Patel, are listed as inventors on patents covering that device that are now held by Covidien. We are not currently aware of any claims Covidien has made or intends to make against us with respect to Pantheris or any other product or product under development. Because of a doctrine known as "assignor estoppel," if any of Dr. Simpson's earlier patents are asserted against us by Covidien, we may be prevented from asserting an invalidity defense regarding those patents, and our defense may be compromised. Covidien has significantly greater financial resources than we do to pursue patent litigation and could assert these patent families against us at any time. Adverse determinations in any such litigation could prevent us from manufacturing or selling Pantheris or other products or products under development, which would significantly harm our business.

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Intellectual property rights may not provide adequate protection, which may permit third parties to compete against us more effectively.

       In order to remain competitive, we must develop and maintain protection of the proprietary aspects of our technologies. We rely on a combination of patents, copyrights, trademarks, trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights. As of December 31, 2014, we held five issued U.S. patents and had 14 U.S. utility patent applications and 8 PCT applications pending. As of December 31, 2014, we also had one issued patent from the Japan Patent Office, one issued patent from the Chinese patent office, and one European patent which has been nationalized in Germany, France, Great Britain, Italy and Ireland. As of December 31, 2014, we had 29 pending patent applications outside of the United States, including in Australia, Canada, Europe, India and Japan. Our patents and patent applications include claims covering key aspects of the design, manufacture and therapeutic use of OCT imaging catheters, occlusion-crossing catheters, atherectomy devices and our imaging console. Our patent applications may not result in issued patents and our patents may not be sufficiently broad to protect our technology. Any patents issued to us may be challenged by third parties as being invalid, or third parties may independently develop similar or competing technology that avoids our patents. Should such challenges be successful, competitors might be able to market products and use manufacturing processes that are substantially similar to ours. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors or former or current employees, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized use and disclosure of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be adequate. In addition, the laws of many foreign countries will not protect our intellectual property rights to the same extent as the laws of the United States. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could affect our ability to expand to international markets or require costly efforts to protect our technology. To the extent our intellectual property protection is incomplete, we are exposed to a greater risk of direct competition. In addition, competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts or design around our protected technology. Our failure to secure, protect and enforce our intellectual property rights could substantially harm the value of our lumivascular platform, brand and business.

       We use certain open source software in Lightbox. We may face claims from companies that incorporate open source software into their products or from open source licensors, claiming ownership of, or demanding release of, the source code, the open source software or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to cease offering Lightbox unless and until we can re-engineer it to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. These risks could be difficult to eliminate or manage, and, if not addressed, could harm our business, financial condition and operating results.


Risks Related to Government Regulation

Failure to comply with laws and regulations could harm our business.

       Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory

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requirements may be more stringent than those in the United States and in other circumstances these requirements may be more stringent in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, adverse publicity, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions and administrative actions. If any governmental sanctions, fines or penalties are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be harmed. In addition, responding to any action will likely result in a significant diversion of management's attention and resources and substantial costs. Enforcement actions and sanctions could further harm our business, operating results and financial condition.

If we fail to obtain and maintain necessary regulatory clearances or approvals for our lumivascular platform products, or if clearances or approvals for future products and indications are delayed or not issued, our commercial operations would be harmed.

       Our lumivascular platform products are medical devices that are subject to extensive regulation by FDA in the United States and by regulatory agencies in other countries where we do business. Government regulations specific to medical devices are wide-ranging and govern, among other things:

       Before a new medical device, or a new intended use for, an existing product can be marketed in the United States, a company must first submit and receive either 510(k) clearance or premarketing approval from FDA, unless an exemption applies. Either process can be expensive, lengthy and unpredictable. We may not be able to obtain the necessary clearances or approvals or may be unduly delayed in doing so, which could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the product, which may limit the market for the product. Although we have obtained 510(k) clearance to market our Ocelot family of catheters for crossing sub and total occlusions in the peripheral vasculature, our clearance can be revoked if safety or efficacy problems develop. To market Pantheris in the United States, we must successfully complete a clinical trial, submit an application to FDA for 510(k) clearance and obtain such clearance. Therefore, even if we believe we have successfully developed Pantheris, we may not be permitted to market Pantheris in the United States if we do not obtain FDA regulatory clearance to market the product. Delays in obtaining clearance or approval could increase our costs and harm our revenues and growth.

       In addition, we are required to timely file various reports with the FDA, including reports required by the medical device reporting regulations, or MDRs, that require that we report to the regulatory authorities if our devices may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. If these reports are not filed timely, regulators may impose sanctions and sales of our products may suffer, and we may be subject to product liability or regulatory enforcement actions, all of which could harm our business. For example, we have submitted to the FDA five MDRs regarding our Ocelot family of catheters, which included four for perforations and one related to removal of the guidewire coating.

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       If we initiate a correction or removal for one of our devices to reduce a risk to health posed by the device, we would be required to submit a publically available Correction and Removal report to the FDA and in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the quality and safety of our devices. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive situations and cause customers to delay purchase decisions or cancel orders and would harm our reputation.

       The FDA and the Federal Trade Commission, or FTC, also regulate the advertising and promotion of our products to ensure that the claims we make are consistent with our regulatory clearances, that there are adequate and reasonable data to substantiate the claims and that our promotional labeling and advertising is neither false nor misleading in any respect. If the FDA or FTC determines that any of our advertising or promotional claims are misleading, not substantiated or not permissible, we may be subject to enforcement actions, including Warning Letters, and we may be required to revise our promotional claims and make other corrections or restitutions.

       FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by FDA or state agencies, which may include any of the following sanctions:

       If any of these events were to occur, our business and financial condition would be harmed.

Material modifications to our lumivascular platform products may require new 510(k) clearances or premarket approvals or may require us to recall or cease marketing our lumivascular platform products until clearances are obtained.

       Material modifications to the intended use or technological characteristics of our lumivascular platform products will require new 510(k) clearances or premarket approvals or require us to recall or cease marketing the modified devices until these clearances or approvals are obtained. Based on FDA published guidelines, FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance; however, FDA can review a manufacturer's decision. Any modification to an FDA-cleared device that would significantly affect its safety or efficacy or that would constitute a major change in its intended use would require a new 510(k) clearance or possibly a premarket approval. We may not be able to obtain additional 510(k) clearances or premarket approvals for new products or for modifications to, or additional indications for, our lumivascular platform products in a timely fashion, or at all. Delays in obtaining required future clearances would harm our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. We have made modifications to our lumivascular platform products in the past and will make additional modifications in the future that we believe do not or will not require additional clearances or approvals. If FDA disagrees and

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requires new clearances or approvals for the modifications, we may be required to recall and to stop selling or marketing our lumivascular platform products as modified, which could harm our operating results and require us to redesign our lumivascular platform products. In these circumstances, we may be subject to significant enforcement actions. We have made minor modifications and may make further modifications to the design of Pantheris prior to widespread commercialization, which could require regulatory clearances or approvals.

If we or our suppliers fail to comply with FDA's Quality System Regulation, our manufacturing operations could be delayed or shut down and lumivascular platform sales could suffer.

       Our manufacturing processes and those of our third party suppliers are required to comply with FDA's Quality System Regulation, which covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our lumivascular platform products. We are also subject to similar state requirements and licenses. In addition, we must engage in extensive recordkeeping and reporting and must make available our manufacturing facilities and records for periodic unannounced inspections by governmental agencies, including FDA, state authorities and comparable agencies in other countries. If we fail a Quality System inspection, our operations could be disrupted and our manufacturing interrupted. Failure to take adequate corrective action in response to an adverse Quality System inspection could result in, among other things, a shut-down of our manufacturing operations, significant fines, suspension of marketing clearances and approvals, seizures or recalls of our device, operating restrictions and criminal prosecutions, any of which would cause our business to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements, which may result in manufacturing delays for our product and cause our revenues to decline.

       We have registered with FDA as a medical device manufacturer and have obtained a manufacturing license from the California Department of Health Services, or CDHS. FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by FDA and the Food and Drug Branch of CDHS to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers. Our current facility has been inspected by FDA in 2009, 2011 and 2013, and two, three and zero observations, respectively, were noted during those inspections. BSI, our European Notified Body, inspected our facility in 2013 and found zero non-conformances. We can provide no assurance that we will continue to remain in compliance with the QSR. If FDA, CDHS or BSI inspect our facility and discover compliance problems, we may have to shut down our facility and cease manufacturing until we can take the appropriate remedial steps to correct the audit findings. Taking corrective action may be expensive, time consuming and a distraction for management and if we experience a shutdown or delay at our manufacturing facility we may be unable to produce our lumivascular platform products, which would harm our business.

Our lumivascular platform products may in the future be subject to product recalls that could harm our reputation.

       FDA and similar governmental authorities in other countries have the authority to require the recall of commercialized products in the event of material regulatory deficiencies or defects in design or manufacture. A government mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design or labeling defects. Recalls of our lumivascular platform products would divert managerial attention, be expensive, harm our reputation with

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customers and harm our financial condition and results of operations. A recall announcement would negatively affect our stock price.

Changes in coverage and reimbursement for procedures using our lumivascular platform products could affect the adoption of our lumivascular platform and our future revenues.

       Currently, our lumivascular platform procedure is typically reimbursed by third party payors, including Medicare and private healthcare insurance companies, under existing reimbursement codes. These payors may change their coverage and reimbursement policies, as well as payment amounts, in a way that would prevent or limit reimbursement for our products, which would significantly harm our business. Also, healthcare reform legislation or regulation may be proposed or enacted in the future, which may adversely affect such policies and amounts. We cannot predict whether and to what extent existing coverage and reimbursement will continue to be available. If physicians, hospitals and other providers are unable to obtain adequate coverage and reimbursement for procedures performed using our lumivascular platform products, they are significantly less likely to use our lumivascular platform products and our business would be harmed.

Healthcare reform measures could hinder or prevent our planned products' commercial success.

       In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system in ways that could harm our future revenues and profitability and the future revenues and profitability of our potential customers. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or Affordable Care Act, was enacted in 2010. The Affordable Care Act contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which will impact existing government healthcare programs and will result in the development of new programs. The Affordable Care Act, among other things, imposes an excise tax of 2.3% on the sale of most medical devices, including ours, and any failure to pay this amount could result in the imposition of an injunction on the sale of our products, fines and penalties.

       It remains unclear whether changes will be made to the Affordable Care Act. We cannot assure you that the Affordable Care Act, as currently enacted or as amended in the future, will not harm our business and financial results and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.

       There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future or their full impact. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of health care may harm:

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If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

       Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations that will affect how we operate include:

       The Affordable Care Act, among other things, amends the intent requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

       Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from

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participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could harm our ability to operate our business and our results of operations. In addition, the clearance or approval and commercialization of any of our products outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

Compliance with environmental laws and regulations could be expensive. Failure to comply with environmental laws and regulations could subject us to significant liability.

       Our research and development and manufacturing operations involve the use of hazardous substances and are subject to a variety of federal, state, local and foreign environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of, and human exposure to, hazardous substances and the sale, labeling, collection, recycling, treatment and disposal of products containing hazardous substances. In addition, our research and development and manufacturing operations produce biological waste materials, such as human and animal tissue, and waste solvents, such as isopropyl alcohol. These operations are permitted by regulatory authorities, and the resultant waste materials are disposed of in material compliance with environmental laws and regulations. Liability under environmental laws and regulations can be joint and several and without regard to fault or negligence. Compliance with environmental laws and regulations may be expensive and non-compliance could result in substantial liabilities, fines and penalties, personal injury and third part property damage claims and substantial investigation and remediation costs. Environmental laws and regulations could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. We cannot assure you that violations of these laws and regulations will not occur in the future or have not occurred in the past as a result of human error, accidents, equipment failure or other causes. The expense associated with environmental regulation and remediation could harm our financial condition and operating results.


Risks Related to This Offering

Our common stock has never been publicly traded, and we expect that the price of our common stock will fluctuate substantially.

       Before this initial public offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary substantially from the market price of our common stock following this offering. An active public trading market may not develop after completion of this offering or, if developed, may not be sustained. The public trading price for our common stock after this offering will be affected by a number of factors, including:

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       In addition, the stock prices of many companies in the medical device industry have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and harm our business, results of operations, financial condition, reputation and cash flows. These factors may materially and adversely affect the market price of our common stock.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

       The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

New investors purchasing our common stock will experience immediate and substantial dilution.

       Our initial public offering price is substantially higher than the book value per share of our common stock. If you purchase common stock in this offering, you will incur immediate dilution of $9.33 in net tangible book value per share of common stock, based on an assumed initial public offering price of $13.00 per share. In addition, the number of shares available for issuance under our stock option and employee stock purchase plans will increase annually without further stockholder approval. Investors will incur additional dilution upon the exercise of stock options and warrants. See "Dilution."

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline; holders of promissory notes may elect to convert such notes into shares of our common stock at a 15% discount to the initial public offering price.

       If our stockholders sell substantial amounts of our common stock in the public market after this offering, the market price of our common stock could decline. There will be approximately 12,670,141 shares of common stock, including shares issuable upon the exercise of options or warrants outstanding as of January 15, 2015, eligible for sale beginning 181 days after the date of this prospectus. Sales of these shares could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. See "Shares Eligible for Future Sale" and "Underwriting."

       After this offering, the holders of an aggregate of 6,968,017 shares of our outstanding common stock as of January 15, 2015 will have rights, subject to some conditions, to require us to file

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registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. We also intend to register shares of common stock that we may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing market stand-off and/or lock-up agreements.

       As of September 30, 2014, we had outstanding $12.4 million in aggregate principal amount and accrued interest under convertible promissory notes, which may, at the option of each holder thereof, convert into shares of our common stock upon completion of this offering, at a conversion price equal to 85% of the initial public offering price. Assuming an initial public offering price of $13.00, the principal amount and interest accrued as of September 30, 2014, under the convertible promissory notes, would be convertible into 1,123,649 shares of our common stock.

Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.

       After this offering, our directors, officers and each stockholder holding more than 5% of our common stock will collectively control approximately 36.8% of our outstanding common stock, assuming the exercise of all options and warrants held by such persons and without giving effect to the purchase of shares by any such persons in this offering. As a result, these stockholders, if they act together, would be able to exert significant influence over the management and affairs of our company and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control, might adversely affect the market price of our common stock and may not be in the best interests of our other stockholders.

We have broad discretion in the use of proceeds from this offering.

       The net proceeds of this offering will be allocated to sales and marketing initiatives, research and development activities, and general corporate purposes, including potential acquisitions of complementary products, technologies or businesses. Within those categories, our management will have broad discretion over the use and investment of the net proceeds of this offering, and accordingly investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds with only limited information concerning management's specific intentions.

The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain executive management and qualified board members.

       As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of The NASDAQ Stock Market and other applicable securities laws, rules and regulations. Compliance with these laws, rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an "emerging growth company." The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management's attention may be diverted from other business

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concerns and our costs and expenses will increase, which could harm our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

       In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

       We will incur additional compensation costs in the event that we decide to pay our executive officers cash compensation closer to that of executive officers of other public medical device companies, which would increase our general and administrative expense and could harm our profitability. Any future equity awards will also increase our compensation expense. We also expect that being a public company and compliance with applicable rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly to serve on our audit committee and compensation committee.

       As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which could be advantageous to our competitors and clients and could result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

We are an emerging growth company and a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors.

       We are an emerging growth company and a smaller reporting company. For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions from reporting requirements that are applicable to other public companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain eligible for these exemptions, other than with respect to stockholder approval of golden parachute payments, after we are no longer an emerging growth company for as long as we remain a smaller reporting company. We cannot predict if investors will find our common

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stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile or decline.

       We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenues of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fiscal year in which the fifth anniversary of the date of this prospectus occurs. We will remain a smaller reporting company until we have a public float, or value attributable to stock held by non-affiliates, of at least $75 million, as measured on the prior June 30th.

Anti-takeover provisions in our amended and restated certificate of incorporation and bylaws and Delaware law could discourage a takeover.

       Our amended and restated certificate of incorporation and bylaws, as amended and restated in connection with this offering, will contain provisions that might enable our management to resist a takeover. These provisions include:

       These provisions might discourage, delay or prevent a change in control of our company or a change in our management. The existence of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any

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"interested" stockholder for a period of three years following the date on which the stockholder became an "interested" stockholder. See "Description of Capital Stock."

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

       Our amended and restated certificate of incorporation, which will become effective prior to the completion of this offering, provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to the Delaware General Corporation Law or our certificate of incorporation or bylaws (iv) any action to interpret apply, enforce or determine the validity of our certificate of incorporation or bylaws or (v) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.

       We have never paid cash dividends and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends will depend on our earnings, capital requirements, financial condition, prospects and other factors our board of directors may deem relevant. In addition, our credit agreement prohibits us from, among other things, paying any dividends or making any other distribution or payment on account of our common stock. If we do not pay dividends, our stock may be less valuable because a return on your investment will only occur if you sell our common stock after our stock price appreciates.

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CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS

       This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "assume," "believe," "contemplate," "continue," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "seek," "should," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

       We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management's beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. We assume

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no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

       You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

       You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

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MARKET, INDUSTRY AND OTHER DATA

       This prospectus contains estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and reports. We relied on industry, market and similar data from Millennium Research Group, the Sage Group, peer reviewed journals, formal presentations at medical society meetings and other sources. We also rely on our own research and estimates in this prospectus. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled "Risk Factors." These and other factors could cause results to differ materially from those expressed in these publications and reports.

       Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

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USE OF PROCEEDS

       We estimate that the net proceeds from our sale of shares of common stock in this offering will be approximately $52.2 million, or approximately $60.6 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $13.00 per share and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share would increase (decrease) the net proceeds to us from this offering by $4.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase of 1.0 million shares in the number of shares offered by us, together with a $1.00 increase in the assumed offering price of $13.00 per share, would increase the net proceeds to us from this offering by $17.3 million. Similarly, each decrease of 1.0 million shares in the number of shares offered by us, together with a $1.00 decrease in the assumed offering price of $13.00 per share, would decrease the net proceeds to us from this offering by $15.5 million.

       We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including payment of scheduled interest and principal on our credit facility with PDL Biopharma, or the credit agreement. As of September 30, 2014, we had $21.4 million in principal and interest outstanding under the credit agreement. The interest rate under the credit agreement is 12.0% per annum plus a 1.8% royalty on net revenues and the interest rate under the notes is equal to the 30-day LIBOR plus 6% per annum. During 2015 we expect to use $2.0 million to make scheduled principal payments under the credit agreement. As of September 30, 2014, we had $12.4 million in principal plus accrued interest outstanding under the convertible promissory notes. While we do not have any current plans to allocate the net proceeds of this offering for the redemption of these notes, if we do redeem the notes we would pay each holder an amount equal to the greater of (i) 125% of the principal, and accrued and unpaid interest, or (ii) the principal plus an amount equivalent to a 20% annual return on investment under such notes. Please read "Management Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations."

       This expected use of net proceeds of this offering represents our current intentions based upon our present plans and business conditions. The amounts we actually expend in these areas, and the timing thereof, may vary significantly from our current intentions and will depend upon a number of factors, including future sales growth, success of research and product development efforts, cash generated from future operations and actual expenses to operate our business. We may use a portion of the net proceeds to acquire complementary products, technologies or businesses; however, we currently have no agreements or commitments to complete any such transactions and are not involved in negotiations to do so.

       As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. Accordingly, our management will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the proceeds of this offering.

       Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments such as money market funds, certificates of deposit, commercial paper and U.S. government securities.

