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						Underwriting
						Discounts and				Proceeds to Artes
		Price to Public				Commissions				Medical, Inc.
Per share			$6.00				$0.42				$5.58
Total			$27,600,000				$1,932,000				$25,668,000

Cowen and Company	Lazard Capital Markets

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		Page
Prospectus Summary			1
Summary Consolidated Financial Data			7
Risk Factors			9
Information Regarding Forward-Looking Statements			33
Use of Proceeds			34
Dividend Policy			34
Capitalization			35
Dilution			37
Selected Consolidated Financial Data			39
Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
Business			54
Management			79
Related Party Transactions			95
Principal Stockholders			98
Description of Capital Stock			101
Shares Eligible for Future Sale			107
Material United States Federal Income Tax Considerations for Non-U.S. Holders of our Common Stock			110
Underwriting			113
Legal Matters			117
Experts			117
Where You Can Find More Information			117
Index to Consolidated Financial Statements			F-1

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	We have limited operating experience and a history of net losses and may never achieve or maintain profitability.

	Our operating results may fluctuate significantly in the future, and we may not be able to correctly estimate our future operating expenses, which could lead to cash shortfalls.

	•	the level of demand for ArteFill;
	•	the costs of our sales and marketing activities;
	•	the introduction of new technologies and competing products that may make ArteFill a less attractive treatment option for physicians and patients;
	•	our pricing strategy and ability to protect the price of ArteFill against price erosion due to the availability of alternative treatments;
	•	our ability to attract and retain personnel with the skills required for effective operations;
	•	product liability and other litigation;
	•	the amount and timing of capital expenditures and other costs relating to conducting our long-term, post-market safety study for ArteFill, further automating and expanding capacity at our

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		manufacturing facilities and conducting further studies regarding the use of ArteFill for other aesthetic applications;
	•	government regulation and legal developments regarding our products in the United States and in the foreign countries in which we operate;
	•	our ability to receive, and the timing in which we may receive, approval from various foreign regulatory bodies to market ArteFill outside the United States; and
	•	general economic conditions affecting the ability of patients to pay for elective cosmetic procedures.

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	We expect to derive substantially all of our future revenue from sales of Artefill, and if we are unable to achieve and maintain market acceptance of ArteFill among physicians and patients, our business, operating results and financial condition will be harmed.

	•	the perceived advantages or disadvantages of ArteFill compared to other injectable aesthetic products and alternative treatments;
	•	the safety and efficacy of ArteFill and the number and severity of reported adverse side effects, if any;
	•	the availability and success of other injectable aesthetic products and alternative treatments;
	•	the price of ArteFill relative to other injectable aesthetic products and alternative treatments;
	•	our success in building a sales and marketing organization and the effectiveness of our marketing, advertising and commercialization initiatives;
	•	the willingness of patients to wait 28 days for treatment following the bovine collagen skin test that is required in connection with ArteFill;
	•	our ability to provide additional clinical data regarding the potential long-term aesthetic benefits provided by ArteFill;
	•	our success in training physicians in the proper use of the ArteFill injection technique and the convenience and ease of administration of ArteFill;
	•	the success of our physician practice support programs; and
	•	publicity concerning ArteFill or competing products and alternative treatments.

	We face significant competition from companies with greater resources and well-established sales channels, which may make it difficult for us to achieve market penetration.

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	•	Allergan, Inc., which markets and sells Botox® Cosmetic, a temporary muscle paralytic and the most widely used injectable aesthetic product in the United States, CosmoDerm® and CosmoPlast®, which are human collagen-based temporary dermal fillers, Zyderm® and Zyplast®, which are bovine collagen-based temporary dermal fillers, and Hylaform®, Hylaform® Plus, Captique® and Juvedermtm, which are temporary dermal fillers comprised primarily of hyaluronic acid, a jelly-like substance that is found naturally in living organisms and acts to hydrate and cushion skin tissue;
	•	Medicis Pharmaceutical Corporation, which markets and sells Restylane®, the leading temporary dermal filler comprised primarily of hyaluronic acid;
	•	BioForm Medical, Inc., which markets and sells Radiessetm, which is approved by the FDA for vocal cord augmentation, radiographic tissue marking and the treatment of oral and maxillofacial defects, or the loss of facial structure and skin tissue, and is currently under review by the FDA for other uses, including aesthetic applications; and
	•	Dermik Laboratories, a subsidiary of sanofi-aventis, which markets and sells Sculptra®, which is approved by the FDA for restoration and/or correction of the signs of facial fat loss in people with human immunodeficiency virus.

	•	superior name recognition;
	•	established relationships with physicians and patients;
	•	integrated distribution networks;
	•	large-scale FDA-approved manufacturing facilities; and
	•	greater financial resources for product development, sales and marketing and patent litigation.

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	We have been involved in product litigation in the past, and we may become involved in product litigation in the future, and any liability resulting from product liability or other related claims may negatively affect our results of operations.

	•	the diversion of management’s time and attention from our business and operations;
	•	the expenditure of large amounts of cash on legal fees, expenses and payment of settlements or damages;

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	•	decreased demand for ArteFill among physicians and patients;
	•	voluntary or mandatory recalls of our products; or
	•	injury to our reputation.

	We have never commercialized any product, and the successful commercialization of ArteFill will require us to build a sophisticated sales and marketing organization.

	We have limited manufacturing experience, and if we are unable to manufacture ArteFill in commercial quantities successfully and consistently to meet demand, our growth will be limited.

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	The results provided by ArteFill are highly dependent on its technique of administration, and the acceptance of ArteFill will depend on the training, skill and experience of physicians.

	•	swelling or redness;
	•	lumpiness at the injection site; and
	•	the development of a granuloma, or an inflammatory reaction to a foreign body that results in redness and hardening of tissue at the injection site.

	We may experience negative publicity regarding ArteFill or predecessor products sold outside of the United States, which may harm our business.

	•	concerns about the safety of ArteFill or the predecessor products;
	•	negative side effects, or alleged or perceived negative side effects, relating to the use of ArteFill or the predecessor products;
	•	concerns about the safety of competing products, such as temporary muscle paralytics or temporary dermal fillers, or aesthetic treatments generally;
	•	negative side effects, or alleged or perceived negative side effects, relating to the use of these competing products;
	•	any product recalls relating to ArteFill or competing products;
	•	negative side effects or safety issues resulting from any off-label use of ArteFill;
	•	administration of ArteFill by unlicensed or untrained individuals; and
	•	any lawsuits or administrative actions that we or our officers or directors may be party to or involved in.

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	Sales of ArteFill could be harmed due to patients’ allergic reactions to the bovine collagen component of ArteFill, the need to test for such allergic reactions before treatment with ArteFill or patients’ reluctance to use animal-based products.

	Our ability to manufacture and sell ArteFill could be harmed if we experience problems with the supply of calf hides from the closed herd of domestic cattle from which we derive the bovine collagen component of ArteFill.

	ArteFill is not yet supported by long-term clinical data and may therefore prove to be less effective than initially thought.

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	We have increased the size of our company significantly in connection with the commercial launch of ArteFill, and difficulties managing our growth could adversely affect our business, operating results and financial condition.

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	If changes in the economy and consumer spending reduce demand for ArteFill, our sales and profitability could suffer.

	We are dependent on our key management personnel. The loss of any of these individuals could harm our business.

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	We may rely on third parties for our international sales, marketing and distribution activities.

	•	lack of day-to-day control over the activities of third-party contractors;
	•	third-party contractors may not fulfill their obligations to us or otherwise meet our expectations;

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	•	third-party contractors may terminate their arrangements with us on limited or no notice or may change the terms of these arrangements in a manner unfavorable to us for reasons outside of our control; and
	•	disagreements with our contractors could require or result in costly and time-consuming litigation or arbitration.

	To the extent we engage in marketing and distribution activities outside the United States, we will be exposed to risks associated with exchange rate fluctuations, trade restrictions and political, economic and social instability.

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	Our business, which depends on a small number of facilities, is vulnerable to natural disasters, telecommunication and information systems failures, terrorism and similar problems, and we are not fully insured for losses caused by such incidents.

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

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	Impairment of our significant intangible assets may reduce our profitability.

Our ability to achieve commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection relating to ArteFill and our technology and future products, as well as successfully defending our patents against third party challenges. If we are unable to obtain and maintain protection for our intellectual property and proprietary technology, the value of ArteFill, our technology and future products will be adversely affected, and we will not be able to protect our technology from unauthorized use by third parties.

	•	prevent others from successfully challenging the validity or enforceability of, or infringing, our issued patents and our other proprietary rights;
	•	operate our business, including the manufacture, sale and use of ArteFill and any future products, without infringing upon the proprietary rights of others;
	•	successfully enforce our patent rights against third parties when necessary and appropriate; and
	•	obtain and protect commercially valuable patents or the rights to patents both domestically and abroad.

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	•	our issued patents may not be valid or enforceable or may not provide adequate coverage for our products;
	•	the claims of any issued patents may not provide meaningful protection;
	•	our issued patents may expire before we are able to successfully commercialize ArteFill or any future product candidates or before we receive sufficient revenues in return;
	•	patents issued to us may be successfully challenged, circumvented, invalidated or rendered unenforceable by third parties;
	•	the patents issued or licensed to us may not provide a competitive advantage;
	•	patents issued to other companies, universities or research institutions may harm our ability to do business;
	•	other companies, universities or research institutions may independently develop similar or alternative technologies or duplicate our technologies and commercialize discoveries that we attempt to patent;
	•	other companies, universities or research institutions may design around technologies we have licensed, patented or developed;
	•	because the information contained in patent applications is generally not publicly available until published (usually 18 months after filing), we cannot assure you that we have been the first to file patent applications for our inventions or similar technology;
	•	the future and pending applications we will file or have filed, or to which we will or do have exclusive rights, may not result in issued patents or may take longer than we expect to result in issued patents; and
	•	we may be unable to develop additional proprietary technologies that are patentable.

	Our other intellectual property, particularly our trade secrets and know-how, are important to us, and our inability to safeguard it may adversely affect our business by causing us to lose a competitive advantage or by forcing us to engage in costly and time-consuming litigation to defend or enforce our rights.

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	Pursuant to the terms of an intellectual property litigation settlement, we have licensed some of our technology to a competitor.

	Our business may be harmed, and we may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

	•	pay actual monetary damages, royalties, lost profits and/or increased damages and the third party’s attorneys’ fees, which may be substantial;
	•	expend significant time and resources to modify or redesign the affected products or procedures so that they do not infringe a third party’s patents or other intellectual property rights; further, there can be no assurance that we will be successful in modifying or redesigning the affected products or procedures;
	•	obtain a license in order to continue manufacturing or marketing the affected products or services, and pay license fees and royalties; if we are able to obtain such a license, it may be non-exclusive, giving

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		our competitors access to the same intellectual property, or the patent owner may require that we grant a cross-license to our patented technology; or
	•	stop the development, manufacture, use, marketing or sale of the affected products through a court-ordered sanction called an injunction, if a license is not available on acceptable terms, or not available at all, or our attempts to redesign the affected products are unsuccessful.

	Our ability to market ArteFill in some foreign countries may be impaired by the activities and intellectual property rights of third parties.

	ArteFill will be subject to ongoing regulatory review, and if we fail to comply with continuing U.S. and foreign regulations, ArteFill could be subject to a product recall or other regulatory action, which would seriously harm our business.

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	•	impose labeling and advertising requirements, restrictions or limitations, including the inclusion of warnings, precautions, contraindications or use limitations that could have a material impact on the future profitability of our product candidates;
	•	impose testing and surveillance to monitor our products and their continued compliance with regulatory requirements; and
	•	require us to submit products for inspection.

	•	issue warning letters;
	•	impose fines and other civil or criminal penalties;
	•	suspend or withdraw regulatory approvals for our products;
	•	refuse to approve pending applications or supplements to approved applications filed by us;
	•	delay, suspend or otherwise restrict our manufacturing, distribution, sales and marketing activities;
	•	close our manufacturing facilities; or
	•	seize or detain products or require a product recall.

	If we, or the supplier of the calf hides used in our collagen, do not comply with FDA and other federal regulations, our supply of product could be disrupted or terminated.

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	•	incurring substantial expenses, including fines, penalties, legal fees and costs to comply with applicable regulations;
	•	changes in the methods of marketing and selling products;
	•	taking FDA-mandated corrective action, which may include placing advertisements or sending letters to physicians rescinding or correcting previous advertisements or promotions; or
	•	disruption in the distribution of products and loss of sales until compliance with the FDA’s position is obtained.

