Healthy leg veins contain valves that allow blood to move in one direction from the lower limbs towards the heart. These valves open when blood is flowing toward the heart, and close to prevent venous reflux, or the backward flow of blood. When veins weaken and become enlarged, their valves cannot close properly, leading to venous reflux and impaired drainage of venous blood from the legs. This causes blood to pool in the leg veins and venous blood pressure to increase. The pooling and increase in venous pressure leads to pain, swelling and varicose veins.

Factors that contribute to venous reflux disease include female gender, heredity, obesity, lack of physical activity, multiple pregnancies, age, past history of blood clots in the legs and professions that involve long periods of standing. According to population studies, varicose veins, a common indicator of venous reflux disease, affect up to 15% of adult men and up to 25% of adult women.

It is believed that the market opportunity for the treatment of venous reflux disease is large and underserved. Based on published population studies, approximately 25 million people in the United States have symptomatic venous reflux disease. It was found that of the symptomatic patients, approximately 1.2 million currently seek treatment each year in the United States, of which it is estimated over 800,000 have reflux in the great saphenous vein. It is also estimated that, of these 800,000 patients, approximately 620,000 patients receive compression stockings or varicose vein procedures that do not address the primary underlying cause of venous reflux; 130,000 patients undergo vein stripping surgery; and 50,000 patients receive minimally invasive treatment with endovenous ablation.

As more people become aware of minimally invasive alternatives to vein stripping, it is believed that a larger percentage of the 25 million symptomatic patients in the United States will seek therapy.

The Company’s proprietary disposable endovenous catheters are used to deliver RF energy to heat the walls of saphenous veins. Each catheter has a set of collapsible electrodes located at the tip. The electrodes expand to contact the inner wall of the vein to be treated and produce uniform heating on all sides of the vein wall as well as a localized depth of heating to limit damage to surrounding tissue. The Company’s catheters are available in two sizes, which allows doctors to treat saphenous vein diameters that encompass over 95% of patients.

The Company’s RF generator delivers energy to the catheter and continuously monitors the temperature at the vein wall, automatically adjusting the power delivered to the catheter to achieve a target temperature. This feedback system is designed to allow the physician to perform the Closure procedure at a relatively constant temperature over the entire length of the treated vein. The RF generator is controlled by proprietary software which allows it to recognize each catheter model and to automatically select the appropriate algorithm.

The Closure procedure pack contains sterile supplies needed to perform the Closure procedure. The pack includes disposable surgical drapes, gowns, gloves, vein access components, syringes, bowls, needles and other supplies in a single package for the convenience of the purchasing facility. The Company also sells reusable phlebectomy instruments for removal of varicose veins, and vein access supplies such as introducer sheaths and needles.

Cost of revenues increased $1.5 million, from $2.6 million in the first six months of 2003 to $4.1 million in the first six months of 2004.

Sales and marketing expenses increased $2.4 million, from $5.1 million in the first six months of 2003 to $7.5 million in the first six months of 2004.

Research and development expenses increased $900,000, from $1.5 million in the first six months of 2003 to $2.4 million in the first six months of 2004.

General and administrative expenses increased $600,000, from $1.3 million in the first six months of 2003 to $1.9 million in the first six months of 2004.