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DIVIDEND POLICY

       We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock. We do not anticipate paying any dividends in the foreseeable future, and we currently intend to retain all available funds and any future earnings for use in the operation of our business and to finance the growth and development of our business. Future determinations as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Our credit agreement prohibits us from paying any dividends or making any other distribution or payment on account of our common stock.

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CAPITALIZATION

       The following table sets forth our capitalization as of September 30, 2014:

 
  As of September 30, 2014  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (unaudited)
(in thousands, except
share data)

 

Borrowings

  $ 20,323   $ 20,323   $ 20,323  

Convertible notes and accrued interest

    12,416     12,416     12,416  
               

Total

    32,739     32,739     32,739  
               

Convertible preferred stock, $0.001 par value; 4,344,984 shares authorized, 4,259,998 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

    119,769          
               

Stockholders' equity (deficit):

                   

Preferred stock, $0.001 par value; no shares authorized, issued and outstanding, actual; 5,000,000 shares authorized, pro forma and pro forma as adjusted; no shares issued and outstanding, pro forma and pro forma as adjusted

             

Common stock, $0.001 par value; 7,111,111 shares authorized, actual, 242,983 shares issued and outstanding, actual; 100,000,000 shares authorized pro forma and pro forma as adjusted, 5,229,806 shares issued and outstanding, pro forma; and 9,845,190 shares issued and outstanding, pro forma as adjusted

        5     10  

Additional paid-in capital

    2,483     122,247     174,472  

Accumulated deficit

    (138,398 )   (138,398 )   (138,398 )
               

Total stockholders' equity (deficit)

    (135,915 )   (16,146 )   36,084  
               

Total capitalization

  $ 16,593   $ 16,593   $ 68,823  
               
               

       In connection with the offering, we have requested written consent from the holders of our convertible preferred stock to convert into shares of common stock immediately prior to the closing of the offering. This disclosure assumes we receive approval for such conversion from the holders of a majority of the convertible preferred stock, voting as a single class and on an as-converted basis.

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       Each $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, would increase (decrease) each of pro forma as adjusted additional paid-in capital, stockholders' equity (deficit) and total capitalization by approximately $4.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) each of pro forma as adjusted additional paid-in capital, stockholders' equity and total capitalization by approximately $12.1 million, assuming that the initial public offering price, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

       The table above excludes, as of September 30, 2014:

       The table should be read in conjunction with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus.

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DILUTION

       If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the assumed initial public offering price of $13.00 per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Our net tangible book value as of September 30, 2014 was $(135.9) million. Our pro forma net tangible book value per share set forth below represents our total tangible assets less total liabilities and preferred stock, divided by the number of shares of our common stock outstanding on September 30, 2014, and assumes the automatic conversion of all of our outstanding shares of preferred stock into 4,986,823 shares of our common stock in connection with the closing of this offering.

       Dilution per share to new investors represents the difference between the amount per share paid by new investors who purchase shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering. Giving effect to the sale of shares of our common stock offered by us at the assumed initial public offering price of $13.00 per share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2014 would have been approximately $36.1 million. This amount represents an immediate increase in pro forma net tangible book value of $6.76 per share to our existing stockholders, and an immediate dilution in pro forma net tangible book value of $9.33 per share to new investors purchasing shares of our common stock in this offering. The following table illustrates this dilution:

Assumed initial public offering price per share

        $ 13.00  

Net tangible book value per share as of September 30, 2014

  $ (559.36 )      

Increase in net tangible book value per share attributable to conversion of all shares of preferred stock

  $ 556.27        

Pro forma net tangible book value per share as of September 30, 2014

  $ (3.09 )      

Increase in pro forma net tangible book value per share attributable to new investors in this offering

  $ 6.76        

Pro forma net tangible book value per share after the offering

        $ 3.67  
             

Dilution per share to new investors

        $ 9.33  
             
             

       In connection with the offering, we have requested written consent from the holders of our convertible preferred stock to convert into shares of common stock immediately prior to the closing of the offering. This disclosure assumes we receive approval for such conversion from the holders of a majority of the convertible preferred stock, voting as a single class and on an as-converted basis.

       A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, would increase (decrease) our pro forma net tangible book value, as adjusted to give effect to this offering, by $0.44 per share and the dilution per share to new investors in this offering by $0.56 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

       The following table sets forth, on a pro forma as adjusted basis, as of September 30, 2014, the differences between the number of shares of common stock purchased from us, the total consideration

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paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering, before deducting underwriting discounts and commissions and estimated offering expenses payable by us at an assumed initial public offering price of $13.00 per share.

 
   
   
  Total
Consideration
   
 
 
  Shares Purchased    
 
 
  Average Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

    5,229,806     53 % $ 115,383,532     66 % $ 22.06  

New investors

    4,615,384     47 %   59,999,992     34 % $ 13.00  
                       

Total

    9,845,190     100 % $ 175,383,524     100 % $ 17.81  
                       
                       

       Each $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and the average price per share paid by all stockholders by $4.3 million, $4.3 million and $0.44, respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

       If the underwriters exercise their over-allotment option in full, the percentage of shares of common stock held by existing stockholders will decrease to approximately 50% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will be increased to 5,307,691, or approximately 50% of the total number of shares of our common stock outstanding after this offering.

       The tables above exclude, as of September 30, 2014:

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       The following table sets forth, as of September 30, 2014, the effect of the issuance of common stock resulting from the exercise of outstanding options and warrants, the conversion of preferred stock issued between October 2014 and January 2015, and the conversion of convertible notes, as described above, for which the exercise or conversion price is less than the assumed initial public offering price.

 
   
   
  Total
Consideration
   
 
 
  Shares Purchased    
 
 
  Average Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

    13,223,654     74 % $ 186,389,190     76 % $ 14.10  

New investors

    4,615,384     26     59,999,992     24   $ 13.00  
                       

Total

    17,839,038     100 % $ 246,389,182     100 % $ 13.81  
                       
                       

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SELECTED FINANCIAL DATA

       We derived the selected statements of operations data for the years ended December 31, 2012 and 2013, and the balance sheet data as of December 31, 2012 and 2013, from our audited financial statements appearing elsewhere in this prospectus. The selected statements of operations data for the nine months ended September 30, 2013 and 2014, and the balance sheet data as of September 30, 2014, are derived from our unaudited interim financial statements included elsewhere in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. You should read this data together with our audited and unaudited financial statements and related notes appearing elsewhere in this prospectus and the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected financial data included in this section are not intended to replace the financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results and our interim results are not necessarily indicative of results to be expected for the full year ending December 31, 2014, or any other period.

Statements of Operations Data:

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands, except per share data)
 

Revenues

  $ 8,560   $ 12,964   $ 9,568   $ 8,140  

Cost of revenues

    4,151     8,205     5,860     4,941  
                   

Gross profit

    4,409     4,759     3,708     3,199  
                   

Operating expenses:

                         

Research and development

    15,416     15,973     12,664     8,350  

Selling, general and administrative

    22,848     25,758     20,578     12,900  
                   

Total operating expenses

    38,264     41,731     33,242     21,250  
                   

Loss from operations

    (33,855 )   (36,972 )   (29,534 )   (18,051 )

Interest income (expense), net

    19     (2,923 )   (1,763 )   (4,904 )

Other income (expense), net

    (19 )   5     8     (837 )
                   

Loss before provision for income taxes

    (33,855 )   (39,890 )   (31,289 )   (23,792 )

Provision for income taxes

    9     11     12     37  
                   

Net loss and comprehensive loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )
                   
                   

Net loss per share, basic and diluted

  $ (162.03 ) $ (170.52 ) $ (134.92 ) $ (98.88 )
                   
                   

Weighted average common shares used to compute net loss per share, basic and diluted

    209     234     232     241  
                   
                   

Pro forma net loss per share, basic and diluted (unaudited)

        $ (14.12 )       $ (7.74 )
                       
                       

Weighted average common shares used to compute pro forma net loss per share, basic and diluted (unaudited) (1)

          2,825           3,077  
                       
                       

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Balance Sheet Data:

 
  As of December 31,   September 30,
 
 
  2012   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands)
 

Cash and cash equivalents

  $ 20,617   $ 12,221   $ 12,213  

Working capital

    22,462     15,874     13,271  

Total assets

    30,324     25,008     23,064  

Borrowings

        20,052     20,323  

Convertible notes and accrued interest

        13,731     12,416  

Convertible preferred stock

    99,659     99,654     119,769  

Accumulated deficit

    (74,668 )   (114,569 )   (138,398 )

Total stockholders' deficit

    (73,644 )   (112,782 )   (135,915 )

(1)
Reflects the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 4,986,823 shares of common stock immediately prior to the closing of this offering.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of operations together with the section entitled "Selected Financial Data," should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere in this prospectus.

Overview

       We are a commercial-stage medical device company that designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral arterial disease, or PAD. Patients with PAD have a build-up of plaque in the arteries that supply blood to the arms and legs. Our mission is to dramatically improve the treatment of vascular disease through the introduction of products based on our lumivascular platform, the only intravascular image-guided system available in this market. We manufacture and sell a suite of products in the United States and select European markets. Our current products include our Lightbox imaging console, as well as our Wildcat, Kittycat, and the Ocelot family of catheters, which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion, or CTO. We are also developing Pantheris, our image-guided atherectomy device, designed to allow physicians to remove arterial plaque in PAD patients with precision. Pantheris is currently undergoing a U.S. clinical trial intended to support a 510(k) submission in the second half of 2015 to the U.S. Food and Drug Administration, or FDA. We believe that Pantheris, if cleared by FDA, will significantly enhance our market opportunity within PAD and can expand the overall addressable market for PAD endovascular procedures.

       During the third quarter of 2014, we began enrolling, and we are continuing to enroll, patients in VISION, a clinical trial designed to support a filing with FDA for our Pantheris atherectomy device. VISION is designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging. We believe the data from VISION will also allow us to demonstrate that avoiding the black line reduces the likelihood of restenosis in these patients. If Pantheris is cleared by FDA, we plan to commercialize it as part of our lumivascular platform in the United States and in select European countries after obtaining any required marketing authorizations.

       We focus our direct sales force, marketing efforts and promotional activities on interventional cardiologists, vascular surgeons and interventional radiologists in the United States and select European countries. We also work on developing strong relationships with physicians and hospitals that we have identified as key opinion leaders. Although our sales and marketing efforts are directed at these physicians because they are the primary users of our technology, we consider the hospitals and medical centers where the procedure is performed to be our customers, as they typically are responsible for purchasing our products. We are designing future products to be compatible with our lumivascular platform, which we expect to enhance the value proposition for hospitals to invest in our technology. We also expect that Pantheris will qualify for existing reimbursement codes currently utilized by other atherectomy products, further facilitating adoption of our products.

       Prior to the introduction of our lumivascular platform our non-imaging catheter products were manufactured by third parties. All of our products are now manufactured in-house using components

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and sub-assemblies manufactured both in-house at our facilities in Redwood City, California and by outside vendors. We expect our current manufacturing facility will be sufficient to meet our anticipated growth through at least 2016. We assemble all of our products at our manufacturing facility, but certain critical processes such as coating and sterilization are done by outside vendors.

       As of September 30, 2014, we had approximately $12.4 million in principal and accrued interest underlying outstanding promissory notes, or the notes, that are due and payable upon the earlier of October 29, 2018 or upon certain specified events. In November 2014, $3.8 million of principal and accrued interest outstanding under the notes was converted into shares of Series E preferred stock. These notes are convertible at the option of the holders of such notes into shares of our common stock in connection with this offering at a conversion price of 85% of the initial public offering price. We have also borrowed $20.0 million under our credit facility, or the credit agreement, with PDL Biopharma, or PDL. All outstanding amounts under this credit agreement must be repaid on April 18, 2018. We are required to make certain royalty payments on our net sales until April 18, 2018, regardless of whether we prepay the term loan, and we are required to pay an exit fee at maturity, or earlier prepayment in full, based on a percentage of the original principal amount borrowed.

       We began commercializing our initial non-lumivascular platform products in 2009 and introduced our lumivascular platform products in the United States in late 2012. We generated revenues of $8.6 million in 2012, $13.0 million in 2013 and $8.1 million in the nine months ended September 30, 2014. During the years ended December 31, 2012 and 2013, our net loss was $33.9 million and $39.9 million, respectively, and during the nine months ended September 30, 2014, our net loss was $23.8 million. We have not been profitable since inception and as of September 30, 2014, our accumulated deficit was $138.4 million. Since inception, we have financed our operations primarily through private placements of our preferred securities and, to a lesser extent, debt financing arrangements.

       During the third and fourth quarters of 2013, we effected a reduction in force, lowering our total headcount from 168 employees at June 30, 2013 to 115 employees at December 31, 2013. We implemented this reduction to better align resource utilization with our corporate strategy as we transitioned our focus from non-imaging products to lumivascular platform products, including Pantheris.

Components of Our Results of Operations

Revenues

       All of our revenues are currently derived from sales of our Lightbox console and our various PAD catheters and related services in the United States and select European markets. We expect our revenues to increase as we continue to expand our sales and marketing infrastructure and introduce new lumivascular platform products including, if cleared by FDA, Pantheris. No single customer accounted for more than 10% of our revenues during 2012, 2013, or the first nine months of 2014.

       We expect our revenues to fluctuate from quarter-to-quarter due to a variety of factors. In the first quarter, our results can be harmed by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures. In the third quarter, the number of elective procedures nationwide is historically lower than other quarters throughout the year, which we believe is primarily attributable to the summer vacations of physicians and their patients.

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Cost of Revenues and Gross Profit

       Cost of revenues consists primarily of costs related to manufacturing overhead, materials and direct labor. A significant portion of our cost of revenues currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. We expect overhead costs as a percentage of revenues to become less significant as our production volume increases. Cost of revenues also includes depreciation expense for production equipment, depreciation and related maintenance expense for leased equipment held by customers and certain direct costs such as those incurred for shipping our products. We expect cost of revenues to increase in absolute dollars to the extent our revenues grow.

       We calculate gross margin as gross profit divided by revenues. Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, manufacturing costs, product yields, head count and cost-reduction strategies. We expect our gross margin to increase over the long term as our production volume increases and as we spread the fixed portion of our manufacturing overhead costs over a larger number of units produced, thereby reducing our per unit manufacturing costs. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our gross margin. In the future, we may seek to manufacture certain of our products outside the United States to further reduce costs. Our gross margin will likely fluctuate from quarter-to-quarter as we continue to introduce new products and adopt new manufacturing processes and technologies.

Research and Development Expenses

       Research and development, or R&D, expenses consist primarily of engineering, product development, clinical and regulatory affairs, consulting services, materials, depreciation and other costs associated with products and technologies in development. These expenses include employee compensation, including stock-based compensation, supplies, materials, quality assurance expenses allocated to R&D programs, consulting, related travel expenses and facilities expenses. Clinical expenses include clinical trial design, clinical site reimbursement, data management, travel expenses and the cost of manufacturing products for clinical trials. In the future, we expect R&D expenses to increase in absolute dollars as we continue to develop new products and enhance existing products and technologies. However, we expect R&D expenses as a percentage of revenues to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trial and other related activities.

Selling, General and Administrative Expenses

       We have a direct sales organization that is divided into two distinct roles - sales of capital equipment, such as our Lightbox, and sales of disposable products, such as our catheters. Our current sales efforts focus on establishing new lumivascular platform sites by marketing our products to physicians and hospital administrators. Additionally, we seek to increase the use of our lumivascular platform products by our current customers through case coverage, clinical training and other programs.

       Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling and marketing functions, physician education programs, business development, finance, information technology and human resource functions. Other SG&A expenses include commissions, training, travel expenses, educational and promotional activities, marketing initiatives, market research and analysis, conferences and trade

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shows, professional services fees, including legal, audit and tax fees, insurance costs, a 2.3% tax on U.S. sales of medical devices, general corporate expenses and allocated facilities-related expenses. We expect to grow our sales force in preparation for the commercial launch of Pantheris in order to increase the base of customers using our lumivascular platform products. We believe that expanding our U.S. sales infrastructure and establishing distributor relationships in select regions outside the United States will drive further adoption of our lumivascular platform. We expect SG&A expenses to continue to increase in absolute dollars and as a percentage of revenues through at least 2015 as we expand our infrastructure to both drive and support anticipated growth in revenues and due to additional legal, accounting, insurance and other expenses associated with being a public company.

Interest Income (Expense), net

       Interest income (expense), net consists primarily of interest incurred on our outstanding indebtedness, our royalty obligation to PDL and non-cash interest related to the amortization of debt discount and issuance costs associated with our various debt agreements. Due to the conversion of $7.8 million and $3.8 million in principal amount of the notes and related accrued interest into shares of our Series E preferred stock in September and November 2014, respectively, we expect that our interest expense will decrease.

Other Income (Expense), net

       Other income (expense), net primarily consists of gains and losses resulting from the remeasurement of the fair value of our common stock warrant liability and the compound embedded derivative instrument associated with the notes. We continued to record adjustments to the estimated fair value of the common stock warrants until the Series E preferred stock issuance in September 2014, upon which the common stock warrant exercise price was fixed at $12.60 per share. At this time we re-evaluated the terms of the common stock warrants and determined that the common stock warrants issued with the convertible notes met the requirements for equity classification and the fair value of the warrant liability was reclassified to additional paid-in capital. We will continue to record adjustments to the estimated fair value of the compound embedded derivative instrument associated with the notes until the notes are converted into shares of our capital stock or are repaid. Additionally, for the nine months ended September 30, 2014, other income (expense), net includes the loss on the extinguishment of our notes.

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Results of Operations:

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands, except percentages)
 

Revenues

  $ 8,560   $ 12,964   $ 9,568   $ 8,140  

Cost of revenues

    4,151     8,205     5,860     4,941  
                   

Gross profit

    4,409     4,759     3,708     3,199  

Gross margin

    52 %   37 %   39 %   39 %

Operating expenses:

                         

Research and development

    15,416     15,973     12,664     8,350  

Selling, general and administrative

    22,848     25,758     20,578     12,900  
                   

Total operating expenses

    38,264     41,731     33,242     21,250  
                   

Loss from operations

    (33,855 )   (36,972 )   (29,534 )   (18,051 )

Interest income (expense), net

    19     (2,923 )   (1,763 )   (4,904 )

Other income (expense), net

    (19 )   5     8     (837 )
                   

Loss before provision for income taxes

    (33,855 )   (39,890 )   (31,289 )   (23,792 )

Provision for income taxes

    9     11     12     37  
                   

Net loss and comprehensive loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )
                   
                   

Comparison of Nine Months Ended September 30, 2013 and 2014

       Revenues.     Revenues decreased $1.5 million, or 15%, to $8.1 million during the nine months ended September 30, 2014, compared to $9.6 million during the nine ended September 30, 2013. This decrease was attributable to a $1.8 million, or 50%, decrease in revenues from sales of our Wildcat and Kittycat non-imaging catheters from $3.5 million to $1.7 million. This decrease was partially offset by sales of our lumivascular platform products, which increased by $0.3 million, or 6%, to $6.4 million. Our average selling prices per unit were substantially consistent for both periods. The increase in sales of our lumivascular platform products was driven by the continued adoption by hospitals of our lumivascular platform and the associated use of our Ocelot family of catheters.

       Cost of Revenues and Gross Margin.     Cost of revenues decreased $1.0 million, or 16%, to $4.9 million during the nine months ended September 30, 2014, compared to $5.9 million during the nine months ended September 30, 2013. This decrease was attributable to the decrease in revenues from sales of our Wildcat and Kittycat non-imaging catheters, as well as a decrease in personnel-related expenses associated with our headcount reduction during the third and fourth quarters of 2013.