	We have a manufacturing facility in Frankfurt, Germany, and will be subject to a variety of regulations in jurisdictions outside the United States that could have a material adverse effect on our business in a particular market or in general.

	We may be subject, directly or indirectly, to state healthcare fraud and abuse laws and regulations and, if we are unable to fully comply with such laws, could face substantial penalties.

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	We may be subject to the assertion of claims by our stockholders relating to prior financings, which could result in litigation and the diversion of our management’s attention.

	The price of our common stock may be volatile, and you may not be able to sell your shares at or above the initial offering price.

	•	reports of adverse side effects resulting from treatment with ArteFill;
	•	adverse actions taken by regulatory agencies with respect to open investigations, including the ongoing investigation by the FDA’s Office of Criminal Investigations involving Drs. Gottfried and Stefan Lemperle and our company;
	•	other adverse actions taken by regulatory agencies with respect to our products, manufacturing processes or sales and marketing activities or those of our competitors;
	•	developments in any lawsuit involving us, our intellectual property or our product or product candidates;
	•	announcements of technological innovations or new products by our competitors;
	•	announcements of adverse effects of products marketed or in clinical trials by our competitors;
	•	regulatory developments in the United States and foreign countries;
	•	announcements concerning our competitors or the medical device, cosmetics or pharmaceutical industries in general;
	•	developments concerning any future collaborative arrangements;
	•	actual or anticipated variations in our operating results;
	•	lack of securities analyst coverage or changes in recommendations by analysts;
	•	deviations in our operating results from the estimates of analysts;

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	•	sales of our common stock by our founders, executive officers, directors, or other significant stockholders or other sales of substantial amounts of common stock;
	•	changes in accounting principles; and
	•	loss of any of our key management, sales and marketing or scientific personnel and any claims against us by current or former employees.

	We will have broad discretion in how we use the net proceeds from this offering, and we may not use them effectively.

	If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

	A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. If there are substantial sales of our common stock, the price of our common stock could decline.

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	You could experience substantial dilution of your investment as a result of subsequent exercises of our outstanding warrants and options.

	Our certificate of incorporation, our bylaws and Delaware law contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.

	•	authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;
	•	providing for a classified board of directors with staggered terms;

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	•	requiring supermajority stockholder voting to effect certain amendments to our certificate of incorporation and bylaws;
	•	eliminating the ability of stockholders to call special meetings of stockholders;
	•	prohibiting stockholder action by written consent; and
	•	establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

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	•	our ability to establish and maintain the sales and marketing organization required for successful commercialization of ArteFill;
	•	the timing of our commercial shipments of ArteFill, including our shipments of the skin tests required before treatment with ArteFill;
	•	our ability to achieve and maintain market acceptance of ArteFill among physicians and patients;
	•	our projected expenditures on sales and marketing, manufacturing, physician training and support, and research and development activities;
	•	the comparative advantages of ArteFill over temporary muscle paralytics, temporary dermal fillers and other competing products or treatments;
	•	our ability to successfully complete our five-year post-market safety study of ArteFill and a post-market study regarding the incidence of allergic reactions to the bovine collagen used in ArteFill;
	•	our ability to expand our supply of calf hides for purposes of producing our bovine collagen;
	•	our existing stockholders’ willingness to purchase up to approximately 800,000 shares of our common stock in this offering at the initial public offering price;
	•	our ability to establish, maintain and protect our intellectual property rights in ArteFill and our other proprietary technologies; and
	•	our anticipated use of the proceeds from this offering and our estimates regarding anticipated operating expenses, future revenues from the commercialization of ArteFill and our capital requirements.

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	•	$12.0 million to build our sales and marketing organization and implement promotional and advertising campaigns related to the commercial launch of ArteFill;
	•	$5.0 million to conduct our long-term, post-market safety study of approximately 1,000 patients treated with ArteFill, as a condition of regulatory approval;
	•	$2.5 million to further automate and expand capacity at our manufacturing facilities; and
	•	$2.0 million to conduct further studies to evaluate the feasibility, safety and efficacy of ArteFill for other aesthetic applications, such as the treatment of acne scars and wounds, and use in aesthetic reconstructive surgery.

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	•	on an actual basis; and
	•	on a pro forma as adjusted basis to give effect to the conversion of all outstanding shares of convertible preferred stock as of September 30, 2006 into shares of common stock; the issuance of 107,754 shares of our common stock issuable upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, at a weighted average exercise price of $5.58 per share, which the warrant holders have elected to exercise in cash, contingent and effective upon the completion of this offering; the issuance of 168,148 shares of our common stock upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, which the warrant holders have elected to exercise through a “cashless exercise” provision of the warrants, contingent and effective upon the completion of this offering, based on the initial public offering price of $6.00 per share; and the sale of the shares of our common stock we are offering in this offering at the initial public offering price of $6.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

				As of September 30,
				2006
								Pro forma
				Actual				as adjusted
				(in thousands, except
				share and par value
				data)
Long-term obligations, less current portion(1)				$	31			$	31
Stockholders’ equity:
	Convertible preferred stock, $0.001 par value:
	50,000,000 shares authorized, actual; 10,000,000 shares authorized pro forma as adjusted; 37,891,897 shares issued and outstanding, actual; no shares issued and outstanding, pro forma as adjusted				38				—
	Common stock, $0.001 par value: 150,000,000 shares authorized, actual; 200,000,000 shares authorized pro forma as adjusted; 1,390,930 shares issued and outstanding, actual; and 15,634,343 shares issued and outstanding pro forma as adjusted				1				16
	Additional paid-in capital				94,144				116,061
	Deficit accumulated during the development stage				(71,648	)			(71,648	)
		Total stockholders’ equity			22,535				44,429
		Total capitalization		$	22,566			$	44,460

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	•	1,869,676 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2006, at a weighted average exercise price of $5.85 per share;
	•	335,246 shares of our common stock issuable upon the exercise of outstanding stock options granted after September 30, 2006, at a weighted average exercise price of $10.63 per share;
	•	3,640,843 shares of our common stock available for future grant under our 2006 Equity Incentive Plan, which will become effective upon the closing of this offering, and the annual increases in the number of shares authorized under this plan beginning January 1, 2007;
	•	2,490,189 shares of our common stock issuable upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, at a weighted average exercise price of $6.98 per share; and
	•	28,235 shares of common stock issuable upon the exercise of a preferred stock warrant granted after September 30, 2006 at an exercise price of $10.63 per share.

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Initial public offering price per share						$	6.00
Pro forma net tangible book value per share of common stock as of September 30, 2006		$	1.73
Pro forma increase per share attributable to the offering			.86
Pro forma as adjusted net tangible book value per share of common stock after this offering							2.59
Dilution per share to new investors						$	3.41

		Total shares								Total consideration
																		Average price
		Number				Percent				Amount				Percent				per share
Existing stockholders			11,034,343				70.6	%		$	81,556,051				74.7	%		$	7.39
New investors			4,600,000				29.4				27,600,000				25.3				6.00
Total			15,634,343				100	%		$	109,156,051				100	%		$	6.98

	•	the pro forma as adjusted percentage of shares of our common stock held by existing stockholders will decrease to approximately 67.6% of the total number of pro forma as adjusted shares of our common stock outstanding after this offering; and
	•	the pro forma as adjusted number of shares of our common stock held by new public investors will increase to 5,290,000, or approximately 32.4% of the total pro forma as adjusted number of shares of our common stock outstanding after this offering.

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	•	the conversion of all outstanding shares of preferred stock into 9,367,511 shares of common stock;
	•	the issuance of 107,754 shares of our common stock upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, at a weighted average exercise price of $5.58 per share, which the warrant holders have elected to exercise in cash, contingent and effective upon the closing of this offering; and
	•	the issuance of 168,148 shares of our common stock upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, which the warrant holders have elected to exercise through a “cashless exercise” provision of the warrants, based on the initial public offering price of $6.00 per share.

	•	1,869,676 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2006, at a weighted average exercise price of $5.85 per share;
	•	335,246 shares of our common stock issuable upon the exercise of outstanding stock options granted after September 30, 2006, at a weighted average exercise price of $10.63 per share;
	•	3,640,843 shares of our common stock available for future grant under our 2006 Equity Incentive Plan, which number excludes the cancellation of 121,355 outstanding stock options cancelled after September 30, 2006, at a weighted average exercise price of $6.30 per share, which will become effective upon the closing of this offering, and the annual increases in the number of shares authorized under this plan beginning January 1, 2007;
	•	2,490,189 shares of our common stock issuable upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, at a weighted average exercise price of $6.98 per share;
	•	28,235 shares of common stock issuable upon the exercise of a preferred stock warrant granted after September 30, 2006 at an exercise price of $10.63 per share; and
	•	the impact of approximately $2.7 million of estimated offering costs payable by us that we have previously paid in cash as of September 30, 2006.

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																								Nine Months Ended
				Years Ended December 31,																				September 30,
				2001				2002				2003				2004				2005				2005				2006
																								(unaudited)
				(in thousands, except share and per share amounts)
Consolidated Statements of Operations Data:
Expenses:
	Research and development			$	2,811			$	1,457			$	974			$	3,634			$	10,189			$	6,754			$	5,698
	Selling, general and administrative				2,096				1,975				2,976				5,155				10,137				6,723				11,463
Total expenses					4,907				3,432				3,950				8,789				20,326				13,477				17,161
Loss from operations					(4,907	)			(3,432	)			(3,950	)			(8,789	)			(20,326	)			(13,477	)			(17,161	)
Interest expense, net					(134	)			(914	)			(2,170	)			(4,028	)			(4,416	)			(3,518	)			(1,907	)
Other income (expense), net					99				—				—				(22	)			2,041				(11	)			351
Loss before benefit for income taxes					(4,942	)			(4,346	)			(6,120	)			(12,839	)			(22,701	)			(17,006	)			(18,717	)
Benefit for income taxes					—				—				—				454				458				141				148
Net loss				$	(4,942	)		$	(4,346	)		$	(6,120	)		$	(12,385	)		$	(22,243	)		$	(16,865	)		$	(18,569	)
Historical net loss per common share:
		Basic and diluted		$	(4.66	)		$	(4.10	)		$	(5.76	)		$	(11.20	)		$	(18.76	)		$	(14.38	)		$	(13.81	)
Weighted average shares - basic and diluted					1,060,117				1,060,117				1,062,825				1,106,188				1,185,387				1,172,419				1,344,503
Pro forma net loss per common share (unaudited):
		Basic and diluted																		$	(5.15	)						$	(1.88	)
Weighted average shares - pro forma basic and diluted (unaudited)																					4,319,411								9,885,002
Stock-based compensation is included in the following categories:
		Capitalized to inventory		$	—			$	—			$	—			$	—			$	—			$	—			$	214
		Research and development			—				—				—				91				256				113				267
		Selling, general and administrative			—				—				159				1,042				1,038				389				1,324
				$	—			$	—			$	159			$	1,133			$	1,294			$	502			$	1,805

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																						As of
		As of December 31,																				September 30,
		2001				2002				2003				2004				2005				2006
																						(unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	625			$	55			$	36			$	2,269			$	6,930			$	12,789
Working capital (deficit)			(27	)			(2,036	)			(2,659	)			(3,792	)			(2,974	)			12,403
Total assets			1,122				220				450				10,296				20,320				29,745
Long-term debt and capital lease obligations, less current portion			1,511				2,255				371				5,323				66				31
Stockholders’ equity (deficit)			(1,347	)			(4,139	)			(2,628	)			(4,594	)			5,537				22,535

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	Sales

	Cost of Sales

	Selling, General and Administrative Expenses

	•	sales and marketing expenses, which primarily consist of the personnel and related costs of our U.S. sales force, customer service, marketing and brand management functions, including direct costs for advertising and promotion of our product; and
	•	general and administrative costs, which primarily consist of corporate executive, finance, legal, human resources, information systems, investor relations and general administrative functions.

