Michael Moretti/Medical Insight, Inc., an aesthetic treatment market research firm, estimates that the number of non-invasive aesthetic treatment procedures worldwide using laser and other light-based technologies will grow from nearly 20 million in 2003 to over 53 million in 2008, representing a compound annual growth rate of over 20%. It is estimated that the worldwide market for aesthetic treatment systems based on laser and other light-based technologies will exceed $550 million in 2005.

Aesthetic treatment procedures that use lasers and other light-based equipment have traditionally been performed by dermatologists and plastic surgeons. Based on published membership information from professional medical organizations, there are more than 18,000 dermatologists and plastic surgeons in the United States. More recently, a broader group of physicians in the United States, including primary care physicians, obstetricians, gynecologists, ophthalmologists and ear, nose and throat specialists, have incorporated aesthetic treatment procedures into their practices. These non-traditional physician customers are largely motivated to offer aesthetic procedures by the potential for a reliable revenue stream that is unaffected by managed care and government payor reimbursement economics.

An aesthetic spa market is also rapidly developing and growing in the United States at dedicated day spa facilities and hotels and resorts. In addition to conventional massage and cosmetic treatments, aesthetic spas are also beginning to offer non-invasive light-based procedures performed by spa technicians and other non-medical professionals. ISPA estimates that there were approximately 12,000 aesthetic spas in North America in 2004, an increase of approximately 26% from 2002.

Practitioners use the Company’s products to perform a variety of non-invasive procedures to remove hair, treat vascular and pigmented lesions, rejuvenate skin through the treatment of shallow vascular lesions and pigmented lesions and temporarily reduce the appearance of cellulite.

Apogee Elite workstation is the Company’s flagship product for hair removal. It is a two-in-one laser system that contains both an Alexandrite laser, which is best suited for hair removal for patients with light skin types, and an Nd:Yag laser, which is best suited for hair removal for patients with medium and dark skin types or tanned skin.

Cynergy workstation is the Company’s flagship product for the treatment of vascular lesions. The Cynergy system combines a pulse dye laser, which is best suited for treating shallow vascular lesions, such as port wine birthmarks, facial veins and rosacea, and an Nd:Yag laser, which is best suited for treating large or deep veins, such as leg veins.

PhotoSilk Plus system is the Company’s flagship product for skin rejuvenation. The PhotoSilk Plus system is a high-powered pulsed light system that delivers energy over a broad spectrum of wavelengths that are best suited for treatment of shallow vascular lesions and pigmented lesions.

The Company offers the PhotoSilk Plus system with a variety of handpieces that have different wavelength filters and spot sizes. The Company offers three different wavelength filters and three different spot sizes. The range of available wavelength filters allows the practitioner to select the handpiece best suited for the type of treatment to be performed.

TriActive LaserDermology system is the Company’s flagship product for temporarily reducing the appearance of cellulite. The TriActive system contains six low-energy diode lasers, mechanical massage and suction features and localized cooling.

Cost of revenues increased $1.9 million, or 20%, to $11.6 million in the first six months of 2005, as compared to $9.7 million in the same period in 2004.

Sales and marketing expenses increased $2.3 million, or 40%, to $8.0 million in the first six months of 2005, as compared to $5.8 million in the same period in 2004.

Research and development expenses remained relatively flat, increasing by $0.1 million, or 8%, to $1.5 million in the first six months of 2005, as compared to $1.4 million in the same period in 2004.

Interest expense decreased to $45.0 thousand in the first six months of 2005 from $71.0 thousand in the same period in 2004.