The following discussion of the financial condition and results of operations of our Company should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2006. Matters discussed in this Quarterly Report on Form 10-Q and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, express or implied, of our anticipated growth, operating results, future earnings per share, plans and objectives, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are often identified by the words "believe", "plans", "estimate", "project", "target", "continue", "intend", "expect", "future", "anticipates", and similar expressions that are not statements of historical fact. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in our other public filings with the Securities and Exchange Commission, or the SEC. It is routine for internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that all forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report on Form 10-Q and may change. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES

Certain of our accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these policies are subject to an inherent degree of uncertainty. In applying these policies, we use our judgment in making certain assumptions

and estimates. Our critical accounting policies, which consist of revenue recognition, accounts receivable reserves, inventories and expenses associated with clinical trials, are described in our Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes to our critical accounting policies as of March 31, 2007.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2007 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2006

The following table presents consolidated statements of operations information as a reference for management's discussion and analysis which follows thereafter. This table presents dollar and percentage changes for each listed line item for the three months ended March 31, 2007 compared to the three months ended March 31, 2006, as well as consolidated statements of operations information as a percentage of total revenues (except for cost of product sales, which is stated as a percentage of total product sales) for such periods.

                                                                                      Increase
                                                                                     (Decrease)         % Change
                                       2007         %         2006         %        2006 to 2007      2006 to 2007
                                                           (In thousands, except percentages)
Revenues:
Product sales                         $ 5,116      74.9 %   $  5,700      82.2 %   $         (584 )          -10.2 %
Net royalty income                      1,718      25.1 %      1,232      17.8 %              486             39.4 %

Total revenues                          6,834     100.0 %      6,932     100.0 %              (98 )           -1.4 %

Costs and expenses:
Cost of product sales                   1,230      24.0 %      1,475      25.9 %             (245 )          -16.6 %
Research and development                2,514      36.8 %      3,830      55.3 %           (1,316 )          -34.4 %
General and administrative              2,013      29.5 %      2,224      32.1 %             (211 )           -9.5 %
Selling and marketing                   2,047      30.0 %      2,074      29.9 %              (27 )           -1.3 %

Total costs and expenses                7,804     114.2 %      9,603     138.5 %           (1,799 )          -18.7 %

Net gain from settlement of
litigation                                 -        0.0 %     15,209     219.4 %          (15,209 )         -100.0 %

Income (loss) from operations            (970 )   -14.2 %     12,538     180.9 %          (13,508 )         -107.7 %
Other Income:
Currency transaction gain (loss)           49       0.7 %         (6 )    -0.1 %               55           -916.7 %
Interest income, net                      509       7.4 %        291       4.2 %              218             74.9 %

Total other income, net                   558       8.2 %        285       4.1 %              273             95.8 %

Income (loss) before income
tax benefit                              (412 )    -6.0 %     12,823     185.0 %          (13,235 )         -103.2 %

Income tax benefit                        (76 )    -1.1 %         -        0.0 %              (76 )             -

Net income (loss)                     $  (336 )    -4.9 %   $ 12,823     185.0 %   $      (13,159 )         -102.6 %

REVENUES THREE MONTHS ENDED MARCH 31, 2007 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 2006




                                             Three Ended March 31,           Increase
                                                                            (Decrease)          % Change
                                              2007            2006         2006 to 2007       2006 to 2007
                                                         (In thousands, except percentages)
Product sales:
CardioSEAL® and STARFlex®:
North America                             $      3,984    $      5,116    $       (1,132 )           (22.1 )%
Europe                                           1,132             584               548              93.8 %

Total product sales                              5,116           5,700              (584 )           (10.2 )%
Net royalty income:
Bard                                             1,694           1,200               494              41.2 %
BSC                                                 24              32                (8 )           (25.0 )%

Total net royalty income                         1,718           1,232               486              39.4 %

Total revenues                            $      6,834    $      6,932    $          (98 )            (1.4 )%

The decrease in CardioSEAL® and STARFlex® product sales for the three months ended March 31, 2007 compared to the three months ended March 31, 2006 was primarily a result of a decrease in product demand in the United States and Canada. We believe that changes in inventory management at various institutions and to a lesser extent an impact resulting from the voluntary withdrawal of our HDE in the United States may have had a short term negative impact on revenue. However, European sales represented approximately 22.1% and 10.2% of total CardioSEAL® and STARFlex® product sales for the three months ended March 31, 2007 and 2006, respectively. The increase in European sales was primarily attributable to increased sales and marketing programs, as well as greater acceptance of our technology by the clinical community throughout Europe. We believe that as a result of the combination of (i) our MIST study results and headcount investments in the UK and other planned investments in Europe having increased awareness of the positive treatment effect on severe migraine sufferers with a PFO using our STARFlex® technology along with (ii) the anticipated awarding of the CE Mark for BioSTAR® within the next few months, our European product sales will increase as a percentage of total sales.