       Research and Development Expenses.     R&D expenses decreased $4.3 million, or 34%, to $8.4 million during the nine months ended September 30, 2014, compared to $12.7 million during the nine months ended September 30, 2013. This decrease was primarily due to a $1.8 million decrease in personnel-related expenses associated with our headcount reduction during the third and fourth quarters of 2013, a reduction of $1.2 million in outside services and a decrease of $1.0 million in product development materials and related costs, as we narrowed our research and development efforts to focus on our lumivascular platform products, particularly Pantheris.

       Selling, General and Administrative Expenses.     SG&A expenses decreased $7.7 million, or 37%, to $12.9 million during the nine months ended September 30, 2014, compared to $20.6 million during

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the nine months ended September 30, 2013. This decrease was primarily due to a $5.9 million decrease in personnel-related expenses associated with our headcount reduction during the third and fourth quarters of 2013, a reduction of $1.5 million in consulting, legal and professional fees and a reduction of $0.3 million in tradeshow and travel-related expenses associated with our reduction in headcount and cost reduction actions taken in the second half of 2013.

       Interest Income (Expense), Net.     Interest income (expense), net increased $3.1 million, or 178%, to an expense of $4.9 million during the nine months ended September 30, 2014, compared to an expense of $1.8 million during the nine months ended September 30, 2013. This increased expense was attributable to interest expense incurred on our credit agreement with PDL, entered into during the second quarter of 2013, and the notes issued during the fourth quarter of 2013, and non-cash interest related to the amortization of debt discount and issuance costs associated with the notes and the credit agreement.

       Other Income (Expense), Net.     Other income (expense), net decreased to an expense of $0.8 million during the nine months ended September 30, 2014, compared to income of $8,000 during the nine months ended September 30, 2013. The decrease in other income (expense) was primarily attributable to the $0.9 million loss on the extinguishment of our notes that were converted into Series E preferred stock in September 2014, partially offset by the remeasurement of the fair value of our common stock warrant liability through the issuance of the Series E preferred stock in September 2014, and the derivative instruments associated with our notes which are accounted for as a compound embedded derivative instrument and marked-to-market at each reporting date.

Comparison of Years Ended December 31, 2012 and 2013

       Revenues.     Revenues increased $4.4 million, or 51%, to $13.0 million during the year ended December 31, 2013, compared to $8.6 million during the year ended December 31, 2012. $8.3 million of this increase was attributable to the U.S. launch of our lumivascular platform in December 2012, partially offset by a decrease in sales of our non-imaging catheters of $3.9 million. Our average selling prices per unit were substantially consistent for both periods.

       Cost of Revenues and Gross Margin.     Cost of revenues increased $4.0 million, or 98%, to $8.2 million during the year ended December 31, 2013, compared to $4.2 million during the year ended December 31, 2012. This increase was primarily attributable to the growth in sales of our lumivascular platform products, which commenced in the United States in December 2012.

       Gross margin for the year ended December 31, 2013, decreased to 37%, compared to 52% for the year ended December 31, 2012. This decrease was primarily due to the costs associated with the introduction of a new manufacturing process related to the launch of our lumivascular platform and the transition of the manufacturing process of our non-imaging catheters in-house, as well as continued investments in our manufacturing infrastructure, primarily in personnel, which resulted in an increased allocation of facilities expense to cost of revenues.

       Research and Development Expenses.     R&D expenses increased $0.6 million, or 4%, to $16.0 million during the year ended December 31, 2013, compared to $15.4 million during the year ended December 31, 2012. This increase was primarily due to an increase in personnel-related expenses.

       Selling, General and Administrative Expenses.     SG&A expenses increased $3.0 million, or 13%, to $25.8 million during the year ended December 31, 2013, compared to $22.8 million during the year

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ended December 31, 2012. This increase was primarily due to an increase of $3.4 million in employee-related expenses from an increase in headcount. SG&A expenses also increased $0.3 million due to the medical device tax, which became effective on January 1, 2013. These increases were partially offset by a decreased allocation of facilities expense to SG&A due to our decision to manufacture our lumivascular platform products in-house.

       Interest Income (Expense), Net.     Interest income (expense), net increased to an expense of $2.9 million during the year ended December 31, 2013, compared to income of $19,000 during the year ended December 31, 2012. The increase in interest expense was attributable to interest expense incurred on our outstanding indebtedness, including the credit agreement, entered into during the second quarter of 2013, and the notes issued during the fourth quarter of 2013, and non-cash interest related to the amortization of debt discount and issuance costs associated with the notes and the credit agreement.

       Other Income (Expense), Net.     Other income (expense), net increased $24,000 to an income of $5,000 during the year ended December 31, 2013, compared to an expense of $19,000 during the year ended December 31, 2012. The increase in other income was attributable to the remeasurement of the fair value of our common stock warrant liability and the derivative instruments associated with the notes, which are accounted for as a compound embedded derivative instrument, and marked-to-market at each reporting date.

Liquidity and Capital Resources

       As of September 30, 2014, we had cash and cash equivalents of $12.2 million and an accumulated deficit of $138.4 million, compared to cash and cash equivalents of $12.2 million and an accumulated deficit of $114.6 million as of December 31, 2013. We currently believe that the net proceeds from this offering together with our existing cash and cash equivalents, total cash proceeds of $14.4 million from our Series E preferred stock financing in December 2014 and January 2015, and expected revenues, will be sufficient to meet our capital requirements and fund our operations for at least 18 months following this offering. If these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain an additional credit facility. Our primary sources of capital have been private placements of preferred stock and debt financing agreements. In April 2013, we entered into a credit agreement with PDL, under which we could borrow up to $40.0 million, of which $20.0 million was immediately available and drawn by us. The remaining $20.0 million would have been available based upon the achievement of certain net revenue milestones prior to June 30, 2014. We did not achieve the net revenue milestones and, accordingly, cannot borrow additional funds under the credit agreement. As of September 30, 2014, we had $20.3 million outstanding under the credit agreement. See section titled —"Contractual Obligations—PDL Credit and Security Agreements."

       If we raise additional funds by issuing equity securities, our stockholders would experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and require significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our products and scale back our business and operations.

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Cash Flows

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands)
 

Net cash (used in) provided by:

                         

Operating activities

  $ (35,234 ) $ (40,655 ) $ (33,439 ) $ (15,748 )

Investing activities

    (288 )   (496 )   (811 )   (37 )

Financing activities

    37,303     32,755     19,327     15,777  
                   

Net (decrease) increase in cash and cash equivalents

  $ 1,781   $ (8,396 ) $ (14,923 ) $ (8 )
                   
                   

Net Cash Used in Operating Activities

       During the nine months ended September 30, 2014, net cash used in operating activities was $15.7 million, consisting primarily of a net loss of $23.8 million, partially offset by a decrease in net operating assets of $2.5 million and by non-cash charges of $5.6 million. The decrease in net operating assets was primarily due to decreases in inventory, and an increase in accrued expenses and other current liabilities related to interest payable to PDL and transaction fees related to our Series E financing. The non-cash charges primarily consisted of depreciation, stock-based compensation, non-cash interest expense related to our credit agreement with PDL, and losses on the extinguishment of our notes.

       During the nine months ended September 30, 2013, net cash used in operating activities was $33.4 million, consisting primarily of a net loss of $31.3 million and an increase in net operating assets of $4.6 million, partially offset by non-cash charges of $2.5 million. The increase in net operating assets was primarily due to increases in accounts receivable and inventory as we expanded our sales and marketing organizations and manufacturing supply chain to support the ongoing commercialization of our lumivascular platform. The non-cash charges primarily consisted of depreciation, stock-based compensation and non-cash interest expense related to our credit agreement with PDL.

       Net cash used in operating activities for 2013 was $40.7 million, consisting primarily of a net loss of $39.9 million and an increase in net operating assets of $4.3 million, partially offset by non-cash charges of $3.6 million. The increase in net operating assets was primarily due to the expansion of our sales and marketing organizations to support the ongoing commercialization of our lumivascular platform resulting in increases in accounts receivable and inventory as well as a decrease in accounts payable and accrued expenses and other current liabilities due to timing of payments. Non-cash charges consisted primarily of depreciation, stock-based compensation, and non-cash interest expense related to our credit agreement with PDL.

       Net cash used in operating activities for 2012 was $35.2 million, consisting primarily of a net loss of $33.9 million and an increase in net operating assets of $2.6 million, partially offset by non-cash charges of $1.3 million. The increase in net operating assets was primarily due to increases in inventory as we launched our lumivascular platform in late 2012, partially offset by an increase in accounts payables, accrued compensation and accrued expenses and other current liabilities related to expansion of our sales, and marketing and manufacturing supply chain to support the launch of our lumivascular platform. Non-cash charges consisted primarily of depreciation and stock-based compensation.

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Net Cash Used in Investing Activities

       During the nine months ended September 30, 2013 and 2014, net cash used in investing activities was $0.8 million and $37,000, respectively, consisting of purchases of property and equipment.

       Net cash used in investing activities in 2012 and 2013 was $0.3 million and $0.5 million, respectively, consisting of purchases of property and equipment.

Net Cash Provided by Financing Activities

       During the nine months ended September 30, 2014, net cash provided by financing activities was $15.8 million, consisting of net proceeds of $4.7 million from the issuance of convertible notes and net proceeds of $11.1 million from the issuance of our Series E preferred stock. During the nine months ended September 30, 2013, net cash provided by financing activities was $19.3 million, consisting of net proceeds of $19.3 million from borrowings under our credit agreement with PDL.

       Net cash provided by financing activities in 2013 was $32.8 million, consisting primarily of net proceeds of $19.3 million under our credit agreement with PDL and net proceeds of $13.4 million from the issuance of convertible notes. Net cash provided by financing activities in 2012 was $37.3 million, consisting primarily of net proceeds of $37.1 million from the issuance of our Series D preferred stock.

Off-Balance Sheet Arrangements

       We currently have no off-balance sheet arrangements, such as structured finance, special purpose entities, or variable interest entities.

Contractual Obligations

       Our principal obligations consist of the operating lease for our facilities, capital leases related to office equipment, the credit agreement with PDL, the notes and non-cancellable purchase commitments. The following table sets out, as of December 31, 2013, our contractual obligations due by period (in thousands):

 
  Payments Due by Period  
 
  Less Than
1 Year
  1 - 3 Years   3 - 5 Years   More Than
5 Years
  Total  

Operating lease obligations

  $ 1,092   $ 2,185   $   $   $ 3,277  

Capital lease obligations

    18     13             31  

Credit agreement with PDL

    2,129     23,658     2,122         27,909  

Convertible promissory notes

            33,468         33,468  

Noncancellable purchase commitments

    1,316                 1,316  
                       

  $ 4,555   $ 25,856   $ 35,590   $   $ 66,001  
                       
                       

       In addition to the interest and principal payments due under our credit agreement with PDL, we are obligated to pay PDL a royalty at the rate of 1.8% of our quarterly revenues through the maturity date of April 18, 2018. To the extent that we prepay the borrowings under our credit agreement, our royalty obligations will continue and will be payable through the maturity date at a reduced rate of the greater of 0.9% of our quarterly revenues or specified minimum payments. Because we are unable to estimate the actual royalty amounts payable under the PDL credit agreement, the table above excludes the minimum annual royalty payments and percentage-based royalties due thereunder.

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       In December 2014, we and our former financial advisor agreed to amend their engagement letter and terminate certain obligations thereunder, effective immediately. Pursuant to the terms of the amended engagement letter, we agreed to pay the former financial advisor a transaction fee of $650,000, which will be paid in four equal quarterly installments starting on December 31, 2014 and ending on September 30, 2015, and $35,000 for reimbursement of their out-of-pocket expenses, which were due upon execution of the amendment. We had accrued approximately $685,000 in our financial statements as of September 30, 2014 for this matter.

       We issued additional convertible notes in May and July of 2014 in an aggregate principal amount of $4.7 million. In September 2014, in connection with our Series E preferred stock financing, $7.8 million of principal and accrued interest outstanding under the notes was converted into shares of our Series E preferred stock. As of September 30, 2014, we had $12.4 million in principal and accrued interest outstanding under the notes. In November 2014, $3.8 million of principal and accrued interest outstanding under the notes was converted into shares of Series E preferred stock and as of December 31, 2014, we had $8.7 million in principal and accrued interest outstanding under the notes. Upon maturity in October 2018 and based on the amount outstanding as of December 31, 2014, an amount up to $17.5 million in principal and accrued interest may be due and payable under the notes, to the extent then still outstanding.

       Our contractual obligations as of September 30, 2014 have not otherwise significantly changed from December 31, 2013.

Convertible Promissory Notes

       On October 29, 2013, we entered into a Note and Warrant Purchase Agreement, or the Convertible Note Agreement, with certain existing preferred stockholders, third-parties and employees for the issuance of convertible notes up to an aggregate principal amount of $25.0 million. Under the terms of the Convertible Note Agreement, we issued convertible notes, or the notes, in October and November 2013 for total proceeds of $13.5 million, in May 2014 for $4.2 million in total proceeds and in July 2014 for $0.5 million in total proceeds. The notes bear interest equal to 30-day LIBOR, plus 6% per annum subject to a minimum internal rate of return of 20% per annum. The principal and accrued interest thereon will mature on the earlier of: (i) October 29, 2018, (ii) an event of default or (iii) a change of control event.

       The principal and the accrued interest on the notes is convertible, at the option of the holder, upon a future issuance of our preferred stock or common stock into that same stock at a conversion price equal to 85% of the price paid by other investors in the financing event. If the holder does not elect to convert the notes upon the closing of such a financing and such financing raises net proceeds of at least $20.0 million, we may repay the notes at 125% of the outstanding principal and accrued and unpaid interest. Upon a change of control, at the election of the holder, we are obligated to make a payment to such holder equal to the greater of (i) 125% of the outstanding principal and accrued and unpaid interest, (ii) an amount equal to the return the holders of Series D preferred stock would be entitled to receive in such change of control, or (iii) the amount providing the investor with an annual 20% minimum internal rate of return, provided that in the event that the change of control includes any contingent payments based on future performance, the amount due and payable under clause (ii) will be recalculated at the time each installment or contingent payment is made. In September 2014, in connection with the issuance of the Series E preferred stock, $7.8 million of principal and accrued interest outstanding under the notes was converted into shares of Series E preferred stock. Upon the conversion of the notes, we recorded a loss from the extinguishment of the debt in the amount of $0.9 million, which is reflected in other income (expense), net in the statement

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of operations and comprehensive loss. As of September 30, 2014, $12.4 million in principal and accrued interest remained outstanding under the notes. In November 2014, an additional $3.8 million of principal and accrued interest outstanding under the notes was converted into shares of Series E preferred stock.

       Upon completion of this offering, the outstanding principal and accrued and unpaid interest under the notes may, at the option of each holder thereof, convert into shares of our common stock at a conversion price equal to 85% of the initial public offering price. To date none of the note holders have indicated an intent to convert their notes in connection with the offering. Assuming an initial public offering price of $13.00, the principal amount and accrued interest under the notes as of September 30, 2014 would convert into 1,123,649 shares of our common stock. If holders of the notes elect not to convert the principal and accrued and unpaid interest under such notes into shares of our common stock in connection with this offering, we may, at our sole election, prepay such outstanding principal and accrued and unpaid interest under the notes by paying each holder an amount equal to 125% of the principal and accrued and unpaid interest under the notes at any time prior to their maturity date.

Lease Agreement

       We lease our headquarters in Redwood City, California pursuant to a lease agreement with HCP LS Redwood City dated July 30, 2010, or the 2010 Lease, as amended by the First Amendment to Lease dated September 30, 2011 and together with the 2010 Lease, the Amended Lease. The Amended Lease has a rental commencement date of December 1, 2011 and a term of five years and expires in November 2016. We have two options to extend the lease term for a period of three years each. Each option must be exercised no more than 12 months and no less than nine months prior to the expiration of the applicable term. The Amended Lease is for an aggregate of approximately 44,200 rentable square feet.

PDL Credit and Security Agreements

       On April 18, 2013, we, as borrower, entered into a credit agreement with PDL, as lender and agent. The credit agreement provided for an aggregate term loan facility of up to $40.0 million, available in two tranches of up to $20.0 million each. We borrowed $20.0 million as a term loan under tranche one of the credit agreement on April 18, 2013. We also paid closing fees to PDL of approximately $200,000, which were deducted from the tranche one funds we received, plus legal and brokerage fees. Tranche two of the credit agreement, the availability of which was conditioned on our satisfaction of certain milestones, never became available to us as we did not reach those milestones. The proceeds from tranche one were used for working capital, capital expenditures and general corporate purposes.

       The tranche one term loan bears interest at a rate equal to 12.0% per annum. Interest on the tranche one term loan is due and payable quarterly in arrears, provided that we may elect to add up to 1.5% percent of interest per annum to increase the outstanding principal balance of such loan for the first eight interest payment dates after the closing date with respect to the tranche one loan. Pursuant to this provision, we converted $452,000 of the interest on the tranche one loan amount into principal and, as of September 30, 2014, there was $20.3 million outstanding under the credit agreement. Principal is payable in equal quarterly installments beginning December 2015 or, if certain milestone conditions are met, June 2016. All outstanding amounts under the tranche one term loan must be repaid on April 18, 2018.

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       At maturity of the tranche one term loan, we are obligated to pay an exit fee equal to 1.0% of the original principal amount borrowed. Additionally, until April 18, 2018, even if the term loan is prepaid, we are obligated to pay to PDL a certain percentage of our net revenue each quarter. Until the end of the quarter in which prepayment occurs, we are required to pay to PDL a quarterly amount equal to 1.8% of our net revenues for such quarter. If we prepay the loan, we are still required to pay to PDL a quarterly amount equal to the greater of 0.9% of our net revenues for each calendar month during such quarter and certain minimum amounts, starting at $65,000 per quarter in 2013 and increasing annually to $310,000 per quarter in 2018. On April 18, 2013, we entered into a security agreement with PDL, as agent, pursuant to which we secured our obligations under the tranche one term loan by granting to PDL a security interest on substantially all of our assets.

       The credit agreement and the security agreement contain customary affirmative covenants and customary negative covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate with affiliates, make acquisitions, incur debt, incur liens, pay dividends, enter into restrictive agreements, repurchase stock and make investments, in each case subject to certain exceptions. Additionally, even if the term loan is prepaid, until there are no further obligations to periodically pay to lender a percentage of our net revenue, we must comply with certain affirmative covenants and negative covenants limiting our ability to, among other things, undergo a change in control or dispose of assets, in each case subject to certain exceptions. The credit agreement and the security agreement also contain customary events of default including, among others, payment defaults, breaches of covenants, bankruptcy and insolvency events, cross defaults with certain material indebtedness, judgment defaults, and breaches of representations and warranties. Upon an event of default, PDL may declare all or a portion of our outstanding obligations payable to be immediately due and payable and exercise other rights and remedies provided for under the credit agreement, the security agreement and any guaranty. Additionally, upon an event of default, the interest rate would likely be increased to a default rate of 14.0% per annum. We were in compliance with the covenants under the credit agreement and the notes as of September 30, 2014.

Indemnification

       In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification of the counterparty. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not been subject to any claims or been required to defend any action related to our indemnification obligations. However, we may incur significant expense in the future as a result of these indemnification obligations.

       In accordance with our amended and restated certificate of incorporation and our amended and restated bylaws, we have indemnification obligations to our officers and directors, subject to some limits, with respect to their service in such capacities. We have also entered into indemnification agreements with our directors and certain of our officers. To date, we have not been subject to any claims, and we have director and officer insurance that may enable us to recover a portion of any amounts paid for future potential claims. However, we may incur significant expense in the future as a result of these indemnification obligations.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

       The risk associated with fluctuating interest rates is primarily limited to our cash equivalents, which are carried at quoted market prices. Due to the short-term maturities and low risk profile of

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our cash equivalents, an immediate 100 basis point change in interest rates would not have a material effect on the fair value of our cash equivalents. We do not currently use or plan to use financial derivatives in our investment portfolio.

