Manny Villafaña, Chairman and Chief Executive Officer of Kips Bay Medical, Inc., a medical device company focused on manufacturing and commercializing its external saphenous vein support technology, eSVS® Mesh, for use in coronary artery bypass grafting surgery (CABG), provided the following business update to Kips Bay shareholders and the financial community.

Dear shareholders and friends: I felt it would be good to provide a business update to all of our shareholders via a press release so that everyone can understand the activities underway at Kips Bay Medical.

First of all, we continue to have successful implants throughout the world. We now estimate that we have 500+ commercial implants in Europe and the Middle East since the commercialization of our product began in June of 2010. Over this time, there have been no reportable adverse events related to our device.

Additionally, with the U.S. Food and Drug Administration (FDA) approval to begin feasibility trials here in the United States, we have begun working with some of the leading cardiac research centers in the United States. We have had, or are in the process of, patient enrollment at the following centers: Northeast Georgia Heart Center of Gainesville, GA; the Mayo Clinic of Rochester, MN; Emory University Hospital Heart and Vascular Center in Atlanta, GA; and the Texas Heart Institute in Houston, TX. Furthermore, we have additional U.S. sites that are working to be ready to join our feasibility trial in the event that we receive approval from the FDA to add more clinical trial sites in the United States. The Lenox Hill Hospital in New York has received its required internal approval and has signed a clinical trial agreement with us, and we are presently working with the Cleveland Clinic, in Cleveland, Ohio, to complete their internal review and approval process. And, of course, this is in addition to our work overseas where we have five centers enrolling patients and three more getting ready to begin. We now have 30 patients enrolled in the feasibility trial.

Once we have completed the patient follow-up and data analysis from our feasibility trial, which we hope to finish within the next 12 months, we intend to use those results as the basis for obtaining an approval from the FDA to begin a pivotal trial in the United States.

We are moving our sales & marketing activities in Europe to the next stage. Over the last 2 years, we have been appropriately focused on educating the cardiac surgeons, and this has been very well received. We believe that our estimated 500+ patient implants to-date, particularly in light of the difficult economic circumstances in Europe, demonstrates a sincere interest in our product. We now focus on driving the adoption rate of our product. We are emphasizing the use of our product not only in procedures where saphenous veins are typically used, but also as an alternative for those cases, in which the surgeon would otherwise choose to use primarily arterial conduits for the CABG procedure. We are working to show that surgeons are able to use our eSVS Mesh to give the vein arterial-like characteristics which can be used in patients that require total arterialization. To help us achieve this next stage, we have brought on board Mr. Chris Borg and Mr. Ray Holloway, two gentlemen with strong experience in successfully driving the adoption of new technology. Furthermore, to support this effort, my travel schedule has been increased as we work to educate and train, not just the Chief of Surgery, but the entire cardiac surgery support team so that everyone in the operating room is trained on and comfortable with the use of our device, thereby driving the adoption of our technology.

As we have discussed in the past, the economies of Europe continue to struggle, and we find ourselves still dealing with their budget constraints and the challenge of finding resources to apply to new medical technology. However, we have had some success in obtaining reporting codes for hospitals to disclose their use of the eSVS Mesh to their national healthcare systems. Last month, we announced the issuance of a reporting code in Switzerland that will be effective on January 1, 2014. Today we announce that Germany has also issued a reporting code effective January 1, 2014. These codes provide a first step toward eventually establishing reimbursement for our device.

We have other hospital and conference related activities underway as well. We recently participated in Grand Rounds at the University of Southern California, San Diego. We have been asked to present our story at the upcoming Columbia University Hospital Healthcare Conference. These are in addition to our previously announced participation in the September meeting of the World Society of Cardiothoracic Surgeons, in Croatia and the October meeting of the European Association of Cardiothoracic Surgeons (EACTS) meeting in Vienna, Austria. We also have been asked to present our story at the upcoming Aegis Healthcare Conference in which I will be the conference keynote speaker.

The key points that I want to get across to everyone are that we are doing well, we are confident that we can enroll our eMESH I clinical feasibility study, and we have adequate cash on hand to complete our feasibility study. Major clinical centers are on board, both in Europe and in the U.S., which are recruiting patients as we speak. We, of course, like you, have been disappointed by the trading price of our stock, but we’re hoping that this information will give you a better understanding of our activities and our potential for success.

On behalf of Kips Bay and the Board of Directors, thank you for your continued support.

Manny Villafaña Chairman & CEO