Looking to claw its way toward profitability, medical device maker FoxHollow Technologies (NASDAQ:FOXH) reported a 6% increase in revenues on a year-over-year basis for its Q1. The company reported a net loss of $0.02 per share versus a net loss of $0.60 per share in the year-ago quarter. Both of these quarters were swung into the red because of non-cash stock-based compensation expenses.

FoxHollow has a healthy set of financial statements and, on a per-share basis, is expecting net income for the year to amount to between $0.00 and $0.60. That said, there are still some roadblocks in the way before this stock will be able to regain the 40% in market cap it's lost since late October. The biggest roadblock is new product sales. The company's recent increase in quarterly revenue was driven by collaboration revenue from Merck (NYSE:MRK). Its product revenue, on the other hand, actually decreased by 7.8% versus the company's 2006 Q1.

FoxHollow's primary source of product revenue is the sales of its SilverHawk device, which is used by hospitals to treat patients' blocked arteries in the lower leg. Although this most recent quarter exhibits signs of stagnant sales growth for the SilverHawk, there have been two recent developments by FoxHollow that could provide future revenue streams to augment its current product revenue.

In January, FoxHollow entered into a collaborative agreement with ev3 (NASDAQ:EVVV) to seek approval for specialized devices used in the treatment of peripheral artery disease (PAD). The agreement will give FoxHollow exclusive rights to market the devices in the United States.

A more recent development is the company's submission last month of a 510(k) to the FDA for its NightHawk System, which is also used in the treatment of patients with peripheral artery disease. A 510(k) is a submission made to the FDA to demonstrate that the device is safe and effective. It's also a key step toward commercializing the NightHawk.

FoxHollow has certainly demonstrated the ability to produce medical devices with leading edge technology, and its strides toward profitability are also encouraging. But given the recent plateau in the company's product revenue, I'm waiting to see if the company is able to either generate increased sales growth from the SilverHawk in its upcoming fiscal quarters or enhance its current sales level via one of its new products before diving into this one.

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Merck is an Income Investor pick.

Fool contributor Billy Fisher does not own shares of any of the companies mentioned.