UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED

June 30, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______

Commission file number 0-19711

The Spectranetics Corporation

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 84-0997049
(I.R.S. Employer Identification No.)

96 Talamine Court
Colorado Springs, Colorado 80907
(719) 633-8333
(Address of principal executive offices and telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o.          Accelerated filer þ.          Non-accelerated filer o.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o. No þ.

As of August 7, 2007 there were 31,324,602 outstanding shares of Common Stock.

TABLE OF CONTENTS

Part I—FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Operations and Comprehensive Income
		Condensed Consolidated Statements of Cash Flows
	Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II—OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Items 2-3. Not applicable
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Not Applicable
	Item 6. Exhibits
Exhibit 31.1(a)
Exhibit 31.1(b)
Exhibit 32.1(a)
Exhibit 32.1(b)

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

THE SPECTRANETICS CORPORATION AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Amounts)

	June 30,			December 31,
	2007			2006
	(Unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	7,972		$	9,999
Investment securities available for sale		22,577			38,015
Trade accounts receivable, net of allowances of $452 and $367, respectively		13,130			11,185
Inventories, net		5,272			5,067
Deferred income taxes, net		1,104			49
Prepaid expenses and other current assets		2,038			1,440
Total current assets		52,093			65,755
Property, plant and equipment, net of accumulated depreciation of $13,174 and $12,250, respectively		20,739			16,176
Long-term investment securities available for sale		22,923			8,453
Long-term deferred income taxes, net		5,604			709
Goodwill, net		308			308
Other assets		253			93
Total Assets	$	101,920		$	91,494
Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable and accrued liabilities	$	11,186		$	11,219
Deferred revenue		2,487			1,984
Total current liabilities		13,673			13,203
Other long-term liabilities		119			3
Total liabilities		13,792			13,206
Commitments and Contingencies
Shareholders’ Equity:
Preferred stock, $.001 par value; authorized 5,000,000 shares; none issued		—			—
Common stock, $.001 par value; authorized 60,000,000 shares; issued and outstanding 31,157,441 and 30,853,948 shares, respectively		31			31
Additional paid-in capital		154,718			152,011
Accumulated other comprehensive income		110			64
Accumulated deficit		(66,731	)		(73,818	)
Total shareholders’ equity		88,128			78,288
Total Liabilities and Shareholders’ Equity	$	101,920		$	91,494

See accompanying unaudited notes to condensed consolidated financial statements.

Page 2

THE SPECTRANETICS CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Operations and Comprehensive Income
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Revenue	$	20,373		$	15,997		$	37,738		$	29,614
Cost of revenue		5,113			4,208			9,748			7,855
Gross margin		15,260			11,789			27,990			21,759
Gross margin %		75	%		74	%		74	%		73	%
Operating expenses:
Selling, general and administrative		12,240			9,584			22,874			18,463
Research, development and other technology		2,675			2,137			5,283			3,971
Total operating expenses		14,915			11,721			28,157			22,434
Operating income (loss)		345			68			(167	)		(675	)
Other income (expense):
Interest income		678			456			1,366			588
Other, net		(6	)		(8	)		(17	)		(16	)
Total other income		672			448			1,349			572
Income (loss) before income taxes		1,017			516			1,182			(103	)
Income tax benefit (expense)		6,135			(208	)		5,905			(227	)
Net income (loss)	$	7,152		$	308		$	7,087		$	(330	)
Other comprehensive income (loss):
Foreign currency translation		38			84			58			110
Unrealized loss on investment securities		(45	)		(29	)		(12	)		(16	)
Comprehensive income (loss)	$	7,145		$	363		$	7,133		$	(236	)
Net income (loss) per share — basic	$	0.23		$	0.01		$	0.23		$	(0.01	)
Net income (loss) per share — diluted	$	0.21		$	0.01		$	0.21		$	(0.01	)
Weighted average common shares outstanding:
Basic		31,139,845			28,471,232			31,074,604			27,421,519
Diluted		33,545,624			31,258,511			33,523,649			27,421,519

See accompanying unaudited notes to condensed consolidated financial statements.

Page 3

THE SPECTRANETICS CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)

	Six Months Ended June 30,
	2007			2006
Cash flows from operating activities:
Net income (loss)	$	7,087		$	(330	)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Stock option compensation		1,383			1,227
Provision for obsolete inventories		217			54
Depreciation and amortization		2,355			1,281
Fair value of options granted for consulting services		—			7
Deferred income taxes		(5,950	)		227
Net change in operating assets and liabilities		(7,224	)		(8,891	)
Net cash used by operating activities		(2,132	)		(6,425	)
Cash flows from investing activities:
Purchases of investment securities		—			(42,310	)
Capital expenditures		(2,196	)		(1,685	)
Proceeds from maturity and sales of investment securities		956			3,600
Net cash used by investing activities		(1,240	)		(40,395	)
Cash flows from financing activities:
Net proceeds from common stock issuance, including proceeds from exercise of stock options		1,324			49,340
Net cash provided by financing activities		1,324			49,340
Effect of exchange rate changes on cash		21			84
Net (decrease) increase in cash and cash equivalents		(2,027	)		2,604
Cash and cash equivalents at beginning of period		9,999			6,183
Cash and cash equivalents at end of period	$	7,972		$	8,787
Supplemental disclosures of cash flow information —
Cash paid for interest	$	—		$	387
Cash paid for taxes	$	122		$	82

See accompanying unaudited notes to condensed consolidated financial statements.

Page 4

THE SPECTRANETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) General

We develop, manufacture, market and distribute single-use medical devices used in minimally invasive procedures within the cardiovascular system for use with our proprietary excimer laser system. Excimer laser technology delivers relatively cool ultraviolet energy to ablate or remove arterial blockages including plaque, calcium and thrombus. Our laser system includes the CVX-300^® laser unit and various disposable fiber-optic laser catheters. Our laser catheters contain hundreds of small diameter, flexible optical fibers that can access difficult to reach peripheral and coronary anatomy and produce evenly distributed laser energy at the tip of the catheter for more uniform ablation. We believe that our excimer laser system is the only excimer laser system approved in the United States, Europe, Japan and Canada for use in multiple, minimally invasive cardiovascular procedures. These procedures include atherectomy, which is a procedure to remove arterial blockages in the peripheral and coronary vasculature, and the removal of infected, defective, or abandoned cardiac lead wires from patients with pacemakers or implantable cardiac defibrillators, or ICDs, which are electronic devices that regulate the heartbeat.

The accompanying condensed consolidated financial statements include the accounts of The Spectranetics Corporation, a Delaware corporation, and its wholly-owned subsidiary, Spectranetics International, B.V. (collectively, the Company). All intercompany balances and transactions have been eliminated in consolidation.

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, management is required to make certain estimates, judgments and assumptions based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment and intangible assets; valuation allowances and reserves for receivables, inventories and deferred income tax assets; and accrued royalty expenses. Actual results could differ from those estimates.

The information included in the accompanying condensed consolidated interim financial statements is unaudited and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report on Form 10-K. In the opinion of management, all adjustments necessary for a fair presentation of the assets, liabilities and results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

(2) New Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its consolidated financial statements.

In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 creates a “fair value option” under which an entity may elect to record certain financial assets or liabilities at fair value upon their initial recognition. Subsequent changes in fair value would be recognized in earnings as those changes occur. The election of the fair value option would be made on a contract by contract basis and would need to be supported by concurrent documentation or a pre-existing documented policy. SFAS 159 requires an entity to separately disclose the fair value of these items on the balance sheet or in the footnotes to the financial statements and to provide information that would allow the financial statement user to understand the impact on earnings from changes in the fair value. SFAS 159 is effective for the Company beginning with fiscal year 2008. The Company is currently evaluating the impact that the adoption of SFAS 159 will have on its consolidated financial statements.

Page 5

THE SPECTRANETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(3) Stock-Based Compensation

The Company accounts for share-based compensation in accordance with SFAS No. 123R, “Share-Based Payment,” which was adopted January 1, 2006, utilizing the modified prospective transition method.

The Company maintains stock option plans which provide for the grant of incentive stock options, nonqualified stock options, restricted stock and stock appreciation rights. The plans provide that incentive stock options be granted with exercise prices not less than the fair value at the date of grant. Options granted to employees through June 30, 2007 generally vest over four years and expire ten years from the date of grant. Options granted to the board of directors generally vest over three years from date of grant and expire ten years from the date of grant. At June 30, 2007, there were 467,560 shares available for future issuance under these plans.