	Research and Development Expenses

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	Amortization of Acquired Intangible Assets

	Revenue Recognition

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	Allowance for Doubtful Accounts

	Valuation of Inventory

	Impairment of Long-Lived Assets

	Intangible Assets

	Deferred Taxes

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	Comparison of Nine Months Ended September 30, 2005 to September 30, 2006

										Amount of
		2005				2006				Change
Sales and marketing		$	1,957			$	4,157			$	2,200
General and administrative			4,766				7,306				2,540
Total selling, general and administrative		$	6,723			$	11,463			$	4,740

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	Comparison of Year Ended December 31, 2004 to December 31, 2005

										Amount of
		2004				2005				Change
Sales and marketing		$	339			$	2,777			$	2,438
General and administrative			4,816				7,360				2,544
Total selling, general and administrative		$	5,155			$	10,137			$	4,982

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	Comparison of Year Ended December 31, 2003 to December 31, 2004

										Amount of
		2003				2004				Change
Sales and marketing		$	314			$	339			$	25
General and administrative			2,662				4,816				2,154
Total selling, general and administrative		$	2,976			$	5,155			$	2,179

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	Sources of Liquidity

	Cash Flow

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	Funding Requirements

	•	the costs of establishing and maintaining the sales and marketing organization required for successful commercialization of ArteFill;
	•	the success of our product launch and growth in sales and related collections;
	•	the costs and effectiveness of our sales, marketing, advertising and promotion activities related to ArteFill, including physician training and education;
	•	the costs related to maintaining and expanding our manufacturing and distribution capabilities;
	•	the costs relating to changes in regulatory policies or laws that affect our operations;
	•	the level of investment in research and development to maintain and improve our competitive position, as well as to maintain and expand our technology platform;
	•	the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
	•	the costs of, and our ability to enter into, foreign distribution agreements in certain concentrated international markets; and
	•	our need or determination to acquire or license complementary products, technologies or businesses.

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	Contractual Obligations

			Payments Due by Period
			Total				2006				2007				2008				After 2008
Contractual Obligations
			(in thousands)
Equipment lease obligations			$	115			$	49			$	45			$	21			$	—
Operating lease obligations				5,921				867				956				985				3,113
	Total		$	6,036			$	916			$	1,001			$	1,006			$	3,113

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	Market Overview

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	Injectable Aesthetic Treatment Market

	•	the introduction of new products that offer improved aesthetic benefits and longer lasting results;
	•	an increasing demand for minimally invasive and cost-effective aesthetic treatments that offer immediate results;
	•	the aging of the baby boomer demographic segment, which currently represents over 25% of the U.S. population;
	•	a growing emphasis on self-image driven by the media and an increasingly youth-oriented culture;
	•	an increasing willingness of physicians to use products beyond their labeled indications; and
	•	a growing trend among physicians to offer elective aesthetic treatments to generate additional income.

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						Approximate
						Number of
						Procedures
Product Category		Leading Brands		Ingredient		Performed in 2005
Temporary Muscle Paralytics		Botox® Cosmetic		Botulinum toxin type A			3,300,000
Temporary Dermal Fillers		Captiquetm Hylaform® Hylaform® Plus Restylane®		Hyaluronic acid (HA)			1,200,000
		CosmoDerm® CosmoPlast® Zyderm® Zyplast®		Human or bovine collagen			200,000

	Market Dynamics for Injectable Aesthetic Treatments

	•	Botox. Botox treatments are the most common aesthetic procedure performed in the United States. According to the ASAPS, approximately 3.3 million Botox treatments for aesthetic use were performed in the United States in 2005. Since 1997, Botox treatments have experienced a compound annual growth rate of 63%, including a 16% procedure growth rate from 2004 to 2005.
	•	Restylane. Launched in January 2004, Restylane, a product comprised primarily of hyaluronic acid, a jelly-like substance that is found naturally in living organisms and acts to hydrate and cushion skin tissue, has become the leading temporary dermal filler approved by the FDA for the correction of facial wrinkles. According to the ASAPS, the number of hyaluronic acid-based procedures has increased significantly over the past two years, from approximately 120,000 procedures in 2003, to 900,000 procedures in 2004 and to 1.2 million procedures in 2005. We believe this increase was mainly

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		attributable to the market launch of Restylane, which provides patients with a moderately longer lasting aesthetic benefit compared to prior leading temporary dermal fillers, such as the collagen-based Zyderm and Zyplast, and does not require a skin test prior to treatment like bovine collagen-based products.

				Approved by the
				FDA for the
Product		Leading		Treatment of				FDA-Approved		Common Off-Label
Formulation		Brand(s)		Facial Wrinkles				Indications		Uses
Botulinum toxin type A		Botox			Yes			Moderate to severe frown lines		Forehead wrinkles; crow’s feet; and vertical neck bands
Hyaluronic acid		Captique Hylaform Restylane Juvederm			Yes			Moderate to severe facial wrinkles and folds, such as smile lines		Forehead wrinkles; lip augmentation; and acne scars
Bovine or human collagen		CosmoDerm CosmoPlast Zyderm Zyplast			Yes			Soft tissue contour deficiencies such as wrinkles and acne scars		Lip augmentation
Calcium hydroxylapatite (CaHA)		Radiesse			No(1)			Vocal cord augmentation, radiographic tissue marking, and oral maxillofacial defects		Smile lines; frown lines; crow’s feet; and lip augmentation
Poly-L lactic acid (PLLA)		Sculptra			No			Facial fat loss associated with HIV		Smile lines; marionette lines; and facial contours

(1)	Radiesse is currently under review by the FDA for additional applications, which we believe may include the treatment of facial wrinkles.

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	Limitations of Current Treatments

				Time Lapse between
Product Categories		Representative Brands		Treatments
Botulinum toxin type A		Botox Cosmetic			4 to 6 months
Hyaluronic acid		Captique    Hylaform    Restylane			4 to 12 months
Bovine or human collagen		CosmoDerm    CosmoPlast    Zyderm    Zyplast			3 to 6 months

	•	Patients must undergo repeat injections to sustain aesthetic benefits. In order to sustain the desired aesthetic benefits, patients must undergo repeat injections, which involve additional pain and inconvenience as a result of the multiple facial injections and the recovery time associated with each treatment. Some patients who undergo repeat injections may develop scars and discoloration in the target tissue area, as well as experience a decrease in the aesthetic effect of each successive treatment over time.
	•	Cumulative cost of repeat injections. The cumulative cost of repeat treatments required to maintain the desired aesthetic benefits with currently available injectable aesthetic products may decrease the appeal of these products to patients over time. Based on data from the ASAPS, a patient treated with Botox Cosmetic would need to undergo between 10 to 15 treatments over a five year period to maintain the aesthetic benefit. A patient treated with Restylane would need to undergo between five to 15 treatments to maintain the aesthetic benefit over a similar five year period. Based on pricing data reported by the ASAPS, the cumulative cost to the consumer of these treatments would be at least $5,000 over five years.
	•	Risk to physician practices of patient attrition. The expense, pain and inconvenience of a repeat injection regimen can decrease patient satisfaction with injectable aesthetic treatments and lead patients to discontinue treatments. Based on our market research and discussions with physicians, we believe that a significant percentage of patients suspend or cease injectable aesthetic treatments within one year after their first treatment. Patients who discontinue the use of injectable aesthetic products may stop going to the physician’s office altogether, resulting in the physician losing the opportunity to market additional products and services to these patients.
	•	Current products may have limited utility in conjunction with aesthetic surgical procedures. Physicians sometimes use injectable aesthetic products during surgical procedures, such as facelifts, nose reconstructions or other facial reconstruction procedures. The aesthetic effects provided by these products, however, have a much shorter duration than the aesthetic effects provided by surgical procedures. As a result, surgeons have not widely adopted currently available injectable aesthetic products for use in conjunction with surgical procedures.

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	•	Enduring aesthetic improvements. We have developed ArteFill to provide patients with aesthetic benefits that we believe may last for years. Based on clinical trial data, the FDA has determined that ArteFill is safe and effective and has allowed us to characterize it as a non-resorbable aesthetic injectable implant. ArteFill is the first non-resorbable injectable aesthetic product approved by the FDA for the treatment of nasolabial folds. Patients who received ArteFill in our clinical trial showed wrinkle correction that persisted six months after treatment. In contrast, patients who received the collagen control in our clinical trial had returned to their pre-treatment status by their six-month evaluation. As provided in the study protocol, we offered all control group patients the opportunity to be treated with ArteFill at their six-month evaluation, and 91% of these patients accepted our offer. In the 111 patients who were treated with ArteFill and remained in our clinical trial at 12 months after treatment, ArteFill demonstrated continued safety and wrinkle correction. We did not evaluate the patients who received the collagen control at 12 months after treatment because at their six-month evaluation period, these patients had either elected to be treated with ArteFill or had returned to their pre-treatment status. Our promotion of the efficacy benefits of ArteFill is limited to the six-month efficacy evaluation period that we established as the official endpoint in our U.S. clinical trial.
	•	Compelling value proposition to patients. We believe patients treated with ArteFill, versus currently available temporary injectable aesthetic products, will incur meaningfully lower cumulative costs over time to maintain the desired aesthetic effect. As a result, we believe ArteFill will present patients with a compelling value proposition because it will allow patients to avoid the cost of repeat injections required by existing temporary injectable aesthetic products.
	•	High levels of patient satisfaction. We believe that the enduring aesthetic improvements provided by ArteFill may generate high levels of patient satisfaction by decreasing the discomfort, cost and inconvenience associated with frequent re-injections, which are required for existing injectable aesthetic products. As a result, we believe that the increased levels of patient satisfaction provided by our product will contribute to longer term physician- patient relationships.
	•	Differentiated, high value product for physician practices. We believe that the longer lasting aesthetic benefits of ArteFill will enable physicians to offer their patients a premium injectable aesthetic product and generate additional practice revenue per procedure.

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	•	Complement to surgical and non-surgical aesthetic treatments. Because of its ability to provide patients with aesthetic benefits that may last for years, we believe that physicians may choose to adopt ArteFill as a valuable complement to the various surgical and non-surgical aesthetic treatments they provide to their patients.

	•	Establish ArteFill as a leading injectable aesthetic product. ArteFill is the first product in a new category of non-resorbable aesthetic injectable products for the dermatology and plastic surgery markets. We believe ArteFill will provide patients with aesthetic benefits that may last for years. Therefore, we intend to differentiate ArteFill from other injectable aesthetic products and position ArteFill as the premier enduring injectable aesthetic product for the treatment of nasolabial folds. We plan to work closely with key opinion leaders to drive physician and patient awareness of the unique benefits of ArteFill.
	•	Provide physicians with comprehensive education and training programs. In connection with the commercial launch of ArteFill, we intend to implement a comprehensive physician education and training program to foster consistent and high-quality injection procedures and results. Our education and training program will include web-based training, in-office and off-site training seminars, as well as physician-to-physician training. We believe our education and training programs will enable physicians to improve patient outcomes and satisfaction.
	•	Drive the adoption of our products through a direct sales and marketing effort. We have recently begun to build our direct sales team and initially intend to launch ArteFill with up to 30 full-time sales professionals. We initially intend to target dermatologists, plastic surgeons and cosmetic surgeons whom we have identified as having historically performed a significant number of procedures involving injectable aesthetic products. Based on our market research, we believe that a majority of injectable aesthetic procedures are performed by approximately 1,000 physicians concentrated in several major urban centers in the United States. As part of our marketing efforts, we intend to provide physicians with training, marketing programs and practice support services with respect to the use of ArteFill. We also plan to use targeted marketing, advertising and promotional activities to educate consumers about the benefits of ArteFill.
	•	Expand our product offering by acquiring complementary products, technologies or businesses. We may expand our aesthetic product offerings by acquiring complementary products, technologies or businesses that may be sold by our direct sales force to dermatologists, plastic surgeons and cosmetic surgeons. We also plan to explore additional uses of our injectable microsphere platform technology in markets outside of personal aesthetics through collaborative arrangements with strategic partners.

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	•	Web-based Training. We will offer physicians a 30 minute web-based interactive tutorial on ArteFill’s scientific background, clinical trial information, injection technique and treatment guidelines.

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	•	Training Seminars.

	•	In-office Training. We will offer physicians who have significant experience with the tunneling injection technique a training program in their offices. The training will include an injection technique video, an injection training manual and reference materials.
	•	Hands-on Training. Other physicians will participate in a half-day educational program that provides in-depth injection technique training. The program will include live demonstrations and hands-on practice injecting ArteFill using training masks. We will also provide training support, an injection training manual and reference materials.

	•	Physician-to-Physician Training. We will establish a peer training program, through which physicians who are highly skilled in the tunneling injection technique and have completed our training program may participate in training other physicians.

	•	technical skill support programs, such as advanced injection training symposia;
	•	promotional materials that provide a physician’s patients with information about ArteFill treatments;
	•	marketing programs to assist physicians in developing their patient base for ArteFill; and
	•	participation in our web-based physician locator service.

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	•	safety and efficacy;
	•	immediate and enduring aesthetic results;
	•	cost-effectiveness to patients and physicians;
	•	reduced pain and recovery time before a patient can return to normal activities;
	•	effectiveness of marketing and distribution; and

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	•	ability to leverage existing relationships with physicians and distributors.

