##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


ANNUAL REPORT


PURSUANT TO SECTIONS 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2005                                                 
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to          .                                  

Commission file number: 000-50988





VNUS Medical Technologies, Inc.


(Exact name of registrant as specified in its charter)


|                                                                               |  |                                         
|------------------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                                       |  | 94-3216535                              
|(State or other jurisdiction of
    incorporation or organization)             |  | (I.R.S. Employer
    Identification No.)
|2200 Zanker Road, San Jose, California(Address of principal executive offices) |  | 95131(Zip Code)                         

Registrants telephone number, including area code:


(408) 473-1100


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.001 par value per share





o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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##### 










VNUS MEDICAL TECHNOLOGIES, INC.


TABLE OF CONTENTS


|                           |  |                                                                                                                      |   |      |    | 
|-------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | - | ---- | -- | 
|                           |  |                                                                                                                      |   | Page |   
|                           |  |                                                                                                                      |   |      |   
|PART I                    
|FORWARD LOOKING STATEMENTS |  |                                                                                                                      | 3 |     
|Item 1.                    |  | Business                                                                                                             |   |      | 3  | 
|Item 1A.                   |  | Risk Factors                                                                                                         |   |      | 20 | 
|Item 1B.                   |  | Unresolved Staff Comments                                                                                            |   |      | 35 | 
|Item 2.                    |  | Properties                                                                                                           |   |      | 35 | 
|Item 3.                    |  | Legal Proceedings                                                                                                    |   |      | 35 | 
|Item 4.                    |  | Submission of Matters to a Vote of Security
    Holders                                                              |   |      | 35 | 
|                          
|PART II                   
|Item 5.                    |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |   |      | 36 | 
|Item 6.                    |  | Selected Consolidated Financial Data                                                                                 |   |      | 37 | 
|Item 7.                    |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |   |      | 38 | 
|Item 7A.                   |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |   |      | 48 | 
|Item 8.                    |  | Financial Statements and Supplementary
    Data                                                                      |   |      | 49 | 
|Item 9.                    |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |   |      | 72 | 
|Item 9A.                   |  | Controls and Procedures                                                                                              |   |      | 72 | 
|Item 9B.                   |  | Other Information                                                                                                    |   |      | 72 | 
|                          
|PART III                  
|Item 10.                   |  | Directors and Executive Officers of the
    Registrant                                                               |   |      | 73 | 
|Item 11.                   |  | Executive Compensation                                                                                               |   |      | 73 | 
|Item 12.                   |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |   |      | 73 | 
|Item 13.                   |  | Certain Relationships and Related
    Transactions                                                                   |   |      | 73 | 
|Item 14.                   |  | Principal Accountant Fees and Services                                                                               |   |      | 73 | 
|                          
|PART IV                   
|Item 15.                   |  | Exhibits and Financial Statement
    Schedules                                                                       |   |      | 73 | 
|EXHIBIT 10.19             
|EXHIBIT 10.20             
|EXHIBIT 10.21             
|EXHIBIT 21                
|EXHIBIT 23.1              
|EXHIBIT 31.1              
|EXHIBIT 31.2              
|EXHIBIT 32                



2



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PART I





FORWARD-LOOKING STATEMENTS


Certain statements contained in or incorporated by reference
into this report are forward-looking statements within the
meaning of Section 21 of the Securities Exchange Act of
1934, as amended. Forward-looking statements include statements
that are predictive in nature and depend upon or refer to future
events or conditions, which include words such as
believes, plans,
anticipates, estimates,
expects, may, will,
should, could, potential, or
similar expressions. In addition, any statements concerning
future financial performance, reimbursement rates, ongoing
business strategies or prospects, and possible future actions
are also forward-looking statements. Forward-looking statements
are based on current expectations and projections about future
events and are subject to risks, uncertainties, and assumptions
about our company, economic and market factors and the industry
in which we do business, among other things. We discuss such
risks, uncertainties and other factors throughout this report
and specifically under the caption Risk Factors in
Part I, Item 1A below. Our actual results, performance
or achievements or industry results could differ materially from
any future results, performance, achievements or industry
results expressed or implied by such forward-looking statements.
These statements are not guaranties of future performance and we
undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future
events or otherwise, except as required by law.





Item 1:     Business


Overview


®








3



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| |                     
| | --------------------
| | Corporate Background

473-1100. 10-K, 10-Q, 8-K www.vnus.com


® ® ® tm


Venous Reflux Disease










| |   |                                                        
| | - | -------------------------------------------------------
| |  | leg pain and swelling;                                 
|
| |  | leg heaviness and fatigue;                             
|
| |  | painful varicose veins;                                
|
| |  | skin changes such as discoloration or inflammation; and
|
| |  | open skin ulcers.                                      



4



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Venous Reflux Market






| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 620,000 patients receive compression stockings or varicose
    vein procedures that do not address the primary underlying cause
    of venous reflux;
|
| |  | 70,000 patients undergo vein stripping surgery; and                                                                                                  
|
| |  | 120,000 patients receive minimally invasive treatment with
    endovenous ablation, including our Closure procedure.                                 





Current Treatment Alternatives




Conventional Vein Stripping and Ligation Surgery.




Endovenous Laser Ablation, or EVL.