The Company also maintains an employee stock purchase plan which provides eligible employees the opportunity to acquire common stock in accordance with Section 423 of the Internal Revenue Code of 1986. Stock can be purchased each six-month period per year (twice per year). The purchase price is equal to 85% of the lower of the price at the beginning or the end of the respective six-month period. At June 30, 2007, there were 242,016 shares available for future issuance under the employee stock purchase plan.

The Company estimates the fair value of stock option awards on the date of grant using the Black-Scholes options pricing model. Stock-based compensation expense recognized under SFAS 123(R) for the three months ended June 30, 2007 and 2006 was $715,000 and $607,000, respectively, which consisted of compensation expense related to (1) employee stock options based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period, and (2) the estimated value to be realized by employees related to shares expected to be issued under the Company’s employee stock purchase plan. Stock-based compensation expense recognized under SFAS 123(R) for the six months ended June 30, 2007 and 2006 was $1,383,000 and $1,227,000, respectively .

Valuation and Expense Information under SFAS 123(R)

The fair value of each share option award is estimated on the date of grant using the Black-Scholes pricing model based on assumptions noted in the following table. The Company’s employee stock options have various restrictions including vesting provision and restrictions on transfers and hedging, among others, and are often exercised prior to their contractual maturity. Expected volatilities used in the fair value estimate are based on historical volatility of the Company’s stock. The Company uses historical data to estimate share option exercises, expected term and employee departure behavior used in the Black-Scholes pricing model. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury yield curve in effect at the time of grant. The following is a summary of the assumptions used and the weighted average grant-date fair value of the stock options granted during the three and six months ended June 30, 2007 and 2006, respectively, using the Black-Scholes pricing model:

	Three months ended			Three months ended			Six months ended			Six months ended
	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
Expected life (years)		5.27			5.00			5.20			4.96
Risk-free interest rate		4.94	%		5.10	%		4.82	%		4.85	%
Expected volatility		150.5	%		154.9	%		151.4	%		156.0	%
Expected dividend yield	None			None			None			None
Weighted average fair value	$	9.61		$	11.47		$	9.74		$	9.74

The following table summarizes stock option activity through the six months ended June 30, 2007:

						Weighted Avg.
						Remaining		Aggregate
				Weighted Avg.		Contractual		Intrinsic
	Shares			Exercise Price		Term (in years)		Value
Outstanding at January 1, 2007		3,837,811		$	4.89
Granted		354,750			10.52
Exercised		(260,152	)		3.49
Cancelled		(53,943	)		8.10
Outstanding at June 30, 2007		3,878,466		$	5.45		5.69	$	23,597,539

Page 6

THE SPECTRANETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $11.52 on June 29, 2007, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of June 30, 2007 was 2,764,113. The total intrinsic value of options exercised during the three months ended June 30, 2007 and 2006 was $431,000 and $1,143,000, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2007 and 2006 was $1,651,000 and $2,362,000, respectively.

As of June 30, 2007 there was $7,890,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Company’s stock option plans. The cost is expected to be recognized over a weighted-average period of 2.70 years.

Taxes

A portion of the Company’s granted options qualify as incentive stock options (ISO) for income tax purposes. As such, a tax benefit is not recorded at the time the compensation cost related to the options is recorded for book purposes due to the fact that an ISO does not ordinarily result in a tax benefit unless there is a disqualifying disposition. Stock option grants of non-qualified options result in the creation of a deferred tax asset, which is a temporary difference, until the time the option is exercised. Due to the treatment of incentive stock options for tax purposes, the Company’s effective tax rate is subject to variability.

(4) Net Income (Loss) Per Share

The Company calculates net income (loss) per share under the provisions of Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”). Under SFAS 128, basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted earnings per share are computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares outstanding during the period using the treasury stock method.

Diluted net loss per share was the same as basic loss per share for the six months ended June 30, 2006 as potential common stock instruments were anti-dilutive. For the three months ended June 30, 2007 and 2006, 1,148,870 and 823,194 stock options, respectively, were excluded from the computation of diluted earnings per share due to their antidilutive effect. For the six months ended June 30, 2007 and 2006, 1,062,440 and 3,830,957 stock options, respectively, were excluded from the computation of diluted earnings per share due to their antidilutive effect. A summary of the net income (loss) per share calculation is shown below (in thousands, except per share amounts):

	Three months ended				Six months ended
	June 30,				June 30,
	2007		2006		2007		2006
Net income (loss)	$	7,152	$	308	$	7,087	$	(330	)
Common shares outstanding:
Historical common shares outstanding at beginning of period		31,104		26,448		30,854		26,251
Weighted average common shares issued		36		2,023		221		1,171
Weighted average common shares outstanding — basic		31,140		28,471		31,075		27,422
Effect of dilution — stock options		2,406		2,788		2,449		—
Weighted average common shares outstanding — diluted		33,546		31,259		33,524		27,422
Net income (loss) per share — basic	$	0.23	$	0.01	$	0.23	$	(0.01	)
Net income (loss) per share — diluted	$	0.21	$	0.01	$	0.21	$	(0.01	)

Page 7

THE SPECTRANETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(5) Inventories

Inventories consist of the following (in thousands):

	June 30,			December 31,
	2007			2006
Raw materials	$	1,115		$	1,449
Work in process		3,317			1,932
Finished goods		1,237			1,928
Less inventory reserves		(397	)		(242	)
	$	5,272		$	5,067

(6) Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

	June 30,			December 31,
	2007			2006
Land	$	270		$	270
Building and improvements		1,245			1,223
Manufacturing equipment and computers		9,993			9,601
Leasehold improvements		1,327			778
Equipment held for rental or loan		20,387			16,319
Furniture and fixtures		691			235
Less: accumulated depreciation and amortization		(13,174	)		(12,250	)
	$	20,739		$	16,176

Property and equipment are recorded at cost. Repairs and maintenance costs are expensed as incurred.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets of three to five years for manufacturing equipment, computers, and furniture and fixtures. Equipment held for rental or loan is depreciated using the straight-line method over three to five years. The building is depreciated using the straight-line method over its remaining estimated useful life of 20 years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.

(7) Deferred Revenue

Deferred revenue was $2,487,000 and $1,984,000 at June 30, 2007 and December 31, 2006, respectively. These amounts primarily relate to payments in advance for various product maintenance contracts in which revenue is initially deferred and recognized over the life of the contract, which is generally one year; to deferred revenue associated with service provided to our customers during the warranty period after the sale of equipment; and to equipment revenue deferred until all revenue recognition criteria have been met, including installation of the related laser system at the customers’ premises.

(8) Segment and Geographic Reporting

An operating segment is a component of an enterprise whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. The primary performance measure used by management is net income or loss. The Company operates in one distinct line of business consisting of developing, manufacturing, marketing and distributing a proprietary excimer laser system for the treatment of certain coronary and vascular conditions. The Company has identified two reportable geographic segments within this line of business: (1) U.S. Medical and (2) Europe Medical. U.S. Medical and Europe Medical offer the same products and services but operate in different geographic regions and have different distribution networks. Additional information regarding each reportable segment is shown below.

Page 8

THE SPECTRANETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

U.S. Medical

Products offered by this reportable segment include an excimer laser unit (“equipment”), fiber-optic delivery devices (“disposables”), and the service of the excimer laser unit (“service”). The Company is subject to product approvals from the FDA. At June 30, 2007, FDA-approved products were used in multiple vascular procedures, including coronary and peripheral atherectomy as well as the removal of infected, defective or abandoned cardiac lead wires from patients with pacemakers and cardiac defibrillators. This segment’s customers are primarily located in the United States; however, the geographic areas served by this segment also include Canada, Mexico, South America, the Pacific Rim and Australia.

U.S. Medical is also corporate headquarters for the Company. Accordingly, research and development as well as corporate administrative functions are performed within this reportable segment. As of June 30, 2007 and 2006, cost allocations of these functions to Europe Medical have not been performed.

Manufacturing activities are performed primarily within the U.S. Medical segment. Revenue associated with intersegment product transfers to Europe Medical was $1,104,000 and $754,000 for the three months ended June 30, 2007 and 2006, respectively and $1,887,000 and 1,257,000 for the six months ended June 30, 2007 and 2006, respectively. Revenue is based upon transfer prices, which provide for intersegment profit that is eliminated upon consolidation.

Europe Medical

The Europe Medical segment is a marketing and sales subsidiary located in The Netherlands that serves Europe as well as the Middle East. Products offered by this reportable segment are the same as those offered by U.S. Medical. The Company has received CE mark approval for products that relate to four applications of excimer laser technology — coronary atherectomy, in-stent restenosis, lead removal, and peripheral atherectomy to clear blockages in leg arteries.

