10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 _____________________________________________________

FORM 10-Q

 _____________________________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

Commission File No. 000-52082

 ____________________________________________________

CARDIOVASCULAR SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 ____________________________________________________

Delaware	No. 41-1698056
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

651 Campus Drive

St. Paul, Minnesota 55112-3495

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (651) 259-1600

____________________________________________________

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

The number of shares outstanding of the registrant’s common stock as of October 31, 2014 was: Common Stock, $0.001 par value per share, 31,443,938 shares.

Cardiovascular Systems, Inc.

Consolidated Financial Statements

Table of Contents

	PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (unaudited)	3
Consolidated Balance Sheets as of September 30, 2014 and June 30, 2014	3
Consolidated Statements of Operations for the three months ended September 30, 2014 and 2013	4
Consolidated Statements of Cash Flows for the three months ended September 30, 2014 and 2013	5
Notes to Consolidated Financial Statements	6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	21
ITEM 4. Controls and Procedures	21
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	22
ITEM 1A. Risk Factors	22
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	22
ITEM 3. Defaults Upon Senior Securities	22
ITEM 4. Mine Safety Disclosures	22
ITEM 5. Other Information	22
ITEM 6. Exhibits	23
Signatures	24
Exhibit Index	25

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PART I. — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cardiovascular Systems, Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share and share amounts)

(Unaudited)

	September 30, 2014			June 30, 2014
ASSETS
Current assets
Cash and cash equivalents	$	116,423		$	126,592
Accounts receivable, net	22,376			21,383
Inventories	14,644			12,890
Prepaid expenses and other current assets	3,587			1,846
Total current assets	157,030			162,711
Property and equipment, net	21,238			15,297
Patents, net	4,015			3,823
Other assets	70			70
Total assets	$	182,353		$	181,901
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	1,200		$	2,400
Accounts payable	18,196			12,699
Accrued expenses	12,619			14,630
Total current liabilities	32,015			29,729
Long-term liabilities
Other liabilities	1,891			117
Total liabilities	33,906			29,846
Commitments and contingencies	—			—
Common stock, $0.001 par value; authorized 100,000,000 common shares at September 30, 2014 and June 30, 2014; issued and outstanding 31,456,377 at September 30, 2014 and 31,084,742 at June 30, 2014, respectively	31			31
Additional paid in capital	395,205			390,589
Accumulated deficit	(246,789		)	(238,565		)
Total stockholders’ equity	148,447			152,055
Total liabilities and stockholders’ equity	$	182,353		$	181,901

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

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Cardiovascular Systems, Inc.

Consolidated Statements of Operations

(Dollars in thousands, except per share and share amounts)

(Unaudited)

	Three Months Ended   September 30,
	2014			2013
Revenues	$	41,354		$	29,766
Cost of goods sold	8,885			6,864
Gross profit	32,469			22,902
Expenses:
Selling, general and administrative	33,507			25,371
Research and development	7,152			4,378
Total expenses	40,659			29,749
Loss from operations	(8,190		)	(6,847		)
Interest and other, net	(34		)	(445		)
Net and comprehensive loss	$	(8,224	)	$	(7,292	)
Net and comprehensive loss per common share:
Basic and diluted	$	(0.26	)	$	(0.29	)
Weighted average common shares used in computation:
Basic and diluted	31,311,110			24,751,368

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

4

Cardiovascular Systems, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Three Months Ended   September 30,
	2014			2013
Cash flows from operating activities
Net loss	$	(8,224	)	$	(7,292	)
Adjustments to reconcile net loss to net cash used in operations
Depreciation of property and equipment	367			293
Amortization and write-off of patents	41			28
Provision for doubtful accounts	696			90
Amortization of (premium) discount on debt, net	—			(8		)
Debt conversion and valuation of conversion options, net	—			142
Stock-based compensation	3,573			2,300
Changes in assets and liabilities
Accounts receivable	(1,689		)	(631		)
Inventories	(1,754		)	(2,023		)
Prepaid expenses and other assets	717			11
Accounts payable	2,070			1,329
Accrued expenses and other liabilities	(271		)	143
Net cash used in operations	(4,474		)	(5,618		)
Cash flows from investing activities
Expenditures for property and equipment	(2,981		)	(287		)
Purchases of marketable securities	(2,084		)	—
Costs incurred in connection with patents	(113		)	(124		)
Net cash used in investing activities	(5,178		)	(411		)
Cash flows from financing activities
Exercise of stock options and warrants	683			2,559
Payments on debt	(1,200		)	(1,200		)
Net cash (used in) provided by financing activities	(517		)	1,359
Net change in cash and cash equivalents	(10,169		)	(4,670		)
Cash and cash equivalents
Beginning of period	126,592			67,897
End of period	$	116,423		$	63,227
Noncash investing activities
Property and equipment included in accounts payable	$	3,327		$	30

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

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CARDIOVASCULAR SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(For the Three Months Ended September 30, 2014 and 2013)

(Dollars in thousands, except per share and share amounts)

(Unaudited)

1. Business Overview

Company Description

Cardiovascular Systems, Inc. (the “Company”) develops, manufactures and markets devices for the treatment of vascular diseases. The Company’s peripheral arterial disease products, the Stealth 360°^® PAD System, Diamondback 360^® PAD System, and Predator 360°^® PAD System, are catheter-based platforms capable of treating a broad range of plaque types, including calcified plaque, in leg arteries both above and below the knee and address many of the limitations associated with existing treatment alternatives. In October 2013, the Company received premarket approval (“PMA”) from the FDA to market the Diamondback 360^® Coronary Orbital Atherectomy System (“OAS”) as a treatment for severely calcified coronary arteries. The Company began a controlled commercial launch of the Diamondback 360^® Coronary OAS following receipt of PMA approval.

2. Summary of Significant Accounting Policies

Interim Financial Statements

The Company prepared the unaudited interim consolidated financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The year-end consolidated balance sheet was derived from the Company’s audited consolidated financial statements, but does not include all disclosures as required by GAAP. These interim consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to state fairly the Company’s consolidated financial position, the results of its operations and its cash flows for the interim periods. These interim consolidated financial statements should be read in conjunction with the consolidated annual financial statements and the notes thereto included in the Form 10-K filed by the Company with the SEC on August 28, 2014. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

The Company recognizes stock-based compensation expense in an amount equal to the fair value of share-based payments computed at the date of grant. The fair value of all restricted stock awards are expensed in the consolidated statements of operations ratably over the related vesting period.

Revenue Recognition

The Company sells the majority of its products via direct shipment to hospitals or clinics. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. The Company records estimated sales returns, discounts and rebates as a reduction of net sales.

Costs related to products delivered are recognized in the period revenue is recognized. Cost of goods sold consists primarily of raw materials, direct labor, and manufacturing overhead.

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Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue From Contracts with Customers.” The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two prescribed retrospective methods. Early adoption is not permitted. The Company is evaluating the impact of the amended revenue recognition guidance on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.” The guidance requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements. The entity must also provide certain disclosures if there is substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company does not anticipate a material impact on its financial statements upon adoption.

3. Selected Consolidated Financial Statement Information

Accounts Receivable

Accounts receivable consists of the following:

	September 30, 2014			June 30, 2014
Accounts receivable	$	23,507		$	21,834
Less: Allowance for doubtful accounts	(1,131		)	(451		)
Total accounts receivable	$	22,376		$	21,383

Inventories

Inventories consist of the following:

	September 30, 2014		June 30, 2014
Raw materials	$	7,899	$	5,879
Work in process	913		855
Finished goods	5,832		6,156
Total inventories	$	14,644	$	12,890

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Property and Equipment

Property and equipment consists of the following:

	September 30, 2014			June 30, 2014
Land	$	500		$	500
Equipment	6,820			6,436
Furniture	626			626
Leasehold improvements	233			233
Construction in progress	17,424			11,499
	25,603			19,294
Less: Accumulated depreciation	(4,365		)	(3,997		)
Total property and equipment, net	$	21,238		$	15,297

In June 2014, the Company announced plans to build a new corporate headquarters in New Brighton, Minnesota. The 125,000-square-foot, two-story building will have space for more than 500 employees and contain dedicated research and development, training and education, and manufacturing facilities. Construction on the new facility is targeted to be completed in March 2015 and will replace the two current St. Paul, Minnesota leased facilities. Construction in progress primarily consists of costs associated with the new headquarters, including $9,128 required to be held in an escrow account that will be used to fund the final construction payments.

Accrued Expenses

Accrued expenses consist of the following:

	September 30, 2014		June 30, 2014
Salaries and bonus	$	3,925	$	5,244
Commissions	4,402		6,069
Accrued vacation	3,022		2,843
Other	1,270		474
Total accrued expenses	$	12,619	$	14,630

4. Deferred Compensation Plan

The Company offers certain members of management and highly compensated employees the opportunity to defer up to 100% of their base salary (after 401(k), payroll tax and other deductions), performance bonus and discretionary bonus and elect to receive the deferred compensation at a fixed future date of participant’s choosing. Each participant may, at the time of his or her deferral election, choose to allocate the deferred compensation into investment alternatives set by the Compensation Committee at that time. The amount payable to each participant under the plan will change in value based upon the investment selected by that participant and is classified as current or long-term on the Company's balance sheet based on the disbursement elections made by the participants.

During the period ended September 30, 2014, the Company acquired $2,084 of available-for-sale marketable securities. These available-for-sale marketable securities are primarily comprised of investments with a fixed income and with a return equal to that of the equal-weighted Standard & Poor's 500 stock index. The available-for-sale marketable securities are included with prepaid expenses and other current assets on the consolidated balance sheet at September 30, 2014. Unrealized gains and losses as of September 30, 2014 were not significant. The fair value of the awards as of September 30, 2014 is estimated at $2,098, of which $1,181 and $917 is classified as Level 1 and Level 2 investments, respectively.

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5. Debt

Loan and Security Agreement with Silicon Valley Bank

On March 29, 2010, the Company entered into an amended and restated loan and security agreement with Silicon Valley Bank. The agreement was amended on December 27, 2011 to increase outstanding borrowings, amended on June 29, 2012 to modify financial covenants and reduce the interest rate and other fees, amended on May 10, 2013 to modify financial covenants, amended on June 26, 2014 to extend the line of credit's maturity date to September 30, 2014 and reduce the interest rate, and amended on September 29, 2014 to extend the line of credit's maturity date to December 31, 2014. The agreement, as amended, includes a $15,000 line of credit.

The $15,000 line of credit has a floating interest rate equal to the Wall Street Journal’s prime rate. Interest on borrowings is due monthly and the principal balance is due at maturity. Borrowings on the line of credit are based on 85% of eligible accounts. Accounts receivable receipts are deposited into a lockbox account in the name of Silicon Valley Bank. The line of credit is subject to non-use fees, annual fees, and cancellation fees. The balance outstanding on the line of credit at September 30, 2014 and June 30, 2014 was $1,200 and $2,400, respectively.

Borrowings from Silicon Valley Bank are secured by all of the Company’s assets. The borrowings are subject to prepayment penalties and financial covenants, including maintaining certain liquidity and fixed charge coverage ratios. Any non-compliance by the Company under the terms of debt arrangements could result in an event of default under the Silicon Valley Bank loan, which, if not cured, could result in the acceleration of this debt. The Company was in compliance with all financial covenants as of September 30, 2014.

Loan and Security Agreement with Partners for Growth

On April 14, 2010, the Company entered into a loan and security agreement with Partners for Growth III, L.P. (“PFG”), as amended on August 23, 2011, December 27, 2011, June 30, 2012, and May 10, 2013. The amended agreement provides that PFG will make loans to the Company up to $5,000. The agreement has a maturity date of April 14, 2015. The loans bear interest at a floating per annum rate equal to 2.75% above Silicon Valley Bank’s prime rate, and such interest is payable monthly. The principal balance of and any accrued and unpaid interest on any notes are due on the maturity date and may not be prepaid by the Company at any time in whole or in part. As of September 30, 2014 and June 30, 2014, there were no loans outstanding.

At any time prior to the maturity date, PFG may, at its option, convert any outstanding loan into shares of the Company’s common stock at the applicable conversion price, which in each case equals the ten-day volume weighted average price per share of the Company’s common stock prior to the issuance date of each note. The Company may also effect at any time a mandatory conversion of amounts, subject to certain terms, conditions and limitations provided in the agreement, including a requirement that the ten-day volume weighted average price of the Company’s common stock prior to the date of conversion is at least 15% greater than the conversion price. The Company may reduce the conversion price to a price that represents a 15% discount to the ten-day volume weighted average price of its common stock to satisfy this condition and effect a mandatory conversion. The Company recorded an expense of $0 and $61 for the three months ended September 30, 2014 and 2013, respectively, related to the change in fair value of the conversion options on all outstanding loans. This amount is a component of interest and other, net on the accompanying statement of operations.

Any loans are secured by certain of the Company’s assets, and the agreement contains customary covenants limiting the Company’s ability to, among other things, incur debt or liens, make certain investments and loans, effect certain redemptions of and declare and pay certain dividends on its stock, permit or suffer certain change of control transactions, dispose of collateral, or change the nature of its business. In addition, the PFG loan and security agreement contains financial covenants requiring the Company to maintain certain liquidity and fixed charge coverage ratios. The Company was in compliance with all financial covenants at September 30, 2014. If the Company does not comply with the various covenants, PFG may, subject to various customary cure rights, decline to provide additional loans, require amortization of any future loan over its remaining term, or require the immediate payment of all amounts outstanding under any future loan and foreclose on any or all collateral, depending on which financial covenants are not maintained.