5



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follow-up




The VNUS Closure Procedure










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Minimally Invasive Outpatient Procedure. Our Closure
    procedure can be performed using local anesthesia in a
    physicians office, as well as in an outpatient hospital
    setting or surgicenter.                                                                                                                                                                                                                                                                      
|
| |  | Less Post-Operative Pain. Independent comparative studies
    have shown that patients receiving our Closure procedure return
    to work and normal activity significantly faster than those
    receiving vein stripping. In a comparative trial of our Closure
    procedure versus EVL, patients treated using our Closure system
    in one leg and EVL in the other leg exhibited less pain and
    bruising in the leg treated with our Closure system.                
|
| |  | Excellent Clinical Outcomes. In a randomized comparative
    trial of our Closure procedure and vein stripping conducted in
    2000, our Closure procedure was found to be as effective as vein
    stripping at two years following treatment, with fewer side
    effects and faster recovery. Another comparative trial of our
    Closure procedure versus EVL showed our Closure procedure
    exhibited greater efficacy and less post-operative bruising and
    pain.
|
| |  | Long-Lasting Results. Our published multi-center registry
    data shows our Closure procedure eliminated venous reflux in 87%
    of 119 limbs evaluated at four years and 84% of 117 limbs
    evaluated at five years.                                                                                                                                                                                                                                                     
|
| |  | Safe and Controlled Procedure. Our Closure system
    includes a number of safety features designed to ensure precise
    delivery of RF energy. Our system continuously monitors the
    temperature of the vein wall and adjusts energy delivery
    throughout the procedure to provide a high level of
    effectiveness and a low incidence of adverse events during
    recovery.                                                                                       

6



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| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cosmetically Appealing. We believe that our Closure
    system results in less bruising, pain and skin discoloration
    than both vein stripping and EVL. Additionally, because our
    Closure procedure is catheter-based, it results in little or no
    scarring compared to vein stripping.



Clinical Results






| |                                                                     
| | --------------------------------------------------------------------
| | Randomized Trials of our Closure Procedure Versus Vein
    Stripping

80-patient






| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Patients treated with our Closure procedure returned to normal
    activities in an average of 1.2 days, compared to
    3.9 days for patients treated with vein stripping;
|
| |  | 81% of Closure patients returned to normal activities within one
    day compared to only 47% of vein stripping patients; and                                              
|
| |  | Employed patients treated with our Closure procedure returned to
    work an average of 7.7 days faster than employed patients
    treated with vein stripping surgery.    



|         |  |                                     |    |   |                |  |    |  
|-------- |  | ----------------------------------- | -- | - | -------------- |  | -- | -
|         |  | % of Limbs Free of Adverse Findings |   
|         |  |                                     |   
|         |  | Closure Procedure                   |    |   | Vein Stripping | 
|         |  |                                     |    |   |                | 
|72 Hours |  |                                     | 43 | % |                |  | 17 | %
|3 Weeks  |  |                                     | 71 | % |                |  | 39 | %



7



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| |                                                    
| | ---------------------------------------------------
| | Closure Procedure Versus Endovenous Laser Treatment



|                                         |  |                   |    |   |     |  |     | 
|---------------------------------------- |  | ----------------- | -- | - | --- |  | --- | 
|                                         |  | Closure Procedure |    |   | EVL | 
|                                         |  |                   |    |   |     | 
|Bruising at one week following treatment |  |                   | 4  | % |     |  | 40% | 
|Primary vein occlusion                   |  |                   | 82 | % |     |  | 56% | 

follow-up






| |                                           
| | ------------------------------------------
| | Clinical Registry of the Closure Procedure



|                  |  |            |     |                |        |  |    |  
|----------------- |  | ---------- | --- | -------------- | ------ |  | -- | -
|                  |  |            |     | Elimination of |       
|Time of Follow Up |  | # of Limbs |     |                | Reflux | 
|                  |  |            |     |                |        | 
|1 Year            |  |            | 473 |                |        |  | 88 | %
|2 Years           |  |            | 263 |                |        |  | 88 | %
|3 Years           |  |            | 133 |                |        |  | 88 | %
|4 Years           |  |            | 119 |                |        |  | 87 | %
|5 Years           |  |            | 117 |                |        |  | 84 | %



8



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| |                                               
| | ----------------------------------------------
| | Single-Center Studies of Our Closure Procedure



Products


U-Clip




| |                                
| | -------------------------------
| | Disposable Endovenous Catheters

tm




tm tm.


9



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| |             
| | ------------
| | RF Generator





| |                               
| | ------------------------------
| | Accessories and Other Products





| |                                        
| | ---------------------------------------
| | The
    U-ClipTM
    Anastomotic Device

tm


Seasonality




Sales and Marketing










| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We educate and train physicians interested in performing our
    Closure procedure in the great saphenous vein. We also educate
    experienced physicians in the use of our Closure procedure for
    treatments in

10



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | perforator veins, tributary veins, large veins, venous ulcer
    patients and small saphenous veins through workshops and
    one-on-one training
    sessions.                                                                                                                                                                                                                                                                                              
|
| |  | We assist physicians in educating their current and potential
    patients about our Closure procedure. We create and make
    available an expansive array of support tools for physician use
    such as patient videos, brochures and patient testimonials
    designed to help physicians educate patients on the many
    benefits of our Closure procedure.                                                                                            
|
| |  | We advise physicians during the reimbursement process via the
    support of our Reimbursement Services team, which works directly
    with physicians and their office personnel, hospital and
    surgicenter personnel, and patients to obtain authorization from
    payors for patients to receive our Closure procedure. We also
    work with providers to challenge any procedure authorization
    denials by payors by providing our clinical data.
|
| |  | We seek to add and promote products to leverage our position as
    the leader in vein treatments and as the single-source supplier
    for a physicians vein treatment needs.                                                                                                                                                                                                                                                                              