Summary financial information relating to reportable segment operations is shown below. Intersegment transfers as well as intercompany assets and liabilities are excluded from the information provided (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Revenue:
Equipment	$	916		$	1,042		$	1,925		$	2,349
Disposable products		15,625			11,865			28,927			21,666
Service		1,900			1,624			3,730			3,103
Other, net of provision for sales returns		(170	)		(43	)		(293	)		(117	)
Subtotal — U.S. Medical		18,271			14,488			34,289			27,001
Equipment		174			365			228			438
Disposable products		1,731			987			2,855			1,854
Service		165			139			327			276
Other, net of provision for sales returns		32			18			39			45
Subtotal — Europe Medical		2,102			1,509			3,449			2,613
Total revenue	$	20,373		$	15,997		$	37,738		$	29,614

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Segment net income (loss):
U.S. Medical	$	6,343	$	112	$	6,210	$	(628	)
Europe Medical		809		196		877		298
Total net income (loss)	$	7,152	$	308	$	7,087	$	(330	)

Page 9

THE SPECTRANETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	June 30,		December 31,
Segment assets:	2007		2006
U.S. Medical	$	96,114	$	88,192
Europe Medical		5,806		3,302
Total assets	$	101,920	$	91,494

(9) Income Taxes

The Company accounts for income taxes pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109), which requires the use of the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses and tax credit carryforwards.

A valuation allowance is required to the extent it is more likely than not that a deferred tax asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income, and tax planning strategies in making this assessment.

During the quarter ended June 30, 2007, the Company performed its quarterly assessment of its net deferred tax assets. After considering a number of factors, including (1) the Company’s pretax income for the six months ended June 30, 2007, (2) the expectation of generating pre-tax income for the full year of 2007 and beyond, which is primarily due to the recently-announced FDA approval of our TURBO-Booster product, and (3) the impact of a proposed settlement with Dutch tax authorities which neared completion in the second quarter, which has enabled the Company to forecast with a higher degree of likelihood the availability and utilization of net operating loss carryforwards related to the Company’s Netherlands subsidiary, the Company concluded that an adjustment to the valuation allowance recorded against its deferred tax asset was necessary in accordance with SFAS 109. Accordingly, the company recorded a non-cash tax benefit in the second quarter of 2007 of $6.6 million to decrease the valuation allowance against its deferred tax assets. It has been recorded within income tax benefit (expense) in the accompanying consolidated statement of income.

In addition, for the three months and six months ended June 30, 2007, the Company recorded an income tax provision of $465,000 and $695,000, respectively, against its pretax book income of $1,017,000 and $1,182,000, respectively. A portion of the Company’s granted stock options qualify as incentive stock options (ISO) for income tax purposes. As such, a tax benefit is not recorded at the time the compensation cost related to the options is recorded for book purposes due to the fact that an ISO does not ordinarily result in a tax benefit unless there is a disqualifying disposition. Due to the treatment of incentive stock options for tax purposes, the Company’s effective tax rate is subject to variability.

Any significant increase or reduction in estimated forecasted future taxable income may require the company to record additional adjustments to the valuation allowance against the remaining deferred tax assets. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on that period’s earnings.

The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) on January 1, 2007. FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that an entity takes or expects to take in a tax return. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Under FIN 48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. The adoption of FIN 48 did not have a material effect on the Company’s financial position or operating results.

Page 10

THE SPECTRANETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(10) Related Party Transactions

During the three and six months ended June 30, 2007, the Company paid $5,000 and $33,000, respectively, to a director of the Company under an agreement whereby the director agreed to provide training services to outside physicians on behalf of the Company.

During the quarter ended March 31, 2007, the Company purchased a U.S. patent from a director of the Company for a purchase price of $150,000.

(11) Commitments and Contingencies

Rentrop

In July, 2003, Spectranetics filed a complaint in the United States District Court for the District of Colorado against Dr. Peter Rentrop, which Spectranetics amended in September 2003, seeking declaratory relief that (1) Spectranetics’ products do not infringe any claims of Dr. Rentrop’s United States Patent No. 6,440,125 (the “‘125 patent”); (2) the claims of the ‘125 patent are invalid and unenforceable; and (3) in the event that the Court finds that the claims of the patent to be valid and enforceable, that Spectranetics is, through its employees, a joint owner of any invention claimed in the ‘125 patent. Spectranetics also brought claims against Dr. Rentrop for damages based upon Dr. Rentrop’s (1) misappropriation of Spectranetics’ trade secrets; (2) breach of the parties’ Confidentiality Agreement; and (3) wrongful taking of Spectranetics’ confidential and proprietary information.

On January 6, 2004, the United States Patent and Trademark Office issued to Dr Rentrop a continuation patent to the ‘125 patent, United States Patent No. 6,673,064 (the “‘064 patent”). On the same day, Dr. Rentrop filed in the United States District Court for the Southern District of New York (the “New York Court”), a complaint for patent infringement against Spectranetics, under the ‘064 patent (the “New York case”).

On January 26, 2004, the Court in Colorado granted Dr. Rentrop’s Motion to Dismiss the Amended Complaint on the basis that the Court lacked personal jurisdiction over Dr. Rentrop, a resident of New York. Spectranetics decided to forgo appealing that decision; thus, there no longer is any case pending in Colorado.

On March 9, 2004, Spectranetics filed its Answer, Affirmative Defenses and Counterclaims against Dr. Rentrop in the New York case. Spectranetics’ claim is that, in connection with consultation services provided to Spectranetics by Dr. Rentrop, Spectranetics provided Dr. Rentrop with confidential and proprietary information concerning certain of Spectranetics’ laser catheter technology. Spectranetics claims that rather than keeping such information confidential as required by agreement with Spectranetics, Dr. Rentrop used the information to file patent applications associated with the ‘125 and ‘064 patents, which incorporate and claim inventions to which Spectranetics’ personnel contributed significantly and materially, if not exclusively, thus entitling Spectranetics’ personnel to designation at least as co-inventors. Spectranetics sought declaratory judgments of non-infringement, invalidity and unenforceability of the patents-in-suit, and alleged counterclaims against Dr. Rentrop for breach of confidentiality agreement, misappropriation of trade secrets, and conversion.

After mediation hearings occurred in February 2006, with no settlement reached, the case was returned to the New York Court for trial, which began in late November 2006. In December 2006, the trial was concluded and the jury returned a verdict in favor of Dr. Rentrop, awarding him $500,000 in royalties and $150,000 in legal fees. Spectranetics has filed several post-trial motions with the New York Court and the verdict will not be deemed accepted until the judge rules on these post-trial motions. In the event that Spectranetics’ post-trial motions are unsuccessful, and the judge accepts the verdict, Spectranetics currently plans to exhaust all of its appeal options. However, in light of the jury verdict, Spectranetics has accrued $867,000 in expenses related to the verdict (the $650,000 awarded, and an additional $217,000 for royalties subsequent to the effective date of the jury award and through June 30, 2007), which are included in accrued liabilities on the Company’s consolidated balance sheet at June 30, 2007. Of this amount, $690,000 had been previously accrued in the year ended December 31, 2006.

Page 11

THE SPECTRANETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Cardiomedica

The Company has been engaged in a dispute with Cardiomedica S.p.A. (Cardiomedica), an Italian company, over the existence of a distribution agreement between Cardiomedica and Spectranetics. Cardiomedica originally filed the suit in July 1999, and the lower court’s judgment was rendered on April 3, 2002. In June 2004, the Court of Appeal of Amsterdam affirmed the lower court’s opinion that an exclusive distributor agreement for the Italian market was entered into between the parties for the three-year period ending December 31, 2001, and that Cardiomedica may exercise its right to compensation from Spectranetics BV for its loss of profits during such three-year period. The appellate court awarded Cardiomedica the costs of the appeal, which approximated $20,000, and has referred the case back to the lower court for determination of the loss of profits. Cardiomedica had asserted lost profits of approximately 1,300,000 euros, which was based on their estimate of potential profits during the three-year period. In December 2006, the court made an interim judgment which narrowed the scope of Cardiomedica’s claim from their original claim of lost profits associated with 10 hospitals down to lost profits on two hospitals during the period from 1999 to 2001. Spectranetics BV estimates that the lost profits to Cardiomedica for the period related to these two hospitals, plus estimated interest and awarded court costs, are no more than $310,000, and such amount is included in accrued liabilities at June 30, 2007. The Company intends to vigorously defend the calculation of lost profits.