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6. Interest and Other, Net

Interest and other, net, includes the following:

	Three Months Ended   September 30,
	2014			2013
Interest expense, net of premium amortization	$	(16	)	$	(281	)
Change in fair value of conversion options	—			(61		)
Net write-offs upon conversion (option and premium amortization)	—			(81		)
Other	(18		)	(22		)
Total Interest and other, net	$	(34	)	$	(445	)

7. Stock Options and Restricted Stock Awards

The Company has a 2007 Equity Incentive Plan (the “2007 Plan”) under which options to purchase common stock and restricted stock awards have been granted to employees, directors and consultants at exercise prices determined by the board of directors. Previously, options to purchase common stock and restricted stock awards were granted under the 2003 Stock Option Plan (the “2003 Plan”) (the 2007 Plan and the 2003 Plan collectively, the “Plans”).

Stock Options

All options granted under the Plans become exercisable over periods established at the date of grant. The option exercise price is generally not less than the estimated fair market value of the Company’s common stock at the date of grant, as determined by the Company’s management and Board of Directors. In addition, the Company has granted nonqualified stock options to a director outside of the Plans. An employee's vested options must be exercised at or within 90 days of termination to avoid forfeiture. As of September 30, 2014, all outstanding options were fully vested.

Stock option activity for the three months ended September 30, 2014 is as follows:

	Number of Options(a)		Weighted Average Exercise Price
Options outstanding at June 30, 2014	922,809		$	10.16
Options exercised	(75,601	)	$	9.04
Options outstanding at September 30, 2014	847,208		$	10.26
(a) Includes the effect of options granted, exercised, forfeited or expired from the 2003 Plan and 2007 Plan, and options granted outside such plans.

Restricted Stock

The fair value of each restricted stock award is equal to the fair market value of the Company’s common stock at the date of grant. Vesting of restricted stock awards generally ranges from one to three years. The estimated fair value of restricted stock awards, including the effect of estimated forfeitures, is recognized on a straight-line basis over the restricted stock’s vesting period.

On August 11, 2014, the Company granted performance based restricted stock awards to certain executives. The performance based awards included grants of a maximum aggregate of 76,112 shares that vest based upon achievement of certain thresholds measuring total shareholder return during periods within fiscal 2015 compared to a pre-determined peer group of companies, and grants of a maximum aggregate of 76,112 shares that vest based upon achievement of certain thresholds measuring annual revenue growth during fiscal 2015 compared to a pre-determined peer group of companies. 

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Restricted stock award activity for the three months ended September 30, 2014 is as follows:

	Number of Shares		Weighted Average  Fair Value
Restricted stock awards outstanding at June 30, 2014	1,276,403		$	17.37
Restricted stock awards granted	343,614		$	29.34
Restricted stock awards forfeited	(47,580	)	$	18.12
Restricted stock awards vested	(401,707	)	$	16.49
Restricted stock awards outstanding at September 30, 2014	1,170,730		$	19.33

8. Commitment and Contingencies

Operating Leases

The Company leases manufacturing and office space and equipment under various lease agreements that expire at various dates through March 2020. Rental expenses were $385 and $331 for the three months endedSeptember 30, 2014 and 2013, respectively.

Future minimum lease payments under the agreements as of September 30, 2014 are as follows:

Nine months ended June 30, 2015	$	860
Fiscal 2016	762
Fiscal 2017	469
Fiscal 2018	462
Fiscal 2019	462
Thereafter	346
	$	3,361

Amounts payable under the Company’s Texas production facility lease are included in the amounts above. A portion of those rent payments may reduce the deferred grant incentive liability rather than being recorded as expense. See Note 9 for additional information.

Construction of New Headquarters

On June 11, 2014, the Company entered into a Redevelopment Agreement, a Design-Build Contract, and a Development Services Agreement as well as various ancillary agreements related to the acquisition of real property located in New Brighton, Minnesota and the development of such property into the Company’s new corporate headquarters.

Pursuant to the Contract for Private Redevelopment by and among the City of New Brighton (the “City”), Ryan Companies US, Inc. (“Ryan”), and the Company, dated June 11, 2014 (the “Redevelopment Agreement”), the Company purchased approximately ten acres of real property from the City for a purchase price of $500. The City also granted the Company the option to purchase an additional 3.6 acres prior to May 31, 2021.

Pursuant to the Design-Build Cost Plus Construction Contract by and between Ryan and the Company, dated June 11, 2014, the Company has contracted with Ryan to furnish all services, labor, materials, equipment, procurement services, project management and other duties and services necessary for construction of the Company’s new headquarters on the land purchased from the City. The Company and Ryan expect to have construction substantially completed by March 1, 2015, and, pursuant to the Redevelopment Agreement discussed above, Ryan and the Company have agreed to complete construction by December 31, 2015. The Company will pay Ryan a fee of 3.85% of the cost of the work.

The Company also entered into a Development Services Agreement with Ryan, dated June 11, 2014, pursuant to which Ryan will perform certain development services to facilitate development of the project, including coordination with the City and overall coordination of development strategy. The Company will pay Ryan a fee for the development services, which includes a sum equal to 3.25% of the adjusted total project costs, payable at certain points in the construction process, and a sum equal to 5% of the adjusted total project costs, payable upon substantial completion of the project, as well as reimbursement of certain expenses incurred by Ryan.

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In connection with the agreements above, the Company is required to hold approximately $9,128 in an escrow account that will be used to fund the final construction payments. The escrow is classified as construction in progress in property and equipment, net, on the consolidated balance sheet.

9. Texas Production Facility

Effective on September 9, 2009, the Company entered into an agreement with the Pearland Economic Development Corporation (the “PEDC”) for the construction and lease of an approximately 46,000 square foot production facility located in Pearland, Texas. The facility primarily serves as an additional manufacturing location for the Company.

The Company and the PEDC entered into a Corporate Job Creation Agreement dated June 17, 2009, which was subsequently amended July 2, 2012. The Job Creation Agreement, as amended, provided the Company with $2,975 in net cash incentive funds. The Company believes it will be able to comply with the conditions specified in the amended agreement. The PEDC will provide the Company with an additional $425 of net cash incentive funds if: (1) the Company hires 125 full-time employees at the facility before June 30, 2015 and (2) maintains 125 employees at the facility through June 30, 2016. The Company had the opportunity to receive an additional $425 of net cash incentive funds upon hiring the 75^th employee on or before March 31, 2014; however, the Company did not achieve this incentive.

In order to retain all of the cash incentives, the Company must maintain no fewer than 25 jobs at the Texas facility through June 30, 2015. Failure to meet this requirement will result in an obligation to make reimbursement payments to the PEDC as outlined in the amended agreement. The Company will not have any reimbursement requirements after June 30, 2015. As of September 30, 2014, the Company was in compliance with all minimum requirements under the amended agreement. The Company believes it will be able to comply with the conditions specified in the amended agreement.

The Job Creation Agreement, as amended, also provided the Company with a net $1,020 award, of which $510 was received from the PEDC and the remainder is funded through the Texas Enterprise Fund program associated with the State of Texas. As of September 30, 2014, $340 has been received and the remaining $170 will be provided upon the hiring of the 75^th full-time employee at the facility. The grant from the State of Texas is subject to reimbursement if the Company fails to meet certain job creation targets through 2014 and maintain these positions through 2020. The Company reimbursed the State of Texas $46 during fiscal 2014 as it did not meet the target of hiring 75 employees at the facility by December 31, 2013.

The Company has presented the net cash incentive funds as a current and long-term liability on the balance sheet. The liabilities are reduced through the term of the agreement and recorded as an offset to expenditures incurred using a systematic methodology. As of September 30, 2014, the deferred grant incentive liabilities have been reduced by $20 in cumulative expenses, resulting in a remaining current liability of $39.

10. Earnings Per Share

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings per common share computations (in thousands except share and per share amounts):

	Three Months Ended   September 30,
	2014			2013
Numerator
Net loss	$	(8,224	)	$	(7,292	)
Denominator
Weighted average common shares – basic	31,311,110			24,751,368
Effect of dilutive stock options, warrants, convertible debt (a)(b)(c)	—			—
Weighted average common shares outstanding – diluted	31,311,110			24,751,368
Net loss per common share — basic and diluted	$	(0.26	)	$	(0.29	)

(a) At September 30, 2014 and 2013, 0 and 1,667,481 warrants, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these warrants has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

(b) At September 30, 2014 and 2013, 847,208 and 1,656,774 stock options, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these options has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

(c) At September 30, 2014 and 2013, 0 and 288,420 additional shares of common stock were issuable upon the conversion of outstanding convertible debt agreements. The effect of the shares that would be issued upon conversion of these debt agreements has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing under Item 1 of Part I. Some of the information contained in this discussion and analysis or set forth elsewhere in this quarterly report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” discussed in our Form 10-K for the year ended June 30, 2014 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

OVERVIEW

We are a medical device company focused on developing and commercializing interventional treatment systems for vascular disease. Our peripheral arterial disease (“PAD”) products, the Stealth 360°^® PAD System (the “Stealth 360”), the Diamondback 360^® PAD System (the “Diamondback 360 Peripheral”), and the Diamondback Predator 360°^® (the “Predator 360”) are catheter-based platforms capable of treating a broad range of plaque types in leg arteries both above and below the knee and address many of the limitations associated with other treatment alternatives. In March 2014, we received approval for the Diamondback 360^® 60cm Peripheral Orbital Atherectomy System (“OAS”) access device, which allows physicians to treat PAD patients in the small and tortuous vessels located below the knee through alternative access sites in the ankle or foot. We refer to the Stealth 360, Diamondback 360 Peripheral, Predator 360, and the Diamondback 360 60cm Peripheral OAS collectively in this report as the “PAD Systems.” We have also obtained approval to market our Diamondback 360^® Coronary OAS (“CAD System”) as a treatment for severely calcified coronary arteries.

Since 1997, we have devoted substantially all of our resources to the development of the PAD Systems and, since 2007, to the approval of our CAD System. From 2003 to 2005, we conducted numerous bench and animal tests in preparation for application submissions to the Food and Drug Administration (“FDA”). We initially focused our testing on providing a solution for coronary in-stent restenosis, but later changed the focus to PAD. In 2006, we obtained an investigational device exemption from the FDA to conduct our pivotal OASIS clinical trial, which was completed in January 2007. The OASIS clinical trial was a prospective 20-center study that involved 124 patients with 201 lesions.

In August 2007, the FDA granted us 510(k) clearance for the use of the Diamondback 360 Peripheral as a therapy in patients with PAD. We commenced commercial introduction of the Diamondback 360 Peripheral in the United States in September 2007. We were granted 510(k) clearance of the Predator 360 in March 2009 and Stealth 360 in March 2011. We received 510(k) clearance of the Diamondback 360 60cm Peripheral OAS in March 2014. We market the PAD Systems in the United States through a direct sales force and expend significant capital on our sales and marketing efforts to expand our customer base and utilization per customer. At our facilities, we assemble the saline infusion pump and the single-use catheter used in the PAD Systems with components purchased from third-party suppliers, as well as with components manufactured in-house. We purchase supplemental products from third-party suppliers.

We have developed a modified version of the PAD System to treat coronary arteries. A coronary application required us to conduct a clinical trial and file a premarket approval (“PMA”) application and obtain approval from the FDA. In March 2013, we completed submission of our PMA application to the FDA for our OAS to treat calcified coronary arteries. In October 2013, we received PMA from the FDA to market the CAD System as a treatment for severely calcified coronary arteries. We commenced a controlled commercial launch of the CAD System following the receipt of PMA approval.

As of September 30, 2014, we had an accumulated deficit of $246.8 million. We expect our losses to continue as we invest in sales, marketing, medical education, clinical studies and product research and development for our next phase of growth in the peripheral market and broaden the commercial launch of our CAD System. To date, we have financed our operations primarily from the issuance of stock, convertible promissory notes, and debt.

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CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect amounts reported in those statements. Our estimates, assumptions and judgments, including those related to revenue recognition, allowance for doubtful accounts, excess and obsolete inventory, and stock-based compensation, are updated as appropriate at least quarterly. We use authoritative pronouncements, our technical accounting knowledge, cumulative business experience, judgment and other factors in the selection and application of our accounting policies. While we believe that the estimates, assumptions and judgments that we use in preparing our consolidated financial statements are appropriate, these estimates, assumptions and judgments are subject to factors and uncertainties regarding their outcome. Therefore, actual results may materially differ from these estimates.

Some of our significant accounting policies require us to make subjective or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (1) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (2) different estimates that reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period, would have a material impact on the presentation of our financial condition, results of operations, or cash flows.

Our critical accounting policies are identified in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014 in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Critical Accounting Policies and Significant Judgments and Estimates." There were no significant changes to our critical accounting policies during the three months ended September 30, 2014.