       We are also exposed to market risk related to fluctuations in interest rates indexed to LIBOR, which determines the variable interest payments we make on the notes, as they bear interest equal to 30-day LIBOR, plus 6% per annum. However, we do not believe we are subject to any material market risk exposure as the notes are subject to, and interest is accrued at, a minimum internal rate of return of 20%.

Credit Risk

       As of December 31, 2013 and September 30, 2014, our cash and cash equivalents were maintained with one financial institution in the United States, and our current deposits are likely in excess of insured limits. We have reviewed the financial statements of this institution and believe it has sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no credit risk to us.

       Our accounts receivable primarily relate to revenues from the sale of our lumivascular platform products to hospitals and medical centers in the United States. Three and two customers represented more than 10% of our accounts receivable as of December 31, 2013 and September 30, 2014, respectively.

Foreign Currency Risk

       Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows.

Related Parties

       For a description of our related party transactions, see "Certain Relationships and Related Transactions."

Critical Accounting Policies and Estimates

       Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

       While our significant accounting policies are more fully described in Note 2 of our financial statements included in this prospectus, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

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Revenue Recognition

       All of our revenues are currently derived from sales of our lumivascular platform products, various non-imaging PAD catheters and related services in the United States and select European markets. We recognize revenues when the following revenue recognition criteria are met:

    Persuasive evidence of an arrangement exists. We consider this criterion satisfied when we have an agreement or contract in place with the customer.

    Delivery has occurred or services have been rendered. We principally determine this criterion to be satisfied as follows:

    Lightbox console:    upon our receipt of a form executed by the customer acknowledging that the training and installation process is complete.

    PAD catheters:    when the product has been shipped and risk of loss and title has passed to the customer.

    Service:    recognized ratably over the term of the service period. To date service revenues have been insignificant.

    The fee is fixed or determinable and collectability is reasonably assured. We determine the satisfaction of these criteria based on our judgment regarding the nature of the fee charged for products, contractual agreements entered into, and the collectability of those fees under any contract or agreement.

       We offer our customers the ability to purchase or lease our Lightbox. When a customer leases the Lightbox, we recover the cost of providing the system by charging that customer a premium on sales of the Ocelot family of catheters. When a Lightbox is leased, we retain title to the equipment and it remains capitalized on our balance sheet under property and equipment. The costs to maintain these leased Lightboxes held by customers are charged to cost of revenues as incurred.

       We evaluate our lease agreements and account for these contracts under the guidance pertaining to accounting for leases and for revenue arrangements with multiple deliverables. The guidance requires arrangement consideration to be allocated between a lease deliverable and a non-lease deliverable based upon the relative selling prices of the deliverables, using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence of fair value of the respective elements, third-party evidence of selling price, or best estimate of selling price, or BESP. We allocate arrangement consideration using BESP.

       We assessed whether the embedded lease is an operating lease or sales-type lease and determined that collectability of the minimum lease payments is not reasonably predictable given that any payments under the lease agreements are dependent upon contingent future Ocelot catheter sales. We concluded, therefore, that the embedded lease did not meet the criteria of a sales-type lease and we account for it as an operating lease. We recognize revenue allocated to the lease as the Ocelot catheters are delivered.

       We must make significant assumptions regarding the future collectability of accounts receivable from customers to determine whether revenue recognition criteria have been met. If collectability is not assured at the time of shipment, we defer revenues until such criterion has been met. We estimate reductions in revenue for potential returns of products by customers. In making such estimates, we analyze historical returns, current economic trends and changes in customer demand and acceptance of our products.

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Common Stock Valuation

       Our intent has been to grant all options with an exercise price not less than the fair value of our common stock underlying those options on the date of grant. We have determined the estimated fair value of our common stock at each valuation date in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our board of directors, with the assistance of independent third party valuation firms and management, developed these valuations using significant judgment and taking into account numerous factors, including valuation reports; developments at our company; the rights, preferences and privileges of our preferred stock relative to those of our common stock; market conditions; the lack of marketability of our common stock; and contemporaneous debt and equity financing events.

       For all option grant dates through September 30, 2014, our board of directors determined the enterprise value based on the application of the market approach and the income approach. Under the market approach we estimate the value based upon analysis of similar companies. We then apply these derived multiples or values to our financial metrics to estimate our market value. The income approach, or discounted cash flow method, estimates value based on the expectation of future net cash flows, which are then discounted back to the present using a rate of return derived from companies of similar type and risk profile. The allocation of these enterprise values to each part of our capital structure, including our common stock, was done based on the option pricing method, or OPM. OPM treats the rights of the holders of preferred and common stock as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of the preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value of its portion of each of these call option rights. OPM derives the implied equity value of a company from a recent transaction involving the company's own securities issued on an arms-length basis. Following the closing of this offering, the fair value of our common stock will be determined based on the closing price of our common stock on The NASDAQ Stock Market.

       In December 2014, our board of directors approved the grant of options to purchase 1,874,160 and 838,250 shares of common stock under the 2009 Stock Plan at an exercise price of $4.50 and $4.95 per share, respectively. Pursuant to the terms of the 2009 Plan, the exercise price of incentive stock options, or ISOs, granted to a stockholder, who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of our stock, will be not less than 110% of the fair market value per share of common stock on the date of grant. Accordingly, options to purchase common stock issued to John B. Simpson were priced at $4.95 per share. Consistent with all prior option grants, our board of directors determined the enterprise value based on the application of the market approach and the income approach. The allocation of these enterprise values to each part of our capital structure, including our common stock, was based on the option pricing method.

       We are in the process of obtaining an external valuation report related to our stock option grants made on December 31, 2014 in connection with preparing our year-end financial statements. If there is a difference between the grant date exercise price of the options and their fair market value on the grant date, additional stock-based compensation will be recorded and amortized to expense ratably on a straight-line basis over the vesting period, which is generally four years. For example, based on an assumed fair value of $13.00 per share as of December 31, 2014, which is the midpoint of the estimated price range in this offering, we would record stock-based compensation charges of $26.7 million ratably over the vesting period of four years.

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       The intrinsic value of all outstanding vested and unvested options as of September 30, 2014, was $0.3 million based on the assumed initial public offering price of $13.00 per share, and based on 316,733 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2014, with a weighted-average exercise price of $16.15 per share.

Stock-Based Compensation

       We maintain an equity incentive plan to provide long-term incentive for employees, consultants and members of our board of directors. We currently have no outstanding stock options granted to consultants. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors.

       We are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards, including employee stock options. We recognize this expense over the requisite service period. In addition, we recognize stock-based compensation expense in the statements of operations and comprehensive loss based on awards expected to vest and, therefore, the amount of expense has been reduced for estimated forfeitures. We use the straight-line method for expense attribution.

       The valuation model we used for calculating the fair value of awards for stock-based compensation expense is the Black-Scholes option-pricing model, or the Black-Scholes model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the weighted average period of time that the options granted are expected to be outstanding, the volatility of common stock, an assumed risk-free interest rate and an estimated forfeiture rate.

       The following table summarizes the assumptions we used to determine the fair value of stock options:

 
  Year Ended
December 31, 2013
  Nine Months
Ended
September 30, 2014
 
 
   
  (unaudited)
 

Expected term (years)

    6.9     7.0  

Expected volatility

    52.1 %   50.0 %

Risk-free interest rate

    1.4 %   2.1 %

Dividend rate

         

       Fair Value of Common Stock.     As discussed above, the fair value of the shares of our common stock underlying the stock options has historically been determined by our board of directors after considering independent third party valuation reports. Because there has been no public market for our common stock, our board of directors has determined the fair value of our common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of our preferred stock, our operating and financial performance and the general and industry-specific economic outlook.

       Expected Term.     We do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in determining the fair value-based measurement of our options. Therefore, we have opted to use the "simplified method" for estimating the expected term of options, which is the average of the weighted average vesting period and contractual term of the option.

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       Expected Volatility.     Since there has been no public market for our common stock and lack of company specific historical volatility, we have determined the share price volatility for options granted based on an analysis of the volatility of a peer group of publicly traded companies. In evaluating similarity, we consider factors such as stage of development, risk profile, enterprise value and position within the industry.

       Risk-free Interest Rate.     The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options.

       Dividend Rate.     We assumed the expected dividend to be zero as we have never paid dividends and have no current plans to do so.

       Expected Forfeiture Rate.     We are required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, we record the difference as a cumulative adjustment in the period that the estimates are revised.

       Service period.     We amortize all stock-based compensation over the requisite service period of the awards, which is generally the same as the vesting period of the awards. We amortize the stock-based compensation cost on a straight-line basis over the expected service periods.

       If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. To the extent that our assumptions are incorrect, the amount of stock-based compensation recorded will change.

Common Stock Warrant Liability

       For a warrant classified as a derivative liability, we record the fair value of that warrant on the balance sheet at the inception of such classification and adjust to fair value at each financial reporting date. We record the changes in the fair value of the warrants in the statement of operations and comprehensive loss as a component of other income (expense), net. We continued to adjust the carrying value of the common stock warrant liability for changes in the fair value of the warrants until the Series E preferred stock issuance in September 2014, upon which the common stock warrant exercise price was fixed at $12.60 per share. At this time we re-evaluated the terms of the common stock warrants and determined that the common stock warrants issued with the convertible notes now met the requirements for equity classification at which time we reclassified the fair value of the warrant liability to stockholders' deficit. Our assumptions with regard to the warrant valuation were based on estimates of the valuation of the underlying common stock, the volatility of the common stock and interest rates and such estimates could vary significantly.

Compound Embedded Derivative

       We have derivative instruments related to redemption features embedded within the outstanding convertible notes. The compound embedded derivatives were accounted for as a liability at the inception of the obligation and are remeasured to fair value as of each balance sheet date, with the related remeasurement adjustment recognized as other income (expense), net in the statement of

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operations and comprehensive loss. The fair value of the compound embedded derivative is determined based on an income approach that identified the cash flows using a "with-and-without" valuation methodology. The inputs used to determine estimated fair value of the derivative instruments include the probabilities of the underlying events triggering the embedded derivative and their timing. We will record adjustments to the estimated fair value of the compound embedded derivative associated with convertible notes until the notes are converted into shares of our capital stock or are repaid.

JOBS Act Accounting Election

       As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Internal Control Over Financial Reporting

       A company's internal control over financial reporting is a process designed by, or under the supervision of, that company's principal executive and principal financial officers, or persons performing similar functions, and influenced by that company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

       In connection with our preparation for this offering, we concluded that there was a material weakness in our internal control over financial reporting for the years ended December 31, 2012 and 2013. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified was that we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements.

       During the third quarter of 2014 and in preparation for this offering, we initiated various remediation efforts, including initiation of hiring processes for additional personnel with the appropriate public company and technical accounting expertise, and other actions that are more fully described below. As such remediation efforts are still ongoing, we have concluded that the material weakness has not been remediated. Our remediation efforts to date have included the following:

       We have added and are continuing to add appropriate full-time resources to our finance team and we have hired additional external consultants with public company and technical accounting experience to facilitate accurate and timely accounting closes, and to accurately prepare and review financial statements and related footnote disclosures. As a result of the additional resources added to the finance function, we are allowing for separate preparation and review of the reconciliations and other account analyses. In addition, these additional finance resources are allowing us to develop a

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more structured close process, including enhancing our existing policies and procedures, to improve the completeness, timeliness and accuracy of our financial reporting and disclosures including, but not limited to, those regarding proper financial statement classification and assessing more judgmental areas of accounting. The actions that have been taken are subject to continued review, supported by confirmation and testing by management, as well as audit committee oversight. We can provide no assurance that we will be able to hire and retain qualified individuals to create and maintain appropriate internal control over financial reporting. Competition for these individuals is intense, especially in the San Francisco Bay Area where we are located. While we have implemented a plan to remediate this material weakness, we cannot provide any assurance that we will be successful, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.

        See "Risk Factors—Risks Related to Our Business—We have identified a material weakness in our internal control over financial reporting as of December 31, 2012 and 2013, and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remedy our material weaknesses, or if we fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be harmed."

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BUSINESS

Overview

       We are a commercial-stage medical device company that designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral arterial disease, or PAD. Patients with PAD have a build-up of plaque in the arteries that supply blood to the arms and legs. Our mission is to dramatically improve the treatment of vascular disease through the introduction of products based on our lumivascular platform, the only intravascular image-guided system available in this market. We manufacture and sell a suite of products in the United States and select European markets. Our current products include our Lightbox imaging console, as well as our Wildcat, Kittycat, and the Ocelot family of catheters, which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion, or CTO. We are also developing Pantheris, our image-guided atherectomy device, designed to allow physicians to remove arterial plaque in PAD patients with precision. Pantheris is currently undergoing a U.S. clinical trial intended to support a 510(k) submission in the second half of 2015 to the U.S. Food and Drug Administration, or FDA. We believe that Pantheris, if cleared by FDA, will significantly enhance our market opportunity within PAD and can expand the overall addressable market for PAD endovascular procedures.

       According to an article published in The Lancet, the global prevalence of PAD was estimated at 202 million people in 2010. The prevalence of PAD in the United States alone was estimated at 18 million people in 2010 and is projected to grow to 21 million people by 2020 according to the Sage Group. Despite its prevalence, PAD is underdiagnosed and undertreated relative to many other serious vascular conditions, including coronary artery disease, or CAD, in part because many PAD patients are asymptomatic or dismiss their symptoms as normal signs of aging. Despite the relative undertreatment of PAD, Millennium Research Group estimates that over 570,000 catheter-based PAD procedures in the pelvis and legs were performed in the United States in 2013, which corresponded to a $1.0 billion market. Millennium Research Group also estimates that the number of catheter-based PAD procedures will grow to almost 700,000 in 2017, representing a $1.2 billion market in the United States. Higher diagnosis and intervention rates resulting from greater physician and patient awareness of PAD, as well as higher prevalence, may significantly expand the market opportunity for PAD treatments, according to the Millennium Research Group.

       Current treatments for PAD, including bypass surgery, can be costly and may result in complications, high levels of post-surgery pain and lengthy hospital stays and recovery times. Minimally invasive, or endovascular, treatments include stents, angioplasty, and atherectomy devices, which are catheter-based products for the removal of plaque. These treatments also have limitations in their safety or efficacy profiles and frequently result in recurrence of the disease, also known as restenosis. We believe one of the main contributing factors to high restenosis rates for PAD patients treated with endovascular technologies is the amount of vascular injury that occurs during an intervention. Specifically, these treatments often disrupt the membrane between the outermost layers of the artery, which we refer to as the black line.

       Our lumivascular platform is the only technology that offers real-time visualization of the inside of the artery during PAD treatment. We believe this approach will significantly improve patient outcomes by providing physicians with a clearer picture of the artery using radiation-free image guidance during treatment, enabling them to better differentiate between plaque and healthy arterial structures. Our lumivascular platform is designed to improve patient safety by enabling physicians to direct treatment towards the plaque, while avoiding healthy portions of the artery.

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       We are currently enrolling VISION, a clinical trial designed to support a filing with FDA for our Pantheris atherectomy device. VISION is designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging. We believe the data from VISION will also allow us to demonstrate that avoiding the black line reduces the likelihood of restenosis in these patients. If Pantheris is cleared by FDA, we plan to commercialize it as part of our lumivascular platform in the United States and in select European countries after obtaining any required marketing authorizations.

       We have assembled a team with extensive medical device development and commercialization capabilities, including our founder, John B. Simpson, Ph.D., M.D., who founded Advanced Cardiovascular Systems, FoxHollow Technologies and Perclose, among other vascular medical device companies. We began commercializing our initial non-lumivascular platform products in 2009 and introduced our lumivascular platform products in the United States in late 2012. We generated revenues of $8.6 million in 2012, $13.0 million in 2013 and $8.1 million in the nine months ended September 30, 2014.

Overview of Peripheral Arterial Disease

       Atherosclerosis is a progressive, degenerative condition in which plaque, consisting of lipids, cholesterol, calcium and other substances found in the blood stream, accumulates on the arterial wall. The accumulation of plaque can result in the narrowing of an artery, which may lead to serious health problems. Plaque can occur in many areas of the body and may vary in composition, density and size. These blockages sometimes contain hard areas, characterized as calcified plaque, as well as softer deposits consisting of fibrous or fatty tissue. As plaque continues to accumulate, it can completely block the artery, making it particularly difficult for physicians to treat.

GRAPHIC

Comparison of a normal artery to an atherosclerotic artery

       PAD is atherosclerosis in the arteries that supply blood to the arms and legs, and may lead to serious symptoms such as pain, fatigue or numbness. Genetic predisposition, diabetes, smoking,

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hypertension, physical inactivity, high cholesterol, obesity and aging all increase the risk of developing PAD. In extreme cases, PAD can lead to critical limb ischemia, or CLI, which, if left untreated, can result in ulceration, infection, or gangrene in the feet and legs and eventually limb amputation or death. The Transatlantic Intersociety Consensus for the Management of Peripheral Arterial Disease, or TASC II, estimates that 55% of CLI patients will undergo amputation or die within one year after the diagnosis.

Current Treatments for PAD and Their Limitations

       Physicians have several options available to treat PAD. For mild cases, lifestyle changes or drug therapy may slow or stabilize progression of the disease and alleviate symptoms. For more advanced cases of PAD, a physician may employ minimally-invasive endovascular procedures, or surgical interventions such as bypass or amputation.

Medical Management

       The large majority of cases of diagnosed PAD in the United States are medically managed, according to the Society of Interventional Radiology. For this population, lifestyle changes, including improved diet, regular exercise and smoking cessation, as well as drug treatment are often prescribed. Although these measures can be effective, many people are unable to sustain them. In addition, these measures may reduce the symptoms, but do not treat the underlying causes of the disease. Physicians may also prescribe medications that lower cholesterol and reduce blood pressure. These drug therapies are generally prescribed for the life of the patient and do not treat the obstruction, making them an ineffective treatment for many patients. As a result, many of these patients will ultimately require more aggressive treatments.

Surgery

       Bypass Surgery.     More severe cases of PAD may be treated by surgeons with bypass surgery. This procedure entails using a synthetic graft or harvesting a healthy vessel from another area of the body and grafting it around a blocked portion of an artery. This procedure diverts blood flow around the occluded area to ensure that the tissue supplied by these arteries receives sufficient blood flow. Given its invasive nature, bypass surgery is performed by physicians in an operating room with the patient under general anesthesia. Bypass surgery involves multi-day hospital stays for healing and rehabilitation. General anesthesia and the potential for surgical infections make this approach less suitable for patients with conditions such as high blood pressure, heart failure, chronic obstructive pulmonary disease or poor kidney function. We estimate there were over 150,000 lower extremity bypass surgeries performed in the United States in 2013.

       Amputation.     CLI is a serious form of PAD caused by severe lack of blood flow to the legs and often results in pain at rest and tissue breakdown. Physicians may recommend full or partial amputation of the leg or foot for patients with CLI. TASC II estimates that 30% of patients with CLI will require an amputation within one year of diagnosis, and 15% of patients who undergo amputation of one leg will undergo amputation of the other leg within two years of the first amputation. According to TASC II, the mortality rate for patients with CLI is 25% at one year from the development of the condition. The Sage Group estimates that approximately 200,000 amputations occur annually as a result of CLI.