Kenneth Fox

The Company is the defendant in a lawsuit brought in the District Court of Utrecht, the Netherlands (“the Dutch Court”) by Kenneth Fox. Mr. Fox is an inventor named on patents licensed to Spectranetics under a license agreement assigned to Interlase LP. In this action, Mr. Fox claims an interest in royalties payable under the license and seeks alleged back royalties of approximately $2.2 million. However, in an interpleader action, the United States District Court for the Eastern District of Virginia, Alexandria Division, has already decided that any royalties owing under the license should be paid to a Special Receiver for Interlase. We have made all such payments. The United States District Court has also held Mr. Fox in contempt of the Court’s permanent injunction that bars him from filing actions like the pending action in the Netherlands, and the Court has ordered Mr. Fox to dismiss the Dutch action and to pay our costs and expenses. Mr. Fox has not yet complied with the United States District Court’s contempt order. In September 2006, the Dutch Court ruled that it does not have jurisdiction over The Spectranetics Corporation (U.S. corporation) and the proceedings will move forward on the basis of jurisdiction over Spectranetics B.V. only. The Company believes that this decision significantly narrows the scope of the claim. Mr. Fox is currently in the process of appealing the Dutch Court’s jurisdiction decision. The Company intends to continue to vigorously defend the Dutch action.

Blaha

On March 8, 2006, Robert Blaha and Terence Blaha filed a product liability/wrongful death action in the Arizona Superior Court (Maricopa County) naming Spectranetics as a defendant in its role as the manufacturer and seller of a laser catheter product used in a medical procedure during which a patient died. The plaintiffs’ complaint did not specify the amount of damages. The Company believes that it has meritorious defenses against this complaint, and intends to vigorously defend its position in this matter.

Other

The Company is involved in other legal proceedings in the normal course of business and does not expect them to have a material adverse effect on our business.

Page 12

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

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. For a description of such risks and uncertainties, which could cause the actual results, performance or achievements of the Company to be materially different from any anticipated results, performance or achievements, please see the risk factors included in our Form 10-K for the year ended December 31, 2006. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the SEC that attempt to advise interested parties of certain risks and factors that may affect our business. This analysis should be read in conjunction with our consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K, filed on March 16, 2007. Spectranetics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements due to new information or other events.

Corporate Overview

We develop, manufacture, market and distribute single-use medical devices used in minimally invasive procedures within the cardiovascular system for use with our proprietary excimer laser system. Excimer laser technology delivers relatively cool ultraviolet energy to ablate or remove arterial blockages including plaque, calcium and thrombus. Our laser system includes the CVX-300 laser unit and various disposable fiber-optic laser catheters. Our laser catheters contain hundreds of small diameter, flexible optical fibers that can access difficult to reach peripheral and coronary anatomy and produce evenly distributed laser energy at the tip of the catheter for more uniform ablation. We believe that our excimer laser system is the only laser system approved in the United States, Europe, Japan and Canada for use in multiple, minimally invasive cardiovascular procedures. These procedures include atherectomy, which is a procedure to remove arterial blockages in the peripheral and coronary vasculature, and the removal of infected, defective or abandoned cardiac lead wires from patients with pacemakers or implantable cardiac defibrillators, or ICDs, which are electronic devices that regulate the heartbeat.

Although 90% of our revenue was derived in the United States for the three months ended June 30, 2007, we also have regulatory approval to market our products in two key international markets. In Europe, we have the required approvals to market our products for the same indications that are approved in the United States. We have also received approval to market certain coronary atherectomy products in Japan, and are seeking additional approvals there for our newer coronary, peripheral and lead removal products. Our distributor, DVx Japan, is assisting us in pursuing reimbursement approval in Japan. We do not expect significant revenue increases in Japan unless and until reimbursement is received.

Our goal is to become a leading provider of innovative, minimally invasive solutions for the treatment of cardiovascular disease. To achieve this objective, we will focus our efforts on further penetration of the peripheral market. We will do so through continuing expansion of our field sales force, expanded clinical research, and increased product development efforts. We believe these costs are necessary to establish our laser technology within the large, underserved peripheral market and provide a platform for sustainable revenue growth in future years. As a result of the increased expenses, we may not maintain profitability. Although we believe that net losses, if any, would be temporary as we build our peripheral business, there are no assurances to that effect.

In 1993, the FDA approved for commercialization our CVX-300 laser system and the first generation of our fiber optic coronary atherectomy catheters. Several improvements and additions to our coronary atherectomy product line have been made since 1993 and have been approved for commercialization by the FDA. In 1997, we secured FDA approval to use our excimer laser system for removal of pacemaker and defibrillator leads, and we secured FDA approval in 2001 to market certain products for use in restenosed (clogged) stents (thin steel mesh tubes used to support the walls of coronary arteries) as a pretreatment prior to brachytherapy (radiation therapy).

In April 2004, we received 510(k) marketing clearance from the FDA for our CLiRpath excimer laser catheters which are indicated for use in the endovascular treatment of symptomatic infrainguinal lower extremity vascular disease when total obstructions are not crossable with a guidewire. The data submitted to the FDA showed that the limb salvage rate (no major amputations) among the 47 patients treated was 95% for those patients surviving six months following the procedure. There was no difference in serious adverse events as compared with the entire set of patients treated in the LACI (Laser Angioplasty for Critical Limb Ischemia) trial.

Page 13

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

In October 2005, we received 510(k) clearance from the FDA to incorporate several new features (80-Hz capability, “continuous on” lasing and lubricous coating) into our entire CLiRpath product line. The launch of this CLiRpath Turbo product line, to replace the CLiRpath catheters, was completed in the second quarter of 2006. In October 2006, we received FDA clearance to market our TURBO Elite™ product line, which added improved pushability, trackability and ablation capability as a result of an improved outer jacket and inner guidewire lumen, as well as additional laser fibers in most sizes, to our CLiRpath Turbo lines. We launched a limited market release of these products in the fourth quarter of 2006, and full commercialization was achieved in the first quarter of 2007.

In July 2007, we received clearance from the FDA to market our TURBO-Booster™ product for the treatment of arterial stenoses and occlusions in the leg. The TURBO-Booster functions as a guiding catheter facilitating directed ablation of blockages in the main arteries at or above the knee. The TURBO-Booster combined with Turbo elite™ laser catheters allows for removal of large amounts of plaque material within the SFA and popliteal arteries. This approval represented a broader indication for use as compared to current labeling of the existing peripheral laser catheters.

As to product development, one of our initiatives will be to incorporate visualization technology into our devices. We terminated our contract with Bioscan Technologies, Ltd in the second quarter of 2007 after the initial phase had been completed, as feasibility of combining our fiber-optic laser catheters with the optical imaging technology of Bioscan was not proven; however, we believe that alternative visualization technologies exist and we are evaluating several of those for combination with our fiber-optic laser catheters. In addition, a significant portion of our research and development expenses in 2007 will be devoted to developing technology enhancements to our laser system.

Page 14

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

Results of Operations

The following table summarizes key supplemental financial information for the last 5 quarters.

	2006									2007
	2nd Qtr			3rd Qtr			4th Qtr			1st Qtr			2nd Qtr
(000’s, except per share and unit sale amounts)
Laser Revenue:
Equipment sales	$	804		$	1,076		$	819		$	402		$	381
Rental fees		603			636			558			661			709
Total laser revenue		1,407			1,712			1,377			1,063			1,090
Disposable Products Revenue:
Fiber-optic atherectomy revenue		6,934			6,450			7,405			7,654			9,485
Support catheter revenue		1,840			1,895			2,230			2,470			3,042
Total atherectomy revenue		8,774			8,345			9,635			10,124			12,527
Fiber-optic lead removal revenue		2,693			3,064			3,209			2,952			3,219
Other devices and accessories revenue		1,385			1,312			1,558			1,350			1,610
Total lead removal revenue		4,078			4,376			4,767			4,302			4,829
Service and other revenue		1,738			1,761			1,903			1,876			1,927
Total revenue		15,997			16,194			17,682			17,365			20,373
Net income (loss)	$	308	*	$	(165)	*	$	952	*	$	(65)	*	$	7,152	*
Net income (loss) per share:
Basic	$	0.01		$	(0.01	)	$	(0.03	)	$	(0.00	)	$	0.23
Diluted	$	0.01		$	(0.01	)	$	(0.03	)	$	(0.00	)	$	0.21
Net cash (used in)provided by operating activities	$	(924	)	$	(445	)	$	197		$	(3,799	)	$	1,667
Total cash and investment securities (current and non-current)	$	58,211		$	57,296		$	56,467		$	52,833		$	53,472
Laser sales summary:
Laser sales from inventory		1			4			7			3			2
Laser sales from evaluation/rental units		5			4			0			0			1
Total laser sales		6			8			7			3			3

* Includes stock-based compensation expense of $607, $748, $688, $669 and $714, respectively.