Reimbursement










11



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Research and Development


ease-of






Business Development


tm




Manufacturing






12



---



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tm


90-day






Patents and Proprietary Technology






13



---



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Competition
















| |   |                                                
| | - | -----------------------------------------------
| |  | improved patient outcomes;                     
|
| |  | approval of reimbursement by healthcare payors;

14



---



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| |   |                                                   
| | - | --------------------------------------------------
| |  | the publication of peer-reviewed clinical studies;
|
| |  | product quality;                                  
|
| |  | cost effectiveness;                               
|
| |  | acceptance by leading physicians;                 
|
| |  | ease-of-use for
    physicians;                   
|
| |  | sales and marketing capability;                   
|
| |  | timing and acceptance of product innovation; and  
|
| |  | patent protection.                                

Government Regulation




| |              
| | -------------
| | United States





510(k) Clearance Pathway. pre-1976




Pre-market Approval Pathway.


15



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Clinical Trials.


Continuing Food and Drug Administration Regulation.




| |   |                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Quality System Regulations, which require manufacturers to
    follow design, testing, control, documentation and other quality
    assurance procedures during the manufacturing process;                                                                                                                                                      
|
| |  | labeling regulations, which govern product labels and labeling,
    prohibit the promotion of products for unapproved or
    off-label uses and impose other restrictions on
    labeling and promotional activities;                                                                                                                         
|
| |  | medical device reporting, or MDR, regulations, which require
    that manufacturers report to the Food and Drug Administration if
    their device may have caused or contributed to a death or
    serious injury or malfunctioned in a way that would likely cause
    or contribute to a death or serious injury if it were to
    recur; and
|
| |  | notices of correction or removal, and recall regulations.                                                                                                                                                                                                                                                                                       





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| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | Warning Letters or untitled letters;                                                  
|
| |  | fines, injunctions, and civil penalties;                                              
|
| |  | recall or seizure of our products;                                                    
|
| |  | customer notification, or orders for repair, replacement or
    refund;               
|
| |  | operating restrictions, partial suspension or total shutdown of
    production;       
|
| |  | refusing our request for 510(k) clearance or pre-market approval
    of new products; 
|
| |  | withdrawing 510(k) clearance or pre-market approvals that are
    already granted; and
|
| |  | criminal prosecution.                                                                 



Current Clearances.




| |               
| | --------------
| | European Union

tm






| |                  
| | -----------------
| | Rest of the World



17



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Fraud and Abuse Laws




| |                      
| | ---------------------
| | Anti-Kickback Statute









| |          
| | ---------
| | Stark Law





18



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| |                  
| | -----------------
| | False Claims Laws





| |                                                    
| | ---------------------------------------------------
| | Fraud on a Health Benefit Plan and False Statements



Privacy and Security




Employees




19



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Financial Information







Item 1A:     Risk
Factors




| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We expect to derive substantially all of our future
    revenues from sales of our Closure system. If our Closure system
    fails to achieve substantial market acceptance, we may not
    generate sufficient revenues to continue our operations.





| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the results of any adverse clinical studies relating to the
    safety or effectiveness of our Closure system;                                                                                
|
| |  | the cost of our Closure system products;                                                                                                                                                      
|
| |  | the discovery of design or manufacturing defects in our Closure
    system, including in the systems software component;                                                                     
|
| |  | perceived liability risks associated with the use of new
    technologies or procedures for venous reflux disease;                                                                            
|
| |  | the failure of our Closure system to meet physicians
    expectations;                                                                                                                       
|
| |  | the availability of alternative treatments or procedures that
    may be, or may be perceived as, more effective, safer, faster,
    easier to use or less costly than our Closure system; and
|
| |  | if reimbursement from U.S. healthcare payors for our
    Closure system is reduced, inadequate or discontinued.                                                                               



| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | If physicians do not adopt and utilize our Closure system,
    we will not achieve greater, or maintain our current, revenues
    or be profitable.



follow-up




20



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| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Competition from existing and new products and procedures
    may decrease our market share and cause our revenues to
    decline.







| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | products and procedures that are less expensive and take less
    time to perform;                           
|
| |  | perceived benefits in product performance and clinical outcomes;                                             
|
| |  | established distribution networks;                                                                           
|
| |  | greater experience in launching, marketing, distributing and
    selling products;                           
|
| |  | established relationships with physicians, healthcare providers
    and payors; and                          
|
| |  | greater financial and other resources for product development,
    sales and marketing and patent litigation.





| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | We may experience significant fluctuations in our
    quarterly results and we project that we will not maintain our
    recent profitability.





| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | physician and patient acceptance of our products and procedures;          
|
| |  | the effect of competing technological and market developments;            
|
| |  | seasonal demand;                                                          
|
| |  | delays or interruptions in manufacturing and shipping of our
    products;

21



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| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | practices of insurance companies and Medicare with respect to
    reimbursement for our procedure and our products;
|
| |  | pricing of our products;                                                                                           
|
| |  | our ability to hire and train a sufficient number of sales and
    marketing personnel;                            
|
| |  | timing of new product introductions;                                                                               
|
| |  | timing of orders received; and                                                                                     
|
| |  | our ability to train physicians in performing our Closure
    procedure.                                           







| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | If we fail to meet the requirements of the NASDAQ Stock
    Market, our stock could be delisted.





| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to achieve and maintain effective disclosure
    controls and procedures and internal control over financial
    reporting on a consolidated basis, our ability to provide
    accurate financial reports could be impaired and our stock price
    and investor confidence in our company could be materially and
    adversely affected.