	•	product design, development and manufacture;
	•	product safety, clinical testing, labeling and storage;
	•	pre-marketing clearance or approval;
	•	record-keeping procedures;
	•	product marketing, sales and distribution; and
	•	post-marketing surveillance, reporting of deaths or serious injuries and medical device reporting.

	FDA’s Pre-market Clearance and Approval Requirements

	510(k) Clearance Pathway

	Pre-market Approval Pathway

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	Clinical Trials

	Regulatory Status of ArteFill

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	Pervasive and Continuing Regulation

	•	the FDA’s QSRs, 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 the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if 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.

	•	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 PMA of new products, new intended uses or modifications to existing products;
	•	withdrawing 510(k) clearance or PMAs that have already been granted; and

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	•	criminal prosecution.

	ArteFill Instructions for Use

	•	have a positive reaction to our ArteFill skin test;
	•	have a history of severe allergies manifested by a history or presence of multiple severe allergies;
	•	are allergic or hypersensitive to the anesthetic lidocaine contained in ArteFill;
	•	have a history of allergies to any bovine collagen products;
	•	are prone to thick scar formation and/or excessive scarring; or
	•	are undergoing or planning to undergo desensitization injections to meat products.

	•	have had any treatments for smile lines in the last 6 months;
	•	are receiving ultra-violet light therapy; or
	•	are currently on immuno-suppressive medications or are suffering from any skin disease.

	Promotion and Advertising Restrictions

	International Regulation

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	Environmental Regulation

	State and Federal Physician and Healthcare Regulation

	U.S. Clinical Trial

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Score				Description		Depth (mm)
	0			No folds			—
	1			Folds just perceptible			0.1
	2			Shallow folds with some defined edges			0.2
	3			Moderately deep folds with some well-defined edges			0.5
	4			Deep folds with most edges well-defined and some redundant folds			1.0
	5			Very deep folds with most edges well-defined and some redundant folds			2.0

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	Open Label Trial

	Five-Year Data

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Name		Age				Position(s)
Christopher J. Reinhard			52			Executive Chairman of the Board of Directors
Diane S. Goostree			50			President and Chief Executive Officer and Director
Peter C. Wulff			47			Chief Financial Officer
Karla R. Kelly, J.D.			52			Chief Legal Officer, General Counsel and Corporate Secretary
Adelbert L. Stagg, Ph.D.			60			Vice President — Regulatory Affairs and Chief Compliance Officer
Russell J. Anderson			50			Vice President — Product Development & Engineering
Larry J. Braga			45			Vice President — Manufacturing
Susan A. Brodsky-Thalken			53			Vice President — U.S. Sales and Training
Frank M. Fazio			37			Vice President — Marketing
Daren J. Barone(1)			42			Director
John R. Costantino(1)			60			Director
Lon E. Otremba(1)			49			Director

(1)	Member of the audit committee, compensation committee, and nominating and corporate governance committee.

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	•	our sales and marketing strategy;
	•	our research and development programs;
	•	opportunities for strategic collaborations;
	•	new technologies relevant to our research and development programs; and
	•	scientific and technical issues relevant to our business.

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Name		Specialty
Harvey Abrams, M.D.		Dermatology
Jeffrey Adelglass, M.D.		Facial Plastic Surgery
Sassan Alavi, M.D.		Facial Plastic Surgery
Fredric Brandt, M.D.		Dermatology
Alastair Carruthers, M.D.		Dermatology
Jean Carruthers, M.D.		Cosmetic Surgery
Paul Chasan, M.D.		Plastic Surgery
Steve Fagien, M.D.		Aesthetic Surgery
Richard Fitzpatrick, M.D.		Dermatology
Miles Graivier, M.D.		Plastic Surgery
John Joseph, M.D.		Cosmetic Surgery
Rhoda Narins, M.D.		Dermatology
Dennis Nigro, M.D.		Plastic Surgery
Merrel Olesen, M.D.		Plastic Surgery
Marta Rendon, M.D.		Dermatology
Mark Rubin, M.D.		Dermatology
Thomas L. Tzikas, M.D.		Facial Plastic Surgery
Luitgard Wiest, M.D.		Dermatology

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	Audit Committee

	Compensation Committee

	Nominating and Corporate Governance Committee

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	•	breach of their duty of loyalty to us or our stockholders;
	•	acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
	•	unlawful payments of dividends or unlawful stock repurchases or redemptions; and
	•	any transaction from which the director derived an improper personal benefit.

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	Summary compensation table

															Long term
															compensation
			Annual Compensation ($)												Securities
															underlying
											Other annual				options				All other
Name and principal position(s)			Salary (1)				Bonus (2)				compensation(3)				(# of shares)				compensation ($)
Christopher J. Reinhard(4)			$	112,608	(5)		$	—			$	—				35,294	(6)			—
	Executive Chairman of the Board of Directors
Peter C. Wulff				148,519				—				—				70,588				—
	Chief Financial Officer
Stefan M. Lemperle, M.D.(7)				253,172				—				—				—			$	—
	Former Chief Executive Officer and former President
Gottfried Lemperle, M.D., Ph.D.(8)				187,882				70,000				—				—				—
	Former Vice President of Research and Development and former Chief Scientific Officer
William von Brendel(9)				162,346				—				—				29,411				—
	Former Vice President of Worldwide Sales and International Markets

(1)	Includes amounts deferred at the election of each named executive officer under our 401(k) plan.
(2)	In March 2006, our board of directors approved a bonus pool of $950,000 to be allocated among our employees in consideration for their performance during fiscal 2005. We anticipate that the compensation committee will approve individual bonus allocations to our executive officers from this pool after completion of this offering.

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(3)	In accordance with Item 402(b)(2)(iii)(C)(1) of Regulation S-K promulgated under the Securities Act of 1933, the other annual compensation in this table does not include various perquisites and other personal benefits received by a named executive officer that does not exceed the lesser of $50,000 or 10% of such officer’s salary and bonus disclosed in this table.
(4)	Christopher J. Reinhard is employed with us on a part-time basis as our Executive Chairman of the Board of Directors. As a result, he is deemed to be an executive officer of our company.
(5)	Represents $21,168 paid in cash and $91,440 paid in the form of shares of our common stock at the fair market value for our common stock, as determined by our board of directors, as of each payment date in accordance with our standard payroll schedule.
(6)	Represents 35,294 shares of common stock issuable upon the exercise of a warrant granted to Mr. Reinhard in January 2006 in consideration for services in his capacity as our Executive Chairman of the Board of Directors during fiscal 2005. See “Related Party Transactions — Director’s Agreement and Warrants Issued to Christopher Reinhard.”
(7)	Dr. Stefan M. Lemperle served as our Chief Executive Officer from August 1999 to October 2006.
(8)	Dr. Gottfried Lemperle resigned from his positions as Vice President of Research and Development and Chief Scientific Officer in March 2006. Pursuant to a separation agreement entered into with Dr. Lemperle in connection with his resignation, we paid Dr. Lemperle a cash bonus of $70,000 in March 2006, in consideration for his performance during fiscal 2005.
(9)	Mr. William von Brendel served as our Vice President of Worldwide Sales and International Markets from July 2004 to October 2006.

	Option grants in fiscal year 2005

	•	the illiquid nature of our securities as a nonpublic company;
	•	the prices of preferred stock issued by us to outside investors in arm’s-length transactions;
	•	the rights, preferences and privileges of our preferred stock over our common stock; and
	•	the likelihood that our common stock would become liquid through an initial public offering, a sale of our company or another event.

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																		Potential realizable
																		value at assumed
																		annual rates of
		Number of																stock price
		securities				Percentage of total												appreciation
		underlying				options granted				Exercise								for option term(2)
		options				to employees				price				Expiration
Name		granted				in fiscal year(1)				per share				date				5%				10%
Christopher J. Reinhard			—				—			$	—				—			$	—			$	—
Peter C. Wulff			47,058				7.7	%			5.31				4/22/2015				49,172				73,082
			23,529				3.9	%			5.31				12/15/2015				25,186				38,281
Stefan M. Lemperle, M.D.			—				—				—				—				—				—
Gottfried Lemperle, M.D., Ph.D.			—				—				—				—				—				—
William von Brendel			29,411				4.8	%			5.31				12/15/2015				31,482				47,851

(1)	Based on 610,588 options granted during the fiscal year ended December 31, 2005 under the 2001 Plan, including grants to our named executive officers.
(2)	Potential realizable values are computed by (a) multiplying the number of shares of common stock subject to a given option by the initial public offering price of $6.00 per share, (b) assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table for the entire term of the option and (c) subtracting from that result the aggregate option exercise price. The 5% and 10% assumed annual rates of stock price appreciation are mandated by the rules of the SEC and do not represent our estimate or projection of future common stock prices.

										Number of securities								Value of unexercised
		Shares								underlying unexercised options								in-the-money options
		acquired								at December 31, 2005								at December 31, 2005
		upon				Value
Name		exercise				realized				Exercisable				Unexercisable				Exercisable				Unexercisable
Christopher J. Reinhard			—				—				130,882	(1)			22,058	(1)		$	90,309			$	15,220
Peter C. Wulff			—				—				10,784				59,804				7,441				41,265
Stefan M. Lemperle, M.D.			—				—				70,588				—				318,528				—
Gottfried Lemperle, M.D., Ph.D.			—				—				38,235				55,882				141,728				131,801
William von Brendel			—				—				11,909				49,266				20,841				55,040

(1)	Represents shares issuable upon the exercise of warrants to purchase common stock at an exercise price of $5.31 per share granted to Mr. Reinhard. See “Management — Director Compensation.”

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	•	9,411 shares of Series E preferred stock and warrants to purchase 1,882 shares of Series E preferred stock, issued for an aggregate purchase price of $100,000 to Lon E. Otremba, a member of our board of directors; and
	•	an aggregate of 470,588 shares of Series E preferred stock and warrants to purchase 141,176 shares of Series E preferred stock, issued for an aggregate purchase price of $5.0 million to NGN Biomed

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		Opportunity I, L.P. and NGN Biomed Opportunity I GmbH & Co. Beteiligungs KG, affiliated funds of NGN Capital LLC. John R. Costantino, a member of our board of directors, is Managing General Partner of NGN Capital LLC.

	•	warrants to purchase 7,058 shares of common stock at an exercise price of $5.31 per share held by Christopher J. Reinhard, our Executive Chairman of the Board of Directors;
	•	warrants to purchase 4,705 shares of common stock at an exercise price of $5.31 per share held by Dr. Stefan M. Lemperle, our former Chief Executive Officer and a former director and employee;
	•	warrants to purchase 174,824 shares of Series C-1 preferred stock at an exercise price of $4.25 per share held by Creative Microspheres, Inc., a private company beneficially owned by Dr. Stefan M. Lemperle;
	•	warrants to purchase 17,647 shares of common stock at an exercise price of $5.31 per share held by Daren J. Barone, a member of our board of directors;
	•	warrants to purchase 18,823 shares of common stock at an exercise price of $5.31 per share held by DJB Holdings, LLC, of which Mr. Barone is the managing member;
	•	warrants to purchase 4,352 shares of common stock at an exercise price of $8.50 per share held by WB Partners, LP, of which Mr. Barone is a general partner; and
	•	warrants to purchase 2,470 shares of common stock at an exercise price of $5.31 per share held by Lisa Bea Alton Anderson, the wife of Russell J. Anderson, our Vice President, Product Development and Engineering.

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	•	each of our current directors;
	•	each of our named executive officers as of December 31, 2005;
	•	all of our current directors and executive officers as a group; and
	•	each person or group of affiliated persons or entities known by us to beneficially own 5% or more of the outstanding shares of our common stock.

							Percentage of shares
							beneficially owned
			Number of shares				Before				After
Name and address of beneficial owner			beneficially owned				this offering				this offering
Directors and named executive officers
	Christopher J. Reinhard(1)			272,533				2.4	%			1.7%
	Diane S. Goostree(2)			27,941				*				*
	Peter C. Wulff(3)			37,009				*				*
	Stefan M. Lemperle, M.D.(4)			891,229				7.8	%			5.6%
	Gottfried H. Lemperle, M.D., Ph.D.(5)			403,026				3.6	%			2.6%
	William von Brendel(6)			33,867				*				*
	Daren J. Barone(7)			149,759				1.4	%			1.0%
	Lon E. Otremba(8)			34,822				*				*
	John R. Costantino(9)			611,762				5.5	%			3.9%
All directors and executive officers as a group (12 persons)(10)				1,265,196				10.9	%			7.8%

	*	Represents beneficial ownership of less than one percent of our outstanding common stock.