RESULTS OF OPERATIONS

The following table sets forth our results of operations expressed as dollar amounts (in thousands) and the changes between the specified periods expressed as percent increases or decreases:

	Three Months Ended   September 30,
	2014			2013			Percent Change
Revenues	$	41,354		$	29,766		38.9	%
Cost of goods sold	8,885			6,864			29.4
Gross profit	32,469			22,902			41.8
Expenses:
Selling, general and administrative	33,507			25,371			32.1
Research and development	7,152			4,378			63.4
Total expenses	40,659			29,749			36.7
Loss from operations	(8,190		)	(6,847		)	19.6
Interest and other, net	(34		)	(445		)	(92.4	)
Net loss	$	(8,224	)	$	(7,292	)	12.8

Comparison of Three Months Ended September 30, 2014 with Three Months Ended September 30, 2013

Revenues. Revenues increased by $11.6 million, or 38.9%, from $29.8 million for the three months ended September 30, 2013 to $41.4 million for the three months ended September 30, 2014. This increase was primarily attributable to a $5.6 million, or 21.5%, increase in the number of PAD Systems sold, which reflects a 20.1% increase in number of devices sold. Additionally, sales of the CAD System contributed approximately $4.7 million in revenues following our PMA approval in October 2013. Other product revenue also increased $1.3 million, or 36.1%, during the three months ended September 30, 2014 as compared to the three months ended September 30, 2013, primarily driven by increased sales of PAD and CAD Systems, which the other products support.

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Currently, all of our revenues are in the United States; however, we intend to sell internationally in the future and have commenced the process of seeking approval to do so in both Europe and Japan. We expect our revenue to increase as we continue to increase the number of physicians using the devices, increase the usage per physician, introduce new and improved products, generate additional clinical data, continue the controlled commercial launch of our CAD System, and expand into new geographies.

Cost of Goods Sold. Cost of goods sold increased by $2.0 million, or 29.4%, from $6.9 million for the three months ended September 30, 2013 to $8.9 million for the three months ended September 30, 2014. Cost of goods sold represents the cost of materials, labor and overhead for single-use catheters, guidewires, saline pumps, and other ancillary products. The increase was due to an increase in the quantities of products sold, partially offset by lower indirect costs per unit from higher production volumes and manufacturing efficiencies. Cost of goods sold for the three months ended September 30, 2014 and 2013 includes $222,000 and $142,000, respectively, for stock-based compensation. Gross margin increased from 76.9% during the three months ended September 30, 2013 to 78.5% for the three months ended September 30, 2014, which was primarily due to higher average selling prices primarily for our CAD Systems and lower indirect costs per unit. We expect that gross margin in the remainder of fiscal 2015 will be similar to the three months ended September 30, 2014. Quarterly margin fluctuations could occur based on production volumes, timing of new product introductions, sales mix, pricing changes, or other unanticipated circumstances.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased by $8.1 million, or 32.1%, from $25.4 million for the three months ended September 30, 2013 to $33.5 million for the three months ended September 30, 2014. The increase was due primarily to higher coronary expenses from commercial launch, clinical studies and product development, the expansion of our sales and marketing organization and increased incentive compensation. Selling, general and administrative expenses for the three months ended September 30, 2014 and 2013 include $3.0 million and $1.9 million, respectively, for stock-based compensation. We expect our selling, general and administrative expenses to increase in the future as a result of the costs associated with expanding our sales and marketing organization and medical education and other programs to further commercialize our PAD products and expand the commercial launch of our CAD System.

Research and Development Expenses. Research and development expenses increased by $2.8 million, or 63.4%, from $4.4 million for the three months ended September 30, 2013 to $7.2 million for the three months ended September 30, 2014. Research and development expenses relate to specific projects to develop new products or expand into new markets, such as the development of new versions of the PAD and CAD Systems, shaft designs, crown designs, and PAD and CAD clinical trials. The increase related mainly to additional product development projects and clinical studies, and the related increase in headcount. Research and development expenses for the three months ended September 30, 2014 and 2013 include $320,000 and $217,000, respectively, for stock-based compensation. As we continue to expand our product portfolio and clinical studies within the PAD and CAD markets, we generally expect to incur quarterly research and development expenses above amounts incurred for the three months ended September 30, 2014. Fluctuations could occur based on the number of projects and studies and the timing of expenditures.

Interest and Other, Net. Interest and other expense, net, was $34,000 for the three months ended September 30, 2014 compared to $445,000 for the three months ended September 30, 2013. The decrease was primarily driven by lower interest expense related to lower outstanding debt balances, as well as the elimination of charges from debt conversions and changes in fair value of the debt conversion option that were associated with the previously outstanding convertible debt.

LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents of $116.4 million and $126.6 million at September 30, 2014 and June 30, 2014, respectively. During the three months endedSeptember 30, 2014, net cash used in operations amounted to $4.5 million. As of September 30, 2014, we had an accumulated deficit of $246.8 million. We have historically funded our operating losses primarily from the issuance of stock, convertible promissory notes, and debt.

Loan and Security Agreement with Silicon Valley Bank

On March 29, 2010, we entered into an amended and restated loan and security agreement with Silicon Valley Bank. The agreement was amended on December 27, 2011 to increase outstanding borrowings, amended on June 29, 2012 to modify financial covenants and reduce the interest rate and other fees, amended on May 10, 2013 to modify financial covenants, amended on June 26, 2014 to extend the line of credit's maturity date to September 30, 2014 and reduce the interest rate, and amended on September 29, 2014 to extend the line of credit's maturity date to December 31, 2014. The agreement, as amended, includes a $15.0 million line of credit.

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The $15.0 million line of credit has a floating interest rate equal to the Wall Street Journal’s prime rate. Interest on borrowings is due monthly and the principal balance is due at maturity. Borrowings on the line of credit are based on 85% of eligible accounts. Accounts receivable receipts are deposited into a lockbox account in the name of Silicon Valley Bank. The line of credit is subject to non-use fees, annual fees, and cancellation fees. The balance outstanding on the line of credit at September 30, 2014 and June 30, 2014 was $1.2 million and $2.4 million, respectively.

Borrowings from Silicon Valley Bank are secured by all of our assets. The borrowings are subject to prepayment penalties and financial covenants, including maintaining certain liquidity and fixed charge coverage ratios. Any non-compliance by us under the terms of debt arrangements could result in an event of default under the Silicon Valley Bank loan, which, if not cured, could result in the acceleration of this debt. We were in compliance with all financial covenants as of September 30, 2014.

Loan and Security Agreement with Partners for Growth

On April 14, 2010, we entered into a loan and security agreement with Partners for Growth III, L.P. (“PFG”), as amended on August 23, 2011, December 27, 2011, June 30, 2012, and May 10, 2013. The amended agreement provides that PFG will make loans to us up to $5.0 million. The agreement has a maturity date of April 14, 2015. The loans bear interest at a floating per annum rate equal to 2.75% above Silicon Valley Bank’s prime rate, and such interest is payable monthly. The principal balance of and any accrued and unpaid interest on any notes are due on the maturity date and may not be prepaid by us at any time in whole or in part. As of September 30, 2014 and June 30, 2014, there were no loans outstanding.

At any time prior to the maturity date, PFG may, at its option, convert any outstanding loan into shares of our common stock at the applicable conversion price, which in each case equals the ten-day volume weighted average price per share of our common stock prior to the issuance date of each note. We may also effect at any time a mandatory conversion of amounts, subject to certain terms, conditions and limitations provided in the agreement, including a requirement that the ten-day volume weighted average price of our common stock prior to the date of conversion is at least 15% greater than the conversion price. We may reduce the conversion price to a price that represents a 15% discount to the ten-day volume weighted average price of our common stock to satisfy this condition and effect a mandatory conversion. We recorded an expense of $0 and $61,000 for the three months ended September 30, 2014 and 2013, respectively, related to the change in fair value of the conversion options on all outstanding loans. This amount is a component of interest and other, net on the accompanying statement of operations.

Any loans are secured by certain of our assets, and the agreement contains customary covenants limiting our ability to, among other things, incur debt or liens, make certain investments and loans, effect certain redemptions of and declare and pay certain dividends on our stock, permit or suffer certain change of control transactions, dispose of collateral, or change the nature of our business. In addition, the PFG loan and security agreement contains financial covenants requiring us to maintain certain liquidity and fixed charge coverage ratios. We were in compliance with all financial covenants at September 30, 2014. If we do not comply with the various covenants, PFG may, subject to various customary cure rights, decline to provide additional loans, require amortization of any future loan over its remaining term, or require the immediate payment of all amounts outstanding under any future loan and foreclose on any or all collateral, depending on which financial covenants are not maintained.

Changes in Liquidity

Cash and Cash Equivalents. Cash and cash equivalents were $116.4 million at September 30, 2014 and $126.6 million at June 30, 2014. The decrease is primarily attributable to net cash used in operations and investing activities during the three months ended September 30, 2014.

Operating Activities. Net cash used in operations was $4.5 million and $5.6 million for the three months ended September 30, 2014 and 2013, respectively. For the three months ended September 30, 2014 and 2013, we had a net loss of $8.2 million and $7.3 million, respectively. Significant changes in working capital during these periods included:

• Cash used in accounts receivable of $1.7 million and $631,000 during the three months ended September 30, 2014 and 2013, respectively, was primarily due to the amount and timing of revenue during the three months ended September 30, 2014 and 2013.

• Cash used in inventories of $1.8 million and $2.0 million during the three months ended September 30, 2014 and 2013, respectively. For the three months ended September 30, 2014, the amount of cash used in inventories was primarily due to higher levels of raw materials for manufacture of products, including the CAD System commercial launch. For the three months ended September 30, 2013, cash used in inventories was primarily due to higher levels of finished goods for future sales and timing of inventory purchases and sales.

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• Cash provided by prepaid expenses and other current assets was $717,000 and $11,000 during the three months ended September 30, 2014 and 2013, respectively, primarily due to payment timing of vendor deposits and other expenditures.

• Cash provided by accounts payable of $2.1 million and $1.3 million during the three months ended September 30, 2014 and 2013, respectively, due to the amount and timing of purchases and vendor payments and overall increased levels of spending.

• Cash (used in) provided by accrued expenses and other liabilities of $(271,000) and $143,000 during the three months ended September 30, 2014 and 2013, respectively, primarily due to the amount and timing of compensation payments.

Investing Activities. Net cash used in investing activities was $5.2 million and $411,000 for the three months ended September 30, 2014 and 2013, respectively, related to the purchase of property and equipment and patents, as well as the purchases of available-for-sale marketable securities during the three months ended September 30, 2014. During the three months ended September 30, 2014, we paid $2.6 million towards the construction of our new corporate headquarters, which is discussed further below.

Financing Activities. Net cash (used in) provided by financing activities was $(517,000) and $1.4 million for the three months ended September 30, 2014 and 2013, respectively. For the three months ended September 30, 2014, cash used in financing activities was due to payments on debt of $1.2 million, partially offset by proceeds from the exercise of stock options of $683,000. For the three months ended September 30, 2013, cash provided by financing activities consisted of proceeds from exercise of stock options and warrants of $2.6 million, partially offset by payments on debt of $1.2 million.

Our future liquidity and capital requirements will be influenced by numerous factors, including the extent and duration of future operating losses, the level and timing of future sales and expenditures, the results and scope of ongoing research and product development programs, working capital required to support our sales growth, the receipt of and time required to obtain regulatory clearances and approvals, our sales and marketing programs, the continuing acceptance of our products in the marketplace, competing technologies, market and regulatory developments and ongoing facility requirements. As of September 30, 2014, we believe our current cash and cash equivalents will be sufficient to fund working capital requirements, capital expenditures (including the new corporate headquarters discussed below) and operations for the foreseeable future, including at least the next twelve months. We intend to retain any future earnings to support operations and to finance the growth and development of our business, and we do not anticipate paying any dividends in the foreseeable future. We may raise additional capital in the future, to fund acceleration of our current growth initiatives or additional growth opportunities, if we believe it will significantly enhance our value.

New Corporate Headquarters. On June 11, 2014, we entered into a Redevelopment Agreement, a Design-Build Contract, and a Development Services Agreement, as well as various ancillary agreements, related to the acquisition of real property located in New Brighton, Minnesota and the development of such property into our new corporate headquarters. Pursuant to the Contract for Private Redevelopment by and among the City of New Brighton (the “City”), Ryan Companies US, Inc. (“Ryan”), and us, dated June 11, 2014 (the “Redevelopment Agreement”), we purchased approximately ten acres of real property from the City for a purchase price of $500,000. The City also granted us the option to purchase an additional 3.6 acres prior to May 31, 2021.

Pursuant to the Design-Build Cost Plus Construction Contract by and between Ryan and us, dated June 11, 2014, we have contracted with Ryan to furnish all services, labor, materials, equipment, procurement services, project management and other duties and services necessary for construction of our new headquarters on the land purchased from the City. We expect to have construction substantially completed by March 1, 2015, and, pursuant to the Redevelopment Agreement discussed above, we and Ryan have agreed to complete construction by December 31, 2015.

We anticipate that the total cost for the construction of the headquarters will be approximately $23 million, subject to certain increases or decreases if work is completed prior to or after March 1, 2015 or if changes are made to the project plans during construction. We will pay Ryan a fee of 3.85% of the cost of the work. We also anticipate that the additional cost to furnish, equip and open the headquarters will be approximately $8 million.