22



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| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in financial accounting standards to share-based
    payments are expected to have a significant effect on our
    reported results.





| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our intellectual property rights may not provide
    meaningful commercial protection for our products, which could
    enable third parties to use our technology or methods, or very
    similar technology or methods, and could reduce our ability to
    compete.





23



---



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| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not execute effectively our plan to move our
    headquarters and manufacturing facility in 2006, we may
    experience interruptions or delays in our ability to manufacture
    our products and we may be unable to meet customer demand for
    our products.





| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | To successfully grow our business, we will need to attract
    additional qualified personnel and retain key personnel.





| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Inadequate levels of reimbursement for our Closure
    procedure from governmental or other third-party payors could
    affect the adoption or use of our Closure system and may cause
    our revenues to decline.





24



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non-U.S.




| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our manufacturing operations are dependent upon
    third-party suppliers, making us vulnerable to supply problems
    and price fluctuations, which could harm our business.





| |   |                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | suppliers may make errors in manufacturing components that could
    negatively affect the efficacy or safety of our products or
    cause delays in shipment of our products;                                                                   
|
| |  | we may not be able to obtain adequate supply in a timely manner
    or on commercially reasonable terms;                                                                                                                                         
|
| |  | we may have difficulty locating and qualifying alternative
    suppliers for our disposable catheter components or RF
    generators;                                                                                                            
|
| |  | our suppliers may encounter financial hardships unrelated to our
    demand for components, which could inhibit their ability to
    fulfill our orders and meet our requirements;                                                               
|
| |  | switching components may require product redesign and submission
    to the Food and Drug Administration of a pre-market supplement
    or possibly a separate pre-market approval, either of which
    could significantly delay production; and
|
| |  | our suppliers manufacture products for a range of customers, and
    fluctuations in demand for the products those suppliers
    manufacture for others may affect their ability to deliver
    components for us in a timely manner.            



25



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| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on our officers and if we are not able to retain
    them or recruit additional qualified personnel, our business
    will suffer.





| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We lack published long-term randomized trial data
    comparing the efficacy of our Closure procedure with vein
    stripping and EVL. If future data proves to be inconsistent with
    our clinical results, our revenues may decline.

follow-up




| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to manufacture an adequate supply of our
    products, we could lose customers and revenues and our growth
    could be limited.





| |                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we become subject to product liability claims and our
    product liability insurance coverage is inadequate or
    inapplicable, we may be required to engage in costly litigation
    or pay significant damages and our business may be
    harmed.



26



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| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The medical device industry is characterized by patent
    litigation and we could become subject to litigation that could
    be costly, result in the diversion of managements
    attention and require us to pay damages and discontinue selling
    our products.





27



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| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to comply with the extensive government
    regulations relating to our business, we may be subject to
    fines, injunctions and penalties.





| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | design, development and manufacturing;                                                     
|
| |  | testing;                                                                                   
|
| |  | clinical trials in humans;                                                                 
|
| |  | electronic product safety;                                                                 
|
| |  | labeling;                                                                                  
|
| |  | storage;                                                                                   
|
| |  | marketing;                                                                                 
|
| |  | pre-market clearance or approval;                                                          
|
| |  | record keeping procedures;                                                                 
|
| |  | advertising and promotion;                                                                 
|
| |  | post-market surveillance and reporting of deaths, serious
    injuries or malfunctions; and
|
| |  | export.                                                                                    







28



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| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we choose to acquire new and complementary businesses,
    products or technologies instead of developing them ourselves,
    we may be unable to complete these acquisitions or to
    successfully integrate them in a cost-effective and
    non-disruptive manner.





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Any failure in our efforts to train physicians could
    reduce the market acceptance of our products and reduce our
    revenues.





| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We spend considerable time and money complying with
    federal, state and foreign regulations and, if we are unable to
    fully comply with such regulations, we could face substantial
    penalties.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Federal Food, Drug, and Cosmetic Act, which regulates the
    design, testing, manufacture, labeling, marketing, distribution
    and sale of prescription drugs and medical devices;                                                                                                                                                                                                                                       
|
| |  | state food and drug laws;                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | the Sarbanes-Oxley Act of 2002;                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | the federal Anti-Kickback Law, which prohibits persons from
    knowingly and willfully soliciting, offering, receiving or
    providing remuneration, directly or indirectly, in cash or in
    kind, to induce either the referral of an individual, or
    furnishing or arranging for a good or service, for which payment
    may be made under federal healthcare programs such as the
    Medicare and Medicaid Programs;

29



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Medicare laws and regulations that prescribe the requirements
    for coverage and payment, including the amount of such payment,
    and laws prohibiting false claims for reimbursement under
    Medicare and Medicaid;                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | the federal physician self-referral prohibition, commonly known
    as the Stark Law, which, in the absence of a statutory or
    regulatory exception, prohibits the referral of Medicare
    patients by a physician to an entity for the provision of
    designated healthcare services, if the physician or a member of
    the physicians immediate family has a direct or indirect
    financial relationship, including an ownership interest in, or a
    compensation arrangement with, the entity and also prohibits
    that entity from submitting a bill to a federal payor for
    services rendered pursuant to a prohibited referral;
|
| |  | state laws that prohibit the practice of medicine by
    non-physicians and fee-splitting arrangements between physicians
    and non-physicians, as well as state law equivalents to the
    Anti-Kickback Law and the Stark Law, which may not be limited to
    government reimbursed items; and                                                                                                                                                                                                                                                                                                                                                    
|
| |  | the Federal Trade Commission Act and similar laws regulating
    advertising and consumer protection.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Product sales or introductions may be delayed or canceled
    as a result of the Food and Drug Administrations
    regulatory process, which could cause our sales or profitability
    to decline.







| |   |                                                             
| | - | ------------------------------------------------------------
| |  | delay or eliminate commercialization of products we develop;
|
| |  | require us to perform costly procedures;                    
|
| |  | diminish any competitive advantages that we may attain; and 
|
| |  | reduce our ability to collect revenues or royalties.        

