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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

     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 (check one):

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 15,364,28115,683,128 shares of Common Stock as of July 31, 2006.April 25, 2007.

Stock option activity was as follows:

The following table summarizes information aboutconcerning unvested options outstanding, vested and exercisable at June 30, 2006:for the three months ended March 31, 2007:

On January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R),Share Based Payment(SFAS 123(R)) prospectively to new awards and to awards modified, repurchased or cancelled after December 31, 2005. Prior to the adoption of SFAS 123(R), we used the minimum-valueminimum value method of measuring equity share options for the pro forma disclosure under SFAS 123. We will continue to apply the intrinsic-value method for awards granted prior to the adoption of SFAS 123(R). The Company’s financial statements as of and for the sixthree months ended June 30,March 31, 2007 and 2006 reflect the impact of SFAS 123(R).

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Since we are a newly public entity with nolimited historical data on volatility of our stock, the expected volatility is based on volatility of similar entities (referred to as guideline companies). In evaluating similarity, we considered factors such as industry, stage of life cycle, size and financial leverage. The expected term of options granted is determined using the “shortcut” method allowed by SAB 107. Under this approach, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual term. The shortcut approach is not permitted for options granted, modified or settled after December 31, 2007. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. We use historical termination behavior to support estimated forfeiture rates. In addition, SFAS 123(R) requires us to reflect the benefits of tax

the benefits of tax deductions in excess of recognized compensation cost to be reported as both a financing cash inflow and an operating cash outflow upon adoption. We have recognized no such tax benefits to date.

The following assumptions were used to estimate the fair value of stock option shares granted to employees during the six-monththree-month period ended June 30, 2006March 31, 2007 using the Black-Scholes option-pricing model:

The weighted average grant date fair value perof share of options granted during the sixthree months ended June 30, 2006 and 2005March 31, 2007 was approximately $5.13$2.55 per share. No options were granted during the three months ended March 31, 2006. The Company recorded cash received from the exercise of stock options of $146 and $4.24, respectively.did not recognize any related tax benefits during the three months ended March 31, 2007. Upon exercise, the Company issues new shares of stock. The totalaggregate intrinsic value of share options exercised during the sixthree months ended June 30,March 31, 2007 and 2006 and 2005 was approximately $428,000$298 and $51,000,$2, respectively. As of June 30, 2006,March 31, 2007 there was $4.7 million$4,027 of total unrecognized compensation costs related to outstanding options granted after the adoption of SFAS 123(R), which is expected to be recognized over a weighted average period of 3.93.1 years.

Prior to our initial public offering (IPO), certain stock options were granted with exercise prices that were below the estimated fair value of the common stock at the date of grant. We recorded deferred stock compensation of $2.5 million$2,500 for the period through December 31, 2005 (until the adoption of SFAS 123(R)), in accordance with Accounting Principles Board (APB) No. 25. As of June 30, 2006March 31, 2007, there was $1.7 million$1,133 of deferred stock-based compensation that will be amortized on a straight-line basis over a weighted average period of 3.02.3 years.

ForIn March 2006, the six-month period ended June 30, 2006, resultsCompany modified certain stock options held by one individual to accelerate the vesting period. The modified stock options resulted in $191 of operations reflectadditional compensation expense for newthe three months ended March 31, 2006. The following assumptions were used to estimate the fair value of the 27,180 common stock options modified during the three months ended March 31, 2006 using the Black-Scholes option-pricing model:

On February 1, 2007, the Board of Directors of the Company approved an amendment to 247,750 stock options that were granted or modified under our stock incentive plans duringto eleven Company employees between May 15, 2006 and July 20, 2006 whereby the continued amortizationexercise price of such stock options was reduced from a weighted average $7.89 per share to $3.89 per share, which was the closing price of the deferred stock-based compensation for options granted prior to JanuaryCompany’s common stock on February 1, 2006.2007. All other terms

We develop, manufacture and market our proprietary and patented Pillar^® palatal implant system or(“Pillar System”). The Pillar System anis a simple, innovative, minimally-invasive,minimally invasive, implantable medical device used to treat sleep disordered breathing, which includes mild to moderate obstructive sleep apnea, or OSA, and habitual or socially disruptive snoring. During the Pillar Procedureâ^®, a physician implants three small, braided, proprietary polyester inserts into the muscle of the soft palate. These Pillar inserts, together with the body’s natural fibrotic response to the implanted Pillar inserts, add structural support and stiffen the soft palate, thereby minimizing or eliminating the palatal tissue vibration that can cause snoring and the collapse that can obstruct the upper airway and cause OSA. We currently market and sell our Pillar System to otolaryngologists (ear, nose and throat physicians, or ENTs) and to a limited number of oral maxillofacial surgeons. We believe the Pillar Procedure is a safe, clinically effective, long-lasting and low-risk procedure with minimal pain or complications that offers significant benefits to both patients and physicians over other available treatment options for snoring and mild to moderate OSA.options.