Worldwide Installed Base Summary:

	2006									2007
	Q2			Q3			Q4			Q1			Q2
Laser sales from inventory		1			4			7			3			2
Rental placements		25			33			30			32			38
Evaluation placements		3			3			5			5			5
Laser placements during quarter		29			40			42			40			45
Buy-backs/returns during quarter		(4	)		(3	)		(4	)		(6	)		(9	)
Net laser placements during quarter		25			37			38			34			36
Total lasers placed at end of quarter		548			585			623			657			693

Page 15

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

Three Months Ended June 30, 2007 Compared with Three Months Ended June 30, 2006

Revenue for the second quarter of 2007 was $20,373,000, an increase of 27% as compared to $15,997,000 during the second quarter of 2006. This increase is mainly attributable to a 35% increase in disposable products revenue, which consists of single-use catheter products, and an 11% increase in service and other revenue.

We separate our disposable products revenue into two separate categories — atherectomy and lead removal. For the three months ended June 30, 2007, our atherectomy revenue totaled $12,527,000 (72% of our disposable products revenue) and our lead removal revenue totaled $4,829,000 (28% of our disposable products revenue). For the three months ended June 30, 2006, our atherectomy revenue totaled $8,774,000 (68% of our disposable products revenue) and our lead removal revenue totaled $4,078,000 (32% of our disposable products revenue). Atherectomy revenue, which includes products used in both the peripheral and coronary vascular systems, grew 43% in the second quarter of 2007 as compared with the second quarter of 2006. Atherectomy revenue growth was primarily due to unit volume increases from the continued market penetration of our peripheral laser atherectomy product lines. From the end of the second quarter of 2006 to the end of the second quarter of 2007, our installed laser base has increased from 548 to 693 lasers worldwide, an increase of 26%. Also since the year-ago quarter, in October 2006 we received FDA clearance to market our TURBO Elite™ product line, which added improved pushability, trackability and ablation capability as a result of an improved outer jacket and inner guidewire lumen, as well as additional laser fibers in most sizes, to our CLiRpath Turbo lines. We launched a limited market release of these products in the fourth quarter of 2006, with full transition to this product line substantially complete as of the end of the first quarter of 2007. Approximately 25% of the atherectomy revenue growth compared with the prior year was due to unit price increases related to the transition to newer products. Atherectomy revenue growth from current levels will depend on our ability to increase market acceptance of our CLiRpath product line to treat below-the-knee arterial blockages, our ability to further penetrate the treatment of above-the-knee arterial blockages following the July launch of our TURBO-Booster product and our ability to continue to increase the worldwide installed base of lasers, and future success of our ongoing clinical research and product development within the coronary and peripheral atherectomy markets.

Lead removal revenue grew 18% for the three-month period ended June 30, 2007, as compared with the same three-month period in 2006. We continue to believe our lead removal revenue is increasing primarily as a result of the increase in the use of implantable cardioverter defibrillators (ICD), devices that regulate heart rhythm. When an ICD is implanted, it often replaces a pacemaker. In these cases, the old pacemaker leads are likely to be removed to avoid potential electrical interference with the new ICD leads. Growth in the implantable defibrillator market may accelerate, depending on the establishment of referral patients to electrophysiologists for this expanded patient pool and the additional reimbursement recently established for the hospitals and electrophysiologists for these patients. Generally, growth in the implantable defibrillator market contributes to growth in our lead removal business. We estimate that 95% of replaced pacemaker or defibrillator leads are capped and left in the body. We have established a small, dedicated lead removal sales organization to increase awareness of potential complications associated with leaving abandoned or non-functioning leads in the body, in addition to other market development activities.

Laser equipment revenue was $1,090,000 and $1,407,000 for the three months ended June 30, 2007 and 2006, respectively. Laser sales revenue, which is included in laser equipment revenue, decreased to $381,000 during the three month period ended June 30, 2007 from $804,000 during the three month period ended June 30, 2006. We sold three laser units (two as outright sales from inventory, and one conversion from an evaluation unit) during the second quarter of 2007 and six laser units (one as an outright sale from inventory and five sale conversions from evaluation units) during the same quarter in 2006. Rental revenue increased 18% during the three-month period ended June 30, 2007, from $603,000 in the second quarter of 2006 to $709,000 in the second quarter of 2007. This increase is due primarily to the increase in our installed rental base of laser systems.

Our worldwide installed base of laser systems increased by 36 during the quarter ended June 30, 2007, compared with an increase of 25 laser systems during the same quarter last year. This brings our worldwide installed base of laser systems to 693 (547 in the U.S.) at June 30, 2007. During the second quarter of 2007, we placed 45 new lasers and recorded 9 lasers as returned as we increased our focus on redeploying underutilized laser systems that are company-owned and placed at hospitals under one of the Company’s placement programs.

Service and other revenue increased to $1,927,000 for the second quarter of 2007 as compared to $1,738,000 the second quarter of 2006. The 11% increase was due primarily to the increased installed base of laser units.

Gross margin for the second quarter of 2007 was 75%, a slight increase as compared with the second quarter of 2006. The gross margin improvement was related to, in approximately equal measure, (1) higher average unit selling prices for our CLiRpath Turbo elite catheters compared to a year ago (when the majority of our peripheral atherectomy catheter sales were from our CLiRpath Turbo product line) and (2) reduced unit production costs due to improved productivity and reduced scrap costs.

Page 16

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

Operating expenses of $14,915,000 in the second quarter of 2007 increased 27% from $11,721,000 in the second quarter of 2006. This increase is mainly due to a 28% increase in selling, general and administrative expenses relative to the same period in 2006, and a 25% increase in research, development and other technology expenses relative to the same period of a year ago.

Selling, general and administrative expenses increased 28% to $12,240,000 for the three months ended June 30, 2007 from $9,584,000 in the prior year period. The increase is primarily due to:

• Marketing and selling expenses increased approximately $2,450,000 in the quarter compared with last year’s quarter primarily as a result of the following:

• Increased personnel-related costs of approximately $1,100,000 associated with the staffing of 16 additional employees within our U.S. field sales and marketing organizations as of the end of the second quarter of 2007 as compared with the second quarter of 2006. These costs include salaries and related taxes, recruiting, and travel costs.

• Increased commissions of approximately $800,000, which is mainly due to the increase in revenues and additional employees.

• Approximately $500,000 in increased sales-related costs for our international operations, primarily due to the addition of three additional sales employees and a new general manager in our Netherlands subsidiary since a year ago, as well as increased commissions expense to distributors used there as a result of higher sales in Europe than in the year-ago quarter.

• Increased expenses of approximately $80,000 related to higher corporate facilities and telecommunications allocations.

• General and administrative expenses increased approximately $200,000 in the second quarter of 2007 compared with the same period of the prior year, primarily the result of increased personnel-related costs associated with increased staffing compared to a year ago.

Research, development and other technology expenses of $2,675,000 for the second quarter of 2007 represent an increase of 25% from $2,137,000 in the second quarter of 2006. Costs included within research, development and other technology expenses are research and development costs, clinical studies costs and royalty costs associated with various license agreements with third-party licensors. The increase is primarily due to:

• Increased clinical studies-related expenses of approximately $200,000 compared to the year-ago quarter, primarily due to the expenses related to the CELLO study, the results of which were submitted to the FDA for approval of our TURBO-Booster product in the first half of 2007, as well as expenses related to other clinical studies.

• Increased research and development outside services expense of approximately $150,000 which primarily relates to increased fees paid to outside vendors assisting us with technology enhancements to our laser system.

• Increased regulatory-related expenses of approximately $200,000 due to increased regulatory submission costs and consulting costs.

• Increased personnel-related costs (including recruiting and travel) of approximately $100,000 due primarily to the hiring of seven additional engineering and clinical studies employees since the year-ago period which were offset by a decrease in prototype materials expense of approximately the same amount.

Interest income increased to $678,000 in the second quarter of 2007 from $456,000 for the second quarter of 2006. The increase in interest income in 2006 is mainly due to the invested net proceeds of the secondary stock offering we completed in the middle of the second quarter of 2006. Our investment securities portfolio consists primarily of government or government agency securities with maturities less than two years.

Pre-tax income in the second quarter of 2007 was $1,017,000, compared with pre-tax income of $516,000 in the second quarter of 2006. Given the Company’s significant historical net operating losses which are available to offset future taxable income, any income tax expense or benefit is a non-cash item. As a result, management believes that pre-tax income or loss is the most appropriate measure of its operating performance.