30



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| |                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Modifications to our products may require new marketing
    clearances or approvals or require us to cease marketing or
    recall the modified products until such clearance or approvals
    are obtained.





| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We sell our products internationally and are subject to
    various risks relating to such international activities which
    could harm our international sales and profitability.

non-U.S.




| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | export restrictions and controls relating to technology;                                             
|
| |  | the availability and level of reimbursement within prevailing
    foreign healthcare payment systems;
|
| |  | pricing pressure that we may experience internationally;                                             
|
| |  | required compliance with existing and new foreign regulatory
    requirements and laws;              
|
| |  | laws and business practices favoring local companies;                                                
|
| |  | longer payment cycles;                                                                               
|
| |  | difficulties in enforcing agreements and collecting receivables
    through foreign legal systems;   
|
| |  | political and economic instability;                                                                  
|
| |  | potentially adverse tax consequences, tariffs and other trade
    barriers;                          
|
| |  | international terrorism and anti-American sentiment;                                                 
|
| |  | difficulties and costs of staffing and managing foreign
    operations;                              

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| |   |                                                        
| | - | -------------------------------------------------------
| |  | changes in currency exchange rates; and                
|
| |  | difficulties in enforcing intellectual property rights.





| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be subject to fines, penalties or injunctions if we
    are determined to be promoting the use of our products for
    unapproved or off-label uses.





| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be subject to damages resulting from claims that we
    or our employees have wrongfully used or disclosed alleged trade
    secrets of their former employers.





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Our stock price may be volatile which may cause the value
    of our stock to decline or subject us to a securities class
    action litigation.





| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | the depth and liquidity of the market for our common stock;                                                         
|
| |  | volume and timing of orders for our products;                                                                       
|
| |  | developments generally affecting medical device companies;                                                          
|
| |  | the announcement of new products or product enhancements by us
    or our competitors;                              
|
| |  | changes in earnings estimates or recommendations by securities
    analysts;                                        
|
| |  | investor perceptions of us and our business, including changes
    in market valuations of medical device companies;
|
| |  | actions by institutional or other large stockholders;                                                               
|
| |  | our results of operations and financial performance; and                                                            
|
| |  | general economic, industry and market conditions.                                                                   



32



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| |                                                                                       
| | --------------------------------------------------------------------------------------
| | If there are substantial sales of our common stock, our
    stock price could decline.







| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Our business may be harmed by a natural disaster,
    terrorist attacks or other unanticipated problems.





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future capital needs are uncertain; we may need to
    raise additional funds in the future and such funds may not be
    available on acceptable terms, if at all.





| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the revenues generated by sales of our products;                                                                                                       
|
| |  | the costs associated with expanding our manufacturing,
    marketing, sales and distribution efforts;                                                  
|
| |  | the rate of progress and cost of our research and development
    activities;                                                                          
|
| |  | the costs of obtaining and maintaining Food and Drug
    Administration and other regulatory clearance of our products
    and products in development;
|
| |  | the effects of competing technological and market developments;                                                                                        
|
| |  | the number and timing of acquisitions and other strategic
    transactions; and                                                                        
|
| |  | the cost of litigation and other legal actions.                                                                                                        



33



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| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Concentration of ownership among our existing directors,
    executive officers and principal stockholders may prevent new
    investors from influencing significant corporate
    decisions.





| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Anti-takeover provisions in our organizational documents
    and Delaware law may discourage or prevent a change of control,
    even if an acquisition would be beneficial to our stockholders,
    which could cause our stock price to decline and prevent
    attempts by our stockholders to replace or remove our current
    management.





| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our board of directors is authorized, without prior stockholder
    approval, to create and issue preferred stock, commonly referred
    to as blank check preferred stock, with rights
    senior to those of common stock;                                            
|
| |  | advance notice requirements for stockholders to nominate
    individuals to serve on our board of directors or for
    stockholders to submit proposals that can be acted upon at
    stockholder meetings;                                                               
|
| |  | our board of directors is classified so that not all members of
    our board of directors are elected at one time, which may make
    it more difficult for a person who acquires control of a
    majority of our outstanding voting stock to replace our
    directors;
|
| |  | stockholder action by written consent is prohibited;                                                                                                                                                                                                                      
|
| |  | special meetings of our stockholders are permitted to be called
    only by a majority of our board of directors, the chairman of
    our board of directors or our president;                                                                                            
|
| |  | stockholders are not permitted to cumulate their votes for the
    election of directors;                                                                                                                                                                                 
|
| |  | newly created directorships resulting from an increase in the
    authorized number of directors or vacancies on our board of
    directors are to be filled only by majority vote of the
    remaining directors, even though less than a quorum is then in
    office;  
|
| |  | our board of directors is expressly authorized to modify, alter
    or repeal our bylaws; and                                                                                                                                                                             
|
| |  | stockholders are permitted to amend our bylaws only upon
    receiving at least 75% of the votes entitled to be cast by
    holders of all outstanding shares then entitled to vote
    generally in the election of directors, voting together as a
    single class.    