We also entered into a Development Services Agreement with Ryan, dated June 11, 2014, pursuant to which Ryan will perform certain development services to facilitate development of the project, including coordination with the City and overall coordinate of development strategy. We will pay Ryan a fee for the development services, which includes a sum equal to 3.25% of the adjusted total project costs, payable at certain points in the construction process and a sum equal to 5% of the adjusted total project costs, payable upon substantial completion of the project, as well as reimbursement of certain expenses incurred by Ryan.

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In connection with the agreements above, we are required to hold approximately $9.1 million in an escrow account that will be used to fund the final construction payments. The escrow is classified as construction in progress in property and equipment, net, on the consolidated balance sheet.

NON-GAAP FINANCIAL INFORMATION

To supplement our consolidated financial statements prepared in accordance with GAAP, our management uses a non-GAAP financial measure referred to as “Adjusted EBITDA.” The following table sets forth, for the periods indicated, a reconciliation of Adjusted EBITDA to the most comparable U.S. GAAP measure expressed as dollar amounts (in thousands):

	Three Months Ended   September 30,
	2014			2013
Loss from operations	$	(8,190	)	$	(6,847	)
Add: Stock-based compensation	3,573			2,300
Add: Depreciation and amortization	408			316
Adjusted EBITDA	$	(4,209	)	$	(4,231	)

Adjusted EBITDA was consistent with the prior year quarter due to increased stock-based compensation, which offset the increase in loss from operations. The loss from operations was impacted by increases in operating expenses as discussed above, partially offset by an increase in revenues and gross profit. Stock-based compensation increased $1.3 million, or 55.3%, as a result of increased employee stock awards granted due to our expanded hiring and higher grant date fair values.

Use and Economic Substance of Non-GAAP Financial Measures Used and Usefulness of Such Non-GAAP Financial Measures to Investors

We use Adjusted EBITDA as a supplemental measure of performance and believe this measure facilitates operating performance comparisons from period to period and company to company by factoring out potential differences caused by depreciation and amortization expense and non-cash charges such as stock-based compensation. Our management uses Adjusted EBITDA to analyze the underlying trends in our business, assess the performance of our core operations, establish operational goals and forecasts that are used to allocate resources and evaluate our performance period over period and in relation to our competitors’ operating results. Additionally, our management is partially evaluated on the basis of Adjusted EBITDA when determining achievement of their incentive compensation performance targets.

We believe that presenting Adjusted EBITDA provides investors greater transparency to the information used by our management for its financial and operational decision-making and allows investors to see our results “through the eyes” of management. We also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by our management to evaluate and measure such performance.

The following is an explanation of each of the items that management excluded from Adjusted EBITDA and the reasons for excluding each of these individual items:

• Stock-based compensation. We exclude stock-based compensation expense from our non-GAAP financial measures primarily because such expense, while constituting an ongoing and recurring expense, is not an expense that requires cash settlement. Our management also believes that excluding this item from our non-GAAP results is useful to investors to understand the application of stock-based compensation guidance and its impact on our operational performance, liquidity and ability to make additional investments in the Company, and it allows for greater transparency to certain line items in our financial statements.

• Depreciation and amortization expense. We exclude depreciation and amortization expense from our non-GAAP financial measures primarily because such expenses, while constituting ongoing and recurring expenses, are not expenses that require cash settlement and are not used by our management to assess the core profitability of our business operations. Our management also believes that excluding these items from our non-GAAP results is useful to investors to understand our operational performance, liquidity and ability to make additional investments in the company.

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Material Limitations Associated with the Use of Non-GAAP Financial Measures and Manner in Which We Compensate for these Limitations

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Some of the limitations associated with our use of these non-GAAP financial measures are:

• Items such as stock-based compensation do not directly affect our cash flow position; however, such items reflect economic costs to us and are not reflected in our Adjusted EBITDA, and therefore these non-GAAP measures do not reflect the full economic effect of these items.

• Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

• Our management exercises judgment in determining which types of charges or other items should be excluded from the non-GAAP financial measures we use.

We compensate for these limitations by relying primarily upon our GAAP results and using non-GAAP financial measures only supplementally.

INFLATION

We do not believe that inflation had a material impact on our business and operating results during the periods presented.

OFF-BALANCE SHEET ARRANGEMENTS

Since inception, we have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue From Contracts with Customers.” The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two prescribed retrospective methods. Early adoption is not permitted. We are evaluating the impact of the amended revenue recognition guidance on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.” The guidance requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements. The entity must also provide certain disclosures if there is substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. We do not anticipate a material impact on our financial statements upon adoption.

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PRIVATE SECURITIES LITIGATION REFORM ACT

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Such “forward-looking” information is included in this Form 10-Q, including Item 2 of Part I, and in other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company). Forward-looking statements include all statements based on future expectations. This Form 10-Q contains forward-looking statements that involve risks and uncertainties, including (i) expected compliance with the conditions specified in our Job Creation Agreement; (ii) our expectation that our losses will continue; (iii) the broadening of the commercial launch of the CAD System; (iv) the expectation of selling our products internationally in the future; (v) our expectation of increased revenue and increased selling, general and administrative expenses; (vi) our plans to continue to expand our sales and marketing efforts; (vii) our expectation that gross margin in the remainder of fiscal 2015 will be similar to the three months ended September 30, 2014; (viii) our expectation that we will incur research and development expenses in future quarters at amounts above the amounts incurred for the three months ended September 30, 2014; (ix) our belief that our current cash and cash equivalents and available debt will be sufficient to fund working capital requirements, capital expenditures and operations for the foreseeable future; (x) our intention to retain any future earnings to support operations; (xi) our dividend expectations; (xii) the potential to raise additional capital in the future; and (xiii) our plans regarding construction of a new headquarters, including the expected completion date and costs of construction and furnishing, equipping and opening the headquarters.

In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on their interpretation of currently available information.

These statements involve known and unknown risks, uncertainties and other factors that may cause our results or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.

These factors include regulatory developments in the U.S. and foreign countries; FDA and similar foreign clearances and approvals; approval of our products for distribution in foreign countries; approval of products for reimbursement and the level of reimbursement; dependence on market growth; the experience of physicians regarding the effectiveness and reliability of the PAD and CAD Systems; the reluctance of physicians, hospitals and other organizations to accept new products; the potential for unanticipated delays in enrolling medical centers and patients for clinical trials; actual clinical trial and study results; the impact of competitive products and pricing; unanticipated developments affecting our estimates regarding expenses, future revenues and capital requirements; unanticipated delays or costs related to the construction and furnishing of our new headquarters; the difficulty of successfully managing operating costs; our inability to expand our sales and marketing organization; our actual research and development efforts and needs; our ability to obtain and maintain intellectual property protection for product candidates; our actual financial resources and our ability to obtain additional financing; fluctuations in results and expenses based on new product introductions, sales mix, unanticipated warranty claims, and the timing of project expenditures; and general economic conditions. These and additional risks and uncertainties are described more fully in our Form 10-K filed with the SEC on August 28, 2014. Copies of filings made with the SEC are available through the SEC’s electronic data gathering analysis and retrieval system (EDGAR) at www.sec.gov.

You should read these risk factors and the other cautionary statements made in this Form 10-Q as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. We cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. You should read this Form 10-Q completely. Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations, while at the same time maximizing the income we receive from our investments without significantly increasing risk or decreasing availability. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and investments in a variety of marketable securities, including money market funds, U.S. government securities, and certain bank obligations. Our cash and cash equivalents as of September 30, 2014 include liquid money market accounts. Due to the short-term nature of these investments, we believe that there is no material exposure to interest rate risk. Our line of credit balance as of September 30, 2014 has a floating interest rate equal to the Wall Street Journal’s prime rate. We believe that there is no material exposure to interest rate risk related to our line of credit.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2014. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the Certifying Officers have concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures, as designed and implemented, are effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. — OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

None.

ITEM 1A.    RISK FACTORS

In addition to the other information set forth in this report, including the important information in the section entitled “Private Securities Litigation Reform Act,” you should carefully consider the “Risk Factors” discussed in our Form 10-K for the year ended June 30, 2014 filed with the SEC on August 28, 2014 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this report, and materially adversely affect our financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    MINE SAFETY DISCLOSURES

None.

ITEM 5.    OTHER INFORMATION

Fifth Amendment to Loan and Security Agreement with Silicon Valley Bank

On September 29, 2014, the Company entered into the Fifth Amendment to Loan and Security Agreement (the “Amendment”) with Silicon Valley Bank (“SVB”). The Amendment amends the Company’s existing credit facility with SVB established pursuant to the Loan and Security Agreement between the parties, dated March 29, 2010, as amended on December 27, 2011, June 29, 2012, May 10, 2013 and June 26, 2014 (the “Loan Agreement”).

The Amendment amends the Loan Agreement by extending the maturity date of the $15.0 million revolving line of credit from September 30, 2014 to December 31, 2014.

The foregoing description of the material terms of the Amendment does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to the full text of the Amendment, which is filed as Exhibit 10.1 to this Form 10-Q.

Separation Agreement with James Flaherty

On September 30, 2014, the Company executed a separation agreement and release (the “Separation Agreement”) with James Flaherty, its former Chief Administrative Officer and Development Director.

Under the Separation Agreement, Mr. Flaherty received a severance package consisting of (1) $295,250, to be paid in 26 installments on the Company’s regular payroll schedule, commencing with the first scheduled payday on or following April 1, 2015, (2) in lieu of COBRA coverage, executive retiree medical and dental benefits for Mr. Flaherty and covered dependents, if applicable, through the earlier of (a) Mr. Flaherty’s 65th birthday or (b) his eligibility for Medicare, and (3) acceleration of the vesting of 8,964 shares of equity awards previously granted to Mr. Flaherty that would have vested within the 12 month period following September 30, 2014 had Mr. Flaherty remained employed during such period. In exchange, Mr. Flaherty executed a release of claims agreement, will continue to be bound by the terms of any restrictive covenant agreements he had with the Company, and will provide consulting services as mutually agreed by Mr. Flaherty and the Company through December 31, 2015, at a rate of $150 per hour.

22

The foregoing description of the material terms of the Separation Agreement does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to the full text of the Separation Agreement, which is filed as Exhibit 10.2 to this Form 10-Q.

ITEM 6.    EXHIBITS

(a)Exhibits — See Exhibit Index on page following signatures

23

SIGNATURES

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

Dated: November 7, 2014		CARDIOVASCULAR SYSTEMS, INC.
	By	/s/ David L. Martin
		David L. Martin
		President and Chief Executive Officer
		(Principal Executive Officer)
	By	/s/ Laurence L. Betterley
		Laurence L. Betterley
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

24

EXHIBIT INDEX

CARDIOVASCULAR SYSTEMS, INC.

FORM 10-Q

Exhibit No.	Description
10.1	Fifth Amendment to Loan and Security Agreement, dated September 29, 2014, by and between Cardiovascular Systems, Inc. and Silicon Valley Bank.
10.2	Separation Agreement and Release, dated September 30, 2014, between Cardiovascular Systems, Inc. and James Flaherty.
31.1*	Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended September 30, 2014, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Financial Statements.

_______________________

* Furnished herewith.

25

EX-10.1

Exhibit 10.1

FIFTH AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

THIS FIFTH AMENDMENT to Loan and Security Agreement (this“Amendment”) is entered into as of September 29, 2014, by and between SILICON VALLEY BANK (“Bank”) and CARDIOVASCULAR SYSTEMS, INC., a Delaware corporation (“Borrower”), whose address is 651 Campus Drive, Saint Paul, Minnesota 55112.

RECITALS

A.    Bank and Borrower have entered into that certain Loan and Security Agreement dated as of March 29, 2010 (as the same may be amended, modified, supplemented or restated in writing from time to time, the “Loan Agreement”).

B.    Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

C.    Borrower has requested that the Loan Agreement be amended and supplemented as more fully set forth herein.

D.    Bank has agreed to so amend and supplement the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations, warranties and agreements set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2.Modifications Regarding Loan Documents. The Loan Agreement is amended as set forth below, effective on the date hereof (except as may be otherwise specifically provided below):

2.1Revolving Line Maturity Date. The definition of “Revolving Line Maturity Date” in Section 13.1 of the Loan Agreement, is hereby amended to read as follows:

“ ‘Revolving Line Maturity Date’ is December 31, 2014.”

3.Limitation of Amendments.

3.1The consents and amendments set forth in this Amendment are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4.Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents, warrants and agrees as follows:

4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct in all material respects as of such date), and (b) no Event of Default has occurred and is continuing;

4.2Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3The organizational documents of Borrower previously delivered to Bank remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

4.5The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and

2

4.7This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights.

5.Expenses. Without limitation on the terms of the Loan Documents, Borrower agrees to reimburse Bank for all its reasonable costs and expenses (including reasonable attorneys' fees) incurred in connection with this Amendment. Bank is authorized to charge said fees, costs and expenses to Borrower's loan account or any of Borrower's deposit accounts maintained with Bank.