Page 17

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

For the three months ended June 30, 2007, we recorded a net income tax benefit of $6,135,000 against our pretax income of $1,017,000. Included in the net tax benefit for the second quarter is a non-cash tax benefit of $6,600,000 related to a reduction in the valuation allowance against our deferred tax asset. This adjustment was made as a result of our quarterly assessment of our deferred tax asset as required by SFAS 109, and the reasons for the adjustment are discussed in more detail in Note 9, “Income Taxes,” to our accompanying condensed consolidated financial statements. In addition to the valuation allowance adjustment, for the three months ended June 30, 2007, we recorded an income tax provision of $465,000 against out pretax income for the quarter. A portion of the Company’s granted stock options qualify as incentive stock options (ISO) for income tax purposes. As such, a tax benefit is not recorded at the time the compensation cost related to the options is recorded for book purposes due to the fact that an ISO does not ordinarily result in a tax benefit unless there is a disqualifying disposition. Due to the treatment of incentive stock options for tax purposes our effective tax rate is subject to variability.

We recorded net income for the three months ended June 30, 2007 of $7,152,000, or $0.21 per fully diluted share, compared with a net income of $308,000 or $0.01 per fully diluted share, in the same quarter last year. The increase in net income is attributable primarily to the deferred tax asset valuation allowance adjustment discussed above, as well as the increase in revenue for the second quarter of 2007 as compared to the year-ago quarter.

The functional currency of Spectranetics International B.V. is the euro. All revenue and expenses are translated to U.S. dollars in the consolidated statements of operations using weighted average exchange rates during the period. Fluctuation in euro currency rates during the three months ended June 30, 2007, as compared with the three months ended June 30, 2006, caused a increase in consolidated revenue of $127,000 and an increase in consolidated operating expenses of $85,000.

Six Months Ended June 30, 2007 Compared with Six Months Ended June 30, 2006

Revenue for the first half of 2007 was $37,738,000, an increase of 27% as compared to $29,614,000 during the first half of 2006. This increase is mainly attributable to a 35% increase in disposable products revenue, which consists of single-use catheter products, and a 15% increase in service and other revenue.

We separate our disposable products revenue into two separate categories — atherectomy and lead removal. For the six months ended June 30, 2007, our atherectomy revenue totaled $22,651,000 (71% of our disposable products revenue) and our lead removal revenue totaled $9,131,000 (29% of our disposable products revenue). For the six months ended June 30, 2006, our atherectomy revenue totaled $15,428,000 (66% of our disposable products revenue) and our lead removal revenue totaled $8,092,000 (34% of our disposable products revenue). Atherectomy revenue, which includes products used in both the peripheral and coronary vascular systems, grew 47% in the first half of 2007 as compared with the first half of 2006. Atherectomy revenue growth was primarily due to unit volume increases from the continued penetration of our peripheral laser atherectomy product lines. From the end of the second quarter of 2006 to the end of the second quarter of 2007, our installed laser base has increased from 548 to 693 lasers worldwide, an increase of 26%. Also, in October 2006, we received FDA clearance to market our TURBO Elite™ product line, which added improved pushability, trackability and ablation capability as a result of an improved outer jacket and inner guidewire lumen, as well as additional laser fibers in most sizes, to our CliRpath Turbo lines. We launched a limited market release of these products in the fourth quarter of 2006, with full transition to this product line substantially complete as of the end of the first quarter of 2007. Approximately 25% of the atherectomy revenue growth compared with the prior year was due to unit price increases related to the transition to newer products. Atherectomy revenue growth from current levels will depend on our ability to increase market acceptance of our CliRpath product line to treat below-the-knee arterial blockages, our ability to further penetrate the treatment of above-the-knee arterial blockages following the July launch of our TURBO-Booster product and our ability to continue to increase the worldwide installed base of lasers, and future success of our ongoing clinical research and product development within the coronary and peripheral atherectomy markets.

Lead removal revenue grew 13% for the six-month period ended June 30, 2007, as compared with the same six-month period in 2006. We continue to believe our lead removal revenue is increasing primarily as a result of the increase in the use of implantable cardioverter defibrillators (ICD), devices that regulate heart rhythm. The current standard of care in this market is to cap leads and leave them in the body rather than lead removal. We estimate that 95% of replaced pacemaker or defibrillator leads are capped and left in the body. We have established a small, dedicated lead removal sales organization to increase awareness of potential complications associated with leaving abandoned or non-functioning leads in the body, in addition to other market development activities.

Page 18

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

Laser equipment revenue was $2,153,000 and $2,787,000 for the six months ended June 30, 2007 and 2006, respectively. Laser sales revenue, which is included in laser equipment revenue, decreased to $783,000 during the six-month period ended June 30, 2007 from $1,624,000 during the six-month period ended June 30, 2006. We sold six laser units (five as outright sales from inventory, and one sales conversion from an evaluation unit) during the first half of 2007 and 12 laser units (three as an outright sale from inventory and nine sale conversions from evaluation units) during the same period in 2006. Rental revenue increased 18% during the six-month period ended June 30, 2007, from $1,160,000 in the first half of 2006 to $1,370,000 in the first half of 2007. This increase is due primarily to the increase in our installed rental base of laser systems.

Our worldwide installed base of laser systems increased by 70 during the six months ended June 30, 2007, compared with an increase of 54 laser systems during the first half of last year. This brings our worldwide installed base of laser systems to 693 (547 in the U.S.) at June 30, 2007.

Service and other revenue increased to $3,803,000 for the first six months of 2007 as compared to $3,307,000 the first six months of 2006. The 15% increase was due primarily to the increased installed base of laser units.

Gross margin for the first six months of 2007 was 74%, a slight increase as compared with the first six months of 2006. The gross margin improvement was related to, in approximately equal measure, (1) higher average unit selling prices for our CliRpath Turbo elite catheters compared to a year ago (when the majority of our peripheral atherectomy catheter sales were from our CliRpath Turbo product line) and (2) reduced unit production costs due to improved productivity and reduced scrap costs.

Operating expenses of $28,157,000 in the first six months of 2007 increased 26% from $22,434,000 in the first six months of 2006. This increase is mainly due to a 24% increase in selling, general and administrative expenses relative to the same period in 2006, and a 33% increase in research, development and other technology expenses relative to the same period of a year ago.

Selling, general and administrative expenses increased 24% to $22,874,000 for the six months ended June 30, 2007 from $18,463,000 in the prior year period. The increase is primarily due to:

• Marketing and selling expenses increased approximately $4,100,000 for the first six months of 2007 as compared with the same period of the prior year, primarily as a result of the following:

• Increased personnel-related costs of approximately $1,550,000 associated with the staffing of 16 additional employees within our U.S. field sales and marketing organizations as of the end of the second quarter of 2007 as compared with the second quarter of 2006. These costs include salaries and related taxes, recruiting, and travel costs.

• Increased commissions of approximately $1,450,000, which is mainly due to the increase in revenues and additional employees.

• Approximately $700,000 in increased sales-related costs for our international operations, primarily due to the addition of five additional sales employees and the hiring of a general manager in our Netherlands subsidiary since a year ago.

• Increased expenses of approximately $300,000 related to (1) the Company’s annual global sales meeting which takes place in the first quarter of each year, due to the increase in sales and marketing employees and a longer duration for the meeting, and (2) additional potential customer training expense.

• General and administrative expenses increased approximately $200,000 in the first six months of 2007 compared with the same period of the prior year, primarily the result of increased personnel-related costs associated with increased staffing compared to a year ago.

In addition, approximately $100,000 of the increase in sales, general and administrative expense relates to an increase in stock compensation expense included in selling, general and administrative expenses in the first half of 2007 as compared to the year-ago period, due to the grant of additional options to new employees.

Research, development and other technology expenses of $5,283,000 for the first six months of 2007 represent an increase of 33% from $3,971,000 in the first six months of 2006. Costs included within research, development and other technology expenses are research and development costs, clinical studies costs and royalty costs associated with various license agreements with third-party licensors. The increase is primarily due to:

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

• Increased personnel-related costs (including recruiting and travel) of approximately $350,000 due primarily to the hiring of seven additional engineering and clinical studies employees since the year-ago period.

• Increased research and development outside services expense of approximately $700,000 which primarily includes increased fees paid to outside vendors assisting us with technology enhancements to our laser system of approximately $415,000 and increased expenses of approximately $220,000 related to the Company’s catheter development agreement with Bioscan Technologies, Ltd. (which agreement was terminated at the end of the second quarter of 2007) and;

• Increased regulatory-related expenses of approximately $250,000 due to increased regulatory submission costs and consulting costs

Interest income increased to $1,366,000 in the first six months of 2007 from $588,000 for the first six months of 2006. The increase in interest income in 2006 is mainly due to the invested net proceeds of the secondary stock offering we completed in the second quarter of 2006. Our investment securities portfolio consists primarily of government or government agency securities with maturities less than two years.