34



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Item 1B:     Unresolved
Staff Comments







Item 2:     Properties







Item 3:     Legal
Proceedings


VNUS Medical
Technologies, Inc. v. Diomed Holdings, Inc.,
et al.





Item 4:     Submission of
Matters to a Vote of Security Holders




35



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##### Table of Contents






PART II





Item 5:     Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities


Market Information




|                             |                                      |      |   |       |     |  |   |       | 
|---------------------------- | ------------------------------------ | ---- | - | ----- | --- |  | - | ----- | 
|                             |                                      | High |   |       | Low | 
|                             |                                      |      |   |       |     | 
|Year Ended December 31, 2004 |                                      |      |   |       |     |  |   |      
|                             | October 20, 2004  December 31, 2004 |      | $ | 21.30 |     |  | $ | 12.80 | 
|Year Ended December 31, 2005 |                                      |      |   |       |     |  |   |      
|                             | First Quarter                        |      |   | 14.90 |     |  |   | 10.08 | 
|                             | Second Quarter                       |      |   | 13.54 |     |  |   | 9.20  | 
|                             | Third Quarter                        |      |   | 13.35 |     |  |   | 9.42  | 
|                             | Fourth Quarter                       |      |   | 11.45 |     |  |   | 8.00  | 



Dividend Policy




Securities Authorized for Issuance Under Equity Compensation
Plans




Issuer Purchases of Equity Securities




Changes in Securities and Use of Proceeds


S-1 333-117640)




36



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##### Table of Contents






Item 6:     Selected
Consolidated Financial Data




|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |        |       |        |   |        |       |        | 
|--------------------------------------------------------------- | ----------------------------- | ------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                                |                               | Years Ended December 31,              |       
|                                                                |                               |                                       |       
|                                                                |                               | 2005                                  |        |        | 2004   |   |        | 2003   |        |   | 2002   |        |        | 2001 |       
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|                                                                |                               | (In thousands, except per share data) |       
|                                                                |                               | (Unaudited)                           |       
|Consolidated Statements of Operations Data:                     |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |        |       |        |   |        |      
|Net revenues                                                    |                               | $                                     | 49,170 |        |        | $ | 38,166 |        |        | $ | 21,838 |        |        | $    | 10,041 |       |        | $ | 5,564  |      
|Cost of revenues(1)                                             |                               |                                       | 12,311 |        |        |   | 9,542  |        |        |   | 6,311  |        |        |      | 3,646  |       |        |   | 3,262  |      
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Gross profit                                                    |                               |                                       | 36,859 |        |        |   | 28,624 |        |        |   | 15,527 |        |        |      | 6,395  |       |        |   | 2,302  |      
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Operating expenses:                                             |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |        |       |        |   |        |      
|                                                                | Sales and marketing(1)        |                                       |        | 20,173 |        |   |        | 16,235 |        |   |        | 11,997 |        |      |        | 7,728 |        |   |        | 5,602 |       
|                                                                | Research and development(1)   |                                       |        | 3,815  |        |   |        | 4,540  |        |   |        | 3,513  |        |      |        | 2,099 |        |   |        | 2,305 |       
|                                                                | General and administrative(1) |                                       |        | 9,025  |        |   |        | 5,200  |        |   |        | 2,772  |        |      |        | 2,806 |        |   |        | 2,656 |       
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|                                                                |                               | Total operating expenses              |        |        | 33,013 |   |        |        | 25,975 |   |        |        | 18,282 |      |        |       | 12,633 |   |        |       | 10,563 | 
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Income (loss) from operations                                   |                               |                                       | 3,846  |        |        |   | 2,649  |        |        |   | (2,755 | )      |        |      | (6,238 | )     |        |   | (8,261 | )    
|Interest income (expense) and other, net                        |                               |                                       | 1,779  |        |        |   | 439    |        |        |   | 171    |        |        |      | 283    |       |        |   | (240   | )    
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Income (loss) before income taxes                               |                               |                                       | 5,625  |        |        |   | 3,088  |        |        |   | (2,584 | )      |        |      | (5,955 | )     |        |   | (8,501 | )    
|Provision for income taxes                                      |                               |                                       | 275    |        |        |   | 222    |        |        |   |       |        |        |      |       |       |        |   |       |      
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Net income (loss)                                               |                               | $                                     | 5,350  |        |        | $ | 2,866  |        |        | $ | (2,584 | )      |        | $    | (5,955 | )     |        | $ | (8,501 | )    
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Basic net income (loss) per share(2)                            |                               | $                                     | 0.37   |        |        | $ | 0.73   |        |        | $ | (1.97  | )      |        | $    | (4.73  | )     |        | $ | (7.09  | )    
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Diluted net income (loss) per share                             |                               | $                                     | 0.35   |        |        | $ | 0.23   |        |        | $ | (1.97  | )      |        | $    | (4.73  | )     |        | $ | (7.09  | )    
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Shares used in computing basic net income (loss) per share(2)   |                               |                                       | 14,652 |        |        |   | 3,946  |        |        |   | 1,309  |        |        |      | 1,260  |       |        |   | 1,199  |      
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       
|Shares used in computing diluted net income (loss) per share(2) |                               |                                       | 15,466 |        |        |   | 12,368 |        |        |   | 1,309  |        |        |      | 1,260  |       |        |   | 1,199  |      
|                                                                |                               |                                       |        |        |        |   |        |        |        |   |        |        |        |      |       