6.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

[Signatures on Next Page]

3

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

SILICON VALLEY BANK By:  /s/ Nick Honigman Name:  Nick Honigman Title:  Vice President CARDIOVASCULAR SYSTEMS, INC. By:  /s/Laurence L. Betterley Name: Laurence L. Betterley Title: CFO

4

EX-10.2

Exhibit 10.2

September 30, 2014

Via Hand Delivery

Personal and Confidential

Jim Flaherty

3658 Robinwood Terrace

Minnetonka, MN 55305

Re:    Separation Agreement and Release

Dear Jim:

As you know, your employment with Cardiovascular Systems, Inc. (the “Company”) will end effective at the close of business on September 30, 2014, as a result of your voluntary resignation due to retirement. The purpose of this Separation Agreement and Release letter (“Agreement”) is to set forth the specific separation pay and benefits that the Company will provide you in exchange for your agreement to the terms and conditions of this Agreement.

By your signature below, you agree to the following terms and conditions:

1.    End of Employment.    Your employment with the Company ended effective at the close of business on September 30, 2014 (the “Separation Date”). If applicable, as of the Separation Date, you are automatically deemed to have resigned from all positions with the Company. Upon your receipt of your final paycheck, which includes payment for services through Separation Date including any Q1 FY15 bonus, if earned, you will have received all wages and compensation owed to you by virtue of your employment with the Company or termination thereof. Upon your receipt of payment from the Company for your ending balance of accrued but unused vacation at your regular rate (106.5 hours), you will have received all benefits owed to you by virtue of your employment with the Company or termination thereof. This does not include amounts under the Deferred Compensation Plan which will be paid according to the terms of that agreement.

You are not eligible for any other payments or benefits by virtue of your employment with the Company or termination thereof except for those expressly described in this Agreement. You will not receive the separation pay described in Section 2 of this Agreement if you (i) do not sign this Agreement and return it to the Company by the stated due date, (ii) rescind this Agreement after signing it, or (iii) violate any of the terms and conditions set forth in this Agreement.

2.    Separation Pay and Benefits. Specifically in consideration of your signing this Agreement and subject to the limitations, obligations, and other provisions contained in this Agreement, the Company agrees as follows:

a.    To pay you twelve (12) months of severance pay in the gross amount of Two Hundred Ninety-Five Thousand Two Hundred Fifty and 00/100 Dollars ($295,250), less applicable deductions and withholding, to be paid in twenty-six (26) substantially equal installments on the

Company’s regular payday schedule beginning with the first regularly scheduled payday on or following April 1, 2015;

b.     In lieu of COBRA coverage, to pay for continued coverage for yourself and your covered dependents, if applicable, under the Company’s group medical and dental plans pursuant to the early retiree executive employee provisions of the applicable Plan documents until the earlier of (i) your 65^th birthday or (ii) your becoming eligible for Medicare. To accept this alternative coverage, you and your spouse will be required to execute such further documents as the Company may require. You acknowledge and agree that these payments represent taxable compensation to you and will be treated as such by the Company. Premiums for your medical and dental insurance coverage shall be paid on a monthly basis. You further acknowledge and agree that the medical and dental insurance provided under this Agreement shall be in lieu of any rights you may have to continued coverage under Section 4980B of the Internal Revenue Code of 1986 (COBRA), as amended, and the regulations issued thereunder, applicable state law, and Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended, and the regulations issued thereunder. You agree to execute any further documentation as may be required by the Company to accept such alternative coverage. 

c.    To accelerate the vesting of the following equity awards previously granted to you that would have vested within the 12 month period following the Separation Date had you remained employed by the Company during such period, such that they are deemed fully vested as of the expiration of the rescission periods described in Section 5 below without rescission by you: (1) August 13, 2012 grant of 6,259 shares and (2) September 4, 2013 grant of 2,705 shares, for a total of 8,964 shares.

    3.    Release of Claims. Specifically in consideration of the separation pay and benefits described in Section 2, to which you would not otherwise be entitled, by signing this Agreement you, for yourself and anyone who has or obtains legal rights or claims through you, agree to the following:

a.    You hereby do release and forever discharge the “Released Parties” (as defined in Section 3.e. below) of and from any and all manner of claims, demands, actions, causes of action, administrative claims, liability, damages, claims for punitive or liquidated damages, claims for attorney’s fees, costs and disbursements, individual or class action claims, or demands of any kind whatsoever, you have or might have against them or any of them, whether known or unknown, in law or equity, contract or tort, arising out of or in connection with your employment with the Company, or the termination of that employment, or otherwise, and however originating or existing, from the beginning of time through the date of your signing this Agreement.

b.    This release includes, without limiting the generality of the foregoing, any claims you may have for, wages, bonuses, commissions, penalties, deferred compensation, vacation, sick, and/or PTO pay, separation pay and/or benefits, including without limitation, arising under any Company Executive Officer Severance Plan; tortious conduct, defamation, invasion of privacy, negligence, emotional distress; breach of implied or express contract, estoppel; wrongful discharge (based on contract, common law, or statute, including any federal, state or local statute or ordinance prohibiting discrimination or retaliation in employment); violation of any of the following: the

United States Constitution or the Minnesota Constitution, the Age Discrimination in Employment Act, 29 U.S.C. § 621 etseq., the Minnesota Human Rights Act, Minn. Stat. § 363A.01 etseq., Title VII of the Civil Rights Act, 42 U.S.C. § 2000e etseq., the Americans with Disabilities Act, 42 U.S.C. § 12101 etseq., the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 etseq., the Family and Medical Leave Act, 29 U.S.C. § 2601 etseq., the National Labor Relations Act, 29 U.S.C. § 151 etseq., the Sarbanes-Oxley Act, 15 U.S.C. § 7201 etseq.; the Consolidated Omnibus Budget Reconciliation Act or like state law; any claim arising under Minn. Stat. Chapters 177 or 181; any claim for retaliation, including any claim for retaliation under Minn. Stat. Chapter 176; and any claim for discrimination or harassment based on sex, race, color, creed, religion, age, national origin, marital status, familial status, sexual orientation, disability, status with regard to public assistance, veteran or military status, genetic information, or any other legally-protected class. You hereby waive any and all relief not provided for in this Agreement. You understand and agree that, by signing this Agreement, you waive and release any past, present, or future claim to employment with the Company.

c.    If you file, or have filed on your behalf, a charge, complaint, or action, you agree that the payments described above in Section 2 are in complete satisfaction of any and all claims in connection with such charge, complaint, or action and you waive, and agree not to take, any award of money or other damages from such charge, complaint, or action.

d.    You are not, by signing this Agreement, releasing or waiving (1) any vested interest you may have in any 401(k) or profit sharing plan by virtue of your employment with the Company, (2) any rights or claims that may arise after the Agreement is signed, (3) the post-employment payments and benefits specifically promised to you under Sections 1 and 2 of this Agreement, (4) the right to institute legal action for the purpose of enforcing the provisions of this Agreement, (5) any rights you have to workers compensation benefits, (6) any rights you have under state unemployment compensation benefits laws, (7) the right to file a charge with a governmental agency such as the Equal Employment Opportunity Commission (“EEOC”), although, as noted above, you waive, and agree not to take, any award of money or other damages if you file such a charge or have a charge filed on your behalf, (8) the right to communicate with, and testify, assist, or participate in an investigation, hearing, or proceeding conducted by, the EEOC or other government agency, (9) your rights with regard to your stock options with the Company, which shall be governed by that separate Incentive Stock Option Agreement, as modified by Section 2(c) above; or (10) the right to coverage and indemnification under (i) the Company’s directors’ and officers’ insurance coverage as set forth in the Company’s D&O insurance policy and (ii) the Indemnification Agreement between the Company and you dated February 25, 2009 (the “Indemnification Agreement”).

e.    The “Released Parties,” as used in this Agreement, shall mean Cardiovascular Systems, Inc. and its parent, subsidiaries, divisions, affiliated entities, insurers, if any, and its and their present and former officers, directors, shareholders, trustees, employees, agents, attorneys, representatives and consultants, and the successors and assigns of each, whether in their individual or official capacities, and the current and former trustees or administrators of any pension or other benefit plan applicable to the employees or former employees of the Released Parties in their official and individual capacities.

4.    Notice of Right to Consult Attorney and Twenty-One (21) Calendar Day Consideration Period. By signing this Agreement, you acknowledge and agree that the Company has informed you by this Agreement that (1) you have the right to consult with an attorney of your choice prior to signing this Agreement, and (2) you are entitled to Twenty-One (21) calendar days from your receipt of this Agreement to consider whether the terms are acceptable to you. You have the right, if you choose, to sign this Agreement prior to the expiration of the Twenty-One (21) day period.

5.    Notification of Rights under the Minnesota Human Rights Act (Minn. Stat. Chapter 363A) and the Federal Age Discrimination in Employment Act (29 U.S.C. § 621 et seq.). You are hereby notified of your right to rescind the release of claims contained in Section 3 with regard to claims arising under the Minnesota Human Rights Act, Minnesota Statutes Chapter 363A, within fifteen (15) calendar days of your signing this Agreement, and with regard to your rights arising under the federal Age Discrimination in Employment Act, 29 U.S.C. § 621 etseq., within seven (7) calendar days of your signing this Agreement. The two rescission periods shall run concurrently. In order to be effective, the rescission must (a) be in writing; (b) delivered to Laura Gillund, Vice President of Human Resources & Professional Development, Cardiovascular Systems, Inc.,

651 Campus Drive, Saint Paul, MN 55112, by hand or mail within the required period; and (c) if delivered by mail, the rescission must be postmarked within the required period, properly addressed to Laura Gillund, as set forth above, and sent by certified mail, return receipt requested. You understand and agree that if you rescind any part of this Agreement in accordance with this Section 5, the Company will have no obligation to provide you the payments and benefits described in Section 2 of this Agreement and you will be obligated to return to the Company any payment(s) and benefits already received in connection with Section 2 of this Agreement.

6.    Post-Employment Consulting. You agree based on your availability that through December 31, 2015, you will provide consulting services to the Company as mutually agreed upon with the Company, at the rate of $150/hour; provided, however, that in no event shall such consulting services be at a level that is twenty percent (20%) or greater than the level of services performed by you over the 36-month period ending on the Separation Date.

7.    Return of Property. You acknowledge and agree that all documents and materials relating to the business of, or the services provided by, the Company are the sole property of the Company, that you will return to the Company all of its property upon Company request (consideration given to potential consulting services as defined in Section 6 above), and that you have complied fully with Section 9 of your Employment Agreement with the Company dated January 5, 2005 (your “Employment Agreement”).

8.    Ongoing Obligations Under Your Employment Agreement. You are hereby reminded of your ongoing obligations to the Company under Paragraphs 10 - 13 of your Employment Agreement (Confidential Information, Inventions, Copyrights and Non-Competition). You acknowledge and agree that if you breach such provisions, in addition to any other remedies available at law or equity, the Company shall have no obligation to provide you the pay and benefits described in Section 2 of this Agreement and you shall be obligated to return to the Company any such payment(s) and benefits already received.

9.    Non-Disparagement and Confidentiality. You promise and agree not to disparage the Released Parties, its employees, products or services. You further promise and agree not to disclose or discuss, directly or indirectly, in any manner whatsoever, any information regarding the substance and/or nature of any dispute between the Company and any employee or former employee, including yourself. You agree that the only people with whom you may discuss this confidential information are your legal advisors or as otherwise required by law.

10.    Code Section 409A. It is intended that any amounts payable under the Agreement shall be exempt from or comply with the applicable requirements, if any, of Section 409A of the Internal Revenue Code of 1986, as amended, and the notices, regulations and other guidance of general applicability issued thereunder (“Code Section 409A”), and the parties will interpret the Agreement in a manner that will preclude the imposition of additional taxes and interest imposed under Code Section 409A. This Agreement may be amended (as mutually determined by the parties) to the extent necessary to comply with Code Section 409A. In all cases, for purposes of compliance with Code Section 409A, “termination of employment” shall have the same meaning as “separation from service” as defined in Code Section 409A.

11.    Remedies. If you breach any term of this Agreement or your Employment Agreement, the Released Parties shall be entitled to their available legal and equitable remedies, including but not limited to suspending and recovering any and all payments and benefits made or to be made under Section 2 of this Agreement and payment by you of its/their attorneys’ fees and costs. If the Company seeks and/or obtains relief from an alleged breach of this Agreement, all of the provisions of this Agreement shall remain in full force and effect.

12.    Non-Admission. It is expressly understood that this Agreement does not constitute, nor shall it be construed as, an admission by the Released Parties or you of any liability or unlawful conduct whatsoever. The Released Parties and you specifically deny any liability or unlawful conduct.

13.    Successors and Assigns. This Agreement is personal to you and may not be assigned by you without the written agreement of the Company. The Company may assign this Agreement. The rights and obligations of this Agreement shall inure to the successors and assigns of the Company.

14.    Enforceability. If a court finds any term of this Agreement to be invalid, unenforceable, or void, the parties agree that the court shall modify such term to make it enforceable to the maximum extent possible. If the term cannot be modified, the parties agree that the term shall be severed and all other terms of this Agreement shall remain in effect.

15.    Law Governing. This Agreement shall be governed and construed in accordance with the laws of the State of Minnesota.