	(1)	Includes (i) 46,807 shares held by Christopher J. Reinhard, (ii) 20,139 shares issuable upon conversion of preferred stock held by Mr. Reinhard, (iii) 195,293 shares issuable to Mr. Reinhard upon

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		the exercise of warrants vested as of 60 days following October 31, 2006 and (iv) 10,294 shares issuable to Mr. Reinhard upon exercise of options vested as of 60 days following October 31, 2006.
	(2)	Includes 27,941 shares issuable to Diane S. Goostree upon the exercise of options vested as of 60 days following October 31, 2006.
	(3)	Includes 37,009 shares issuable to Peter C. Wulff upon the exercise of options vested as of 60 days following October 31, 2006.
	(4)	Includes (i) 23,529 shares held by Dr. Stefan M. Lemperle, (ii) 4,705 shares issuable to Dr. Stefan Lemperle upon the exercise of warrants vested as of 60 days following October 31, 2006, (iii) 117,646 shares issuable to Dr. Stefan Lemperle upon the exercise of options vested as of 60 days following October 31, 2006, (iv) 245,294 shares held by Creative Microspheres, Inc., (v) 259,672 shares issuable upon conversion of preferred stock held by Creative Microspheres, Inc. and (vi) 240,383 shares issuable to Creative Microspheres, Inc. upon the exercise of warrants vested as of 60 days following October 31, 2006. Dr. Stefan Lemperle, our former Chief Executive Officer and a former director, is the beneficial owner of the shares held by Creative Microspheres, Inc. Seyed Hadi Sadr, the director and President of Creative Microspheres, Inc., has sole voting and investment power with respect to the shares held by Creative Microspheres, Inc. Dr. Stefan Lemperle disclaims beneficial ownership of the shares held by Creative Microspheres, Inc., except to the extent of his pecuniary interest therein. The address for Creative Microspheres, Inc. is c/o Sadr & Barrera, APLC, 401 West A Street, Suite 1815, San Diego, CA 92101.
	(5)	Includes (i) 56,058 shares issuable to Dr. Gottfried Lemperle upon the exercise of warrants vested as of 60 days following October 31, 2006, (ii) 280,217 shares held by Opal Investments Management, Inc. and (iii) 66,751 shares issuable upon conversion of preferred stock held by Opal Investments Management, Inc. Dr. Gottfried Lemperle, our former Vice President of Research and Development and Chief Scientific Officer and a former director, is the beneficial owner of the shares held by Opal Investments Management, Inc., Seyed Hadi Sadr, the director and President of Opal Investments Management, Inc., has sole voting and investment power with respect to the shares held by Opal Investments Management, Inc. Dr. Gottfried Lemperle disclaims beneficial ownership of the shares held by Opal Investments Management, Inc., except to the extent of his pecuniary interest therein. The address for Opal Investments Management, Inc. is c/o Sadr & Barrera, APLC, 401 West A Street, Suite 1815, San Diego, CA 92101.
	(6)	Includes (i) 2,352 shares issuable upon conversion of preferred stock held by Kristine Jacques and (ii) 31,515 shares issuable to William von Brendel upon the exercise of options vested as of 60 days following October 31, 2006. Kristine Jacques is the wife of Mr. von Brendel. Mr. von Brendel served as our Vice President-Worldwide Sales and International Markets until October 2006.
	(7)	Includes (i) 11,765 shares issuable to Daren J. Barone upon the exercise of warrants vested as of 60 days following October 31, 2006, (ii) 23,529 shares issuable to Mr. Barone upon the exercise of options vested as of 60 days following October 31, 2006, (iii) 25,925 shares held by DJB Holdings, LLC, (iv) 43,601 shares issuable upon conversion of preferred stock held by DJB Holdings, LLC (v) 18,823 shares issuable to DJB Holdings, LLC upon the exercise of warrants vested as of 60 days following October 31, 2006; (vi) 21,764 shares issuable upon conversion of preferred stock held by WB Partners, LP. and (vii) 4,352 shares issuable to WB Partners, LP upon the exercise of warrants vested as of 60 days following October 31, 2006. Mr. Barone, a member of our board of directors, is the managing member of DJB Holdings, LLC and has sole voting and investment power with respect to the shares held by DJB Holdings, LLC. Mr. Barone and Greg Watkins are general partners of WB Partners, LP and share voting and investment power with respect to the shares held by WB Partners, LP. The address for DJB Holdings, LLC is 5776 Ruffin Road, San Diego, California 92123.
	(8)	Includes (i) 9,411 shares issuable upon conversion of preferred stock held by Lon E. Otremba, (ii) 1,882 shares issuable to Mr. Otremba upon the exercise of warrants vested as of 60 days following October 31, 2006 and (iii) 23,529 shares issuable to Mr. Otremba upon the exercise of options vested as of 60 days following October 31, 2006.

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	(9)	Includes (i) 273,129 shares issuable upon conversion of preferred stock held by NGN BioMed Opportunity I, L.P., (ii) 81,938 shares issuable to NGN BioMed Opportunity I, L.P. upon the exercise of warrants vested as of 60 days following October 31, 2006, (iii) 197,458 shares issuable upon conversion of preferred stock held by NGN BioMed Opportunity I GmbH & Co. Beteiligungs KG and (iv) 59,237 shares issuable to NGN BioMed Opportunity I GmbH & Co. Beteiligungs KG upon exercise of warrants vested as of 60 days following October 31, 2006. NGN BioMed I, GP, L.P., which is the sole general partner of NGN BioMed Opportunity I, L.P., and NGN Capital LLC, which is the sole general partner of NGN BioMed I, GP, L.P. and the managing limited partner of NGN BioMed Opportunity I, GmbH & Co. Beteiligungs KG, each may be deemed to share voting and investment power with respect to all shares held by those entities. Mr. Costantino is Managing General Partner of NGN Capital LLC. Mr. Costantino disclaims beneficial ownership of the shares held by NGN Capital LLC, NGN BioMed Opportunity I, L.P., NGN BioMed Opportunity I GmbH & Co. Beteiligungs KG and NGN BioMed I, GP, L.P., except to the extent of his pecuniary interest therein.

	(10)	Excludes shares held by Dr. Stefan Lemperle, who was removed from his position as an executive officer in October 2006 and resigned as a director in November 2006, shares held by Dr. Gottfried Lemperle, who resigned as an executive officer and a director in March 2006, and shares held by William von Brendel, who was removed from his position as an executive officer in October 2006. Includes 27,941 shares issuable to Diane S. Goostree upon the exercise of options vested as of 60 days following October 31, 2006.

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	•	4,600,000 shares of common stock offered by us in this offering;
	•	10,758,441 shares of common stock outstanding as of September 30, 2006 after giving effect to the conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering;
	•	107,754 shares of common stock issuable upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, which the warrant holders have elected to exercise in cash, contingent and effective upon the closing of this offering; and
	•	168,148 shares of common stock issuable upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, which the warrant holders have elected to exercise through the “cashless exercise” provisions of the warrants, based on the initial public offering price of $6.00 per share.

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	•	warrants to purchase 78,817 shares of common stock must be exercised in cash at any time prior to March 15, 2007;
	•	warrants to purchase 1,189,432 shares of common stock must be exercised in cash at any time prior to the expiration date of the warrant, which is typically five years from the date of issuance; and
	•	warrants to purchase 1,221,940 shares of common stock that may be exercised in cash or through “cashless exercise” provisions of the warrants at any time prior to the expiration date of the warrant, which is typically five years from the date of issuance.

	•	107,754 shares of common stock issuable upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, which the warrant holders have elected to exercise in cash, contingent and effective upon the closing of this offering; and
	•	168,148 shares of common stock issuable upon the exercise of preferred stock and common stock warrants outstanding as of September 30, 2006, which the warrant holders have elected to exercise through the “cashless exercise” provisions of the warrants, based on the initial public offering price of $6.00 per share.

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	Demand registration

	Piggyback registration

	Form S-3 registration

	Conditions and limitations; delay

	Expenses; indemnification

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	Termination

	Amended and restated certificate of incorporation and bylaws

	•	acquisition of us by means of a tender offer;
	•	acquisition of us by means of a proxy contest or otherwise; or
	•	removal of our incumbent officers and directors.

	•	Stockholder meetings. Our charter documents provide that a special meeting of stockholders may be called only by a resolution adopted by a majority of our board of directors.
	•	Elimination of stockholder action by written consent. Our amended and restated certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.
	•	Undesignated preferred stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our company. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.
	•	Requirements for advance notification of stockholder nominations and proposals. Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.
	•	Amendment of bylaws. Any amendment of our bylaws by our stockholders requires approval by holders of at least 66 2/3% of our then outstanding common stock, voting together as a single class.
	•	Staggered board. Our amended and restated certificate of incorporation provides for the division of our board of directors into three classes, as nearly equal in size as possible, with staggered three-year terms. Under our amended and restated certificate of incorporation and amended and restated bylaws, any vacancy on the board of directors resulting from death, resignation, removal, or other causes, other than a vacancy with respect to a director who must be elected by the holders of any class or series of stock (either in general or under specified circumstances), may only be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the Company entitled to vote generally in the election of directors, voting together as a single class; or (ii) the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Subject to the rights of any class or series of stock then outstanding, newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. The classification of the board of directors and the limitations on the removal of directors and

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		filling of vacancies would have the effect of making it more difficult for a third party to acquire control of us or of discouraging a third party from acquiring control of us.
	•	Amendment of amended and restated certificate of incorporation. Amendments to certain provisions of our amended and restated certificate of incorporation require approval by holders of at least 66 2/3% of our then outstanding common stock, voting together as a single class.

	Delaware anti-takeover statute

	•	prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
	•	upon completion of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
	•	on or subsequent to the date of the transaction, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

	•	any merger or consolidation involving the corporation and the interested stockholder;
	•	any sale, transfer, pledge or other disposition of 10% or more of our assets involving the interested stockholder;
	•	in general, any transaction that results in the issuance or transfer by us of any of our stock to the interested stockholder;
	•	in general, any transaction involving the corporation that has the effect, directly or indirectly, of increasing the proportionate share of our stock owned by the interested stockholder; or
	•	the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

	Limitation Of Liability

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	•	321,823 shares of common stock that are not subject to the 180-day lock-up period described below will be immediately eligible for sale in the public market under Rule 144 or Rule 144(k) upon the effective date of the registration statement of which this prospectus is a part; and
	•	10,712,520 shares of common stock that are subject to the 180-day lock-up period described below will be eligible for sale in the public market under Rule 144, Rule 144(k) or Rule 701, immediately upon expiration of the 180-day lock-up period described below, subject to the volume, manner of sale and other limitations under those rules.

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	•	1% of the number of shares of our common stock then outstanding, which will equal approximately 156,343 shares immediately after this offering (approximately 163,243 shares if the underwriters exercise their over-allotment option in full); and
	•	the average weekly trading volume of our common stock on the Nasdaq Global Market during the four preceding calendar weeks.

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	•	a citizen or resident of the United States;
	•	a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States or of any political subdivision of the United States;
	•	an estate the income of which is includable in gross income for United States federal income tax purposes regardless of its source; or
	•	a trust subject to the primary supervision of a U.S. court and the control of one or more U.S. persons, or a trust (other than a wholly owned grantor trust) that was treated as a domestic trust despite not meeting the requirements described above.

	•	U.S. federal income, estate or gift tax consequences other than as expressly set forth below;
	•	state, local or foreign tax consequences;
	•	the tax consequences for the stockholders, beneficiaries or holders of other beneficial interests in a Non-U.S. Holder;
	•	special tax rules that may apply to selected Non-U.S. Holders, including without limitation, non-U.S. holders of interests in domestic or foreign partnerships, partnerships, banks or other financial institutions, insurance companies, dealers in securities, traders in securities, tax-exempt entities and United States expatriates; or
	•	special tax rules that may apply to a Non-U.S. Holder that holds our common stock as part of a straddle, hedge, conversion, synthetic security, or constructive sale transaction for United States federal income tax purposes, or a Non-U.S. Holder that does not hold our common stock as a capital asset within the meaning of Section 1221 of the United States Internal Revenue Code of 1986, as amended, or the Code.

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	•	the gain is U.S. trade or business income, in which case the regular corporate income tax and the branch profits tax described above may apply to a corporate Non-U.S. Holder;
	•	the Non-U.S. Holder is an individual who is present in the United States for more than 182 days in the taxable year of the disposition and meets other requirements;
	•	the Non-U.S. Holder is subject to tax pursuant to the provisions of the U.S. tax law applicable to selected U.S. expatriates; or
	•	we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the Non-U.S. Holder held our common stock.