Pre-tax income for the first six months of 2007 was $1,182,000, compared with a pre-tax loss of $103,000 for the same period of 2006. Given the Company’s significant historical net operating losses which are available to offset future taxable income, any income tax expense or benefit is a non-cash item. As a result, management believes that pre-tax income or loss is the most appropriate measure of its operating performance.

For the six months ended June 30, 2007, we recorded a net income tax benefit of $5,905,000 against our pretax income of $1,182,000. Included in the net tax benefit for the first six months of 2007 is a non-cash tax benefit of $6,600,000 related to a reduction in the valuation allowance against our deferred tax asset. This adjustment was made as a result of our quarterly assessment of our deferred tax asset as required by SFAS 109, and the reasons for the adjustment are discussed in more detail in Note 9, “Income Taxes,” to our accompanying condensed consolidated financial statements. In addition to the valuation allowance adjustment, for the six months ended June 30, 2007, we recorded an income tax provision of $695,000 against out pretax income for the period. A portion of the Company’s granted stock options qualify as incentive stock options (ISO) for income tax purposes. As such, a tax benefit is not recorded at the time the compensation cost related to the options is recorded for book purposes due to the fact that an ISO does not ordinarily result in a tax benefit unless there is a disqualifying disposition. Due to the treatment of incentive stock options for tax purposes our effective tax rate is subject to variability.

We recorded net income for the six months ended June 30, 2007 of $7,087,000, or $0.21 per fully diluted share, compared with a net loss of $330,000, or ($0.01) per fully diluted share, in the same period last year. The change in net income is attributable primarily to the deferred tax asset valuation allowance adjustment discussed above, as well as the increase in revenue for the first half of 2007 as compared to the year-ago period.

The functional currency of Spectranetics International B.V. is the euro. All revenue and expenses are translated to U.S. dollars in the consolidated statements of operations using weighted average exchange rates during the period. Fluctuation in euro currency rates during the six months ended June 30, 2007, as compared with the six months ended June 30, 2006, caused a increase in consolidated revenue of $223,000 and an increase in consolidated operating expenses of $163,000.

Liquidity and Capital Resources

Cash, cash equivalents, and current and long-term investments in marketable securities as of June 30, 2007 were $53,472,000, a decrease of $2,995,000 from $56,467,000 at December 31, 2006. Cash used by operating activities of $2,132,000 for the six months ended June 30, 2007 consisted primarily of the following:

• Increase in equipment held for rental or loan of $4,401,000 as a result of expanding placement activity of our laser systems through evaluation, “cap free,” or rental programs.

• An increase in trade accounts receivable of $1,409,000 (net of an increase in deferred revenue), due to the increase in sales for the six months ended June 30, 2007 as compared to the final six months of 2006.

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

• An increase in prepaid expenses of $598,000 due primarily to annual insurance premium payments made in the first half of the year which are amortized to expense over the related policy period.

• Increased inventories of $414,000 which were primarily the result of higher stocking levels to meet the increase in laser and catheter demand.

• A decrease in accounts payable and accrued liabilities of $404,000.

The above uses of cash by operating activities were offset by the following sources for the six months ended June 30, 2007:

• Net income of $7,087,000 for the six months ended June 30, 2007 less the non-cash income tax benefit of $5,905,000, plus non-cash expenses of $3,955,000, which primarily consist of depreciation and amortization of $2,355,000; stock compensation expense of $1,383,000; and provisions for obsolete inventory of $217,000.

The table below presents the change in receivables and inventory in relative terms, through the presentation of financial ratios. Days sales outstanding are calculated by dividing the ending accounts receivable balance, net of reserves for sales returns and doubtful accounts, by the average daily sales for the most recent quarter. Inventory turns are calculated by dividing annualized cost of sales for the most recent quarter by ending inventory.

	June 30, 2007		December 31, 2006
Days Sales Outstanding		57		57
Inventory Turns		3.9		3.8

For the six months ended June 30, 2007, cash used in investing activities was $1,240,000, primarily due to capital expenditures of $2,196,000, offset by $956,000 of proceeds from the maturity of investment securities. Capital expenditures during the first six months of 2007 were primarily related to the expansion of our manufacturing capacity as well as expenditures for furniture and leasehold improvements related to our move to a new facility, which began early in the second quarter of 2007.

Cash provided by financing activities for the six month period ended June 30, 2007 was $1,324,000, comprised entirely of proceeds from the sale of common stock to employees and former employees as a result of exercises of stock options and stock issuances under our employee stock purchase plan. At June 30, 2007, there were no debt or capital lease obligations.

At June 30, 2007, and December 31, 2006, we had placed a number of laser systems on rental, “Cap-free,” and loan programs. A total of $20,387,000 and $16,319,000 was recorded as equipment held for rental or loan at June 30, 2007 and December 31, 2006, respectively, and is being depreciated over three to five years, depending on whether the laser system is new or remanufactured. Costs to maintain the equipment are expensed as incurred.

We currently offer three laser system placement programs in addition to the sale of laser systems:

(1)

Cap-free rental program — Under this program, we retain title to the laser system and the customer agrees to a catheter price list that includes a per-unit surcharge. Customers are expected, but not required, to make minimum purchases of catheters at regular intervals, and we reserve the right to have the unit returned should the minimum purchases not be made. We recognize the total surcharge as revenue each month, believing it to be the best measurement of revenue associated with the customers’ use of the laser unit each month. The laser unit is transferred to the equipment held for rental or loan account upon shipment, and the depreciation expense related to the system is included in cost of revenue. As of June 30, 2007, 184 laser units were in place under the Cap-free program.

(2)

Evergreen rental programs — Rental revenue under this program varies on a sliding scale depending on the customer’s catheter purchases each month. Rental revenue is invoiced on a monthly basis and revenue is recognized upon invoicing. The laser unit is transferred to the equipment held for rental or loan account upon shipment, and depreciation expense is recorded within cost of revenue. We also offer a straight monthly rental program, and there are a small number of hospitals that pay rent of $3,000 to $5,000 per month under this program. As of June 30, 2007, 101 laser units were in place under the Evergreen and straight monthly rental programs.

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition (Cont’d)

(3) Evaluation program — The Company “loans” laser systems to institutions for use over a short period of time, usually three to six months. The loan of the equipment is to create awareness of our products and their capabilities, and no revenue is earned or recognized in connection with the placement of a loaned laser, although sales of disposable products result from the laser placement. The laser unit is transferred to the equipment held for rental or loan account upon shipment and depreciation expense is recorded within selling, general and administrative expense. As of June 30, 2007, 90 laser units were in place under the evaluation program. These laser systems contribute to revenue immediately through the sales of disposable products to customers that have acquired a laser system under an evaluation program. We expect the number of future evaluation laser placements to diminish since the Cap-free rental program has become our primary laser placement program since its introduction in June 2005.

We believe our liquidity and capital resources are sufficient to meet our operating and capital requirements through at least December 31, 2007.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Significant items subject to estimates and assumptions include the carrying amount of property and equipment and intangible assets; valuation allowances and reserves for receivables, inventories and deferred income tax assets; and accrued royalty expenses. Actual results could differ from those estimates.

Our critical accounting policies and estimates are included in our Annual Report on Form 10-K, filed with the SEC on March 16, 2007.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of risks, including changes in interest rates affecting the return on our investments and foreign currency fluctuations. Our exposure to market rate risk for changes in interest rates relate primarily to our investment portfolio. We attempt to place our investments with high quality issuers and, by policy, limit the amount of credit exposure to any one issuer and do not use derivative financial instruments in our investment portfolio. We maintain an investment portfolio of various issuers, types and maturities, which consist of both fixed and variable rate financial instruments. Marketable securities are classified as available-for-sale, and consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component in stockholders’ equity, net of applicable taxes. At any time, sharp changes in interest rates can affect the value of our investment portfolio and its interest earnings. Currently, we do not hedge these interest rate exposures. Since our investment securities have maturities that are generally less than one year and not more than two years, we do not expect interest rate fluctuations to have a significant impact on the fair value of our investment securities. As of June 30, 2007, the unrealized loss on our investment securities was approximately $69,000.

As of June 30, 2007, we had cash and cash equivalents of $8.0 million, and current and long-term investment securities of $45.5 million. Overall average duration to maturity for all marketable securities is less than one year with 57% of the portfolio under one year and the remaining 44% between one and two years. At June 30, 2007, the marketable securities consisted of government or government agency securities and certificates of deposit.