16.    Full Agreement. This Agreement contains the full agreement between you and the Released Parties and may not be modified, altered, or changed in any way except by written agreement signed by both parties. The parties agree that this Agreement supersedes and terminates

any and all other written and oral agreements and understandings between the parties, except for any applicable Incentive Stock Option Agreement(s), the Indemnification Agreement, and Paragraphs 8-14 of your Employment Agreement, which shall continue in full force and effect according to their terms and shall survive the termination of your employment.

17.    Counterparts.     This Agreement may be executed by facsimile or PDF transmission and in counterparts, each of which shall be deemed an original and all of which shall constitute one instrument.

18.    Acknowledgment of Reading and Understanding. By signing this Agreement, you acknowledge that you have read this Agreement, including the release of claims contained in Section 3, and understand that the release of claims is a full and final release of all claims you may have against the Company and the other entities and individuals covered by the release. By signing, you also acknowledge and agree that you have entered into this Agreement knowingly and voluntarily.

The deadline for accepting this Agreement is 5:00 p.m. on October 22, 2014. If not accepted by such time, the offer contained herein will expire. After you have reviewed this Agreement and obtained whatever advice and counsel you consider appropriate regarding it, please evidence your agreement to the provisions set forth in this Agreement by dating and signing the Agreement. Please then return a signed Agreement to Laura Gillund no later than 5:00 p.m. on October 22, 2014. Please keep a copy for your records.

Jim, we are grateful for your many years of service to the Company and wish you all the best.

Sincerely,

/s/ Laura Gillund

Laura Gillund

Vice President of Human Resources & Professional Development

Cardiovascular Systems, Inc.

ACKNOWLEDGMENT AND SIGNATURE

By signing below, I, James E. Flaherty, acknowledge and agree to the following:

• I have had adequate time to consider whether to sign this Separation Agreement and Release.

• I have read this Separation Agreement and Release carefully.

• I understand and agree to all of the terms of the Separation Agreement and Release.

• I am knowingly and voluntarily releasing my claims against the Company and the other persons and entities defined as the Released Parties.

• I have not, in signing this Agreement, relied upon any statements or explanations made by the Company except as for those specifically set forth in this Separation Agreement and Release.

• I intend this Separation Agreement and Release to be legally binding.

• I am signing this Separation Agreement and Release on or after my last day of employment with the Company.

Accepted this day of , 2014.

_______________________________

James E. Flaherty

45724794

EX-31.1

Exhibit 31.1

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David L. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cardiovascular Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ David L. Martin
Dated: November 7, 2014		David L. Martin
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Laurence L. Betterley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cardiovascular Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Laurence L. Betterley
Dated: November 7, 2014		Laurence L. Betterley
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (the “Report”) by Cardiovascular Systems, Inc. (“Registrant”), I, David L. Martin, the Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

	By:	/s/ David L. Martin
Dated: November 7, 2014		David L. Martin
		President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (the “Report”) by Cardiovascular Systems, Inc. (“Registrant”), I, Laurence L. Betterley, the Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

	By:	/s/ Laurence L. Betterley
Dated: November 7, 2014		Laurence L. Betterley
		Chief Financial Officer

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Interest and Other, Net (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Other Income and Expenses [Abstract]
Interest expense, net of premium amortization	$ (16)	$ (281)
Change in fair value of conversion options	0	(61)
Net write-offs upon conversion (option and premium amortization)	0	(81)
Other	(18)	(22)
Total Interest and other, net	$ (34)	$ (445)

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Deferred Compensation Plan

3 Months Ended

Sep. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Deferred Compensation Plan

Deferred Compensation Plan

The Company offers certain members of management and highly compensated employees the opportunity to defer up to 100% of their base salary (after 401(k), payroll tax and other deductions), performance bonus and discretionary bonus and elect to receive the deferred compensation at a fixed future date of participant’s choosing. Each participant may, at the time of his or her deferral election, choose to allocate the deferred compensation into investment alternatives set by the Compensation Committee at that time. The amount payable to each participant under the plan will change in value based upon the investment selected by that participant and is classified as current or long-term on the Company's balance sheet based on the disbursement elections made by the participants.

During the period ended September 30, 2014, the Company acquired $2,084 of available-for-sale marketable securities. These available-for-sale marketable securities are primarily comprised of investments with a fixed income and with a return equal to that of the equal-weighted Standard & Poor's 500 stock index. The available-for-sale marketable securities are included with prepaid expenses and other current assets on the consolidated balance sheet at September 30, 2014. Unrealized gains and losses as of September 30, 2014 were not significant. The fair value of the awards as of September 30, 2014 is estimated at $2,098, of which $1,181 and $917 is classified as Level 1 and Level 2 investments, respectively.

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Commitment and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended	0 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Mar. 31, 2014	Jun. 11, 2014 Ryan Companies	Jun. 11, 2014 Ryan Companies Payable at Certain Point in the Construction Process	Jun. 11, 2014 Ryan Companies Payable Upon Completion of the Project	Jun. 11, 2014 Land	Jun. 11, 2014 Land New Brighton, Minnesota acre	Jun. 11, 2014 Construction in Progress
Commitments and Contingencies Disclosure [Abstract]
Lease expiration date			Mar. 31, 2020
Rental expense	$ 385	$ 331
Future Minimum Lease Payments:
Nine months ended June 30, 2015	860
Fiscal 2016	762
Fiscal 2017	469
Fiscal 2018	462
Fiscal 2019	462
Thereafter	346
Future minimum lease payments	3,361
Other Commitments [Line Items]
Area of real estate property (in acres)								10.0
Purchase price of real estate property							500
Option to purchase additional property (in acres)								3.6
Construction costs paid to third party, percentage of cost of work				3.85%
Development costs paid to third party, percentage of adjusted total project costs					3.25%	5.00%
Amount to be held in escrow									$ 9,128

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Stock Options and Restricted Stock Awards - Restricted Stock Award Activity (Details) (Restricted Stock, USD $)	3 Months Ended
	Sep. 30, 2014
Restricted Stock
Number of Shares
Awards outstanding, balance at beginning of period (in shares)	1,276,403
Awards granted (in shares)	343,614
Awards forfeited (in shares)	(47,580)
Awards vested (in shares)	(401,707)
Awards outstanding, balance at end of period (in shares)	1,170,730
Weighted Average Fair Value
Awards outstanding, balance at beginning of period (in usd per share)	$ 17.37
Awards granted (in usd per share)	$ 29.34
Awards forfeited (in usd per share)	$ 18.12
Awards vested (in usd per share)	$ 16.49
Awards outstanding, balance at end of period (in usd per share)	$ 19.33

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Texas Production Facility (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended		12 Months Ended
	Jul. 02, 2012 Job Employee	Jun. 17, 2009	Jun. 30, 2014	Sep. 30, 2014 Employee	Jul. 02, 2012 Employee	Sep. 09, 2009 sqft
Production Facility [Abstract]
Agreement lease with PEDC, number of square feet						46,000
Corporate job creation agreement date		Jun. 17, 2009
Net cash incentive funds					$ 2,975
Cash incentive funds upon hiring of 125th full time employee at facility	425
Number of employees to be maintained for grant of second cash incentive fund					125
Cash Incentive Funds upon Hiring of Seventy Fifth Full Time Employee at Facility	425
Number of Employees to be Maintained for Grant of First Cash Incentive Fund				75	75
Maximum number of jobs maintained to retain cash incentive	25
Net award related to job creation agreement	1,020
Funded amount grant from state of Texas under Texas enterprise fund program	510
Amount received of Texas enterprise fund program				340
Remaining amount received of Texas enterprise fund program				170
Reimbursement of Award Related to Job Creation Agreement			46
Cumulative expenses				20
Deferred grant incentive current liability				$ 39

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Earnings Per Share - EPS Reconciliation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Sep. 30, 2014		Sep. 30, 2013
Numerator
Net loss	$ (8,224)		$ (7,292)
Denominator
Weighted average common shares – basic	31,311,110		24,751,368
Effect of dilutive stock options, warrants, convertible debt (in shares)	0	[1],[2],[3]	0	[1],[2],[3]
Weighted average common shares outstanding – diluted	31,311,110		24,751,368
Net loss per common share — basic and diluted (in usd per share)	$ (0.26)		$ (0.29)

[1] At September 30, 2014 and 2013, 0 and 1,667,481 warrants, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these warrants has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

[2] At September 30, 2014 and 2013, 847,208 and 1,656,774 stock options, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these options has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

[3] At September 30, 2014 and 2013, 0 and 288,420 additional shares of common stock were issuable upon the conversion of outstanding convertible debt agreements. The effect of the shares that would be issued upon conversion of these debt agreements has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

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Selected Consolidated Financial Statement Information

3 Months Ended

Sep. 30, 2014

Quarterly Financial Information Disclosure [Abstract]

Selected Consolidated Financial Statement Information

Selected Consolidated Financial Statement Information

Accounts Receivable

Accounts receivable consists of the following:

	September 30, 2014			June 30, 2014
Accounts receivable	$	23,507		$	21,834
Less: Allowance for doubtful accounts	(1,131		)	(451		)
Total accounts receivable	$	22,376		$	21,383

Inventories

Inventories consist of the following:

	September 30, 2014		June 30, 2014
Raw materials	$	7,899	$	5,879
Work in process	913		855
Finished goods	5,832		6,156
Total inventories	$	14,644	$	12,890

Property and Equipment

Property and equipment consists of the following:

	September 30, 2014			June 30, 2014
Land	$	500		$	500
Equipment	6,820			6,436
Furniture	626			626
Leasehold improvements	233			233
Construction in progress	17,424			11,499
	25,603			19,294
Less: Accumulated depreciation	(4,365		)	(3,997		)
Total property and equipment, net	$	21,238		$	15,297

In June 2014, the Company announced plans to build a new corporate headquarters in New Brighton, Minnesota. The 125,000-square-foot, two-story building will have space for more than 500 employees and contain dedicated research and development, training and education, and manufacturing facilities. Construction on the new facility is targeted to be completed in March 2015 and will replace the two current St. Paul, Minnesota leased facilities. Construction in progress primarily consists of costs associated with the new headquarters, including $9,128 required to be held in an escrow account that will be used to fund the final construction payments.

Accrued Expenses

Accrued expenses consist of the following:

	September 30, 2014		June 30, 2014
Salaries and bonus	$	3,925	$	5,244
Commissions	4,402		6,069
Accrued vacation	3,022		2,843
Other	1,270		474
Total accrued expenses	$	12,619	$	14,630

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Earnings Per Share - EPS Reconciliation (Parenthetical) (Details)	3 Months Ended
	Sep. 30, 2014		Sep. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Effect of dilutive stock options, warrants, convertible debt (in shares)	0	[1],[2],[3]	0	[1],[2],[3]
Warrant
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Effect of dilutive stock options, warrants, convertible debt (in shares)	0		1,667,481
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Effect of dilutive stock options, warrants, convertible debt (in shares)	847,208		1,656,774
Convertible Debt Securities
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Effect of dilutive stock options, warrants, convertible debt (in shares)	0		288,420

[1] At September 30, 2014 and 2013, 0 and 1,667,481 warrants, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these warrants has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

[2] At September 30, 2014 and 2013, 847,208 and 1,656,774 stock options, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these options has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

[3] At September 30, 2014 and 2013, 0 and 288,420 additional shares of common stock were issuable upon the conversion of outstanding convertible debt agreements. The effect of the shares that would be issued upon conversion of these debt agreements has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Jun. 30, 2014
Current assets
Cash and cash equivalents	$ 116,423	$ 126,592
Accounts receivable, net	22,376	21,383
Inventories	14,644	12,890
Prepaid expenses and other current assets	3,587	1,846
Total current assets	157,030	162,711
Property and equipment, net	21,238	15,297
Patents, net	4,015	3,823
Other assets	70	70
Total assets	182,353	181,901
Current liabilities
Short-term borrowings	1,200	2,400
Accounts payable	18,196	12,699
Accrued expenses	12,619	14,630
Total current liabilities	32,015	29,729
Long-term liabilities
Other liabilities	1,891	117
Total liabilities	33,906	29,846
Commitments and contingencies	0	0
Common stock, $0.001 par value; authorized 100,000,000 common shares at September 30, 2014 and June 30, 2014; issued and outstanding 31,456,377 at September 30, 2014 and 31,084,742 at June 30, 2014, respectively	31	31
Additional paid in capital	395,205	390,589
Accumulated deficit	(246,789)	(238,565)
Total stockholders’ equity	148,447	152,055
Total liabilities and stockholders’ equity	$ 182,353	$ 181,901

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Business Overview

3 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Business Overview

Business Overview

Company Description

Cardiovascular Systems, Inc. (the “Company”) develops, manufactures and markets devices for the treatment of vascular diseases. The Company’s peripheral arterial disease products, the Stealth 360°^® PAD System, Diamondback 360^® PAD System, and Predator 360°^® PAD System, are catheter-based platforms capable of treating a broad range of plaque types, including calcified plaque, in leg arteries both above and below the knee and address many of the limitations associated with existing treatment alternatives. In October 2013, the Company received premarket approval (“PMA”) from the FDA to market the Diamondback 360^® Coronary Orbital Atherectomy System (“OAS”) as a treatment for severely calcified coronary arteries. The Company began a controlled commercial launch of the Diamondback 360^® Coronary OAS following receipt of PMA approval.