Endovascular Interventions

       In recent years, technologies and techniques have improved such that many forms of PAD can now be treated by physicians with endovascular approaches. We believe PAD endovascular interventions will continue to increase due to improved safety and effectiveness of endovascular

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procedures relative to surgical alternatives, together with greater physician and patient awareness of the disease. The most common endovascular treatments include balloon angioplasty, stenting and atherectomy. These procedures involve a physician feeding a catheter over a guidewire through a small incision, typically while using fluoroscopy, or x-ray, as a visual guide. In the event that the patient has a CTO, the physician may require a specialized guidewire, support catheter or other device to cross the CTO prior to treatment consisting of balloon angioplasty, stenting, atherectomy or some combination thereof.

       Fluoroscopy is the primary imaging tool currently used during endovascular treatments but delivers limited information to physicians. This technology provides an external view of the artery and does not allow physicians to differentiate between plaque and healthy arterial structures. Additionally, fluoroscopy exposes physicians, hospital staff and patients to radiation, which can lead to cataracts, cancer and abnormal blood cell counts. In addition, physicians frequently perform angiography in combination with fluoroscopy to assess the location and severity of the blockage. Angiography requires the use of contrast dye, which can increase the risk of kidney damage and may lead to acute kidney failure.

       Importance of the Black Line.     Scientific research has identified the importance of minimizing vascular injury during an endovascular intervention, and specifically the disruption of the membrane between the outer most layers of the artery, which we call the black line. A study by the Sanford Burnham Institute concluded that disruption of the area around the black line creates an inflammatory response significantly greater than when the black line is not injured, ultimately leading to accelerated narrowing of the artery. This narrowing of the artery is known as restenosis, which can lead to the restriction of blood flow. Black line disruption can be caused by wire-based CTO crossing, dissection from balloon angioplasty, stent placement, or an atherectomy device cutting through this area.

Lumivascular View

 

Cross-Sectional View


GRAPHIC

 


GRAPHIC

Image of the black line using our visualization compared to a cross sectional view of an artery.

       A study from New York's Mount Sinai Hospital, published in the Journal of the American College of Cardiology, or JACC, demonstrated the correlation between restenosis rates and vascular injury during directional atherectomy procedures. Specifically, the study examined the composition of the tissue removed during treatment of 102 patients and assessed restenosis rates after one year. The study found that in 54% of the patients, the extracted portion contained healthy tissue, indicating disruption of the black line. In this group of patients the restenosis rate, one-year after treatment, was 96%, while in the group of patients without evidence of black line disruption, the restenosis rate was only 15%.

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       The data from the Mount Sinai Hospital study are summarized in the following chart:


Atherectomy Procedures — Restenosis Rates at 1-Year

GRAPHIC

       We believe balloon angioplasty, stenting and other current atherectomy procedures often result in vascular injury, limiting their safety and efficacy, and increase restenosis rates associated with these treatments.

       Balloon Angioplasty.     In an angioplasty procedure, a miniature balloon attached to the tip of the treatment catheter opens the blood vessel by expanding the vessel and compressing plaque against the arterial wall. While angioplasty catheters are relatively easy to use, they stretch the arterial wall, often leading to dissections of, and damage to, the black line. Furthermore, angioplasty does not actually remove the plaque, which remains in the artery. Different variations of balloon catheters have been developed for the treatment of PAD, claiming additional benefits compared to standard angioplasty. These include cutting or scoring balloons designed to treat blockages with lower inflation pressures, as well as drug-coated balloons designed to suppress the inflammatory response to minimize restenosis. According to TASC II, 35% of angioplasty treatments result in restenosis at one year and 52% at three years. Millennium Research Group estimates that 500,000 PAD angioplasty procedures in the pelvis and legs were performed in the United States in 2013, 62% of which required the additional use of a stent.

       Stenting.     A stent is a wire-mesh tube that acts as a scaffold inside the artery to maintain adequate blood flow. Stents are currently available in bare metal and drug-coated varieties, with the latter designed to inhibit restenosis. Since stents rely on a similar expansion mechanism as balloons, we believe they also cause injury to the arterial wall and disrupt the black line during placement. According to TASC II, 27% of PAD stent treatments result in restenosis at one year and 36% at three years. Additionally, according to a study in JACC, stents placed in the legs fracture in approximately 25% of cases and have one-year patency, or absence of restenosis, rates of 41%, compared to 84% in cases with no stent fractures. Stents placed in the legs are often longer than coronary stents due to the diffuse nature of the lesions and the arterial anatomy, and longer stents have significantly higher fracture rates. Once a stent is implanted, it cannot be removed, which may limit future treatment options such as angioplasty, additional stenting, atherectomy and bypass surgery. Millennium Research Group estimates that 370,000 PAD stent procedures in the pelvis and legs were performed in the United States in 2013.

       Atherectomy.     Atherectomy is a procedure in which plaque is cleared from the arterial walls using a catheter-based technology with a mechanism to remove or displace diseased tissue. There are several types of atherectomy devices, including directional, rotational and laser, each with different mechanisms of action to remove or displace plaque. Currently available atherectomy devices rely on

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fluoroscopy rather than on-board imaging to provide visual guidance throughout the entire procedure. Atherectomy treatments frequently require the use of a stent or balloon to achieve the desired outcome and cannot selectively target the removal of only diseased tissue. As a result, current atherectomy technologies can damage the black line, which we believe increases the risk of restenosis. According to an article published in the Journal of Invasive Cardiology reviewing published clinical data, one-year restenosis rates for existing atherectomy technologies range from 22% to 46%. According to Millennium Research Group, there were 80,000 atherectomy procedures performed in the pelvis and legs in the United States in 2013, 86% of which required the use of a stent or balloon.

Our Solution

       Our pioneering lumivascular platform combines best-in-class interventional devices with optical coherence tomography, or OCT, a high resolution, light-based, radiation-free intravascular imaging technology. Our lumivascular platform currently provides physicians with real-time OCT images from the inside of an artery during CTO crossing, and we believe Pantheris will be the first product to offer intravascular visualization during atherectomy.


GRAPHIC
 
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Visualization using our lumivascular technology compared to standard fluoroscopy imaging

       We believe the combination of enhanced visualization and the ability to precisely target the diseased portion of an artery will allow physicians to access difficult to treat areas and significantly improve the safety and efficacy of endovascular procedures for patients. Market acceptance of our lumivascular platform products may be hindered if physicians are not presented with compelling data from long-term studies of the safety and efficacy of our lumivascular platform products as compared to alternative procedures such as angioplasty, stenting, bypass surgery or other atherectomy procedures. Physicians will also need to appreciate the value of real-time imaging in improving patient outcomes in order to change current methods for treating PAD patients. We believe that our lumivascular platform provides the following benefits to physicians, hospitals and patients, as compared to balloons, stents and other current atherectomy procedures:

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       Risks of using the lumivascular platform include the risks that are common to endovascular procedures and generally may include perforation, dissection, embolization, bleeding, infection, restenosis and limb loss. We are aware of certain characteristics and features of our lumivascular platform that may prevent widespread market adoption, including that the current model of Pantheris

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may require two physicians to operate the catheter and that training for technicians and physicians will be required to enable them to effectively operate our lumivascular platform products. Our Pantheris product is not cleared or approved by FDA for commercial sale. Pantheris may not be sold in the United States without clearance from FDA. Our current products are contraindicated, and therefore should not be used, in the iliac, coronary, cerebral, renal and carotid arteries.

Our Strategy

       Our goal is to become the leading provider of image-guided medical devices for physicians to treat vascular diseases. The key elements of our strategy are to:

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Our Products

       Our current products include our Lightbox console and our various catheters used in PAD treatment. Each of our current products is, and our future products will be, designed to address significant unmet clinical needs in the treatment of vascular disease.

LUMIVASCULAR PRODUCTS

Name
  Clinical
Indication
  Size (Length, Diameter)   Regulatory Status   Original
Clearance Date

Lightbox (1)

  OCT Imaging   N/A   FDA Cleared   November 2012

          CE Mark   September 2011

Pantheris

  Atherectomy   130cm, 8 French (F)   IDE Trial   N/A

Ocelot (2)

  CTO Crossing   110cm, 6F   FDA Cleared   November 2012

          CE Mark   September 2011

Ocelot MVRX (2)

  CTO Crossing   110cm, 6F   FDA Cleared   December 2012

Ocelot PIXL (2)

  CTO Crossing   135/150cm, 5F   FDA Cleared   December 2012

          CE Mark   October 2012

(1)
Lightbox is cleared for use with compatible Avinger products.

(2)
The Ocelot system is intended to facilitate the intra-luminal placement of conventional guidewires beyond stenotic lesions including sub and chronic total occlusions in the peripheral vasculature prior to further percutaneous interventions using OCT-assisted orientation and imaging. The system is an adjunct to fluoroscopy and provides images of vessel lumen and wall structures. The Ocelot system is contraindicated for use in the iliac, coronary, cerebral, renal and carotid vasculature.

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NON-IMAGING PRODUCTS

Name
  Indication   Size (Length, Diameter)   Regulatory Status   Original
Clearance Date

Wildcat (1)

  Guidewire Support   110cm, 6F   FDA Cleared   February 2009 (3)

  CTO Crossing   110cm, 6F   FDA Cleared   August 2011

          CE Mark   May 2011

Kittycat 2 (2)

  CTO Crossing   150cm, 5F   FDA Cleared   October 2011

          CE Mark   September 2011

(1)
The Wildcat catheter is intended to facilitate the intraluminal placement of conventional guidewires beyond stenotic lesions (including sub and chronic total occlusions) in the peripheral vasculature prior to further percutaneous intervention. The Wildcat catheter is contraindicated for use in the iliac, coronary, cerebral, renal and carotid vasculature. The Wildcat catheter is intended to be used to support steerable guidewires in accessing discrete regions of the peripheral vasculature. It may be used to facilitate placement and exchange of guidewires and other interventional devices. It may also be used to deliver saline or contrast.

(2)
The Kittycat 2 catheter is intended to facilitate the intraluminal placement of conventional guidewires beyond stenotic lesions (including sub and chronic total occlusions) in the peripheral vasculature prior to further percutaneous intervention. The Kittycat 2 catheter is contraindicated for use in the iliac, coronary, cerebral, renal and carotid vasculature.

(3)
This original clearance date is for the 7F version of Wildcat. The commercially available version of Wildcat is listed and was cleared in August 2010.

Lumivascular Platform Overview

       Our lumivascular platform integrates OCT visualization with interventional catheters and is the industry's only system that provides real-time intravascular imaging during the treatment portion of PAD procedures. Our lumivascular platform consists of a capital component, Lightbox, and a variety of disposable catheter products, including Ocelot, Ocelot PIXL, Ocelot MVRX and, if cleared by FDA, Pantheris.

Lightbox

       Lightbox is our proprietary imaging console, which enables the use of lumivascular catheters during PAD procedures. The console contains an optical transceiver that transmits light into the artery through an optical fiber and displays a cross-sectional image of the vascular tissue to the physician on

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a high definition monitor during the procedure. Lightbox is configured with two monitors, one for the physicians, and one for the Lightbox technician.


GRAPHIC
 
GRAPHIC
Lightbox   OCT image, showing layered structures (artery wall) on the right and non-layered structures (atherosclerotic plaque) on the left.

       Lightbox displays a cross-sectional view of the vessel, which provides physicians with detailed information about the orientation of the catheter and the surrounding artery and plaque. Layered structures represent relatively healthy portions of the artery and non-layered structures represent the plaque that is blocking blood flow in the artery. Navigational markers allow the physician to orient the catheter toward the treatment area, helping to avoid damage to the black line during a procedure. Lightbox received FDA 510(k) clearance in November 2012 and CE Mark in Europe in September 2011.

Pantheris

       We believe Pantheris will be the first atherectomy catheter to incorporate real-time OCT intravascular imaging. Pantheris may be used alone or following a CTO crossing procedure using Ocelot or other products. Pantheris is a single-use product and will provide physicians with the ability to see a cross-sectional view of the artery throughout the procedure. The device restores blood flow by shaving thin strips of plaque using a high-speed directional cutting mechanism that specifically targets the portion of the artery where the plaque resides while minimizing disruption to the black line. The excised plaque is deposited in the nosecone of the device and removed from the artery. We

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believe Pantheris, if cleared by FDA, will represent a meaningful advancement in the treatment of PAD and will expand the existing treatable market.


GRAPHIC

Pantheris positioned prior to a cut


GRAPHIC

Pantheris excising plaque

       To perform atherectomy procedures using Pantheris, physicians advance Pantheris to the diseased portion of the vessel using fluoroscopy prior to activating the cutting tip. The OCT image provides the physician with a cross-sectional view of the treatment site and the relative orientation of the cutter. Visual cues are used to orient the cutting mechanism to target diseased sections of the artery and the plaque is removed by activating the cutter and advancing the catheter through the blockage. A balloon beneath the cutter is inflated to move the catheter closer to the plaque, enabling the physician to stabilize the device and adjust the cut depth into the plaque as necessary. Multiple cuts can be made with the same device until sufficient plaque has been removed to restore adequate blood flow in the artery. In July 2014, FDA granted us an investigational device exemption, or IDE, for Pantheris and we commenced enrollment of our 133-patient VISION trial. We expect to complete the VISION trial and submit for 510(k) clearance from FDA during the second half of 2015. We have made minor modifications and may make further modifications to the design of Pantheris prior to widespread commercialization, which could require regulatory clearances or approvals.

Ocelot, Ocelot PIXL and Ocelot MVRX

       Ocelot is the first ever CTO crossing catheter to incorporate real-time OCT imaging, which allows physicians to see the inside of an artery during a CTO crossing procedure. Physicians have traditionally relied solely on fluoroscopy and tactile feedback to guide catheters through complicated blockages. Ocelot allows physicians to accurately navigate through CTOs by utilizing the OCT images

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to precisely guide the device through the arterial blockage, while minimizing disruption to the black line.


GRAPHIC
 
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Ocelot crossing a chronic total occlusion, or CTO

 

Lightbox visualization

       Ocelot has a corkscrew-like tip that rotates to facilitate advancement of the catheter through a CTO. Marker bands are displayed on the OCT image and allow the tip of the catheter to be steered towards the blockage and away from the arterial wall as it moves through the blockage. Once through the blockage, a guidewire can be extended and Ocelot is removed, leaving the wire in place for additional therapies such as the use of an atherectomy catheter like Pantheris. We received CE Mark for Ocelot in September 2011 and received FDA 510(k) clearance in November 2012.

       We also offer Ocelot PIXL, a lower profile CTO-crossing device for below-the-knee arteries and Ocelot MVRX, which offers a different tip design for above-the-knee arteries. We received CE Mark for Ocelot PIXL in October 2012 and received FDA 510(k) clearance in December 2012. We received FDA 510(k) clearance for Ocelot MVRX CTO-crossing device in December 2012.

Other Products

       Our first-generation CTO-crossing catheters, Wildcat and Kittycat 2, employ a proprietary design that uses a rotational spinning technique, allowing the physician to switch between a passive and active mode when navigating across a CTO. Once across the CTO, Wildcat and Kittycat 2 allow for placement of a guidewire and removal of the catheter leaving the wire in place for additional therapies. Both products require the use of fluoroscopy rather than our lumivascular platform for imaging. Wildcat was our first commercial product and has received both FDA 510(k) clearance in the United States and CE Mark in Europe for crossing peripheral artery CTOs. Kittycat 2 has FDA 510(k) clearance in the United States and CE Mark clearance in Europe for the treatment of peripheral artery CTOs.

Clinical Development

       We have conducted several clinical trials to evaluate the safety and efficacy of our products and we received FDA clearance for Wildcat and Ocelot for CTO crossing in 2011 and 2012, respectively. We are currently evaluating the safety and efficacy of Pantheris in our VISION clinical trial and expect to file a 510(k) submission in the second half of 2015 with FDA.

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CONNECT (Wildcat)

       Our clinical trial for the Wildcat catheter, known as the CONNECT trial, was a prospective, multi-center, non-randomized trial that evaluated the safety and efficacy of Wildcat in crossing CTOs in arteries of the upper leg. The CONNECT trial enrolled 88 patients with CTOs at 15 centers in the United States. Patients were followed for 30 days post-procedure and an independent group of physicians verified the results to determine crossing efficacy and safety endpoints. The CONNECT trial demonstrated that Wildcat was able to cross 89% of CTOs following unsuccessful attempts to cross with standard guidewire techniques. The trial demonstrated a 95% freedom from major adverse events, or MAEs. In the CONNECT trial, MAEs were defined as clinically significant perforations or embolizations and/or Grade C or greater dissections occurring within 30 days of the procedure. These results represent the second-highest reported CTO crossing rate of any published CTO clinical trial, exceeded only by our subsequent CONNECT II clinical trial results.

CONNECT II (Ocelot)

       Our clinical trial for Ocelot, known as CONNECT II, was a prospective, multi-center, non-randomized trial that evaluated the safety and efficacy of Ocelot in crossing CTOs in arteries of the upper leg using OCT intravascular imaging. The CONNECT II trial enrolled 100 patients with CTOs at 14 centers in the United States and two centers in Europe. Patients were followed for 30 days post-procedure and an independent group of physicians verified the results to confirm the primary efficacy and safety endpoints. Results from the CONNECT II trial demonstrated that Ocelot surpassed its primary efficacy endpoint by successfully crossing the CTO in 97% of the cases following unsuccessful attempts to cross with standard guidewire techniques. Ocelot achieved these rates with 98% freedom from MAEs.

VISION (Pantheris)

       VISION is our pivotal, non-randomized, prospective, single-arm trial to evaluate the safety and effectiveness of Pantheris across 21 sites within the United States and Europe. The objective of the clinical trial is to demonstrate that Pantheris can be used to effectively remove plaque from diseased lower extremity arteries while using on-board visualization as an adjunct to fluoroscopy. Two groups of patients are being treated in VISION: (1) optional roll-ins, which are typically the first two procedures at a site, and (2) the primary cohort, which will be the analyzable group of patients. The data for these two groups will be reported separately in our 510(k) submission to FDA. The primary cohort will include approximately 133 patients. As of January 12, 2015, we had enrolled 116 patients in this trial, 28 roll-in patients and 88 in the primary cohort, at 19 sites (some sites did not enroll roll-in patients).

       The primary efficacy endpoint requires that at least 87% of lesions treated by physicians using Pantheris have a residual stenosis of less than 50%, as verified by an independent core laboratory. The primary safety endpoint requires that less than 43% of patients experience an MAE through six-month follow-up as adjudicated by an independent Clinical Events Committee. MAEs for VISION include cardiovascular-related death, unplanned major index limb amputation, clinically driven target lesion revascularization, or TLR, heart attack, clinically significant perforation, dissection, embolus, and pseudoaneurysm. Both primary safety and effectiveness study endpoints must be met in order for the VISION trial to be successful.

       Data collection from the VISION trial is ongoing, and data monitoring and auditing of the acute procedural data and 30-day follow-up data is currently underway. As of January 12, 2015, preliminary acute procedural data were available for 116 patients, and 30-day follow-up data were available for 35 of these patients. Within the 116-patient group, we are aware of four potential MAEs, consisting of

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two emboli and two TLRs, all reported by the investigator to be related or possibly related to the use of Pantheris. Both emboli were resolved with routine therapy without adverse clinical consequences for the patients, both of whom had good outcomes from the Pantheris atherectomy. Both TLRs were treated with standard balloon angioplasty and stenting without adverse clinical consequences for the patients.

       The four potential MAEs occurred after the initial meeting, which to date is the only meeting, of the Clinical Events Committee, or CEC. The CEC will make the final determination as to whether these events were related to use of Pantheris or another part of the treatment procedure. Additional MAEs may be reported during the 30-day and six-month follow-up period for patient outcomes. The final analysis for the safety endpoint will not be conducted until enrollment is complete and all patients are followed through six months.