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	•	a “controlled foreign corporation” for U.S. federal income tax purposes;
	•	a foreign partnership if, at any time during the taxable year, (A) U.S. persons own more than 50% of the income or capital interests in the partnership, or (B) the partnership is engaged in a United States trade or business;
	•	a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment, (or for such part of the period that the person has been in existence), is derived from activities that are effectively connected with the conduct of a United States trade or business; or
	•	some U.S. branches of foreign banks or insurance companies.

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			Number
Underwriters			of Shares
Cowen and Company, LLC				1,812,400
Lazard Capital Markets LLC				1,812,400
Stifel, Nicolaus & Company, Incorporated				906,200
National Securities Corporation				23,000
Maxim Group LLC				23,000
WBB Securities, LLC				23,000
	Total			4,600,000

	•	the registration statement of which this prospectus is a part has been declared effective;
	•	the representations and warranties made by us to the underwriters are true;
	•	there is no material adverse change in our business;
	•	the shares of our common stock to be sold in this offering have been approved for listing on the Nasdaq Global Market; and
	•	we deliver customary closing documents to the underwriters.

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		No Exercise				Full Exercise
Per share		$	0.42			$	0.42
Total to be paid by us		$	1,932,000			$	2,221,800

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	•	the history of, and the prospects for, the industry in which we compete;
	•	our past and present operations;
	•	our historical results of operations;
	•	our prospects for future earnings;
	•	the recent market prices of securities of generally comparable companies; and
	•	the general condition of the securities markets at the time of this offering and other relevant factors.

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Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2004 and 2005 and September 30, 2006 (unaudited)		F-3
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2004 and 2005 and the nine months ended September 30, 2005 and 2006 (unaudited) and for the period from August 24, 1999 (inception) through September 30, 2006 (unaudited)		F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the period from August 24, 1999 (inception) through December 31, 2005 and the nine months ended September 30, 2006 (unaudited)		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2004 and 2005 and the nine months ended September 30, 2005 and 2006 (unaudited) and for the period from August 24, 1999 (inception) through September 30, 2006 (unaudited)		F-7
Notes to Consolidated Financial Statements		F-8

F-1

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	/s/ Ernst & Young LLP

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															Pro Forma
			December 31,												Stockholders’
											September 30,				Equity at
			2004				2005				2006				September 30, 2006
											(unaudited)				(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	2,269			$	6,930			$	12,789
	Prepaid expenses			130				204				274
	Inventory, net			250				692				4,019
	Other assets			299				374				78
	Deferred financing costs			—				1,011				—
Total current assets				2,948				9,211				17,160
Property and equipment, net				921				4,926				5,419
Intellectual property, net				5,964				4,770				3,876
Deposits				222				233				239
Other assets				241				1,180				3,051
Total assets			$	10,296			$	20,320			$	29,745
Liabilities and stockholders’ equity (deficit)
Current liabilities:
	Accounts payable		$	3,553			$	3,317			$	1,231
	Accrued compensation and benefits			154				1,499				2,304
	Accrued liabilities			740				1,585				1,108
	Income taxes payable			43				70				70
	Mediplant acquisition liability			2,250				—				—
	Convertible notes payable (net of discount of $860 at December 31, 2005)			—				5,665				—
	Capital lease obligations, current portion			—				49				44
Total current liabilities				6,740				12,185				4,757
Convertible notes payable (net of discount of $1,780 at December 31, 2004)				5,323				—				—
Capital lease obligations, less current portion				—				66				31
Deferred rent				486				686				718
Deferred tax liability				2,341				1,846				1,704
Commitments and contingencies
Stockholders’ equity (deficit):
	Series A convertible preferred stock, $0.001 par value, 2,050,839 shares authorized, issued and outstanding at December 31, 2004 and 2005 and September 30, 2006 (unaudited); liquidation preference of $3,076 at December 31, 2005 and September 30, 2006 (unaudited); no shares issued or outstanding pro forma (unaudited)			2				2				2			$	—
	Series B convertible preferred stock, $0.001 par value, 679,239 shares authorized, issued and outstanding at December 31, 2004 and 2005 and September 30, 2006 (unaudited); liquidation preference of $2,262 at December 31, 2005 and September 30, 2006 (unaudited); no shares issued or outstanding pro forma (unaudited)			1				1				1				—
	Series C-1 convertible preferred stock, $0.001 par value, 7,052,741 shares authorized, 4,437,741 issued and outstanding at December 31, 2004 and 2005 and 4,487,741 issued and outstanding at September 30, 2006 (unaudited); liquidation preference of $12,204 at December 31, 2005 and $12,341 at September 30, 2006 (unaudited); no shares issued or outstanding pro forma (unaudited)			4				4				4				—
	Series D convertible preferred stock, $0.001 par value, 11,500,000 shares authorized, none and 10,019,857 issued and outstanding at December 31, 2004 and 2005, respectively and 10,019,857 issued and outstanding at September 30, 2006 (unaudited); liquidation preference of $20,040 at December 31, 2005 and September 30, 2006 (unaudited); no shares issued or outstanding pro forma (unaudited)			—				10				10				—
	Series E convertible preferred stock, $0.001 par value, 10,000,000 shares authorized, none and 3,463,615 issued and outstanding at December 31, 2004 and 2005, respectively and 25,000,000 authorized, 20,654,221 issued and outstanding at September 30, 2006 (unaudited); liquidation preference of $8,659 at December 31, 2005 and $51,636 at September 30, 2006 (unaudited); no shares issued or outstanding pro forma (unaudited)			—				3				21				—
	Convertible preferred stock subscribed			3,543				6,900				—				—
	Common stock, $0.001 par value 150,000,000 shares authorized at December 31, 2004 and 2005; 1,138,644 and 1,229,553 shares issued and outstanding at December 31, 2004 and 2005 and 1,390,930 issued and outstanding at September 30, 2006 (unaudited), respectively; 200,000,000 shares authorized pro forma; 10,758,441 shares issued and outstanding pro forma (unaudited)			5				5				1				11
	Common stock issuable			—				735				—				—
	Additional paid-in capital			23,318				53,635				94,144				94,172
	Deferred stock-based compensation			(631	)			(2,679	)			—				—
	Deficit accumulated during the development stage			(30,836	)			(53,079	)			(71,648	)			(71,648	)
Total stockholders’ equity (deficit)				(4,594	)			5,537				22,535			$	22,535
Total liabilities and stockholders’ equity (deficit)			$	10,296			$	20,320			$	29,745

F-3

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																								Period from
																								August 24, 1999
																Nine Months								(Inception)
				Years Ended December 31,												Ended September 30,								through
																								September 30,
				2003				2004				2005				2005				2006				2006
																(unaudited)				(unaudited)				(unaudited)
Expenses:
	Research and development			$	974			$	3,634			$	10,189			$	6,754			$	5,698			$	26,603
	Selling, general and administrative				2,976				5,155				10,137				6,723				11,463				35,062
Loss from operations					(3,950	)			(8,789	)			(20,326	)			(13,477	)			(17,161	)			(61,665	)
Interest income					1				—				52				27				503				669
Interest expense					(2,171	)			(4,028	)			(4,468	)			(3,545	)			(2,410	)			(14,181	)
Other income (expense), net					—				(22	)			2,041				(11	)			351				2,469
Loss before benefit for income taxes					(6,120	)			(12,839	)			(22,701	)			(17,006	)			(18,717	)			(72,708	)
Benefit for income taxes					—				454				458				141				148				1,060
Net loss				$	(6,120	)		$	(12,385	)		$	(22,243	)		$	(16,865	)		$	(18,569	)		$	(71,648	)
Historical net loss per common share:
		Basic and diluted		$	(5.76	)		$	(11.20	)		$	(18.76	)		$	(14.38	)		$	(13.81	)
Weighted average shares - basic and diluted					1,062,825				1,106,188				1,185,387				1,172,419				1,344,503
Pro forma net loss per common share (unaudited):
	Basic and diluted											$	(5.15	)						$	(1.88	)
Weighted average shares - pro forma basic and diluted (unaudited)													4,319,411								9,885,002

F-4

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Table of Contents

																																							Deficit
																															Accumulated								Accumulated				Total
			Convertible																Common				Convertible				Additional				Other				Deferred				During the				Stockholders’
			Preferred Stock								Common Stock								Stock				Preferred Stock				Paid-In				Comprehensive				Stock-Based				Development				Equity
			Shares				Amount				Shares				Amount				Issuable				Subscribed				Capital				Loss				Compensation				Stage				(Deficit)
	Issuance of common stock for cash at $0.09 per share			—			$	—				735,294			$	1			$	—			$	—			$	84			$	—			$	—			$	—			$	85
	Issuance of common stock for services			—				—				173,529				—				—				—				176				—				—				—				176
	Issuance of Series A preferred stock for cash at $1.50 per share			112,266				—				—				—				—				—				168				—				—				—				168
	Net loss and comprehensive loss			—				—				—				—				—				—				—				—				—				(896	)			(896	)
Balance at December 31, 1999				112,266				—				908,823				1				—				—				428				—				—				(896	)			(467	)
	Issuance of Series A preferred stock for cash at $1.50 per share, net of issuance costs			1,912,902				2				—				—				—				—				2,811				—				—				—				2,813
	Issuance of Series A preferred stock for services			25,671				—				—				—				—				—				114				—				—				—				114
	Issuance of Series B preferred stock for cash at $3.33 per share			489,187				1				—				—				—				—				1,417				—				—				—				1,418
	Issuance of Series B preferred stock for services			1,141				—				—				—				—				—				4				—				—				—				4
	Issuance of common stock for cash, in March, May, and September			—				—				151,294				—				—				—				508				—				—				—				508
	Issuance of stock options to consultants			—				—				—				—				—				—				48				—				—				—				48
	Unrealized loss on available-for-sale investments			—				—				—				—				—				—				—				(36	)			—				—				(36	)
	Net loss			—				—				—				—				—				—				—				—				—				(2,147	)			(2,147	)
	Comprehensive loss			—				—				—				—				—				—				—				—				—				—				(2,183	)
Balance at December 31, 2000				2,541,167				3				1,060,117				1				—				—				5,330				(36	)			—				(3,043	)			2,255
	Series C preferred stock subscriptions at $7.00 per share for cash			—				—				—				—				—				682				—				—				—				—				682
	Stock-based compensation			—				—				—				—				—				—				1				—				—				—				1
	Issuance of Series B preferred stock in July for cash at $3.33 per share, net of issuance costs			188,911				—				—				—				—				—				620				—				—				—				620
	Reclassification adjustment for losses realized in net loss			—				—				—				—				—				—				—				36				—				—				36
	Net loss			—				—				—								—				—				—				—				—				(4,942	)			(4,942	)
	Comprehensive loss			—				—				—								—				—				—				—				—				—				(4,906	)
Balance at December 31, 2001				2,730,078				3				1,060,117				1				—				682				5,951				—				—				(7,985	)			(1,348	)
	Issuance of subscribed Series C preferred stock in March			88,857				—				—				—				—				(622	)			622				—				—				—				—
	Issuance of Series C preferred stock, in March, for cash at $7.00 per share, net of issuance costs			21,286				—				—				—				—				—				99				—				—				—				99
	Refund due to cancellation of Series C preferred stock subscribed			—				—				—				—				—				(60	)			—				—				—				—				(60	)
	Stock-based compensation			—				—				—				—				—				—				6				—				—				—				6
	Issuance of warrants in connection with convertible notes from May to November			—				—				—				—				—				—				1,489				—				—				—				1,489
	Issuance of Series C preferred stock for services in March			2,730				—				—				—				—				—				19				—				—				—				19
	Net loss and comprehensive loss			—				—				—				—				—				—				—				—				—				(4,346	)			(4,346	)
Balance at December 31, 2002				2,842,951				3				1,060,117				1				—				—				8,186				—				—				(12,331	)			(4,141	)
	Issuance of common stock upon exercise of stock options in November			—				—				17,647				—				—				—				7				—				—				—				7
	Issuance of Series C-1 preferred stock for services in July			25,000				—				—				—				—				—				69				—				—				—				69
	Issuance of warrants in connection with convertible notes from January through March			—				—				—				—				—				—				1,126				—				—				—				1,126
	Issuance of Series C-1 preferred stock for cash, in July, at $2.75 per share, net of issuance costs			637,980				1				—				—				—				—				1,595				—				—				—				1,596
	Stock-based compensation			—				—				—				—				—				—				159				—				—				—				159
	Issuance of warrant in June in connection with patent acquisition			—				—				—				—				—				—				34				—				—				—				34
	Conversion of Series C preferred stock to Series C-1 preferred stock in July			174,954				—				—				—				—				—				—				—				—				—				—
	Conversion of principal and interest on promissory notes to Series C-1 preferred stock in July			3,486,934				3				—				—				—				—				4,639				—				—				—				4,642
	Net loss and comprehensive loss			—				—				—				—				—				—				—				—				—				(6,120	)			(6,120	)
Balance at December 31, 2003				7,167,819				7				1,077,764				1				—				—				15,815				—				—				(18,451	)			(2,628	)