Our Pillar System was cleared by the United States Food and Drug Administration, or FDA, for snoring in December 2002 and for mild to moderatemild-to-moderate OSA in July 2004. Our Pillar System received CE Mark certification for both snoring and mild to moderate OSA from the European Commission in May 2003 and December 2004, respectively. We currently market and sell our Pillar System to otolaryngologists (ear, nose and throat physicians) and to a limited number of oral maxillofacial surgeons.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The application of GAAP requires that we make estimates that affect our reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates.

Research and development expenses. Our research and development expenses consist of salaries and other personnel-related expenses, including stock-based compensation, for employees engaged in research, development and engineering activities and materials used and other overhead expenses incurred in connection with the design and development of our products. Research and development expenses increased by $391,000,$439, or 94%72%, to $807,000$1,052 in the secondfirst quarter of 20062007 from $416,000$613 in the secondfirst quarter of 2005.2006. The increase in expenses was primarily attributable to $178,000 of expenses related to additional clinical studies, increased compensation expense of $78,000 due primarily to the hiring of our Vice President of Research and Development in the fourth quarter of 2005 and an increase in stock-based compensation of $31,000 over the same period in the prior year. Research and development expenses increased by $485,000, or 52%, to $1,420,000 in the six months ended June 30, 2006 from $935,000 in the comparable period in 2005. This increase was primarily attributable to $260,000 of expenses$305 related to additional hiring within both our research and clinical studies, increased compensation expensedepartments in the third and fourth quarters of $145,000 due primarily to the hiring of our Vice President of Research2006, and Development noted above and ana combined increase in stock-based compensationprofessional services and clinical study fees of $53,000$96 over the same period in the prior year. In future quarters, we

As of June 30, 2006,March 31, 2007, we had total cash, cash equivalents and marketable securities of $30.1$19.3 million. We believe that our current cash and cash equivalents and cash generated from operations will be sufficient to fund our working capital and capital resource needs for at least the next 2412 months.

Net cash used in operating activities was $5.3$4.1 million during the first sixthree months of 20062007 compared to $3.6$2.1 million in the first sixthree months of 2005.2006. Cash used in operating activities has historically resultedincreased by $2.0 million resulting from operating losses and changes in working capital reduced by non-cash interest expenses,expense, stock-based compensation and depreciation and increased by net increases in accounts receivable and inventories resulting from the growth of our business.depreciation.

Net cash used in investing activities was $9.7$1.8 million during the first sixthree months of 20062007 compared to $4.7 million provided by$601,000 used in investing activities in the first sixthree months of 2005.2006. During 2007 and 2006, cash used in investing activities was primarily related to the purchase of marketable securities with a portion from the proceeds of our IPO. During 2005, cash provided by investing activities was primarily related to theand sale of marketable securitiessecurities.

Net cash used in financing activities was $386,000 during the first three months of 2007 primarily consisting of the repayment of long-term debt, offset by proceeds from the purchaseissuance of $94,000 of capital equipment.

As of June 30, 2006,March 31, 2007, we had outstanding long-term debt of $6.0$4.5 million pursuant to a term loan, which accrues interest at a rate equal to prime plus 3%. The term loan will beis being repaid over 30 consecutive monthly payments of principal and interest beginningwhich began on July 1, 2006, with an additional final payment in an amount equal to 5% of the original loan due on December 31, 2008. The term loan is collateralized by substantially all of our assets, excluding our intellectual property. As of March 31, 2007, we were in compliance with all of the covenants contained in the term loan agreement.

Our future capital requirements will depend upon a number of factors, including, but not limited to, the amount of cash generated by operations, competitive and technological developments and the rate of growth of our business.business and changes in competition and technologies. Although we have been successful in raising funds in the past, there is no assurance that any such financings or borrowings can be obtained in the future on terms acceptable to us.

The following table aggregates all contractual commitments and commercial obligations that affect our financial condition and liquidity position at March 31, 2007 (in thousands):

In June 30, 2006:2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in a company’s financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attributable for financial disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 as of January 1, 2007. The adoption of FIN 48 did not impact our financial position, results of operations or cash flows for the three months ended March 31, 2007.

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenue or other financial items, any statement of the plans and objectives of management for future operations, any statements concerning proposed new product development, any statements regarding future economic conditions or performance and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” or “continue” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including, but not limited to the following factors:

All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

On May 22, 2006, we completed our IPO of 4,000,000 shares of common stock (the IPO Shares). We sold the IPO Shares to the public at a price of $8.00 per share. Our sale of IPO Shares was registered under the Securities Act of 1933, as amended, onpursuant to a registration statement on Form S-1 (Registration Stmt. No. 333-132368), which was declared effective by the Securities and Exchange Commission on May 16, 2006. TheWe received net proceeds to us from the sale of the IPO Shares, after deducting the underwriting discount and offering expenses, wereof approximately $27.7 million. The net proceeds have been invested in money market funds, investment grade commercial paper and debt instruments of the U.S. government and its agencies. During the quarter ended June 30, 2006,March 31, 2007, we did not use anyused approximately $4.6 million of net proceeds from the IPO.IPO for general corporate purposes, including expanding domestic marketing and sales organizations and programs, increasing product development efforts and increasing our clinical study initiatives.

The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.

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.