Increased net royalty income was directly attributable to higher sales by Bard of its Recovery™ Filter, or RNF, product, for which Bard received FDA regulatory approval for commercial sale and use as of December 31, 2002.

Cost of Product Sales. For the three months ended March 31, 2007, cost of product sales, as a percentage of total product sales, was approximately 24% compared with approximately 26% in the comparable period of 2006. This decrease in percentage of product sales was primarily due to the increase in production levels in anticipation of the commencement of sales of BioSTAR®, our new bioabsorbable septal repair implant. As the roll-out occurs, we anticipate a higher proportion of European sales in 2007 compared to 2006 and resulting in a lower weighted average selling price for our products. As a result , we currently expect 2007 cost of product sales, as a percentage of product sales, to increase slightly during the second half of 2007. For the full year 2007, we currently expect cost of product sales to be approximately 30% of total product sales, compared with approximately 29% for fiscal 2006. Included in cost of product sales were royalty expenses of approximately $500,000 and $563,000 for the three months ended March 31, 2007 and 2006, respectively.

Research and Development. The decrease in research and development expense of $1.3 million for the three months ended March 31, 2007 compared with the three months ended March 31, 2006 was primarily related to (i) approximately $750,000 of decreased costs related to CLOSURE I, primarily due to lower than anticipated enrollment, (ii) approximately $275,000 of decreased costs for MIST as the trial begins to wind down, and (iii) approximately $200,000 of decreased costs related to MIST II, primarily due to lower than plan enrollment.

We currently expect 2007 research and development expense to increase to approximately $26 million compared to approximately $15 million in 2006. This anticipated increase is primarily attributed to an increase in our clinical trial costs, most notably the expected completion of the enrollment/consent phase of our MIST II study.

General and Administrative. The slight decrease in general and administrative expense for the three months ended March 31, 2007 compared with the three months ended March 31, 2006 was spread across many expense categories including non-cash stock based compensation expense, recruiting costs, bonus expense, and payroll taxes. General and administrative expense is currently expected to increase by approximately 10% in 2007 compared to 2006. This increase is primarily due to

anticipated increases in legal fees related to intellectual property prosecution, increased expenses related to Sarbanes-Oxley 404 requirements, and additional SFAS 123R share-based compensation expense.

Selling and Marketing. Selling and marketing expense was relatively flat for the three months ended March 31, 2007 compared to the same period in 2006. This was primarily the result of an increase in expenses related to the launch of BioSTAR® offset by savings spread across many expense categories. We currently expect worldwide selling and marketing expense in 2007 to be relatively flat when compared to 2006. This is primarily due to the reallocation of resources to support the anticipated growth in Europe, offset by the investments not required due to the voluntary withdrawal of our HDE in the U.S.

Interest Income. The increase in interest income for the three months ended March 31, 2007 compared to the same period in 2006 was primarily related to higher cash balances during 2007, primarily due to the $15 million received for the settlement of the AGA litigation in April 2006. We currently expect interest income to decrease approximately 20% in 2007 compared to 2006, primarily due to the use of approximately $20 million of cash, cash equivalents and marketable securities to fund 2007 operations.

Income Tax Provision. In accordance with SFAS No. 109, we have provided for taxes on income from continuing operations based upon our anticipated effective income tax rate. We anticipate a net operating loss for fiscal 2007 and, accordingly, expect to carryback such losses to offset a portion of the 2006 tax provision. For the three months ended March 31, 2007, we recorded a benefit from income taxes of $75,500 as a result of the anticipated benefit from these loss carrybacks. We recorded no income tax provision for the three months ended March 31, 2006 because at that time we anticipated that clinical trial expenses would result in an operating loss for fiscal 2006.

LIQUIDITY AND CAPITAL RESOURCES



                                                         For the Three Months Ended March 31,
                                                            2007                       2006
                                                                    (In thousands)
Cash, cash equivalents and marketable securities     $           39,600         $           28,919
Net cash used in operating activities                            (2,031 )                   (3,011 )
Net cash provided by investing activities                         1,114                      8,342
Net cash provided by financing activities                           175                        495

Net Cash Used in Operating Activities

Net cash used in operating activities for the three months ended March 31, 2007 totaled approximately $2.0 million and consisted of (i) a net loss of approximately $336,000 and (ii) a net increase in working capital requirements of approximately $1.7 million, partially offset by non-cash charges of approximately $50,000.