F-5

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Table of Contents

																																							Deficit
																															Accumulated								Accumulated				Total
			Convertible																Common				Convertible				Additional				Other				Deferred				During the				Stockholders’
			Preferred Stock								Common Stock								Stock				Preferred Stock				Paid-In				Comprehensive				Stock-Based				Development				Equity
			Shares				Amount				Shares				Amount				Issuable				Subscribed				Capital				Loss				Compensation				Stage				(Deficit)
	Issuance of common stock upon exercise of stock options, in April and October			—				—				14,117				—				—				—				29				—				—				—				29
	Issuance of common stock in connection with intellectual property acquisition, in March and September			—				—				42,352				—				—				—				270				—				—				—				270
	Issuance of common stock for services rendered in September			—				—				4,411				—				—				—				37				—				—				—				37
	Series D preferred stock subscriptions at $2.00 per share for cash			—				—				—				—				—				3,543				—				—				—				—				3,543
	Stock-based compensation			—				—				—				—				—				—				1,096				—				—				—				1,096
	Deferred stock compensation			—				—				—				—				—				—				740				—				(740	)			—				—
	Issuance of warrants in connection with convertible notes from January though September			—				—				—				—				—				—				5,335				—				—				—				5,335
	Amortization of deferred compensation			—				—								—				—				—				—				—				109				—				109
	Net loss and comprehensive loss			—				—				—				—				—				—				—				—				—				(12,385	)			(12,385	)
Balance at December 31, 2004				7,167,819				7				1,138,644				1				—				3,543				23,322				—				(631	)			(30,836	)			(4,594	)
	Issuance of common stock upon exercise of stock options in March			—				—				5,882				—				—				—				25				—				—				—				25
	Issuance of common stock upon exercise of warrants in May through October			—				—				23,731				—				—				—				120				—				—				—				120
	Issuance of common stock for services rendered in April through December			—				—				51,528				—				—				—				386				—				—				—				386
	Issuance of common stock in connection with settlement agreement in October			—				—				9,768				—				—				—				102				—				—				—				102
	Common stock issuable in exchange for guarantee on convertible debt in December			—				—				—				—				735				—				—				—				—				—				735
	Issuance of Series D preferred stock in exchange for convertible notes and accrued interest, and cash, in May, at $2.00 per share, net of issuance costs			9,754,761				10				—				—				—				(3,543	)			14,245				—				—				—				10,712
	Issuance of Series D preferred stock at $2.00 in exchange for services in May			265,096				—				—				—				—				—				367				—				—				—				367
	Issuance of warrants in connection with Series D convertible preferred stock in May			—				—				—				—				—				—				809				—				—				—				809
	Issuance of warrants in connection with convertible note payable in January through September			—				—				—				—				—				—				2,007				—				—				—				2,007
	Issuance of warrants in connection with amendment of convertible notes in December			—				—				—				—				—				—				276				—				—				—				276
	Issuance of Series E preferred stock for cash, in December 2005, at $2.50 per share, net of issuance costs			3,089,615				3				—				—				—				—				7,703				—				—				—				7,706
	Series E preferred stock subscriptions at $2.50 per share for cash in December			—				—				—				—				—				6,900				—				—				—				—				6,900
	Issuance of Series E preferred stock at $2.50 per share in exchange for termination agreement in December			124,000				—				—				—				—				—				310				—				—				—				310
	Issuance of Series E preferred stock at $2.50 per share in exchange for amendment of convertible note payable in December			250,000				—				—				—				—				—				625				—				—				—				625
	Stock-based compensation			—				—				—				—				—				—				959				—				—				—				959
	Deferred stock compensation			—				—				—				—				—				—				2,383				—				(2,383	)			—				—
	Amortization of deferred compensation			—				—				—				—				—				—				—				—				335				—				335
	Net loss and comprehensive loss			—				—				—				—				—				—				—				—				—				(22,243	)			(22,243	)
Balance at December 31, 2005				20,651,291				20				1,229,553				1				735				6,900				53,639				—				(2,679	)			(53,079	)			5,537
	Issuance of common stock upon exercise of warrants and stock options in March through September (unaudited)			—				—				78,036				—				—				—				381				—				—				—				381
	Issuance of common stock for services in January through May (unaudited)			—				—				8,048				—				—				—				89				—				—				—				89
	Issuance of common stock in connection with intellectual property in January (unaudited)			—				—				4,705				—				—				—				49				—				—				—				49
	Issuance of Series E convertible preferred stock at $2.50 per share for cash, in January, net of issuance costs (unaudited)			3,994,000				4				—				—				—				(6,750	)			9,367				—				—				—				2,621
	Issuance of Series E convertible preferred stock at $2.50 per share for cash, in February, net of issuance costs (unaudited)			5,484,200				6				—				—				—				(150	)			12,444				—				—				—				12,300
	Issuance of Series E convertible preferred stock at $2.50 per share for cash, in March, net of issuance costs (unaudited)			7,712,406				8				—				—				—				—				16,888				—				—				—				16,896
	Issuance of Series C-1 convertible preferred stock upon exercise of warrants for cash in May (unaudited)			50,000				—				—				—				—				—				50				—				—				—				50
	Issuance of common stock in connection with guarantee on convertible debt (unaudited)			—				—				70,588				—				(735	)			—				735				—				—				—				—
	Stock-based compensation (unaudited)			—				—				—				—				—				—				1,805				—				—				—				1,805
	Deferred stock compensation (unaudited)			—				—				—				—				—				—				(2,679	)							2,679				—				—
	Warrant modification expense (unaudited)			—				—				—				—				—				—				1,376				—				—				—				1,376
	Net loss and comprehensive loss (unaudited)			—				—				—				—				—				—				—				—				—				(18,569	)			(18,569	)
Balance at September 30, 2006 (unaudited)				37,891,897			$	38				1,390,930			$	1			$	—			$	—			$	94,144			$	—			$	—			$	(71,648	)		$	22,535

F-6

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Table of Contents

																Nine Months								Period from
																Ended								August 24, 1999
				Years Ended December 31,												September 30,								(Inception) through
																								September 30,
				2003				2004				2005				2005				2006				2006
																(unaudited)								(unaudited)
Operating activities
Net loss				$	(6,120	)		$	(12,385	)		$	(22,243	)		$	(16,865	)		$	(18,569	)		$	(71,648	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization				35				1,148				1,742				1,210				1,786				4,863
	Provision for obsolete inventory				—				117				120				—				200				437
	Benefit for income taxes				—				(454	)			(458	)			(142	)			(142	)			(1,054	)
	Noncash interest expense associated with issuance of warrants and convertible notes				1,870				4,002				4,308				3,412				2,348				13,273
	Warrant modification expense				—				—				—				—				899				899
	Stock-based compensation				159				1,133				1,294				502				1,805				4,445
	Issuance of stock for services				69				38				558				419				90				1,066
	Issuance of stock for settlement and termination agreements				—				—				412				—				—				412
	Issuance of common stock for intellectual property				—				270				—				—				49				319
	Loss on disposal of fixed assets				—				25				—				—				32				57
	Deferred rent				(1	)			474				200				147				32				718
	Deferred taxes				—				(43	)			(27	)			—				—				—
	Changes in operating assets and liabilities:
		Inventory			—				(160	)			(562	)			(122	)			(3,527	)			(4,249	)
		Prepaid expenses and other assets			—				(776	)			(208	)			(81	)			226				(757	)
		Accounts payable			709				1,281				(398	)			945				(2,085	)			1,384
		Accrued compensation			188				(20	)			1,346				810				804				2,334
		Accrued expenses			263				471				834				(53	)			(478	)			1,287
		Income taxes payable			—				43				27				—				—				—
Net cash used in operating activities					(2,828	)			(4,836	)			(13,055	)			(9,818	)			(16,530	)			(46,214	)
Investing activities
Purchase of short-term investments					—				—				—				—				—				(3,028	)
Sale of short-term investments					—				—				—				—				—				3,028
Acquisition of intellectual property, net of cash acquired					—				(1,730	)			(2,250	)			(1,500	)			—				(3,980	)
Purchases of property and equipment					—				(816	)			(4,554	)			(3,948	)			(1,415	)			(7,046	)
Deposits and other assets					(250	)			—				(950	)			(110	)			(1,878	)			(3,133	)
Net cash used in investing activities					(250	)			(2,546	)			(7,754	)			(5,558	)			(3,293	)			(14,159	)
Financing activities
Proceeds from issuance of convertible notes payable					1,455				6,093				6,970				6,970				—				17,519
Proceeds from capital lease obligations					—				—				157				157				—				157
Payments on capital lease obligations					—				—				(41	)			(28	)			(40	)			(81	)
Proceeds from issuance of note payable					—				—				—								—				416
Payments on note payable					—				—				—				—				—				(416	)
Refund on canceled subscribed Series C preferred stock					—				—				—				—				—				(60	)
Payments on convertible note payable					—				(50	)			—				—				(6,525	)			(6,575	)
Proceeds from subscribed preferred stock					—				3,543				6,900				3,446				—				11,125
Proceeds from issuance of preferred stock, net					1,596				—				11,456				4,528				31,816				49,986
Proceeds from issuance of common stock					—				—				—				—				—				595
Proceeds from exercise of stock options and warrants					8				29				28				26				431				496
Net cash provided by financing activities					3,059				9,615				25,470				15,099				25,682				73,162
Net (decrease) increase in cash and cash equivalents					(19	)			2,233				4,661				(277	)			5,859				12,789
Cash and cash equivalents at beginning of period					55				36				2,269				2,269				6,930				—
Cash and cash equivalents at end of period				$	36			$	2,269			$	6,930			$	1,992			$	12,789			$	12,789
Noncash financing activities
Issuance of subscribed preferred stock				$	—			$	—			$	3,543			$	—			$	6,900			$	11,065
Issuance of warrants and common stock in connection with intellectual property acquisition				$	34			$	270			$	—			$	—			$	49			$	353
Conversion of convertible notes and interest into convertible preferred stock				$	4,640			$	—			$	8,246			$	1,008			$	—			$	12,886
Issuance of convertible notes payable as commission for financing				$	—			$	141			$	203			$	—			$	—			$	344
Conversion of payables to convertible notes payable				$	—			$	234			$	95			$	—			$	—			$	327
Supplemental activities
Cash paid for income taxes				$	1			$	2			$	1			$	—			$	6			$	13
Cash paid for interest				$	—			$	26			$	160			$	—			$	60			$	334

F-7

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Table of Contents

1.	Organization and Summary of Significant Accounting Policies

F-8

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Table of Contents

1.	Organization and Summary of Significant Accounting Policies (continued)

F-9

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Table of Contents

1.	Organization and Summary of Significant Accounting Policies (continued)

F-10

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Table of Contents

1.	Organization and Summary of Significant Accounting Policies (continued)

		Nine Months Ended
		September 30,
		2006				2005
		Actual				Pro Forma
Volatility			60	%			0	%
Expected term (years)			6.0				4.0
Risk free interest rate			4.55	%			3.00	%
Expected dividend yield			0	%			0	%

F-11

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Table of Contents

1.	Organization and Summary of Significant Accounting Policies (continued)

		Nine Months Ended
		September 30, 2005
(in thousands, except per share amounts)
		(unaudited)
Net loss as reported		$	(16,865	)
Add: Stock-based compensation included in net loss			199
Deduct: Stock-based employee and director compensation determined under fair value method for all awards			(296	)
Pro forma net loss		$	(16,962	)
Basic and diluted net loss per share as reported		$	(14.38	)
Basic and diluted pro forma net loss per share		$	(14.47	)

