Atrial fibrillation, or AF, is a condition where abnormal electrical impulses cause the atria, or upper chambers of the heart, to fibrillate, or quiver, at rapid rates of 400 to 600 times per minute. As a result of this quivering, blood in the atria becomes static, creating an increased risk that a blood clot will form and cause a stroke or other serious complications. AF is the most commonly diagnosed sustained arrhythmia, and affects approximately five million people worldwide, including 2.2 million people in the United States where approximately 160,000 new cases of AF are diagnosed each year.

According to an article in the April 2001 edition of The New England Journal of Medicine, it is estimated that the incidence of AF doubles with each decade of an adult’s life. AF affects approximately 6% of all people 65 years and older in the United States. Studies show that one in four people over the age of 40 in the United States has a lifetime risk of developing AF, and the incidence of AF increases with age.

According to the American Heart Association, people with AF are approximately five times more likely to have a stroke, and AF is thought to be responsible for 15% of the estimated 700,000 strokes that occur annually in the United States. According to the National Center for Health Statistics, AF also accounts for an estimated 1.4 million outpatient visits and more than 227,000 hospitalizations annually in the United States. According to Medtech Insight, AF accounts for approximately $6 billion in costs each year.

The Centers for Disease Control and Prevention reports that the number of diagnosed AF cases in the United States will continue to increase. AF is an underdiagnosed condition due in large part to the fact that patients with AF often have mild or no symptoms and their AF is only diagnosed when they seek treatment for an associated condition, such as a stroke or heart disease. It is believed that increasing awareness of AF and improved diagnostic screening will result in an increase in the number of patients diagnosed with AF.

The Company’s bipolar ablation system consists of an ASU and a series of uniquely designed disposable Isolator handpieces. The Company’s ASU is a compact power generator that uses a proprietary software and delivers bipolar radiofrequency energy. Based on the Company’s proprietary software, the energy delivered to the tissue varies depending on the thickness and type of tissue being ablated.

In addition to the bipolar ablation system, the Company has designed a pen-shaped bipolar ablation device that is complementary to the system. This device is disposable and is powered by the same ASU that powers the bipolar ablation system. Because of the device’s slim, pen-shaped design, it is well suited to be used in minimally invasive procedures and to create transmural lesions in difficult to reach anatomy.

The Company also sells the Wolf Dissector, a product cleared by the FDA for use on thoracic and certain other non-cardiac soft tissues. The Wolf Dissector was designed by Dr. Randall Wolf, a leader in the field of minimally invasive cardiothoracic surgery. This dissection tool is used by surgeons to separate tissues surrounding the heart to provide access to key anatomical structures that are targeted for ablation during sole-therapy minimally invasive AF treatments. The Wolf Dissector is a disposable handpiece that consists of a minimally invasive shaft with an articulating index finger-shaped tip that illuminates. The illuminated tip allows surgeons to more easily determine the movement, direction and position of the device during minimally invasive procedures.

The Company also distributes an ablation device that uses cryothermy, or exteme cold, to ablate tissues. Some surgeons use this device in conjunction with the Company’s system to create lesions around heart valves as part of AF treatment.

Cost of revenues increased approximately $2.6 million, from approximately $2.6 million for the year ended December 31, 2003 to approximately $5.2 million for the year ended December 31, 2004.

Research and development expenses increased approximately $1.9 million, from approximately $2.5 million for the year ended December 31, 2003 to approximately $4.4 million for the year ended December 31, 2004.

Selling, general and administrative expenses increased approximately $7.2 million, from approximately $8.0 million for the year ended December 31, 2003 to approximately $15.2 million for the year ended December 31, 2004.

Other interest income (expense), net decreased slightly from approximately $154,000 for the year ended December 31, 2003 to approximately $106,000 for the year ended December 31, 2004.