       With respect to our primary efficacy endpoint analysis, as of January 12, 2015, results reviewed by the independent core lab were available for 113 lesions (31 from roll-in patients and 82 from primary cohort patients) from a total of 91 patients. An independent core laboratory has verified residual restenosis of less than 50% in 98% of these lesions. Based on the currently available data, we believe that we are on track to meet or exceed the requirements necessary to meet the primary efficacy endpoint. The final efficacy endpoint analysis will not be completed until all patients are enrolled and all lesions have been analyzed by the core lab.

       Although not mandated by FDA to support the market clearance of Pantheris, the protocol for the VISION trial indicates that routine histopathological analysis of the tissue extracted by Pantheris will be conducted. This process allows us to determine the amount of adventitia present in the tissue, which in turn indicates the extent to which the black line has been disrupted during Pantheris procedures. As of January 12, 2015, we had completed histopathological analysis on tissue from 109 patients (28 roll-in and 81 primary cohort), representing 138 lesions (35 roll-in and 103 primary cohort) and have determined that the average percent area of adventitia is only 1.0% of the total excised tissue. We believe the low level of black line disruption will correlate to lower restenosis rates and improved long-term outcomes for patients treated with Pantheris, but we do not intend to make any promotional claims to that effect based on the data from this study. We intend to publish the results of the histopathological analysis in conjunction with the primary safety and efficacy endpoint data from the VISION trial.

       Preliminary VISION trial data available for reporting as of January 12, 2015 is summarized in the table below. The preliminary data for our VISION trial may not be predictive of its final results and failure of the trial can occur at any time. A number of companies in the medical device field have suffered significant setbacks during clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising preliminary results. We cannot assure you that the final results of the

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VISION trial will meet its primary efficacy or safety endpoints, that the trial will be successful overall or that the data will support FDA clearance of Pantheris.

 
  Roll-In
Cohort
  Primary
Cohort
  Total

Patients Enrolled (maximum n=161)

  28   88   116

          (72.0%)

Lesions treated

  35   107   142

Primary Efficacy Endpoint

           

Lesions analyzed by core lab

  31   82   113

Lesions meeting primary efficacy endpoint criterion of residual restenosis of less than 50% by core lab

  100%   98%   98%

  (31/31)   (80/82)   (111/113)

Primary Safety Endpoint (MAEs through 6 months)

           

Total MAEs Reported (116 subjects with acute data and 35 subjects with 30-day follow-up data)

  1   3   4

Reported MAEs as a percentage of patients enrolled

  3.6%   3.4%   3.4%

  (1/28)   (3/88)   (4/116)

Histopathology Results (Non-Endpoint Data)

           

Lesions with histopathology results

  35   103   138

Average percent area of adventitia in all lesions with histopathology results

  0.5%   1.2%   1.0%

Sales and Marketing

       We focus our sales and marketing efforts primarily on the approximately 10,000 interventional cardiologists, vascular surgeons and interventional radiologists in the United States that are potential users of our lumivascular platform products. Our marketing efforts are focused on developing strong relationships with physicians and hospitals that we have identified as key opinion leaders based on their knowledge of our products, clinical expertise and reputation. We also use continuing medical education programs and other opportunities to train interventional cardiologists, vascular surgeons, and interventional radiologists in the use of our lumivascular platform products and educate them as to the benefits of our products as compared to alternative procedures such as angioplasty, stenting, bypass surgery or other atherectomy procedures. In addition, we work with physicians to help them develop their practices and with hospitals to market themselves as centers of excellence in PAD treatment by making our products available to physicians for treating patients.

       Our sales team consists of a vice president, regional directors, sales managers and implementation specialists. Our sales managers are divided into two primary roles, one focused on sale and use of our disposable catheters and the other focused on sale and service of our Lightbox console. We have an extensive hands-on sales training program, focused on our technologies, lumivascular image interpretation, case management, sales processes, sales tools and implementing our sales and marketing programs and compliance with applicable federal and state laws and regulations. Our sales team is supported by a highly specialized marketing team, which is divided into three areas of focus: clinical education, marketing program implementation and technology awareness and product development. We also have a small team of field engineers responsible for installation, service and maintenance of our Lightbox consoles.

       As of December 31, 2014, we had 42 employees focused on sales and marketing. Our sales, general and administrative expenses for the years ended December 31, 2012 and December 31, 2013 and for the nine months ended September 30, 2014 were $22.8 million, $25.8 million and $12.9 million, respectively.

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Competition

       The medical device industry is highly competitive, subject to rapid change and significantly affected by new product introductions, results of clinical research, corporate combinations and other factors relating to our industry. Because of the market opportunity and the high growth potential of the PAD treatment market, competitors and potential competitors have historically dedicated, and will continue to dedicate, significant resources to aggressively develop and commercialize their products.

       Our products compete with a variety of products or devices for the treatment of PAD, including other CTO crossing devices, stents, balloons and atherectomy catheters, as well as products used in vascular surgery. Large competitors in the CTO crossing, stent and balloon market segments include Abbott Laboratories, BARD, Boston Scientific, Cook Medical, Covidien, Johnson & Johnson and Medtronic. Competitors in the atherectomy market include Boston Scientific, Cardiovascular Systems, Covidien, Spectranetics and Volcano. Some competitors have attempted to combine intravascular imaging with atherectomy and may have current programs underway to do so. These and other companies may attempt to incorporate on-board visualization into their products in the future. Other competitors include pharmaceutical companies that manufacture drugs for the treatment of symptoms associated with mild to moderate PAD and companies that provide products used by surgeons in peripheral and coronary bypass procedures. These competitors and other companies may introduce new products that compete with our solution.

       Many of our competitors have substantially greater financial, manufacturing, marketing and technical resources than we do. Furthermore, many of our competitors have well-established brands, widespread distribution channels and broader product offerings, and have established stronger and deeper relationships with target customers.

       To compete effectively, we have to demonstrate that our products are attractive alternatives to other devices and treatments on the basis of:

    procedural safety and efficacy;

    acute and long-term outcomes;

    ease of use and procedure time;

    price;

    size and effectiveness of sales force;

    radiation exposure for physicians, hospital staff and patients; and

    third party reimbursement.

Intellectual property

       In order to remain competitive, we must develop and maintain protection of the proprietary aspects of our technologies. We rely on a combination of patents, copyrights, trademarks, trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights.

       It is our policy to require our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure and assignment of invention agreements on commencement of their employment or engagement. Agreements with our employees also forbid them from using the proprietary rights of third parties in their work for us. We also require

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confidentiality or material transfer agreements from third parties that receive our confidential data or materials.

       As of December 31, 2014, we held five issued U.S. patents and had 14 U.S. utility patent applications and 8 PCT applications pending. As of December 31, 2014, we also had one issued patent from the Japan Patent Office, one issued patent from the Chinese patent office, and one European patent which has been nationalized in Germany, France, Great Britain, Italy and Ireland. As of December 31, 2014, we had 29 pending patent applications outside of the United States, including in Australia, Canada, Europe, India and Japan. As we continue to research and develop our Pantheris technology, we intend to file additional U.S. and foreign patent applications related to the design, manufacture and therapeutic uses of our atherectomy devices. Our issued patents expire between the years 2028 and 2032.

       Our patent applications may not result in issued patents and our patents may not be sufficiently broad to protect our technology. Any patents issued to us may be challenged by third parties as being invalid, or third parties may independently develop similar or competing technology that avoids our patents. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.

       As of December 31, 2014, we held two allowed U.S. trademarks and two registered marks in Europe. We have one pending trademark application in the United States.

Research and Development

       Our ongoing research and development activities are primarily focused on improving and enhancing our lumivascular platform, specifically our core competency of integrating OCT intravascular imaging onto therapeutic catheters. Our research objectives target areas of unmet clinical need, increase the utility of the lumivascular platform and adoption of our products by healthcare providers.

    Product line improvements and extensions.   We are developing improvements to our lumivascular platform, including additional catheters for use in different clinical applications. For example, we are developing a next-generation CTO crossing device to target the coronary market and enhanced versions of Pantheris.

    Additional treatment indications.   We intend to seek additional regulatory clearances from FDA to expand the indications for which our products can be marketed within PAD, as well as in other areas of the body. This includes both expanding the marketed indications for our current products, as well as development of new products.

    Next-generation console.   We are focusing our console development efforts on miniaturization, equipment integration and increased processing power in anticipation of future catheter products. We may also develop a version of our lumivascular platform that integrates OCT imaging into existing catheterization lab and operating room imaging systems.

    Improved software and user interface.   We are actively improving our software to provide more information and control to our end users during a procedure. We use physician and staff feedback to improve the features and user functionality of our lumivascular platform.

       As of December 31, 2014, we had 19 employees focused on research and development. In addition to our internal team, we retain third party-contractors from time to time to provide us with assistance on specialized projects. We also work closely with experts in the medical community to

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supplement our internal research and development resources. Research and development expenses for the years ended December 31, 2012 and 2013 and for the nine months ended September 30, 2014 were $15.4 million, $16.0 million and $8.4 million, respectively.

Manufacturing

       Prior to the introduction of our lumivascular platform, our non-imaging catheter products were manufactured by a third party. All of our products are now manufactured in-house using components and sub-assemblies manufactured both in-house at our facilities in Redwood City, California and by outside vendors. We expect our current manufacturing facility will be sufficient to meet our anticipated growth through at least 2016. We assemble all of our products at our manufacturing facility but certain critical processes such as coating and sterilization are done by outside vendors.

       Our manufacturing operations are subject to regulatory requirements of 21 CFR part 820, the Quality System Regulation for medical devices sold in the United States, which is enforced by FDA, the Medical Devices Directive 93/42/EEC, which is required for doing business in the European Union, and applicable requirements relating to the environment, waste management and health and safety matters, including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of hazardous substances, and the sale, labeling, collection, recycling, treatment and disposal of products containing hazardous substances. We cannot ensure that we will not incur material costs or liability in connection with our operations, or that our past or future operations will not result in claims by or injury to employees or the public.

       Order quantities and lead times for components purchased from outside suppliers are based on our forecasts derived from historical demand and anticipated future demand. Lead times for components may vary significantly depending on the size of the order, time required to fabricate and test the components, specific supplier requirements and current market demand for the components and subassemblies. To date, we have not experienced significant delays in obtaining any of our components or subassemblies.

       We rely on single and limited source suppliers for several of our components. For example, we rely on one vendor for, among other components, our torque shaft and drive cable. These components are critical to our products and there are relatively few alternative sources of supply for them. We do not carry a significant inventory of these components. Identifying and qualifying additional or replacement suppliers for any of the components used in our products could involve significant time and cost. Any supply interruption from our vendors or failure to obtain additional vendors for any of the components used to manufacture our products would limit our ability to manufacture our product and could therefore harm our business, financial condition and results of operations.

       Our suppliers have no contractual obligations to supply us with, and we are not contractually obligated to purchase from them, any of our supplies. Any supply interruption from our vendors or failure to obtain additional vendors for any of the components would limit our ability to manufacture our product and could have a material adverse effect on our business, financial condition and results of operations.

       We have registered with FDA as a medical device manufacturer and have obtained a manufacturing license from CDRH. We and our component suppliers are required to manufacture our products in compliance with FDA's Quality System Regulation, or QSR in 21 CFR part 820 of the Federal Food, Drug and Cosmetic Act. The QSR regulates extensively the methods and

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documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. FDA enforces the QSR through periodic unannounced inspections that may include the manufacturing facilities of our subcontractors. Since we began manufacturing onsite, our Quality System has undergone 13 external audits, the last of which occurred on August 6, 2014 and resulted in zero non-conformances.

       Our failure or the failure of our component suppliers to maintain compliance with the QSR requirements could result in the shutdown of our manufacturing operations or the recall of our products, which would harm our business. In the event that one of our suppliers fails to maintain compliance with our or governmental quality requirements, we may have to qualify a new supplier and could experience manufacturing delays as a result. We have opted to maintain quality assurance and quality management certifications to enable us to market our products in the member states of the European Union, the European Free Trade Association and countries which have entered into Mutual Recognition Agreements with the European Union. Our Redwood City facilities meet the requirements set forth by ISO 13485:2003 Medical devices—Quality management systems—Requirements for regulatory purposes and MDD 93/42/EEC European Union Council Medical Device Directive.

Government Regulation

       In general, medical device companies must navigate a challenging regulatory environment. The Food and Drug Administration, or FDA, regulates the medical device market to ensure the safety and efficacy of these products. FDA allows for two primary pathways for a medical device to gain approval for commercialization: a successful PMA application or 510(k) clearance. A completely novel product must go through the more rigorous PMA process, or premarket approval, if it cannot receive authorization through a 510(k). FDA has established three different classes of medical devices that indicate the level of risk associated with using a device and consequent degree of regulatory controls needed to govern its safety and efficacy. Level I and Level II devices are considered lower risk and often can gain approval for commercial distribution by submitting a notification request to FDA, generally known as the 510(k) process. The devices regarded as the highest risk by FDA are designated Class III status and generally require the submission of a PMA application for approval to commercialize a product. These generally include life-sustaining, life-supporting, or implantable devices or devices without a known predicate technology already approved by FDA.

       The 510(k) clearance path can be significantly less time-consuming and arduous than PMA approval, making this route preferable for a medical device company. Through a 510(k), a company must provide documentation that its device is substantially equivalent to a technology already approved through a 510(k) or in distribution before May 28, 1976 that FDA has not yet required a PMA submission. FDA has 90 days from the date of the premarket equivalence submission to authorize or decline commercial distribution of the device. However, similar to the PMA process, approval may take longer than this three month window, as FDA can request additional data. If FDA resolves that the product is not substantially equivalent to a predicate device, then the device acquires a Class III designation. All of our currently marketed products have received commercial clearance and associated indications for use through the 510(k) regulatory pathway with FDA, some with the support of clinical data.

       A PMA application must be accompanied by substantial data that supports the safety and efficacy of the device, which includes the provision of preclinical, clinical, technical, manufacturing and labeling information. If FDA deems the application acceptable to pass through the first level of scrutiny, it has 180 days to review the submission, but it can typically take longer (up to several years)

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as this regulatory body can request additional information or clarifications. FDA may also impose additional regulatory hurdles for a premarket approval, including the institution of an outside advisory panel of experts to assess the application or provide recommendations as to whether to approve the device. Although FDA in the end approves or disapproves the device, in nearly all cases FDA follows the recommendation from the independent panel concerning approvability of the new device. As part of this process, FDA will also inspect the manufacturing operations of the company requesting approval to verify compliance with quality control regulations. Significant changes in the fabrication of a device, or alterations in the labeling or design of a product require new PMA applications or PMA supplements for a product originally approved under a PMA. This creates substantial regulatory risk for devices undergoing the PMA route.

Pervasive and Continuing Regulation

       After a device is placed on the market, numerous regulatory requirements continue to apply. These include:

    FDA's Quality System Regulation, or QSR, which requires manufacturers, including third party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;

    labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses;

    clearance or approval of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use;

    medical device reporting, or MDR, regulations, which require that manufacturers report to FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; and

    post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.

       After a device receives 510(k) clearance or PMA approval, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new clearance or approval. FDA requires each manufacturer to make this determination initially, but FDA can review any such decision and can disagree with a manufacturer's determination. If FDA disagrees with the determination not to seek a new 510(k) clearance or PMA, FDA may retroactively require a new 510(k) clearance or premarket approval. FDA could also require a manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance or premarket approval is obtained. Also, in these circumstances, it may be subject to significant regulatory fines, penalties, and warning letters.

       The MDR regulations require that we report to FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury.

       We have registered with FDA as a medical device manufacturer and have obtained a manufacturing license from the California Department of Health Services, or CDHS. FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by FDA and the Food and Drug Branch of CDHS to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers. BSI, our European Notified Body, inspected our facility in 2013 and found zero non-conformances. Our

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current facility has been inspected by FDA in 2009, 2011 and 2013, and two, three and zero observations, respectively, were noted during those inspections. In the latest FDA audit, there were no findings that involved a material violation of regulatory requirements, and no non-conformances were noted. Our responses to these observations noted in 2009 and 2011 have been accepted by FDA, and we believe that we are in substantial compliance with the QSR.

       Failure to comply with applicable regulatory requirements can result in enforcement action by FDA, which may include any of the following sanctions:

    warning letters, fines, injunctions, consent decrees and civil penalties;

    repair, replacement, refunds, recall or seizure of our products;

    operating restrictions, partial suspension or total shutdown of production;

    refusing our requests for 510(k) clearance or premarket approval of new products, new intended uses or modifications to existing products;

    withdrawing 510(k) clearance or premarket approvals that have already been granted; and

    criminal prosecution.

Regulatory System for Medical Devices in Europe

       The European Union consists of 25 member states and has a coordinated system for the authorization of medical devices. The E.U. Medical Devices Directive, or MDD, sets out the basic regulatory framework for medical devices in the European Union. This directive has been separately enacted in more detail in the national legislation of the individual member states of the European Union.

       The system of regulating medical devices operates by way of a certification for each medical device. Each certificated device is marked with CE mark which shows that the device has a Certificat de Conformité. There are national bodies known as Competent Authorities in each member state which oversee the implementation of the MDD within their jurisdiction. The means for achieving the requirements for CE mark varies according to the nature of the device. Devices are classified in accordance with their perceived risks, similarly to the U.S. system. The class of a product determines the requirements to be fulfilled before CE mark can be placed on a product, known as a conformity assessment. Conformity assessments for our products are carried out as required by the MDD. Each member state can appoint Notified Bodies within its jurisdiction. If a Notified Body of one member state has issued a Certificat de Conformité, the device can be sold throughout the European Union without further conformance tests being required in other member states.

Health Insurance Portability and Accountability Act

       The Health Insurance Portability and Accountability Act of 1996, or HIPAA, established for the first time comprehensive federal protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations, or Covered Entities: health plans, healthcare clearing houses, and healthcare providers which conduct certain healthcare transactions electronically. Title II of HIPAA, the Administrative Simplification Act, contains provisions that address the privacy of health data, the security of health data, the standardization of identifying numbers used in the healthcare system and the standardization of certain healthcare transactions. The privacy regulations protect medical records and other protected health information by limiting their use and release, giving patients the right to access their medical records and limiting most disclosures of health information to the minimum amount necessary to accomplish an intended purpose. The HIPAA security standards require the adoption of administrative, physical, and technical safeguards and the

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adoption of written security policies and procedures. HIPAA requires Covered Entities to obtain a written assurance of compliance from individuals or organizations who provide services to Covered Entities involving the use or disclosure of protected health information ("Business Associates").

       On February 17, 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical Health Act, or HITECH, provisions of the American Recovery and Reinvestment Act of 2009. HITECH amends HIPAA and, among other things, expands and strengthens HIPAA, creates new targets for enforcement, imposes new penalties for noncompliance and establishes new breach notification requirements for Covered Entities and Business Associates. Regulations implementing major provisions of HITECH were finalized on January 25, 2013 through publication of the HIPAA Omnibus Rule, or the Omnibus Rule. The Omnibus Rule contained significant changes for Covered Entities and Business Associates with respect to permitted uses and disclosures of Protected Health Information.