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Selected Consolidated Financial Statement Information (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Jun. 30, 2014
Accounts Receivable
Accounts receivable	$ 23,507	$ 21,834
Less: Allowance for doubtful accounts	(1,131)	(451)
Total accounts receivable	22,376	21,383
Inventories
Raw materials	7,899	5,879
Work in process	913	855
Finished goods	5,832	6,156
Total inventories	14,644	12,890
Property and Equipment
Land	500	500
Equipment	6,820	6,436
Furniture	626	626
Leasehold improvements	233	233
Construction in progress	17,424	11,499
Property and equipment, gross	25,603	19,294
Less: Accumulated depreciation	(4,365)	(3,997)
Total property and equipment, net	21,238	15,297
Accrued Expenses
Salaries and bonus	3,925	5,244
Commissions	4,402	6,069
Accrued vacation	3,022	2,843
Other	1,270	474
Total accrued expenses	12,619	14,630
Building
Property, Plant and Equipment [Line Items]
Amount to be held in escrow	$ 9,128
New Brighton, Minnesota | Building
Property, Plant and Equipment [Line Items]
Area of real estate property (in square feet)	125,000.0
Capacity of new building (number of employees)	500

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Debt (Details) (USD $)	3 Months Ended				0 Months Ended				0 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Interest and Other, Net	Sep. 30, 2013 Interest and Other, Net	Sep. 29, 2014 Silicon Valley Bank	Sep. 30, 2014 Silicon Valley Bank Line of Credit	Jun. 30, 2014 Silicon Valley Bank Line of Credit	Mar. 29, 2010 Silicon Valley Bank Line of Credit	Apr. 14, 2010 Partners For Growth	Sep. 30, 2014 Partners For Growth	Jun. 30, 2014 Partners For Growth	May 10, 2013 Partners For Growth	May 10, 2013 Partners For Growth Maximum
Debt Instrument [Line Items]
Line of credit expiration date					Dec. 31, 2014
Borrowings line of credit								$ 15,000,000
Borrowings line of credit eligible accounts								85.00%
Line of credit, outstanding balance						1,200,000	2,400,000
Loan and security agreement													5,000,000
Floating interest rate												2.75%
PFG Convertible debt										0	0
Number of days for determination of price per share									10 days
Reduce in conversion price												15.00%
Change in fair value of conversion option	$ 0	$ (61,000)	$ 0	$ 61,000

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Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Interim Financial Statements

The Company prepared the unaudited interim consolidated financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The year-end consolidated balance sheet was derived from the Company’s audited consolidated financial statements, but does not include all disclosures as required by GAAP. These interim consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to state fairly the Company’s consolidated financial position, the results of its operations and its cash flows for the interim periods. These interim consolidated financial statements should be read in conjunction with the consolidated annual financial statements and the notes thereto included in the Form 10-K filed by the Company with the SEC on August 28, 2014. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

The Company recognizes stock-based compensation expense in an amount equal to the fair value of share-based payments computed at the date of grant. The fair value of all restricted stock awards are expensed in the consolidated statements of operations ratably over the related vesting period.

Revenue Recognition

The Company sells the majority of its products via direct shipment to hospitals or clinics. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. The Company records estimated sales returns, discounts and rebates as a reduction of net sales.

Costs related to products delivered are recognized in the period revenue is recognized. Cost of goods sold consists primarily of raw materials, direct labor, and manufacturing overhead.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue From Contracts with Customers.” The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two prescribed retrospective methods. Early adoption is not permitted. The Company is evaluating the impact of the amended revenue recognition guidance on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.” The guidance requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements. The entity must also provide certain disclosures if there is substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company does not anticipate a material impact on its financial statements upon adoption.

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Sep. 30, 2014	Jun. 30, 2014
Statement of Financial Position [Abstract]
Common stock, par value (in usd per share)	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	31,456,377	31,084,742
Common stock, shares outstanding	31,456,377	31,084,742

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Selected Consolidated Financial Statement Information (Tables)

3 Months Ended

Sep. 30, 2014

Quarterly Financial Information Disclosure [Abstract]

Schedule of Accounts Receivable

Accounts receivable consists of the following:

	September 30, 2014			June 30, 2014
Accounts receivable	$	23,507		$	21,834
Less: Allowance for doubtful accounts	(1,131		)	(451		)
Total accounts receivable	$	22,376		$	21,383

Schedule of Inventory

Inventories consist of the following:

	September 30, 2014		June 30, 2014
Raw materials	$	7,899	$	5,879
Work in process	913		855
Finished goods	5,832		6,156
Total inventories	$	14,644	$	12,890

Schedule of Property and Equipment

Property and equipment consists of the following:

	September 30, 2014			June 30, 2014
Land	$	500		$	500
Equipment	6,820			6,436
Furniture	626			626
Leasehold improvements	233			233
Construction in progress	17,424			11,499
	25,603			19,294
Less: Accumulated depreciation	(4,365		)	(3,997		)
Total property and equipment, net	$	21,238		$	15,297

Schedule of Accrued Expenses

Accrued expenses consist of the following:

	September 30, 2014		June 30, 2014
Salaries and bonus	$	3,925	$	5,244
Commissions	4,402		6,069
Accrued vacation	3,022		2,843
Other	1,270		474
Total accrued expenses	$	12,619	$	14,630

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Document and Entity Information	3 Months Ended
	Sep. 30, 2014	Oct. 31, 2014
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Trading Symbol	CSII
Entity Registrant Name	CARDIOVASCULAR SYSTEMS INC
Entity Central Index Key	0001180145
Current Fiscal Year End Date	--06-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		31,443,938

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Interest and Other, Net (Tables)

3 Months Ended

Sep. 30, 2014

Other Income and Expenses [Abstract]

Interest and Other, Net

Interest and other, net, includes the following:

	Three Months Ended   September 30,
	2014			2013
Interest expense, net of premium amortization	$	(16	)	$	(281	)
Change in fair value of conversion options	—			(61		)
Net write-offs upon conversion (option and premium amortization)	—			(81		)
Other	(18		)	(22		)
Total Interest and other, net	$	(34	)	$	(445	)

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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Revenues	$ 41,354	$ 29,766
Cost of goods sold	8,885	6,864
Gross profit	32,469	22,902
Expenses:
Selling, general and administrative	33,507	25,371
Research and development	7,152	4,378
Total expenses	40,659	29,749
Loss from operations	(8,190)	(6,847)
Interest and other, net	(34)	(445)
Net and comprehensive loss	$ (8,224)	$ (7,292)
Net and comprehensive loss per common share:
Basic and diluted (in usd per share)	$ (0.26)	$ (0.29)
Weighted average common shares used in computation:
Basic and diluted (in shares)	31,311,110	24,751,368

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Stock Options and Restricted Stock Awards

3 Months Ended

Sep. 30, 2014

Share-based Arrangements with Employees and Nonemployees [Abstract]

Stock Options and Restricted Stock Awards

Stock Options and Restricted Stock Awards

The Company has a 2007 Equity Incentive Plan (the “2007 Plan”) under which options to purchase common stock and restricted stock awards have been granted to employees, directors and consultants at exercise prices determined by the board of directors. Previously, options to purchase common stock and restricted stock awards were granted under the 2003 Stock Option Plan (the “2003 Plan”) (the 2007 Plan and the 2003 Plan collectively, the “Plans”).

Stock Options

All options granted under the Plans become exercisable over periods established at the date of grant. The option exercise price is generally not less than the estimated fair market value of the Company’s common stock at the date of grant, as determined by the Company’s management and Board of Directors. In addition, the Company has granted nonqualified stock options to a director outside of the Plans. An employee's vested options must be exercised at or within 90 days of termination to avoid forfeiture. As of September 30, 2014, all outstanding options were fully vested.

Stock option activity for the three months ended September 30, 2014 is as follows:

	Number of Options(a)		Weighted Average Exercise Price
Options outstanding at June 30, 2014	922,809		$	10.16
Options exercised	(75,601	)	$	9.04
Options outstanding at September 30, 2014	847,208		$	10.26
(a) Includes the effect of options granted, exercised, forfeited or expired from the 2003 Plan and 2007 Plan, and options granted outside such plans.

Restricted Stock

The fair value of each restricted stock award is equal to the fair market value of the Company’s common stock at the date of grant. Vesting of restricted stock awards generally ranges from one to three years. The estimated fair value of restricted stock awards, including the effect of estimated forfeitures, is recognized on a straight-line basis over the restricted stock’s vesting period.

On August 11, 2014, the Company granted performance based restricted stock awards to certain executives. The performance based awards included grants of a maximum aggregate of 76,112 shares that vest based upon achievement of certain thresholds measuring total shareholder return during periods within fiscal 2015 compared to a pre-determined peer group of companies, and grants of a maximum aggregate of 76,112 shares that vest based upon achievement of certain thresholds measuring annual revenue growth during fiscal 2015 compared to a pre-determined peer group of companies. 

Restricted stock award activity for the three months ended September 30, 2014 is as follows:

	Number of Shares		Weighted Average  Fair Value
Restricted stock awards outstanding at June 30, 2014	1,276,403		$	17.37
Restricted stock awards granted	343,614		$	29.34
Restricted stock awards forfeited	(47,580	)	$	18.12
Restricted stock awards vested	(401,707	)	$	16.49
Restricted stock awards outstanding at September 30, 2014	1,170,730		$	19.33

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Interest and Other, Net

3 Months Ended

Sep. 30, 2014

Other Income and Expenses [Abstract]

Interest and Other, Net

Interest and Other, Net

Interest and other, net, includes the following:

	Three Months Ended   September 30,
	2014			2013
Interest expense, net of premium amortization	$	(16	)	$	(281	)
Change in fair value of conversion options	—			(61		)
Net write-offs upon conversion (option and premium amortization)	—			(81		)
Other	(18		)	(22		)
Total Interest and other, net	$	(34	)	$	(445	)

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Deferred Compensation Plan (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2014
Available-for-sale Securities [Abstract]
Payments to acquire investments	$ 2,084
Short-term Investments [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	2,098
Fixed Income Funds [Member] | Short-term Investments [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	917
Equity Funds [Member] | Short-term Investments [Member] | Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	$ 1,181
Maximum
Deferred Compensation Arrangements [Abstract]
Deferred compensation plan, maximum percentage of employees' base salary	100.00%

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Stock Options and Restricted Stock Awards (Tables)

3 Months Ended

Sep. 30, 2014

Share-based Arrangements with Employees and Nonemployees [Abstract]

Stock Option Activity

Stock option activity for the three months ended September 30, 2014 is as follows:

	Number of Options(a)		Weighted Average Exercise Price
Options outstanding at June 30, 2014	922,809		$	10.16
Options exercised	(75,601	)	$	9.04
Options outstanding at September 30, 2014	847,208		$	10.26
(a) Includes the effect of options granted, exercised, forfeited or expired from the 2003 Plan and 2007 Plan, and options granted outside such plans.

Restricted Stock Award Activity

Restricted stock award activity for the three months ended September 30, 2014 is as follows:

	Number of Shares		Weighted Average  Fair Value
Restricted stock awards outstanding at June 30, 2014	1,276,403		$	17.37
Restricted stock awards granted	343,614		$	29.34
Restricted stock awards forfeited	(47,580	)	$	18.12
Restricted stock awards vested	(401,707	)	$	16.49
Restricted stock awards outstanding at September 30, 2014	1,170,730		$	19.33

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Earnings Per Share

3 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings per common share computations (in thousands except share and per share amounts):

	Three Months Ended   September 30,
	2014			2013
Numerator
Net loss	$	(8,224	)	$	(7,292	)
Denominator
Weighted average common shares – basic	31,311,110			24,751,368
Effect of dilutive stock options, warrants, convertible debt (a)(b)(c)	—			—
Weighted average common shares outstanding – diluted	31,311,110			24,751,368
Net loss per common share — basic and diluted	$	(0.26	)	$	(0.29	)

(a) At September 30, 2014 and 2013, 0 and 1,667,481 warrants, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these warrants has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

(b) At September 30, 2014 and 2013, 847,208 and 1,656,774 stock options, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these options has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

(c) At September 30, 2014 and 2013, 0 and 288,420 additional shares of common stock were issuable upon the conversion of outstanding convertible debt agreements. The effect of the shares that would be issued upon conversion of these debt agreements has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

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Commitment and Contingencies

3 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitment and Contingencies

Operating Leases

The Company leases manufacturing and office space and equipment under various lease agreements that expire at various dates through March 2020. Rental expenses were $385 and $331 for the three months endedSeptember 30, 2014 and 2013, respectively.

Future minimum lease payments under the agreements as of September 30, 2014 are as follows:

Nine months ended June 30, 2015	$	860
Fiscal 2016	762
Fiscal 2017	469
Fiscal 2018	462
Fiscal 2019	462
Thereafter	346
	$	3,361

Amounts payable under the Company’s Texas production facility lease are included in the amounts above. A portion of those rent payments may reduce the deferred grant incentive liability rather than being recorded as expense. See Note 9 for additional information.