37



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|    |                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------
|(1) | Includes charges for amortization of deferred stock-based
    compensation in the following amounts:

|                           |       |      |     |     |      |   |     |       |  |   |      |     |  |      |     |     |  |   |     |       | 
|-------------------------- | ----- | ---- | --- | --- | ---- | - | --- | ----- |  | - | ---- | --- |  | ---- | --- | --- |  | - | --- | ----- | 
|                           |       | 2005 |     |     | 2004 |   |     | 2003  |  |   | 2002 |     |  | 2001 |    
|                           |       |      |     |     |      |   |     |       |  |   |      |     |  |      |    
|Cost of revenues           |       | $    | 65  |     |      | $ | 90  |       |  | $ | 56   |     |  | $    | 51  |     |  | $ | 576 |      
|Sales and marketing        |       |      | 264 |     |      |   | 525 |       |  |   | 257  |     |  |      | 342 |     |  |   | 491 |      
|Research and development   |       |      | 68  |     |      |   | 84  |       |  |   | 89   |     |  |      | 160 |     |  |   | 285 |      
|General and administrative |       |      | 279 |     |      |   | 352 |       |  |   | 146  |     |  |      | 278 |     |  |   | 120 |      
|                           |       |      |     |     |      |   |     |       |  |   |      |     |  |      |    
|                           | Total |      | $   | 676 |      |   | $   | 1,051 |  |   | $    | 548 |  |      | $   | 831 |  |   | $   | 1,472 | 
|                           |       |      |     |     |      |   |     |       |  |   |      |     |  |      |    



|    |                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | See Note 2 of the notes to our financial statements for a
    description of the method used to compute basic and diluted net
    income (loss) per share and shares used in computing basic and
    diluted net income (loss) per share.

|                                 |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                 |  | Years Ended December 31, |        
|                                 |  |                          |        
|                                 |  | 2005                     |         |   | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |        
|                                 |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |        
|                                 |  | (In thousands)           |        
|                                 |  | (Unaudited)              |        
|Consolidated Balance Sheet Data: |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents        |  | $                        | 46,797  |   |      | $ | 68,566  |      |  | $ | 11,711  |   |  | $    | 12,601  |   |  | $ | 17,376  |  
|Short-term investments           |  |                          | 25,718  |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Working capital                  |  |                          | 77,362  |   |      |   | 70,681  |      |  |   | 12,713  |   |  |      | 14,530  |   |  |   | 19,141  |  
|Total assets                     |  |                          | 85,339  |   |      |   | 77,972  |      |  |   | 17,789  |   |  |      | 17,885  |   |  |   | 22,442  |  
|Total accumulated deficit        |  |                          | (35,823 | ) |      |   | (41,173 | )    |  |   | (44,039 | ) |  |      | (41,455 | ) |  |   | (35,500 | )
|Total stockholders equity       |  | $                        | 79,522  |   |      | $ | 72,308  |      |  | $ | 14,241  |   |  | $    | 16,214  |   |  | $ | 21,299  |  




Item 7:     Managements
Discussion and Analysis of Financial Condition and Results of
Operations


This financial review presents our operating results for each
of the three years in the period ended December 31, 2005,
and our financial condition at December 31, 2005. You
should read the following discussion of our financial condition
and results of our operations in conjunction with the
information presented in our consolidated financial statements
and the related notes to our consolidated financial statements.
Except for the historical information contained herein, this
discussion contains forward-looking statements that involve
risks and uncertainties, such as statements of our plans,
objectives, expectations and intentions. Factors that could
cause or contribute to these differences include those discussed
in Risk Factors Part 1, Item 1A, as well
as those discussed elsewhere. Our actual results could differ
materially from those discussed here. The cautionary statements
made herein should be read as applying to all related
forward-looking statements wherever they appear herein.


Business Overview


tm


start-up


38



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##### Table of Contents













Financial Operations Overview


Net Revenues.


Cost of Revenues.


Sales and Marketing Expenses.


Research and Development Expenses.


General and Administrative Expenses.


Critical Accounting Policies and Estimates




39



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##### Table of Contents





Revenue Recognition. Revenue Recognition






Valuation of Inventory.


Warranty Costs.


Allowance for Doubtful Accounts.




40



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##### Table of Contents





Income Taxes.


non-U.S.




Stock-Based Compensation Expense. Accounting for Stock Issued to
Employees Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans, Accounting for Stock-Based Compensation Accounting for Stock-Based
Compensation  Transition and Disclosure.


Accounting for
Equity Investments that are Issued to Non-Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services.


41



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##### Table of Contents









Recent Accounting Pronouncements


Inventory Costs  an Amendment of ARB
No. 43, Chapter 4


Share Based Payment Accounting for Stock-Based Compensation, straight-line


Share Based Payment


Accounting Changes and Error Corrections: a Replacement
of Accounting Principles Board Opinion No. 20
(APB 20) and FASB Statement No. 3


42



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##### Table of Contents





Determining the Amortization Period for Leasehold
Improvements Purchased after Lease Inception or Acquired in a
Business Combination


13-1, Accounting for Rental Costs Incurred during a
Construction Period 13-1). Issues Relating
to Accounting for Leases, Accounting for Leases, Accounting for Operating
Leases with Scheduled Rent Increases, 13-1 13-1 13-1