       Under HITECH's new breach notification requirements, Covered Entities must report breaches of protected health information that has not been encrypted or otherwise secured in accordance with guidance from the Secretary of the U.S. Department of Health and Human Services, or the Secretary. Required breach notices must be made as soon as is reasonably practicable, but no later than 60 days following discovery of the breach. Reports must be made to affected individuals and to the Secretary and in some cases, they must be reported through local and national media, depending on the size of the breach. We are currently subject to the HIPAA regulations. We are subject to audit under HHS's HITECH-mandated audit program. We may also be audited in connection with a privacy complaint. We are subject to prosecution and/or administrative enforcement and increased civil and criminal penalties for non-compliance, including a new, four-tiered system of monetary penalties adopted under HITECH. We are also subject to enforcement by state attorneys general who were given authority to enforce HIPAA under HITECH. To avoid penalties under the HITECH breach notification provisions, we must ensure that breaches of protected health information are promptly detected and reported within the company, so that we can make all required notifications on a timely basis. However, even if we make required reports on a timely basis, we may still be subject to penalties for the underlying breach.

       In addition to the federal privacy regulations, there are a number of state laws regarding the privacy and security of health information and personal data that are applicable to clinical laboratories. The compliance requirements of these laws, including additional breach reporting requirements, and the penalties for violation vary widely and new privacy and security laws in this area are evolving. Requirements of these laws and penalties for violations vary widely. We believe that we have taken the steps required of us to comply with health information privacy and security statutes and regulations in all jurisdictions, both state and federal. However, we may not be able to maintain compliance in all jurisdictions where we do business. Failure to maintain compliance, or changes in state or federal laws regarding privacy or security, could result in civil and/or criminal penalties and could have a material adverse effect on our business.

       If we or our operations are found to be in violation of HIPAA, HITECH or their implementing regulations, we may be subject to penalties, including civil and criminal penalties, fines, and exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. HITECH increased the civil and criminal penalties that may be imposed against Covered Entities, their Business Associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions.

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       In addition to federal privacy regulations, there are a number of state laws governing confidentiality of health information that are applicable to our operations. New laws governing privacy may be adopted in the future as well. We have taken steps to comply with health information privacy requirements that are applicable to us.

Federal, State and Foreign Fraud and Abuse Laws

       Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a number of laws to eliminate fraud and abuse in federal healthcare programs. Our business is subject to compliance with these laws. In March 2010, the Recipient Protection and Affordable Care Act, as amended by the Healthcare and Education Affordability Reconciliation Act, which we refer to collectively as the Affordable Care Act, was enacted in the United States. The provisions of the Affordable Care Act are effective on various dates. The Affordable Care Act expands the government's investigative and enforcement authority and increases the penalties for fraud and abuse, including amendments to both the Anti-Kickback Statute and the False Claims Act, to make it easier to bring suit under these statutes. The Affordable Care Act also allocates additional resources and tools for the government to police healthcare fraud, with expanded subpoena power for HHS, additional funding to investigate fraud and abuse across the healthcare system and expanded use of recovery audit contractors for enforcement.

       Anti-Kickback Statutes.     The federal healthcare programs' Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid.

       The definition of "remuneration" has been broadly interpreted to include anything of value, including, for example, gifts, certain discounts, the furnishing of free supplies, equipment or services, credit arrangements, payment of cash and waivers of payments. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered businesses, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. In addition some kickback allegations have been claimed to violate the Federal False Claims Act, discussed in more detail below.

       The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are otherwise lawful in businesses outside of the healthcare industry. Recognizing that the Anti- Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, Congress authorized the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services to issue a series of regulations known as "safe harbors." These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as OIG.

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       Many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of recipients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.

       Government officials have focused their enforcement efforts on the marketing of healthcare services and products, among other activities, and recently have brought cases against companies, and certain individual sales, marketing and executive personnel, for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.

       Federal False Claims Act.     Another development affecting the healthcare industry is the increased use of the federal False Claims Act, and in particular, action brought pursuant to the False Claims Act's "whistleblower" or "qui tam" provisions. The False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has violated the False Claims Act and to share in any monetary recovery. In recent years, the number of suits brought against healthcare providers by private individuals has increased dramatically. In addition, various states have enacted false claims law analogous to the False Claims Act, and many of these state laws apply where a claim is submitted to any third party payor and not just a federal healthcare program.

       When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of between $5,500 and $11,000 for each separate instance of false claim. As part of any settlement, the government may ask the entity to enter into a corporate integrity agreement, which imposes certain compliance, certification and reporting obligations. There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The federal government has used the False Claims Act to assert liability on the basis of inadequate care, kickbacks and other improper referrals, and improper use of Medicare numbers when detailing the provider of services, in addition to the more predictable allegations as to misrepresentations with respect to the services rendered. In addition, the federal government has prosecuted companies under the False Claims Act in connection with off-label promotion of products. Our future activities relating to the reporting of wholesale or estimated retail prices of our products, the reporting of discount and rebate information and other information affecting federal, state and third party reimbursement of our products and the sale and marketing of our products may be subject to scrutiny under these laws.

       While we are unaware of any current matters, we are unable to predict whether we will be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance.

       The Sunshine Act.     The Physician Payment Sunshine Act, or the Sunshine Act, which was enacted as part of the Affordable Care Act, requires all entities that operate in the United States and manufacturers of a drug, device, biologic or other medical supply that is covered by Medicare, Medicaid or the Children's Health Insurance Program to report annually to the Secretary of the Department of Health and Human Services: (i) payments or other transfers of value made by that entity, or by a third party as directed by that entity, to physicians and teaching hospitals or to third parties on behalf of physicians or teaching hospitals; and (ii) physician ownership and investment

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interests in the entity. The payments required to be reported include the cost of meals provided to a physician, travel reimbursements and other transfers of value, including those provided as part of contracted services such as speaker programs, advisory boards, consultation services and clinical trial services. The final rule implementing the Sunshine Act requires data collection on payments to begin on August 1, 2013. The first annual report, comprised of data collected from August 1, 2013 to December 31, 2013, was due March 31, 2014. The statute requires the federal government to make reported information available to the public starting September 2014, which it has. Failure to comply with the reporting requirements can result in significant civil monetary penalties ranging from $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to a maximum per annual report of $150,000) and from $10,000 to $100,000 for each knowing failure to report (up to a maximum per annual report of $1.0 million). Additionally, there are criminal penalties if an entity intentionally makes false statements in such reports. We are subject to the Sunshine Act and the information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs. Additionally, similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals.

       Foreign Corrupt Practices Act.     The Foreign Corrupt Practices Act, or FCPA, prohibits any United States individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, if any, and to devise and maintain an adequate system of internal accounting controls for international operations.

       International Laws.     In Europe various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal penalties and/or significant fines, for individuals and/or companies committing a bribery offence. Violations of these anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations and reputation. For instance, in the United Kingdom, under the Bribery Act 2010, which went into effect in July 2011, a bribery occurs when a person offers, gives or promises to give a financial or other advantage to induce or reward another individual to improperly perform certain functions or activities, including any function of a public nature. Bribery of foreign public officials also falls within the scope of the Bribery Act 2010. Under the new regime, an individual found in violation of the Bribery Act of 2010, faces imprisonment of up to 10 years. In addition, the individual can be subject to an unlimited fine, as can commercial organizations for failure to prevent bribery.

       There are also international privacy laws that impose restrictions on the access, use, and disclosure of health information. All of these laws may impact our business. Our failure to comply with these privacy laws or significant changes in the laws restricting our ability to obtain required patient information could significantly impact our business and our future business plans.

U.S. Healthcare Reform

       Changes in healthcare policy could increase our costs and subject us to additional regulatory requirements that may interrupt commercialization of our current and future solutions. Changes in healthcare policy could increase our costs, decrease our revenues and impact sales of and reimbursement for our current and future solutions. The Affordable Care Act substantially changes

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the way healthcare is financed by both governmental and private insurers, and significantly impacts our industry. The Act contains a number of provisions that impact our business and operations, some of which in ways we cannot currently predict, including those governing enrollment in federal healthcare programs and reimbursement changes.

       There will continue to be proposals by legislators at both the federal and state levels, regulators and third party payors to reduce costs while expanding individual healthcare benefits. Certain of these changes could impose additional limitations on the prices we will be able to charge for our current and future solutions or the amounts of reimbursement available for our current and future solutions from governmental agencies or third party payors. While in general it is too early to predict specifically what effect the Affordable Care Act and its implementation or any future healthcare reform legislation or policies will have on our business, current and future healthcare reform legislation and policies could have a material adverse effect on our business and financial condition.

Third-Party Reimbursement

       Payment for patient care in the United States is generally made by third party payors, including private insurers and government insurance programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the United States, is a federal governmental health insurance program administered by the Centers for Medicare and Medicaid Services, or CMS, and covers certain medical care expenses for eligible elderly and disabled individuals. Because a large percentage of the population with PAD includes Medicare beneficiaries, and private insurers may follow the coverage and payment policies of Medicare, Medicare's coverage and payment policies are significant to our operations.

       Medicare pays PAD treatment facilities, including hospitals and physician office-based labs, pre-determined amounts for each procedure performed. These payment amounts differ based on a variety of factors, including:

    Type of procedure performed—angioplasty, stent or atherectomy;

    Patient-specific complexities and comorbidities;

    Type of facility—hospital, teaching hospital or office-based lab;

    Inpatient or outpatient status; and

    Geographic region.

       We receive payment from the treatment facility for our products, and the Medicare reimbursement to the facility is intended to cover the overall cost of treatment, including the cost of products used during the procedure as well as the overhead cost associated with the facility where the procedure is performed. For procedures performed in hospitals, the physician who performs the procedure is reimbursed separately under the Medicare physician fee schedule. Claims for PAD procedures are typically submitted by the treatment facility and physician to Medicare or other health insurers using established billing codes. These codes identify the procedures performed and are relied upon to determine third party payor reimbursement amounts.

       Medicare reimbursement levels for fiscal year 2015 went into effect as of October 1, 2014. National average Medicare payment rates for PAD procedures for fiscal year 2015 are $10,150 - $19,148 for inpatient procedures, $4,334 - $14,759 for outpatient procedures. These amounts include the cost of disposable catheters such as Ocelot and Pantheris, and additional device-specific reimbursement is not available. The amount of reimbursement can vary substantially by geographical

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region and by facility. Payment rates of other third party payors may follow Medicare rates, or they may be higher or lower, depending on their particular reimbursement methodology. Because of the wide variability, it is not possible to identify an average rate for third party payors other than Medicare.

Employees

       As of December 31, 2014, we had 116 employees, including 24 in manufacturing and operations, 42 in sales and marketing, 19 in research and development, 16 in clinical affairs, regulatory affairs, and quality assurance and 15 in finance, general administrative and executive administration. All 116 employees are full time employees. None of our employees are represented by a labor union or are parties to a collective bargaining agreement and we believe that our employee relations are good.

Facilities

       Our principal executive offices are located in two buildings, comprising 44,200 square feet in Redwood City, California. The term of the lease for our facility extends through November 2016 and we have the option to extend the lease through November 2022. Our facility houses our research and development, sales, marketing, manufacturing, finance and administrative activities. We believe that our current facilities are adequate for our current and anticipated future needs through 2016.

Legal Proceedings

       We are not currently a party to any material legal proceedings. From time to time we may be involved in legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business.

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MANAGEMENT

Executive Officers, Directors and Key Employees

       The following table sets forth information, as of January 15, 2015, regarding our executive officers, directors and key employees.

Name
  Age   Title

Jeffrey M. Soinski

    53   President, Chief Executive Officer and Director

John B. Simpson, Ph.D., M.D. (1)

    70   Director and Executive Chairman of the Board of Directors

Matthew B. Ferguson

    47   Chief Business Officer and Chief Financial Officer

Sougata Banerjee

    48   Senior Vice President, Operations

Bart C. Beasley

    46   Vice President, Marketing

Arjun M. Desai, M.D. 

    33   Chief Medical Officer

Daniel V. George

    45   Vice President, Finance

Patricia A. Hevey

    49   Vice President, Clinical, Quality & Regulatory Affairs

Himanshu N. Patel

    54   Chief Technology Officer

Philip R. Preuss

    37   Vice President, Corporate Development

John D. Simpson

    36   Vice President, Sales

James G. Cullen (2)(3)

    72   Director

Thomas J. Fogarty (3)

    80   Director

Donald A. Lucas (1)(2)(3)

    52   Director

James B. McElwee (1)(2)(3)

    62   Director

(1)
Member of the audit committee.
(2)
Member of the compensation committee.
(3)
Member of the nominating and governance committee.

        Jeffrey M. Soinski has served as our President, Chief Executive Officer and a member of our Board of Directors since December 2014. From its formation in September 2009 until the acquisition of its Unisyn business by GE Healthcare in May 2013, Mr. Soinski served as Chief Executive Officer of Medical Imaging Holdings and its primary operating company Unisyn Medical Technologies, a national provider of technology-enabled products and services to the medical imaging industry. Mr. Soinski remains a Director of Medical Imaging Holdings and its remaining operating company Consensys Imaging Service. From July 2008 to June 2013, Mr. Soinski served periodically as a Special Venture Partner for Galen Partners, a leading healthcare-focused private equity firm, which has Medical Imaging Holdings as one of its portfolio companies. From 2001 until its acquisition by C.R. Bard in 2008, Mr. Soinski was President and CEO of Specialized Health Products International, a publicly-traded manufacturer and marketer of proprietary safety medical products. Mr. Soinski served as a consultant to BLOXR Corporation, a venture-backed medical device company, from October 2013 until September 2014. He has served on the board of directors of Merriman Holdings, parent of Merriman Capital, a San Francisco-based investment banking and brokerage firm, since 2008. Mr. Soinski holds a B.A. degree from Dartmouth College.

       We believe Mr. Soinski is qualified to serve as a member of our board of directors because of his extensive corporate finance and business strategy experience as well as his experience with public companies.

        John B. Simpson, Ph.D., M.D. founded our company in March 2007 and has served as a member of our board of directors since March 2007. From March 2007 to December 2014, Dr. Simpson served as our Chief Executive Officer. Since March 2000 Dr. Simpson has served in various positions at De

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Novo Ventures, a venture capital fund, including managing director and clinical director. Since 1983, Dr. Simpson has been a partner at Cardiovascular Medicine and Coronary Interventions, a cardiology physician group. Prior to founding our company, Dr. Simpson founded several other interventional cardiology companies, including Perclose, a manufacturer of femoral artery access site closure devices, Devices for Vascular Intervention, a manufacturer of atherectomy devices, Advanced Cardiovascular Systems, a manufacturer of balloon angioplasty devices and FoxHollow Technologies, a manufacturer of atherectomy devices. Dr. Simpson holds a B.S. in Agriculture from Ohio State University, an M.D. from the Duke University School of Medicine and an M.S. and a Ph.D. in Biomedical Science from the University of Texas.

       We believe Dr. Simpson is qualified to serve as a member of our board of directors because of his medical background, extensive knowledge of medical device company operations, and his experience working with companies, regulators and other stakeholders in the medical device industry.

        Matthew B. Ferguson has served as our Chief Business Officer and Chief Financial Officer since January 2011, and also as our Co-President from August 2012 to October 2013. From December 2009 to December 2010, Mr. Ferguson served as the Chief Financial Officer at Tethys Bioscience, a provider of molecular diagnostic tests for cardiometabolic conditions. From January 2008 to April 2009 he served as the Chief Financial Officer at Proteolix, a developer of novel drugs for the treatment of cancer and autoimmune diseases. Mr. Ferguson also served as the Chief Financial Officer and Vice President of Finance at FoxHollow Technologies. Mr. Ferguson holds a B.S. in Civil Engineering from Stanford University, an M.S. in Mechanical Engineering from the University of Pennsylvania and an M.B.A. from the University of California at Berkeley.

        Sougata (Bunty) Banerjee has served as our Senior Vice President of Operations since January 2012. From November 2009 to January 2012, Mr. Banerjee was Vice President of Operations and Quality at Evalve where he oversaw the acquisition of Evalve by Abbott Laboratories in 2009 and lead the post-acquisition integration and business expansion as Head of Operations at Abbott Vascular, Structural Heart. Prior to Evalve, Mr. Banerjee served as Plant Manager at Epicor, holding general management responsibilities including operations, quality, product development, finance, human resources, and providing leadership in product commercialization and new product introductions. Prior to Epicor, Mr. Banerjee held several operations leadership positions at several business units of Boston Scientific. Earlier in his career, Mr. Banerjee held various engineering positions at Crompton-Greaves, Caterpillar, and Larsen-Toubro. Mr. Banerjee received a B.S. in Electrical Engineering from Jadavpur University, India and an M.S. in Industrial Management from Clemson University.

        Bart C. Beasley has been our Vice President of Marketing since January 2013. From January 2009 to January 2013, he served as the Senior Director of Marketing at Transcend Medical. From January 2007 to January 2009, Mr. Beasley worked as an independent consultant providing consulting on sales and marketing strategy matters within the medical device industry. Mr. Beasley holds a B.S. in Economics from Santa Clara University and an M.B.A. from IESE, University of Navarra in Spain.

        Arjun M. Desai, M.D. joined our company in January 2012 and has served as our Chief Medical Officer since November 2013. From July 2010 to December 2011, Dr. Desai served as a consultant and advisor for Incline Therapeutics, developing the IONSYS transdermal fentanyl delivery system and other companies. From 2008 to December 2011, Dr. Desai was a Staff Physician at Stanford University in the Department of Anesthesia where he completed his advanced anesthesia residency training. Dr. Desai continues to be affiliated with Stanford University. Dr. Desai has also served as a fellow in the United States House Policy Committee, advising members of Congress on healthcare legislation. Additionally, Dr. Desai represented the United States State Department and Rotary

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International as an Ambassador of Goodwill to Singapore where he led vaccine prophylaxis campaigns and lectured in the department of health economics at the National University of Singapore. Dr. Desai holds an M.D. from the University of Miami Miller School of Medicine and a B.A. in Economics from the University of Oklahoma.

        Daniel V. George has served as our Vice President, Finance since August 2014. From June 2012 to August 2014, Mr. George served as a consultant and Vice President of Finance for ApniCure, a medical device company specializing in the treatment of sleep apnea. From March 2009 to June 2012, Mr. George worked for Avantis Medical Systems, a manufacturer of colonoscopy visualization technology, where he was both a consultant and Chief Financial Officer. Mr. George was also the Sr. Director of Finance at FoxHollow Technologies and worked for PricewaterhouseCoopers in the assurance and business advisory practice. Mr. George holds B.S. degrees in both Accounting and Finance from California State University, Long Beach.

        Patricia A. Hevey has served as our Vice President of Clinical, Regulatory and Quality Affairs since September 2014. From April 2014 to September 2014, Ms. Hevey was our Vice President of Clinical and Regulatory Affairs and from February 2011 to February 2014, she served as our Director of Clinical and Regulatory Affairs. From July 2010 until February 2011, Ms. Hevey was the President of Hevey Clinical Consulting and from October 2008 to July 2010, she was the Director of Clinical and Regulatory Affairs at Baxano. Ms. Hevey holds a B.S. in Clinical Research Administration from George Washington University Medical School and an associate of science in Radiology Science from Canada College.

        Himanshu N. Patel served as our Chief Technology Officer from January 2011 to November 2011 and since October 2013. From September 1999 to February 2007, Mr. Patel led research and development activities as the Director of Advanced Technologies at FoxHollow Technologies. Mr. Patel holds a B.S. in Mechanical Engineering from M.S. University of Baroda, India, and an M.S. in Mechanical Engineering from the University of Florida.