The non-cash charges of approximately $50,000 during the three months ended March 31, 2007 consisted of (i) stock-based compensation, principally related to the new accounting rules, effective January 1, 2006, prescribed by SFAS 123(R);
(ii) amortization of bond discount; and (iii) depreciation of property and equipment.

The primary elements of the $1.7 million net increase in working capital during the three months ended March 31, 2007 consisted of the following:

(a) Inventories increased by approximately $193,000.

(b) Prepaid expenses and other current assets increased by approximately $176,000.

(c) Current liabilities decreased by approximately $1.4 million, primarily related to decreases in accounts payable and accrued expenses of approximately $300,000 and $1.1 million, respectively. The reduction in accrued expenses is primarily attributed to a reduction in accruals related to our clinical trials.

Net cash used in operating activities for the three months ended March 31, 2006 totaled approximately $3.0 million and consisted of a net income of approximately $12.8 million, offset by (i) a non-cash gain on settlement of litigation of approximately $15.3 million and other non-cash charges of approximately $300,000; and (ii) a net increase in working capital requirements of approximately $820,000.

The other non-cash charges of approximately $300,000 during the three months ended March 31, 2006 consisted of (i) stock-based compensation, principally related to the new accounting rules, effective January 1, 2006, prescribed by SFAS 123(R); (ii) amortization of bond discount; and (iii) depreciation of property and equipment.

The primary elements of the $820,000 net increase in working capital during the three months ended March 31, 2006 consisted of the following:

(a) Net trade accounts receivable increased by approximately $220,000, primarily due to an increase of approximately $600,000 in total product sales for the three months ended March 31, 2006 compared to the three months ended December 31, 2005.

(b) Prepaid expenses and other current assets increased by approximately $130,000.

(c) Current liabilities decreased by approximately $460,000, primarily related to decreases in accounts payable and accrued expenses of approximately $180,000 and $280,000, respectively. Accrued expenses include deferred revenue of $500,000 related to the settlement of litigation with AGA, which was treated as a non-cash item.

Net Cash Provided By Investing Activities

Net cash provided by investing activities of approximately $1.1 million during the three months ended March 31, 2007 consisted primarily of approximately $9.4 million of proceeds from maturities of marketable securities, offset by approximately $8.1 million of purchases of marketable securities. Purchases of property and equipment for use in our manufacturing, research and development and general and administrative activities totaled approximately $114,000 during the three months ended March 31, 2007. This compared to net cash provided by investing activities of approximately $8.3 million during the three months ended March 31, 2006.

Net Cash Provided By Financing Activities

Net cash provided by financing activities were approximately $175,000 and $495,000 for the three months ended March 31, 2007 and 2006, respectively. For both periods, this was primarily attributable to proceeds from the exercise of common stock options and the issuance of shares of common stock pursuant to our employee stock purchase plan. For the three months ended March 31, 2007, financing activities also reflected excess tax benefits from share-based compensation of $75,500.

Primarily as a result of the anticipated ongoing costs of MIST II, MIST III and CLOSURE I, we currently expect to incur operating losses at least through 2008. The total cost of our MIST II study is currently estimated to be approximately $18.0 to $20.0 million through 2008. Of this amount, approximately $2.0 million was incurred through 2006 and we currently expect to incur approximately $13.5 million in 2007. The total cost of our MIST III study is currently estimated to be $1.7 million. Of this amount, approximately $750,000 was incurred through 2006 and we currently estimate 2007 costs to be approximately $1.0 million. The total cost of our CLOSURE I clinical trial is currently estimated to be approximately $20.0 million through completion of the trial and submission to the FDA. Of this amount, approximately $13.8 million was incurred through 2006 and we currently expect to incur approximately $4.0 to $4.5 million in 2007, largely dependent upon the rate of enrollment.

Capital expenditures are projected to total approximately $1.0 million during 2007, primarily for manufacturing and research and development equipment.

We currently believe that aggregate cash, cash equivalents, and marketable securities balances of approximately $39.6 million at March 31, 2007 will be sufficient to meet our working capital, financing and capital expenditure requirements through at least 2008. Based upon current projections, we expect that the aggregate of cash, cash equivalents, and marketable securities will approximate $22.0 million at the end of 2007.

OFF-BALANCE SHEET FINANCING

During the quarter ended March 31, 2007, we did not engage in any off-balance sheet activities.