Our exposure to foreign currency fluctuations is primarily related to sales of our products in Europe, which are denominated in the euro. Changes in the exchange rate between the euro and the U. S. dollar could adversely affect our revenue and net income. Exposure to foreign currency exchange rate risk may increase over time as our business evolves and our products continue to be introduced into international markets. Currently, we do not hedge against any foreign currencies and, as a result, could incur unanticipated gains or losses. For the six months ended June 30, 2007, approximately $223,000 of increased revenue and $163,000 of increased operating expenses were the result of exchange rate fluctuations of the U.S. dollar in relation to the euro. Accordingly, the net impact of exchange rate fluctuations on consolidated net income for the six months ended June 30, 2007 was an increase in net income of $60,000.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2007. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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Part II—OTHER INFORMATION

Item 1. Legal Proceedings

Rentrop

In July, 2003, we filed a complaint in the United States District Court for the District of Colorado against Dr. Peter Rentrop, which we amended in September 2003, seeking declaratory relief that (1) our products do not infringe any claims of Dr. Rentrop’s United States Patent No. 6,440,125 (the “‘125 patent”); (2) the claims of the ‘125 patent are invalid and unenforceable; and (3) in the event that the Court finds that the claims of the patent to be valid and enforceable, that we are, through our employees, a joint owner of any invention claimed in the ‘125 patent. We also brought claims against Dr. Rentrop for damages based upon Dr. Rentrop’s (1) misappropriation of our trade secrets; (2) breach of the parties’ Confidentiality Agreement; and (3) wrongful taking of our confidential and proprietary information.

On January 6, 2004, the United States Patent and Trademark Office issued to Dr. Rentrop a continuation patent to the ‘125 patent, United States Patent No. 6,673,064 (the “‘064 patent”). On the same day, Dr. Rentrop filed in the United States District Court for the Southern District of New York (the “New York Court”), a complaint for patent infringement against us, under the ‘064 patent (the “New York case”).

On January 26, 2004, the Court in Colorado granted Dr. Rentrop’s Motion to Dismiss the Amended Complaint on the basis that the Court lacked personal jurisdiction over Dr. Rentrop, a resident of New York. We decided to forgo appealing that decision; thus, there no longer is any case pending in Colorado.

On March 9, 2004, we filed our Answer, Affirmative Defenses and Counterclaims against Dr. Rentrop in the New York case. Our claim is that, in connection with consultation services provided to us by Dr. Rentrop, we provided Dr. Rentrop with confidential and proprietary information concerning certain of our laser catheter technology. We claim that rather than keeping such information confidential as required by agreement with us, Dr. Rentrop used the information to file patent applications associated with the ‘125 and ‘064 patents, which incorporate and claim inventions to which our personnel contributed significantly and materially, if not exclusively, thus entitling our personnel to designation at least as co-inventors. We sought declaratory judgments of non-infringement, invalidity and unenforceability of the patents-in-suit, and alleged counterclaims against Dr. Rentrop for breach of confidentiality agreement, misappropriation of trade secrets, and conversion.

After mediation hearings occurred in February 2006, with no settlement reached, the case was returned to the New York Court for trial, which began in late November 2006. In December 2006, the trial was concluded and the jury returned a verdict in favor of Dr. Rentrop, awarding him $500,000 in royalties and $150,000 in legal fees. We have filed several post-trial motions with the New York Court and the verdict will not be deemed accepted until the judge rules on these post-trial motions. In the event that our post-trial motions are unsuccessful, and the judge accepts the verdict, we currently plan to exhaust all of our appeal options. However, in light of the jury verdict, we have accrued $867,000 in expenses related to the verdict (the $650,000 awarded, and an additional $217,000 for royalties subsequent to the effective date of the jury award and through June 30, 2007), which are included in accrued liabilities on our condensed consolidated balance sheet at June 30, 2007. Of this amount, $690,000 had been previously accrued in the quarter ended December 31, 2006.

Cardiomedica

We have been engaged in a dispute with Cardiomedica S.p.A. (Cardiomedica), an Italian company, over the existence of a distribution agreement between Cardiomedica and us. Cardiomedica originally filed the suit in July 1999, and the lower court’s judgment was rendered on April 3, 2002. In June 2004, the Court of Appeal of Amsterdam affirmed the lower court’s opinion that an exclusive distributor agreement for the Italian market was entered into between the parties for the three-year period ending December 31, 2001, and that Cardiomedica may exercise its right to compensation from Spectranetics BV for its loss of profits during such three-year period. The appellate court awarded Cardiomedica the costs of the appeal, which approximated $20,000, and has referred the case back to the lower court for determination of the loss of profits. Cardiomedica had asserted lost profits of approximately 1,300,000 euros, which was based on their estimate of potential profits during the three-year period. In December 2006, the court made an interim judgment which narrowed the scope of Cardiomedica’s claim from their original claim of lost profits associated with 10 hospitals down to lost profits on two hospitals during the period from 1999 to 2001. Spectranetics BV estimates that the lost profits to Cardiomedica for the period related to these two hospitals, plus estimated interest and awarded court costs, are no more than $310,000, and such amount is included in accrued liabilities at June 30, 2007. We intend to vigorously defend the calculation of lost profits.

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Kenneth Fox

We are the defendant in a lawsuit brought in the District Court of Utrecht, the Netherlands (“the Dutch Court”) by Kenneth Fox. Mr. Fox is an inventor named on patents licensed to us under a license agreement assigned to Interlase LP. In this action, Mr. Fox claims an interest in royalties payable under the license and seeks alleged back royalties of approximately $2.2 million. However, in an interpleader action, the United States District Court for the Eastern District of Virginia, Alexandria Division, has already decided that any royalties owing under the license should be paid to a Special Receiver for Interlase. We have made all such payments. The United States District Court has also held Mr. Fox in contempt of the Court’s permanent injunction that bars him from filing actions like the pending action in the Netherlands, and the Court has ordered Mr. Fox to dismiss the Dutch action and to pay our costs and expenses. Mr. Fox has not yet complied with the United States District Court’s contempt order. In September 2006, the Dutch Court ruled that it does not have jurisdiction over The Spectranetics Corporation (U.S. corporation) and the proceedings will move forward on the basis of jurisdiction over Spectranetics B.V. only. We believe that this decision significantly narrows the scope of the claim. Mr. Fox is currently in the process of appealing the Dutch Court’s jurisdiction decision. We intend to continue to vigorously defend the Dutch action.

Blaha

On March 8, 2006, Robert Blaha and Terence Blaha filed a product liability/wrongful death action in the Arizona Superior Court (Maricopa County) naming us as a defendant in our role as the manufacturer and seller of a laser catheter product used in a medical procedure during which a patient died. The plaintiffs’ complaint did not specify the amount of damages. We believe that we have meritorious defenses against this complaint, and we intend to vigorously defend our position in this matter.

Other

We are involved in other legal proceedings in the normal course of business and we do not expect them to have a material adverse effect on our business.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of the Company’s 2006 Annual Report on Form 10-K.

Items 2-3. Not applicable

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

The Annual Meeting of Shareholders was held on June 19, 2007.

(1) The following directors were elected for a three-year term to expire at the Company’s Annual Meeting of Shareholders in 2010.

	For		Withheld
Martin T. Hart		27,065,784		1,733,159
Joseph M. Ruggio, M.D.		21,785,997		7,012,946

Emile J. Geisenheimer, Craig M. Walker M.D., R. John Fletcher, David G. Blackburn, and John G. Schulte continued their terms of office as directors after the meeting.

(2) An Amendment to The Spectranetics Corporation 2006 Incentive Award Plan was approved:

In favor:	14,411,709
Against:	3,914,715
Abstain:	148,479
Broker non-votes	10,324,040

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(3) The appointment of Ehrhardt Keefe Steiner & Hottman PC as our registered public accounting firm for the current fiscal year was ratified:

In favor:	28,471,480
Against:	303,382
Abstain:	24,081

Item 5. Not Applicable

Item 6. Exhibits

10.44		Training Agreement between The Spectranetics Corporation and Craig M. Walker, MD, dated June 21, 2007 (incorporated by reference from the Company’s Current Report on Form 8-K filed on June 22, 2007).
10.45		Second Amendment to The Spectranetics Corporation 2006 Incentive Award Plan, dated June 19, 2007 (incorporated by reference from the Company’s Current Report on Form 8-K filed on June 22, 2007).
31.1	(a)	Rule 13(a)-14(a)/15d-14(a) Certification.
31.1	(b)	Rule 13(a)-14(a)/15d-14(a) Certification.
32.1	(a)	Section 1350 Certification.
32.1	(b)	Section 1350 Certification

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.

	The Spectranetics Corporation
	(Registrant)
August 9, 2007	/s/ John G. Schulte
	John G. Schulte
	President and Chief Executive Officer
August 9, 2007	/s/ Guy A. Childs
	Guy A. Childs
	Vice President Finance, Chief Financial Officer

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