        Philip R. Preuss has served as our Vice President, Corporate Development since September 2014. From September 2012 to August 2014, Mr. Preuss served as our Vice President, Finance and Corporate Development. Mr. Preuss joined our company in August 2009 and has held the positions of Vice President, Corporate Development and Vice President, Finance. Prior to joining our company, Mr. Preuss was a Manager of Business Development at another medical device company founded by Dr. Simpson. Mr. Preuss was also a Senior Associate of Corporate Development at FoxHollow Technologies, where he worked on internal strategic priorities and the exploration of external business opportunities. Before entering the medical device industry, Mr. Preuss held various roles in the financial services sector, and specifically within the field of equity research. Mr. Preuss holds an M.B.A. from the Kellogg School of Management and a B.A. in both Economics and History from Stanford University.

        John D. Simpson has served as our Vice President of Sales since August 2011 and served as a member of our board of directors from December 2009 to January 2015. Mr. Simpson joined our company in 2008 and has held the positions of Chief Marketing Officer and Co-President. From 2001 to 2005, Mr. Simpson worked at FoxHollow Technologies in a Clinical Affairs, Sales and Marketing role. From 2005 to 2006, Mr. Simpson worked at Palo Alto Investors, an independent, privately held investment advisor. Mr. Simpson rejoined FoxHollow Technologies 2006 where he worked in Corporate Development. Mr. Simpson is a Founder and the Chief Executive Officer of Recreation, which is a full service creative, digital and media agency focused on brand strategy and

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implementation for life changing innovations. Mr. Simpson holds a B.A. in Sociology from Duke University.

        James G. Cullen has served as a member of our board of directors since December 2014. During the last five years, Mr. Cullen has held board and committee positions with various companies. Mr. Cullen is currently the non-executive Chairman of the board of Neustar, Inc., a neutral provider of real-time information services and analytics, a director and member of the investment and finance committees of Prudential Financial, non-executive Chairman of the Board of Agilent Technologies, a director of Keysight Technologies, and a director and chairman of the audit committee of Johnson & Johnson. From 1993 to 2000, Mr. Cullen was President, Vice Chairman and Chief Operating Officer of Bell Atlantic Corporation (now Verizon). From 1989 to 1993, he was President and Chief Executive Officer of Bell Atlantic-New Jersey. Mr. Cullen holds a B.A. in Economics from Rutgers University and an M.S. in Management Science from the Massachusetts Institute of Technology.

       We believe Mr. Cullen is qualified to serve as a member of our board of directors because of his extensive experience serving on the boards of public companies as well as his financial and business expertise.

        Thomas J. Fogarty, M.D. has served as a member of our board of directors since December 2014. Dr. Fogarty is a managing director of Emergent Medical Partners, an investment firm focused on private medical device companies, which he founded in 2007. Prior to Emergent Medical Partners, Dr. Fogarty held various positions at Stanford University where he performed both cardiac and peripheral vascular surgery. His positions at Stanford University included Professor of Cardiovascular Surgery and President of the Medical Staff. Dr. Fogarty holds a B.S. degree in Biology from Xavier University and an M.D. from Cincinnati College of Medicine.

       We believe Dr. Fogarty is qualified to serve as a member of our board of directors because of his medical background and extensive knowledge of medical device company operations.

        Donald A. Lucas has served as a member of our board of directors since 2013 and has been an investor in our company since 2011. Mr. Lucas has been a venture capitalist since 1985, having invested in companies such as Oracle, Macromedia and Cadence Design alongside his father Donald L. Lucas. Mr. Lucas has sourced or led investments in companies such as Intuitive Surgical, Coulter Pharmaceutical, Dexcom, Infinera, Reputation.com, Chegg, Palantir and Theranos. Mr. Lucas has served on the boards of Dexcom and the Silicon Valley Chapter of the JDRF and is a member of the UCSF Diabetes Center Leadership Council. Mr. Lucas holds a B.A. from Santa Clara University.

       We believe Mr. Lucas is qualified to serve as a member of our board of directors because of his substantial corporate finance, business strategy and corporate development expertise gained from his significant experience in the venture capital industry, analyzing, investing in, serving on the boards of, and providing guidance to various technology companies.

        James B. McElwee has served as a member of our board of directors since March 2011. Mr. McElwee served as general partner of Weston Presidio, a private equity and venture capital firm, from 1992 to 2010. During his tenure as a general partner and member of the investment committee, Weston Presidio led the start up financing of JetBlue Airways and made investments in Fender Musical Instruments, The Coffee Connection, Guitar Center, Mapquest, Party City, Petzazz, RE/MAX, and others. Prior to Weston Presidio, Mr. McElwee was Senior Vice President of the Security Pacific Venture Capital Group and the founding Managing Director of its Menlo Park office where he was responsible for early private investments in Costco, Universal Health Services, Cypress

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Semiconductor, Aspect Telecommunications, Xilinx, MIPS Computer Systems, Harmonic, Microchip, Vitesse and others. Prior to entering the venture capital industry in 1979, Mr. McElwee was a Senior Consultant with Accenture working on a variety of clients in the retailing, healthcare and technology industries. Mr. McElwee holds a B.A. in Economics from Claremont McKenna College and an M.B.A. from the Wharton Graduate School of Business.

       We believe Mr. McElwee is qualified to serve as a member of our board of directors because of his substantial corporate development and business strategy expertise gained in the venture capital industry.

Executive Officers

       Each of our executive officers serves at the discretion of our board of directors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. John B. Simpson, the Executive Chairman of our board of directors, is the father of John D. Simpson, our Vice President, Sales.

Board of Directors

       Our business is managed under the direction of our board of directors, which consists of five directors. Our directors hold office until the earlier of their death, resignation, removal or disqualification, or until their successors have been elected and qualified. We are actively searching for qualified candidates to add to our board of directors or to replace current members. Our board of directors does not have a formal policy on whether the roles of Chief Executive Officer and Chairman of our board of directors should be separate. Prior to this offering, the members of our board of directors were elected in compliance with the provisions of our amended and restated certificate of incorporation and a voting agreement among certain of our stockholders. The voting agreement will terminate upon the closing of this offering and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors.

       Upon completion of this offering, our bylaws will be amended and restated to provide that the authorized number of directors may be changed only by resolution of the board of directors. Upon the closing of this offering, our board of directors will be divided into three classes with staggered three-year terms. We do not expect to have an annual meeting of stockholders in 2015 and our first annual meeting of stockholders will be in 2016. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election or until their earlier death, resignation or removal. Our directors have been divided among the three classes as follows:

    The Class I directors will be Jeffrey M. Soinski and John B. Simpson, and their terms will expire at our annual meeting of stockholders to be held in 2016

    The Class II directors will be Donald A. Lucas and James B. McElwee, and their terms will expire at our annual meeting of stockholders to be held in 2017; and

    The Class III directors will be James G. Cullen and Thomas J. Fogarty and their terms will expire at our annual meeting of stockholders to be held in 2018.

       This classification of the board of directors, together with the ability of the stockholders to remove our directors only for cause and the inability of stockholders to call special meetings, may have the effect of delaying or preventing a change in control or management. See "Description of Capital Stock—Anti-Takeover Effects or Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Delaware Law" for a discussion of other

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anti-takeover provisions that will be included in our amended and restated certificate of incorporation that will become effective immediately prior to the consummation of this offering.

Director Independence

       In connection with this offering, we intend to list our common stock on The NASDAQ Stock Market. Under the rules of The NASDAQ Stock Market, independent directors must comprise a majority of a listed company's board of directors within a specified period of time after listing on The NASDAQ Stock Market. In addition, the rules of The NASDAQ Stock Market require that, subject to specified exceptions, each member of a listed company's audit, compensation, and nominating and governance committees be independent. Our board of directors has reviewed the independence of each director and determined that Messrs. Cullen, Fogarty, Lucas and McElwee are independent under the rules of The NASDAQ Stock Market. Our board of directors will review the independence of each director at least annually. During these reviews, the board of directors will consider transactions and relationships between each director (and his or her immediate family and affiliates) and our company and its management to determine whether any such transactions or relationships are inconsistent with a determination that the director is independent. This review will be based primarily on responses of the directors to questions in a directors' and officers' questionnaire regarding employment, business, familial, compensation and other relationships with our company including its management.

       We believe that the composition of our board of directors meets the requirements for independence under the current requirements of The NASDAQ Stock Market. As required by The NASDAQ Stock Market, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present. We intend to comply with future governance requirements to the extent they become applicable to us.

Corporate Governance

       We believe that good corporate governance is important to ensure that, as a public company, we will be managed for the long-term benefit of our stockholders. In preparation for the offering being made by this prospectus, we and our board of directors have been reviewing the corporate governance policies and practices of other public companies, as well as those suggested by various authorities in corporate governance. We have also considered the provisions of the Sarbanes-Oxley Act and the rules of the SEC and The NASDAQ Stock Market.

       Based on this review, our board of directors has taken steps to implement many of these provisions and rules. In particular, we have established and expect to enhance charters for the audit committee, compensation committee and nominating and governance committee, as well as a code of business conduct and ethics applicable to all of our directors, officers and employees.

Board Committees

       Our board of directors has established a standing audit committee, a compensation committee, and a nominating and governance committee. Our board of directors has assessed the independence of the members of each of these standing committees as defined under the rules of The NASDAQ Stock Market and, in the case of the audit committee, the independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended.

       Audit Committee.     Messrs. Lucas, McElwee and Simpson serve on our audit committee. Mr. Lucas serves as the chair of the audit committee and we are actively searching for a financial

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expert within the meaning of the regulations of the SEC. Our board of directors has assessed whether all members of the audit committee meet the composition requirements of The NASDAQ Stock Market, including the requirements regarding financial literacy and financial sophistication. Our board of directors found that Messrs. Lucas, McElwee and Simpson have met the financial literacy and financial sophistication requirements and that Messrs. Lucas and McElwee are independent under SEC and The NASDAQ Stock Market rules. Before the expiration of the phase-in period applicable to initial public offerings under SEC and The NASDAQ Stock Market rules, all members of our audit committee will be independent for audit committee purposes. The audit committee's primary responsibilities include:

    appointing, approving the compensation of, and assessing the qualifications and independence of our independent registered public accounting firm, which currently is Ernst & Young LLP;

    reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures;

    preparing the audit committee report required by SEC rules to be included in our annual proxy statements;

    monitoring our internal control over financial reporting, disclosure controls and procedures;

    reviewing our risk management status;

    establishing policies regarding hiring employees from our independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns;

    meeting independently with our independent registered public accounting firm and management; and

    monitoring compliance with the code of business conduct and ethics for financial management.

       All audit and non-audit services must be approved in advance by the audit committee. Our board of directors has adopted a written charter for the audit committee which will be available on our website at www.avinger.com upon the completion of this offering.

       Compensation Committee.     Messrs. Lucas, Cullen and McElwee serve on our compensation committee. Mr. McElwee serves as the chair of the compensation committee. The compensation committee's responsibilities include:

    annually reviewing and approving corporate goals and objectives relevant to compensation of our chief executive officer and our other executive officers;

    determining the compensation of our chief executive officer and our other executive officers;

    reviewing and making recommendations to our board of directors with respect to director compensation; and

    overseeing and administering our equity incentive plans.

       Our chief executive officer and chief financial officer make compensation recommendations for our other executive officers and initially proposes the corporate and departmental performance objectives under our Executive Bonus Plan to the compensation committee. From time to time, the compensation committee may use outside compensation consultants to assist it in analyzing our compensation programs and in determining appropriate levels of compensation and benefits. For example, in 2014, we engaged Radford Consulting to advise us on compensation philosophy as we transition towards becoming a publicly-traded company, selection of a group of peer companies to use

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for compensation benchmarking purposes and cash and equity compensation levels for our directors, executives and other employees based on current market practices. Our board of directors has adopted a written charter for the compensation committee which will be available on our website at www.avinger.com upon the completion of this offering.

       Nominating and Governance Committee.     Messrs. Lucas, Cullen, Fogarty and McElwee serve on our nominating and governance committee. Mr. Cullen serves as the chair of the nominating and governance committee. The nominating and governance committee's responsibilities include:

    identifying individuals qualified to become members of our board of directors;

    recommending to our board of directors the persons to be nominated for election as directors and to each of our board's committees;

    reviewing and making recommendations to our board of directors with respect to management succession planning;

    developing, updating and recommending to our board of directors corporate governance principles and policies; and

    overseeing the evaluation of our board of directors and committees.

       Our board of directors has adopted a written charter for the nominating and governance committee which will be available on our website at www.avinger.com upon the completion of this offering.

Lead Independent Director

       Our board of directors has appointed James G. Cullen to serve as our lead independent director. As lead independent director, Mr. Cullen is expected to preside over periodic meetings of our independent directors, to serve as a liaison between our Executive Chairman and the independent directors, and to perform such additional duties as our Board may otherwise determine and delegate. At the end of each board meeting, the independent directors are expected to meet without Mr. Soinski and Mr. Simpson present. Following each meeting, Mr. Cullen is expected to provide feedback to Mr. Soinski and Mr. Simpson on their performance and the performance of our employees during the meeting and to recommend new agenda items for the next meeting.

Code of Business Conduct and Ethics

       We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Following the closing of this offering, our code of business conduct and ethics will be available on our website at www.avinger.com . We intend to disclose any amendments to the code, or any waivers of its requirements, on our website to the extent required by the applicable rules and exchange requirements. The inclusion of our website address in this prospectus does not incorporate by reference into this prospectus the information on or accessible through our website.

Limitation on Liability and Indemnification Matters

       Our amended and restated certificate of incorporation, which will become effective immediately prior to the consummation of this offering, contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

    any breach of the director's duty of loyalty to us or our stockholders;

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    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; and

    any transaction from which the director derived an improper personal benefit.

       Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to the consummation of this offering, provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and restated bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under Delaware law. We have entered, and expect to continue to enter, into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys' fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors' and officers' liability insurance.

       The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damages.

Compensation Committee Interlocks and Insider Participation

       None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or its compensation committee. None of the current members of the compensation committee of our board of directors has ever been one of our employees.

Director Compensation

       Prior to this offering, non-employee members of our board of directors did not receive any cash compensation for service on our board of directors or committees, including attending board and committee meetings. However, we did reimburse our non-employee directors for travel, lodging and other reasonable expenses incurred in attending board, committee and other company-related meetings. In addition, from time to time we have granted stock options to some of our directors. In fiscal year 2014, we granted Donald Lucas, one of our non-employee directors, a non-statutory stock option to purchase 4,444 shares of our common stock at an exercise price of $20.25 per share. One quarter of the shares underlying this option vested on November 26, 2014, and the remaining shares underlying this option vest in equal monthly installments thereafter. Additionally, in fiscal year 2014, each of James Cullen, Thomas Fogarty, Donald Lucas and James McElwee, constituting all of our non-employee directors, was granted a non-statutory option to purchase 24,444 shares of our common stock at an exercise price of $4.50 per share. One quarter of the shares underlying these options vest

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on December 31, 2015 and the remaining shares underlying these options vest in equal monthly installments thereafter.

Outside Director Compensation Policy

       After the completion of this offering, each non-employee director will be eligible to receive compensation for his or her service consisting of annual cash retainers and equity awards. Our board of directors will have the discretion to revise non-employee director compensation as it deems necessary or appropriate.

       Cash Compensation.     All non-employee directors will be entitled to receive the following cash compensation for their services following the completion of this offering:

       All cash payments to non-employee directors, or the Retainer Cash Payments, will be paid biannually with the first biannual installment payable on the date of the Company's annual meeting of stockholders or, if no annual meeting occurs in a given year, May 1, and the second biannual installment payable on November 1 of each year.

       Election to Receive Stock Options in Lieu of Cash Payments.     All non-employee directors may elect to convert a Retainer Cash Payment into a nonstatutory stock option, or a Retainer Option, with a grant date fair value equal to the applicable Retainer Cash Payment. Each Retainer Option will be granted on the date that the applicable Retainer Cash Payment was scheduled to be paid, and all of the shares underlying the Retention Option will vest and become exercisable one year from the date of grant, subject to continued service as a director through the applicable vesting date. The Retainer Option will be subject to certain terms and conditions as described below under the section titled "Equity Compensation."

       Elections to convert a Retainer Cash Payment into a Retainer Option must generally be made on or prior to December 31 of the year prior to the year in which the Retainer Cash Payment is scheduled to be paid, or such earlier deadline as established by our board of directors or compensation committee. Each individual who first becomes a non-employee director after this offering will be permitted to elect to convert Retainer Cash Payments payable in the same calendar year into Retainer Options, provided that such election is made prior to the date the individual becomes a non-employee director. Individuals who are non-employee directors immediately prior to the completion of this offering are permitted to elect to convert Retainer Cash Payments payable in 2015 into Retainer Options, provided that such election is made prior to the completion of this offering.

       Equity Compensation.     Following the closing of this offering, nondiscretionary, automatic grants of nonstatutory stock options will be made to our non-employee directors.

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       The exercise price per share of each stock option granted under our outside director compensation policy, including Retention Options, Initial Options and Annual Options, will be the fair market value of a share of our common stock, as determined in accordance with our 2015 Equity Incentive Plan, or the 2015 Plan, on the date of the option grant. The grant date fair value is computed in accordance with the Black-Scholes option valuation methodology or such other methodology our board of directors or compensation committee may determine.

       Any stock option granted under our outside director compensation policy will fully vest and become exercisable in the event of a change in control, as defined in our 2015 Plan, provided that the optionee remains a director through such change in control. Further, our 2015 Plan, as described below under the section titled "Employee Benefit and Stock Plans," provides that in the event of a merger or change in control, as defined in our 2015 Plan, each outstanding equity award granted under our 2015 Plan that is held by a non-employee director will fully vest, all restrictions on the shares subject to such award will lapse, and with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and all of the shares subject to such award will become fully exercisable, if applicable, provided such optionee remains a director through such merger or change in control.

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       The following table sets forth a summary of the compensation received by our directors that are not named executive officers who received compensation during our fiscal year ended December 31, 2014:

Director Compensation

Name (1)
  Option Awards
($) (2)(3)
  Total ($)  

James G. Cullen

  $ 58,172     58,172  

Thomas J. Fogarty

    58,172     58,172  

Donald A. Lucas

    105,763     105,763  

James B. McElwee

    58,172     58,172  

James Muzzy (4)

         

John D. Simpson (4)

         

(1)
Mr. Cullen was appointed to our board of directors on December 30, 2014 and Mr. Fogarty was appointed to our board of directors on December 31, 2014.
(2)
Amounts shown represent the grant date fair value of options granted during 2014, as calculated in accordance with ASC Topic 718. The assumptions used in calculating the grant-date fair value of the options reported in this column are set forth in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation."
(3)
As of December 31, 2014, Messrs. Cullen, Fogarty, Lucas, McElwee, Muzzy and Simpson had outstanding options to purchase a total of 24,444, 24,444, 28,888, 31,110, 4,444 and 92,905 shares of our common stock, respectively.
(4)
Mr. Muzzy resigned from our board of directors on October 31, 2014. Mr. Simpson resigned from our board of directors on January 13, 2015.

       Directors who are also our employees receive no additional compensation for their service as directors. During 2014, John B. Simpson, John D. Simpson and Jeffrey M. Soinski, three of our directors, were also our employees. See "Executive Compensation—Summary Compensation Table" for additional information about the compensation for Messrs. Simpson and Soinski.

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EXECUTIVE COMPENSATION

Summary Compensation Table

       This discussion contains forward looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may difffer materially from currently planned programs as summarized in this discussion. As an "emerging growth company" as defined in the JOBS Act and a smaller reporting company we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies and smaller reporting companies.

       The following table provides information regarding the total compensation for services rendered in all capacities that was earned by each individual who served as our principal executive officer at any time in 2014, and our two other most highly compensated executive officers who were serving as executive officers as of December 31, 2014. These individuals were our named executive officers for 2014.

Name and Principal Position
  Year   Salary
($) (1)
  <