F-12

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Table of Contents

1.	Organization and Summary of Significant Accounting Policies (continued)

2006		$	789
2007			789
2008			703
2009			458
Total		$	2,739

F-13

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Table of Contents

1.	Organization and Summary of Significant Accounting Policies (continued)

										Fair Value of				Intrinsic
										Common Stock				Value
		Shares				Exercise				on Date of				Per
Grant date		Granted				Price				Grant				Share
November 1999			17,647			$	0.43			$	0.43			$	—
November 1999			470				0.64				0.64				—
February 2000			5,882				0.64				0.64				—
May 2000			5,882				0.64				0.64				—
September 2000			5,882				2.34				2.34				—
December 2000			20,000				2.34				2.34				—
April 2001			2,352				2.34				2.34				—
November 2001			91,764				1.49				1.49				—
April 2002			11,764				1.49				1.49				—
March 2003			9,411				6.38				6.38				—
June 2003			27,058				6.38				6.38				—
September 2004			356,470				4.25				6.38				2.12
April 2005			183,823				5.31				6.93				1.62
June 2005			8,235				5.31				6.93				1.62
September 2005			9,411				5.31				9.39				4.08
December 2005			392,941				5.31				10.41				5.10
March 2006 (unaudited)			292,941				5.31				11.69				6.38
September 2006 (unaudited)			691,764				7.86				12.75				4.89
November 7, 2006 (unaudited)			691,764				7.86				12.75				4.89
November 27, 2006 (unaudited)			335,246				10.63				13.00				2.37

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1.	Organization and Summary of Significant Accounting Policies (continued)

		Nine Months
		Ended
		September 30,
		2005				2006
(in thousands, except per share amounts)
		(unaudited)
Capitalized to inventory		$	—			$	214
Research and development expense		$	113			$	267
Sales, general and administrative expense			389				1,324
		$	502			$	1,591
Net effect on basic and diluted net loss per share		$	0.43			$	1.18

2.	Net Loss Per Common Share

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2.	Net Loss Per Common Share (continued)

														Nine Months Ended
		December 31,												September 30,
		2003				2004				2005				2005				2006
														(unaudited)
Convertible preferred stock			1,686,545				1,712,800				5,307,180				4,492,212				9,367,511
Warrants to purchase preferred and common stock			638,431				1,566,653				2,423,758				2,366,486				3,365,534
Options to purchase common stock			375,003				560,470				1,149,000				2,405,176				1,869,676
			2,699,979				3,839,923				8,879,938				9,263,874				14,602,721

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2.	Net Loss Per Common Share (continued)

														Nine Months Ended
		Years Ended December 31,												September 30,
		2003				2004				2005				2005				2006
														(unaudited)
Numerator:
Net loss, as reported (in thousands)		$	(6,120	)		$	(12,385	)		$	(22,243	)		$	(16,865	)		$	(18,569	)
Denominator:
Shares used to compute basic and diluted net loss per share			1,062,825				1,106,188				1,185,387				1,172,419				1,344,503
Pro forma adjustments to reflect assumed weighted-average effect of conversion of preferred stock on January 1, 2003, 2004 and 2005, respectively			1,163,291				1,712,800				3,134,024				3,447,913				8,540,499
Pro forma shares used in basic and diluted pro forma net loss per share			2,226,116				2,818,988				4,319,411				4,620,332				9,885,002
Pro forma basic and diluted net loss per share attributable to common stockholders		$	(2.75	)		$	(4.39	)		$	(5.15	)		$	(3.65	)		$	(1.88	)

3.	Acquisitions

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3.	Acquisitions (continued)

Total purchase price, including acquisition related expenses							$	4,549
Allocated to assets and liabilities:
Tangible net assets acquired:
	Inventory		$	208
	Other assets			33
	Net tangible assets acquired			241
Total liabilities assumed				2,847
Net liabilities assumed								2,606
Net intangible assets acquired							$	7,155

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3.	Acquisitions (continued)

4.	Balance Sheet Details

			December 31,								September 30,
			2004				2005				2006
											(unaudited)
Raw materials			$	367			$	929			$	2,130
Work in process				—				—				2,267
Less: reserve for obsolete inventory				(117	)			(237	)			(378	)
	Total		$	250			$	692			$	4,019

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4.	Balance Sheet Details (continued)

			December 31,								September 30,
			2004				2005				2006
											(unaudited)
Furniture and fixtures			$	97			$	385			$	539
Office equipment				123				471				729
Lab equipment				390				1,820				2,273
Leasehold improvements				406				2,894				3,401
				1,016				5,570				6,942
Less accumulated depreciation and amortization				(95	)			(644	)			(1,523	)
	Total		$	921			$	4,926			$	5,419

5.	Commitments and Contingencies

Years ended December 31,
2006		$	49
2007			45
2008			21
Total		$	115

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5.	Commitments and Contingencies (continued)

Years ended December 31,
2006		$	867
2007			956
2008			985
2009			1,036
2010			1,087
Thereafter			990
Total minimum lease payments		$	5,921

6.	Convertible Notes Payable

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6.	Convertible Notes Payable (continued)

F-22

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6.	Convertible Notes Payable (continued)

7.	Stockholders’ Equity (Deficit)

F-23

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7.	Stockholders’ Equity (Deficit) (continued)

F-24

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7.	Stockholders’ Equity (Deficit) (continued)

		December 31,																								September 30,
		2004												2005												2006
																										(unaudited)
						Shares Issued				Aggregate								Shares Issued				Aggregate								Shares Issued				Aggregate
		Shares				and				Liquidation				Shares				and				Liquidation				Shares				and				Liquidation
		Designated				Outstanding				Preference				Designated				Outstanding				Preference				Designated				Outstanding				Preference
										(in thousands)												(in thousands)												(in thousands)
Series A			2,050,839				2,050,839			$	3,076				2,050,839				2,050,839			$	3,076				2,050,839				2,050,839			$	3,076
Series B			679,239				679,239				2,262				679,239				679,239				2,262				679,239				679,239				2,262
Series C-1			7,052,741				4,437,741				12,204				7,052,741				4,437,741				12,204				7,052,741				4,487,741				12,341
Series D			11,000,000				—				—				11,500,000				10,019,857				20,040				11,000,000				10,019,857				20,040
Series E			—				—				—				10,000,000				3,463,615				8,659				25,000,000				20,654,221				51,636
			20,782,819				7,167,819			$	17,542				31,282,819				20,651,291			$	46,241				46,282,819				37,891,897			$	89,355

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7.	Stockholders’ Equity (Deficit) (continued)

F-26

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7.	Stockholders’ Equity (Deficit) (continued)

F-27

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7.	Stockholders’ Equity (Deficit) (continued)

							Weighted-Average
			Options				Exercise Price
August 24, 1999 (inception)
	Granted			71			$	0.43
Outstanding, December 31, 1999				71				0.43
	Granted			187				1.36
	Canceled			(29	)			2.34
Outstanding, December 31, 2000				229				1.15
	Granted			94				1.53
	Canceled			(6	)			0.64
Outstanding, December 31, 2001				317				1.28
	Granted			11				1.49
	Canceled			(8	)			1.40
Outstanding, December 31, 2002				320				1.28
	Granted			118				6.38
	Exercised			(18	)			0.43
	Canceled			(46	)			6.38
Outstanding, December 31, 2003				374				2.30
	Granted			391				4.25
	Exercised			(14	)			2.04
	Canceled			(191	)			2.34
Outstanding, December 31, 2004				560				3.57
	Granted			611				5.31
	Exercised			(6	)			4.25
	Canceled			(16	)			5.31
Outstanding, December 31, 2005				1,149				4.46
	Granted (unaudited)			293				5.31
	Exercised			—				—
	Canceled (unaudited)			(52	)			4.55
Outstanding, March 31, 2006 (unaudited)				1,390				4.63
	Granted (unaudited)			692				7.86
	Exercised (unaudited)			(57	)			4.51
	Canceled (unaudited)			(20	)			5.31
Outstanding, June 30, 2006 (unaudited)				2,005				5.74
	Exercised (unaudited)			(6	)			5.31
	Canceled (unaudited)			(130	)			4.46
Outstanding, September 30, 2006 (unaudited)				1,869				5.85
	Exercised (unaudited)			—				—
	Canceled (unaudited)			(121	)			6.30
Outstanding, November 7, 2006 (unaudited)				1,748				5.85
	Granted (unaudited)			335				10.63
Outstanding, November 27, 2006				2,083				6.59

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7.	Stockholders’ Equity (Deficit) (continued)

Options Outstanding														Options Exercisable
								Weighted-
								Average
								Remaining		Weighted-								Weighted-
Grant Exercise				Number				Contractual		Average				Number				Average
Price				Outstanding				Life		Exercise Price				Exercisable				Exercise Price
	$0.43 - $0.64				29,880			4.0 years		$	0.51				27,308			$	0.51
	$1.49 - $2.34				131,764			5.7 years			1.66				116,800				1.62
	$4.25 - $6.38				987,352			9.3 years			4.97				199,339				4.76
					1,148,996			8.7 years			4.46				343,447				3.36

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7.	Stockholders’ Equity (Deficit) (continued)

F-30

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7.	Stockholders’ Equity (Deficit) (continued)

F-31

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7.	Stockholders’ Equity (Deficit) (continued)

							Weighted-Average
			Warrants				Exercise Price
Outstanding, August 24, 1999 (inception)				—
	Issued			16,666			$	6.37
Outstanding, December 31, 2000				16,666				6.37
Outstanding, December 31, 2001				16,666				6.37
	Issued			846,029				4.25
Outstanding, December 31, 2002				862,695				3.02
	Issued			6,471				5.40
Outstanding, December 31, 2003				869,166				3.02
	Issued			928,223				5.31
	Exercised			(471	)			5.31
Outstanding, December 31, 2004				1,796,918				4.21
	Issued			684,111				7.61
	Expired			(16,666	)			6.37
	Cancelled			(17,343	)			5.82
	Exercised			(23,261	)			6.33
Outstanding, December 31, 2005				2,423,759				5.10
	Issued (unaudited)			951,145				10.11
	Exercised (unaudited)			(12,745	)			6.37
Outstanding, March 31, 2006 (unaudited)				3,362,159				6.59
	Exercised (unaudited)			(18,529	)			3.36
Outstanding, June 30, 2006 (unaudited)				3,343,630				6.59
	Issued (unaudited)			26,070				4.25
	Cancelled (unaudited)			(4,166	)			5.31
Outstanding, September 30, 2006 (unaudited)				3,365,534				6.59
	Cancelled (unaudited)			(1,715	)			5.31
Outstanding, November 7, 2006 (unaudited)				3,364,037				6.59
	Granted (unaudited)			28,235				10.63
Outstanding, November 27, 2006 (unaudited)				3,392,272				6.62

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7.	Stockholders’ Equity (Deficit) (continued)

		December 31,				September 30,
		2005				2006
						(unaudited)
Convertible preferred stock as adjusted for anti-dilution provisions in conjunction with Series C-1 shares issued			5,307,180				9,367,511
Warrants for common and preferred stock			2,423,758				3,365,534
Common stock options outstanding previous to 2001 Plan			58,117				55,760
Common stock options outstanding under 2001 Plan			1,090,880				1,813,916
Common stock options available for future grant			1,256,176				472,558
Total common shares reserved for issuance			10,136,111				15,075,279

8.	Income Taxes

			December 31,
			2004				2005
			(in thousands)
Deferred tax assets:
	Net operating loss carryforwards		$	9,977			$	17,146
	Reserves and other			1,182				2,200
Total deferred tax assets				11,159				19,346
Valuation allowance for deferred tax assets				(11,144	)			(19,346	)
				15				—
Deferred tax liabilities:
	Foreign intangible			(2,341	)			(1,831	)
	Other			(15	)			(15	)
Total deferred tax liabilities				(2,356	)			(1,846	)
Net deferred tax liabilities			$	(2,341	)		$	(1,846	)

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8.	Income Taxes (continued)

			Years Ended December 31,
			2003				2004				2005
Current:
	Federal		$	—			$	—			$	—
	State			—				—				—
	Foreign			—				(43	)			(37	)
				—				(43	)			(37	)
Deferred:
	Federal			—				—				—
	State			—				—				—
	Foreign			—				497				495
				—				497				495
			$	—			$	454			$	458

		December 31,
		2003				2004				2005
Tax benefit at federal statutory rate		$	2,081			$	4,365			$	7,718
State, net of federal benefit			357				749				1,324
Foreign tax			—				454				458
Change in valuation allowance excluding change applicable to purchased intangibles			(2,435	)			(4,034	)			(8,202	)
Change in valuation allowance applicable to purchased intangibles			—				84				5
Other foreign loss			—				(452	)			(457	)
Other permanent differences			(3	)			(712	)			(388	)
Benefit for income taxes		$	—			$	454			$	458

9.	Employee Benefit Plan

10.	Related-Party Transactions

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10.	Related-Party Transactions (continued)

11.	Subsequent Events

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11.	Subsequent Events (continued)

F-36

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11.	Subsequent Events (continued)

F-37

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11.	Subsequent Events (continued)

F-38

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