The American Society for Aesthetic Plastic Surgery reports that in 2005, total expenditures for aesthetic procedures were approximately $12.4 billion. From 2000 to 2005 the total number of aesthetic procedures increased from approximately 5.7 million to over 11.4 million procedures, representing a 15% compounded annual growth rate. Non-invasive aesthetic procedures were primarily responsible for the overall increase, rising from approximately 4.3 million to approximately 9.3 million procedures over the same period, representing a 17% compounded annual growth rate.

The “baby boomer” demographic segment, defined by the U.S. Census as those Americans born between 1946 and 1964, represented over 26% of the U.S. population during 2005. Baby boomers control approximately $2 trillion in spending power and 50% of all discretionary income. The size and wealth of this aging segment and its desire to retain a youthful appearance have driven the growth for aesthetic procedures.

The traditional providers of aesthetic procedures include dermatologists and plastic surgeons. In 2005, there were approximately 16,000 physicians within the specialties of dermatology and plastic surgery according to the American Board of Medical Specialties. Manufacturers of aesthetic systems have placed an increasingly important focus on sales to other physician groups including approximately 67,000 family practitioners, 38,000 obstetricians and gynecologists, and 36,000 general surgeons. Additionally, physician directed medi-spas and non-medical day spas have entered the aesthetics market.

Monopolar RF delivery uses two electrodes, with one active electrode being held in the device handpiece by the physician and the second, a passive return electrode, typically attached to the patient’s back. Monopolar delivery allows for precise administration of energy because the electrical current is concentrated where the active electrode touches the body and disperses quickly as it travels towards the return electrode.

The single-use ThermaTip device contains the Company’s patented technology that uses monopolar RF energy as a controlled tissue heating source through the use of a non-conducting material, known as a dielectric. Capacitive coupling is the use of the dielectric to create an electric field in the area where the Company’s ThermaTip touches the body. The electric field induces a current within the surrounding tissue, resulting in heating of the tissue due to the tissue’s natural resistance to electrical current flow.

The Company’s ThermaCool system includes three major components: the RF generator, the reusable handpiece and a single-use ThermaTip, as well as several consumable accessories. Physicians attach a single-use ThermaTip to the handpiece, which is connected to the ThermaCool RF generator. The ThermaCool generator authenticates the ThermaTip device and programs the ThermaCool system for the desired treatment without physician intervention.

The ThermaCool RF generator produces a six-megahertz signal and is simple and efficient to operate. Controls are within easy reach, and important user information is clearly displayed on the built-in display, including energy delivered, tissue impedance, duration and feedback on procedure technique. The Company’s cooling module works in conjunction with the generator to deliver cryogen that cools and helps to protect the epidermal surface during a Thermage procedure.

The ThermaTip device is available in four sizes with several configurations of pulse counts, pulse durations and two heating profiles for efficient implementation of treatment guidelines, based on the size and nature of the treatment area. Physicians currently can order pre-sterilized ThermaTips in sizes of 0.25 cm2, 1.0 cm2, 1.5 cm2 and 3.0 cm2. Each ThermaTip contains a proprietary internal EPROM, or programmable memory chip, that controls the firing profile of the tip in order to enhance performance and safety in the selected treatment.

The system also includes other consumable components in addition to ThermaTips. The cooling module houses a canister of cryogen coolant that can be used for an average of five to six procedures, depending on the total skin surface area treated and the ThermaTip device used.

Cost of revenue increased $1.4 million, or 22%, from $6.3 million to $7.7 million for the six months ended June 30, 2005 and 2006, respectively.

Sales and marketing expenses increased $2.0 million, or 20%, from $10.1 million to $12.1 million for the six months ended June 30, 2005 and 2006, respectively.

Research and development expenses increased $0.6 million, or 15%, from $4.3 million to $4.9 million for the six months ended June 30, 2005 and 2006, respectively.

Interest and other income increased $97,000, or 68%, from $143,000 to $240,000 for the six months ended June 30, 2005 and 2006, respectively.