Construction of New Headquarters

On June 11, 2014, the Company entered into a Redevelopment Agreement, a Design-Build Contract, and a Development Services Agreement as well as various ancillary agreements related to the acquisition of real property located in New Brighton, Minnesota and the development of such property into the Company’s new corporate headquarters.

Pursuant to the Contract for Private Redevelopment by and among the City of New Brighton (the “City”), Ryan Companies US, Inc. (“Ryan”), and the Company, dated June 11, 2014 (the “Redevelopment Agreement”), the Company purchased approximately ten acres of real property from the City for a purchase price of $500. The City also granted the Company the option to purchase an additional 3.6 acres prior to May 31, 2021.

Pursuant to the Design-Build Cost Plus Construction Contract by and between Ryan and the Company, dated June 11, 2014, the Company has contracted with Ryan to furnish all services, labor, materials, equipment, procurement services, project management and other duties and services necessary for construction of the Company’s new headquarters on the land purchased from the City. The Company and Ryan expect to have construction substantially completed by March 1, 2015, and, pursuant to the Redevelopment Agreement discussed above, Ryan and the Company have agreed to complete construction by December 31, 2015. The Company will pay Ryan a fee of 3.85% of the cost of the work.

The Company also entered into a Development Services Agreement with Ryan, dated June 11, 2014, pursuant to which Ryan will perform certain development services to facilitate development of the project, including coordination with the City and overall coordination of development strategy. The Company will pay Ryan a fee for the development services, which includes a sum equal to 3.25% of the adjusted total project costs, payable at certain points in the construction process, and a sum equal to 5% of the adjusted total project costs, payable upon substantial completion of the project, as well as reimbursement of certain expenses incurred by Ryan.

In connection with the agreements above, the Company is required to hold approximately $9,128 in an escrow account that will be used to fund the final construction payments. The escrow is classified as construction in progress in property and equipment, net, on the consolidated balance sheet.

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Texas Production Facility

3 Months Ended

Sep. 30, 2014

Production Facility [Abstract]

Texas Production Facility

Texas Production Facility

Effective on September 9, 2009, the Company entered into an agreement with the Pearland Economic Development Corporation (the “PEDC”) for the construction and lease of an approximately 46,000 square foot production facility located in Pearland, Texas. The facility primarily serves as an additional manufacturing location for the Company.

The Company and the PEDC entered into a Corporate Job Creation Agreement dated June 17, 2009, which was subsequently amended July 2, 2012. The Job Creation Agreement, as amended, provided the Company with $2,975 in net cash incentive funds. The Company believes it will be able to comply with the conditions specified in the amended agreement. The PEDC will provide the Company with an additional $425 of net cash incentive funds if: (1) the Company hires 125 full-time employees at the facility before June 30, 2015 and (2) maintains 125 employees at the facility through June 30, 2016. The Company had the opportunity to receive an additional $425 of net cash incentive funds upon hiring the 75^th employee on or before March 31, 2014; however, the Company did not achieve this incentive.

In order to retain all of the cash incentives, the Company must maintain no fewer than 25 jobs at the Texas facility through June 30, 2015. Failure to meet this requirement will result in an obligation to make reimbursement payments to the PEDC as outlined in the amended agreement. The Company will not have any reimbursement requirements after June 30, 2015. As of September 30, 2014, the Company was in compliance with all minimum requirements under the amended agreement. The Company believes it will be able to comply with the conditions specified in the amended agreement.

The Job Creation Agreement, as amended, also provided the Company with a net $1,020 award, of which $510 was received from the PEDC and the remainder is funded through the Texas Enterprise Fund program associated with the State of Texas. As of September 30, 2014, $340 has been received and the remaining $170 will be provided upon the hiring of the 75^th full-time employee at the facility. The grant from the State of Texas is subject to reimbursement if the Company fails to meet certain job creation targets through 2014 and maintain these positions through 2020. The Company reimbursed the State of Texas $46 during fiscal 2014 as it did not meet the target of hiring 75 employees at the facility by December 31, 2013.

The Company has presented the net cash incentive funds as a current and long-term liability on the balance sheet. The liabilities are reduced through the term of the agreement and recorded as an offset to expenditures incurred using a systematic methodology. As of September 30, 2014, the deferred grant incentive liabilities have been reduced by $20 in cumulative expenses, resulting in a remaining current liability of $39.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Interim Financial Statements

Interim Financial Statements

The Company prepared the unaudited interim consolidated financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The year-end consolidated balance sheet was derived from the Company’s audited consolidated financial statements, but does not include all disclosures as required by GAAP. These interim consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to state fairly the Company’s consolidated financial position, the results of its operations and its cash flows for the interim periods. These interim consolidated financial statements should be read in conjunction with the consolidated annual financial statements and the notes thereto included in the Form 10-K filed by the Company with the SEC on August 28, 2014. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

Use of Estimates

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

Stock-Based Compensation

The Company recognizes stock-based compensation expense in an amount equal to the fair value of share-based payments computed at the date of grant. The fair value of all restricted stock awards are expensed in the consolidated statements of operations ratably over the related vesting period.

Revenue Recognition

Revenue Recognition

The Company sells the majority of its products via direct shipment to hospitals or clinics. The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. The Company records estimated sales returns, discounts and rebates as a reduction of net sales.

Costs related to products delivered are recognized in the period revenue is recognized. Cost of goods sold consists primarily of raw materials, direct labor, and manufacturing overhead.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue From Contracts with Customers.” The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two prescribed retrospective methods. Early adoption is not permitted. The Company is evaluating the impact of the amended revenue recognition guidance on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.” The guidance requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements. The entity must also provide certain disclosures if there is substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company does not anticipate a material impact on its financial statements upon adoption.

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Earnings Per Share (Tables)

3 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Reconciliation of Numerators and Denominators Used in Basic and Diluted Earnings Per Common Share Computations

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings per common share computations (in thousands except share and per share amounts):

	Three Months Ended   September 30,
	2014			2013
Numerator
Net loss	$	(8,224	)	$	(7,292	)
Denominator
Weighted average common shares – basic	31,311,110			24,751,368
Effect of dilutive stock options, warrants, convertible debt (a)(b)(c)	—			—
Weighted average common shares outstanding – diluted	31,311,110			24,751,368
Net loss per common share — basic and diluted	$	(0.26	)	$	(0.29	)

(a) At September 30, 2014 and 2013, 0 and 1,667,481 warrants, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these warrants has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

(b) At September 30, 2014 and 2013, 847,208 and 1,656,774 stock options, respectively, were outstanding. The effect of the shares that would be issued upon exercise of these options has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

(c) At September 30, 2014 and 2013, 0 and 288,420 additional shares of common stock were issuable upon the conversion of outstanding convertible debt agreements. The effect of the shares that would be issued upon conversion of these debt agreements has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

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Stock Options and Restricted Stock Awards (Details)	3 Months Ended			0 Months Ended
	Sep. 30, 2014	Sep. 30, 2014 Restricted Stock Minimum	Sep. 30, 2014 Restricted Stock Maximum	Aug. 11, 2014 Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise period for employee's vested options	90 days
Vesting period		1 year	3 years
Performance Based Shares - Total Shareholder Return				76,112
Performance Based Shares - Revenue Growth				76,112

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities
Net loss	$ (8,224)	$ (7,292)
Adjustments to reconcile net loss to net cash used in operations
Depreciation of property and equipment	367	293
Amortization and write-off of patents	41	28
Provision for doubtful accounts	696	90
Amortization of (premium) discount on debt, net	0	(8)
Debt conversion and valuation of conversion options, net	0	142
Stock-based compensation	3,573	2,300
Changes in assets and liabilities
Accounts receivable	(1,689)	(631)
Inventories	(1,754)	(2,023)
Prepaid expenses and other assets	717	11
Accounts payable	2,070	1,329
Accrued expenses and other liabilities	(271)	143
Net cash used in operations	(4,474)	(5,618)
Cash flows from investing activities
Expenditures for property and equipment	(2,981)	(287)
Purchases of marketable securities	(2,084)	0
Costs incurred in connection with patents	(113)	(124)
Net cash used in investing activities	(5,178)	(411)
Cash flows from financing activities
Exercise of stock options and warrants	683	2,559
Payments on debt	(1,200)	(1,200)
Net cash (used in) provided by financing activities	(517)	1,359
Net change in cash and cash equivalents	(10,169)	(4,670)
Cash and cash equivalents
Beginning of period	126,592	67,897
End of period	116,423	63,227
Noncash investing activities
Property and equipment included in accounts payable	$ 3,327	$ 30

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Debt

3 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Debt

Debt

Loan and Security Agreement with Silicon Valley Bank

On March 29, 2010, the Company entered into an amended and restated loan and security agreement with Silicon Valley Bank. The agreement was amended on December 27, 2011 to increase outstanding borrowings, amended on June 29, 2012 to modify financial covenants and reduce the interest rate and other fees, amended on May 10, 2013 to modify financial covenants, amended on June 26, 2014 to extend the line of credit's maturity date to September 30, 2014 and reduce the interest rate, and amended on September 29, 2014 to extend the line of credit's maturity date to December 31, 2014. The agreement, as amended, includes a $15,000 line of credit.

The $15,000 line of credit has a floating interest rate equal to the Wall Street Journal’s prime rate. Interest on borrowings is due monthly and the principal balance is due at maturity. Borrowings on the line of credit are based on 85% of eligible accounts. Accounts receivable receipts are deposited into a lockbox account in the name of Silicon Valley Bank. The line of credit is subject to non-use fees, annual fees, and cancellation fees. The balance outstanding on the line of credit at September 30, 2014 and June 30, 2014 was $1,200 and $2,400, respectively.

Borrowings from Silicon Valley Bank are secured by all of the Company’s assets. The borrowings are subject to prepayment penalties and financial covenants, including maintaining certain liquidity and fixed charge coverage ratios. Any non-compliance by the Company under the terms of debt arrangements could result in an event of default under the Silicon Valley Bank loan, which, if not cured, could result in the acceleration of this debt. The Company was in compliance with all financial covenants as of September 30, 2014.

Loan and Security Agreement with Partners for Growth

On April 14, 2010, the Company entered into a loan and security agreement with Partners for Growth III, L.P. (“PFG”), as amended on August 23, 2011, December 27, 2011, June 30, 2012, and May 10, 2013. The amended agreement provides that PFG will make loans to the Company up to $5,000. The agreement has a maturity date of April 14, 2015. The loans bear interest at a floating per annum rate equal to 2.75% above Silicon Valley Bank’s prime rate, and such interest is payable monthly. The principal balance of and any accrued and unpaid interest on any notes are due on the maturity date and may not be prepaid by the Company at any time in whole or in part. As of September 30, 2014 and June 30, 2014, there were no loans outstanding.

At any time prior to the maturity date, PFG may, at its option, convert any outstanding loan into shares of the Company’s common stock at the applicable conversion price, which in each case equals the ten-day volume weighted average price per share of the Company’s common stock prior to the issuance date of each note. The Company may also effect at any time a mandatory conversion of amounts, subject to certain terms, conditions and limitations provided in the agreement, including a requirement that the ten-day volume weighted average price of the Company’s common stock prior to the date of conversion is at least 15% greater than the conversion price. The Company may reduce the conversion price to a price that represents a 15% discount to the ten-day volume weighted average price of its common stock to satisfy this condition and effect a mandatory conversion. The Company recorded an expense of $0 and $61 for the three months ended September 30, 2014 and 2013, respectively, related to the change in fair value of the conversion options on all outstanding loans. This amount is a component of interest and other, net on the accompanying statement of operations.

Any loans are secured by certain of the Company’s assets, and the agreement contains customary covenants limiting the Company’s ability to, among other things, incur debt or liens, make certain investments and loans, effect certain redemptions of and declare and pay certain dividends on its stock, permit or suffer certain change of control transactions, dispose of collateral, or change the nature of its business. In addition, the PFG loan and security agreement contains financial covenants requiring the Company to maintain certain liquidity and fixed charge coverage ratios. The Company was in compliance with all financial covenants at September 30, 2014. If the Company does not comply with the various covenants, PFG may, subject to various customary cure rights, decline to provide additional loans, require amortization of any future loan over its remaining term, or require the immediate payment of all amounts outstanding under any future loan and foreclose on any or all collateral, depending on which financial covenants are not maintained.

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Stock Options and Restricted Stock Awards - Stock Option Activity (Details) (USD $)	3 Months Ended
	Sep. 30, 2014
Number of Options
Options outstanding, balance at beginning of period (in shares)	922,809	[1]
Options exercised (in shares)	(75,601)	[1]
Options outstanding, balance at end of period (in shares)	847,208	[1]
Weighted Average Exercise Price
Options outstanding at beginning of period (in usd per share)	$ 10.16
Options exercised (in usd per share)	$ 9.04
Options outstanding at end of period (in usd per share)	$ 10.26

[1] Includes the effect of options granted, exercised, forfeited or expired from the 2003 Plan and 2007 Plan, and options granted outside such plans.

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Commitment and Contingencies (Tables)

3 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

Future minimum lease payments under the agreements as of September 30, 2014 are as follows:

Nine months ended June 30, 2015	$	860
Fiscal 2016	762
Fiscal 2017	469
Fiscal 2018	462
Fiscal 2019	462
Thereafter	346
	$	3,361