Cosmetic surgical procedures represent a large and growing market. The American Society for Aesthetic Plastic Surgery, or ASAPS, estimated that $6.5 billion was spent in the U.S. during 2003 on cosmetic surgical procedures, excluding surgical facility fees, anesthesia, medical tests, prescriptions, surgical garments and miscellaneous expenses. According to estimates by The American Society of Plastic Surgeons, or ASPS, its members treated approximately 2.0 million people in 2002, a 95% increase since 1998. Published cosmetic surgery statistics released by ASAPS indicate that the number of cosmetic surgical procedures performed in the United States increased 12% from 2002 to 2003.

Liposuction was most the popular cosmetic surgical procedure performed, accounting for 384,000 procedures in 2003. While women represented the substantial majority of liposuction procedures performed, the number of men undergoing cosmetic surgical procedures increased 22% from 2002. Internationally, the German Society for Liposuction estimated in 2000 that approximately 250,000 lipoplasty procedures were performed annually in the European Union countries.

The VASER System is a mobile unit that can be moved among operating rooms as needed within a surgical facility. It uses plug-in power and can be configured for use with common current types of domestic and international power sources. The system has a compact footprint of 46 centimeters by 43 centimeters that facilitates its use in a variety of surgical settings. The components of the VASER System are VASER Amplifier; Handpiece and Detachable Probes; VentX Aspiration and Infusion System; VentX Precision Fluid Management System; Skin Ports; and Accessories.

The VASER Amplifier is the power generation platform which delivers controlled energy to the handpiece which transmits ultrasonic energy to the probe in either pulsed or continuous wave modes. The VASER Amplifier can be configured for installation in a stationary location as a table top unit.

The handpiece is a light, compact and ergonomically designed instrument that is matched with interchangeable titanium probes featuring different diameters, lengths, and tip designs. The solid probes give the surgeon a full range of choices of instrumentation with which to deliver pulsed or continuous ultrasonic energy, depending on the location, type, extent and depth of the fat deposit.

The VentX Aspiration and Infusion System is a console with built-in motors and pumps used to introduce saline solutions at controlled, variable rates and vacuum away emulsified fat.

The VentX Precision Fluid Management System uses a separate digital display to accurately track fluid, infusion volume to +/- 1cc when saline or wetting solutions are being introduced into the patient.

The Skin Ports are designed to protect the skin and to provide the surgeon with easy access through incisions that are less than 4mm in length for the infusion of fluids and the ultrasonic fragmentation and aspiration of emulsified fat. The Skin Ports also function as a skin protector, reducing the chances of burns or injury to the skin when ultrasonic energy is being applied through the probes.

The VASER System comes with a selection of suction and infusion tubing and two different size canisters for collection of emulsified fat. These accessories are disposable items that facilitate recurring sales to the customers.

The Company markets the VASER System directly to physicians and surgery center and hospital staffs at various conventions and industry tradeshows.

Cost of goods sold increased $700,000, or 138.4% from $545,000 for the year ended December 31, 2003 to $1,245,000 for the year ended December 31, 2004.

Sales and marketing expenses increased $2.7 million, or 103.8%, from $2.6 million for the year ended December 31, 2003 to $5.3 million for the year ended December 31, 2004.

Research and development expenses decreased from $281,000 for the year ended December 31, 2003 to $218,000 for the year ended December 31, 2004.

Other income (expense), net, decreased $65,000, from ($101,000) for the year ended December 31, 2003 to ($36,000) for the year ended December 31, 2004.