43



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##### Table of Contents



Results of Operations




|                                                |                            |                          |       |      |      |  |       |      |      |  |       |      |      | 
|----------------------------------------------- | -------------------------- | ------------------------ | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                                |                            | Years Ended December 31, |      
|                                                |                            |                          |      
|                                                |                            | 2005                     |       |      | 2004 |  |       | 2003 |     
|                                                |                            |                          |       |      |      |  |       |      |     
|Net revenues                                    |                            |                          | 100.0 | %    |      |  | 100.0 | %    |      |  | 100.0 | %   
|Cost of revenues                                |                            |                          | 25.0  |      |      |  | 25.0  |      |      |  | 28.9  |     
|                                                |                            |                          |       |      |      |  |       |      |     
|Gross profit                                    |                            |                          | 75.0  |      |      |  | 75.0  |      |      |  | 71.1  |     
|Operating expenses:                             |                            |                          |       |      |      |  |       |      |      |  |       |     
|                                                | Sales and marketing        |                          |       | 41.0 |      |  |       | 42.6 |      |  |       | 54.9 |     
|                                                | Research and development   |                          |       | 7.8  |      |  |       | 11.9 |      |  |       | 16.1 |     
|                                                | General and administrative |                          |       | 18.3 |      |  |       | 13.6 |      |  |       | 12.7 |     
|                                                |                            |                          |       |      |      |  |       |      |     
|                                                |                            | Total operating expenses |       |      | 67.1 |  |       |      | 68.1 |  |       |      | 83.7 | 
|Income (loss) from operations                   |                            |                          | 7.9   |      |      |  | 6.9   |      |      |  | (12.6 | )   
|Interest income and other, net                  |                            |                          | 3.6   |      |      |  | 1.2   |      |      |  | 0.8   |     
|Income (loss) before provision for income taxes |                            |                          | 11.5  |      |      |  | 8.1   |      |      |  | (11.8 | )   
|Provision for income taxes                      |                            |                          | 0.6   |      |      |  | 0.6   |      |      |  |      |     
|                                                |                            |                          |       |      |      |  |       |      |     
|Net income (loss)                               |                            |                          | 10.9  | %    |      |  | 7.5   | %    |      |  | (11.8 | )%  
|                                                |                            |                          |       |      |      |  |       |      |     



|              |  |                          |     |   |      |  |     |      |  |  |     |  
|------------- |  | ------------------------ | --- | - | ---- |  | --- | ---- |  |  | --- | -
|              |  | Years Ended December 31, |    
|              |  |                          |    
|              |  | 2005                     |     |   | 2004 |  |     | 2003 | 
|              |  |                          |     |   |      |  |     |      | 
|Catheters     |  |                          | 76  | % |      |  | 77  | %    |  |  | 72  | %
|RF Generators |  |                          | 18  | % |      |  | 18  | %    |  |  | 24  | %
|Accessories   |  |                          | 6   | % |      |  | 5   | %    |  |  | 4   | %
|              |  |                          |     |   |      |  |     |      | 
|              |  |                          | 100 | % |      |  | 100 | %    |  |  | 100 | %
|              |  |                          |     |   |      |  |     |      | 



|                    |  |                          |     |   |      |  |     |      |  |  |     |  
|------------------- |  | ------------------------ | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                    |  | Years Ended December 31, |    
|                    |  |                          |    
|                    |  | 2005                     |     |   | 2004 |  |     | 2003 | 
|                    |  |                          |     |   |      |  |     |      | 
|United States       |  |                          | 96  | % |      |  | 96  | %    |  |  | 96  | %
|Europe              |  |                          | 3   | % |      |  | 3   | %    |  |  | 3   | %
|Other International |  |                          | 1   | % |      |  | 1   | %    |  |  | 1   | %
|                    |  |                          |     |   |      |  |     |      | 
|                    |  |                          | 100 | % |      |  | 100 | %    |  |  | 100 | %
|                    |  |                          |     |   |      |  |     |      | 

Net Revenues. tm


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Gross Profit.


Sales and Marketing Expenses.


Research and Development Expenses.


General and Administrative Expenses.


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Interest Income and Other, Net.


Provision for Income Taxes.




| |                                
| | -------------------------------
| | Liquidity and Capital Resources

|                                                    |  |              |         |   |      |   |        |      |  |   |        |  
|--------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                    |  | December 31, |        
|                                                    |  |              |        
|                                                    |  | 2005         |         |   | 2004 |   |        | 2003 | 
|                                                    |  |              |         |   |      |   |        |      | 
|Cash and cash equivalents                           |  | $            | 46,797  |   |      | $ | 68,566 |      |  | $ | 11,711 |  
|Short-term investments                              |  |              | 25,718  |   |      |   |       |      |  |   |       |  
|Working capital                                     |  |              | 77,362  |   |      |   | 70,681 |      |  |   | 12,713 |  
|Net cash provided by (used in) operating activities |  |              | 3,750   |   |      |   | 3,229  |      |  |   | (680   | )
|Net cash used in investing activities               |  |              | (26,669 | ) |      |   | (525   | )    |  |   | (238   | )
|Net cash provided by financing activities           |  |              | 1,150   |   |      |   | 54,151 |      |  |   | 28     |  



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Off-Balance Sheet Arrangements




Contractual Obligations and Capital Expenditure
Requirements




|                                                |  |                        |        |           |        |   |       |       |  |     |       |  |           |         |       |  |  |   |       | 
|----------------------------------------------- |  | ---------------------- | ------ | --------- | ------ | - | ----- | ----- |  | --- | ----- |  | --------- | ------- | ----- |  |  | - | ----- | 
|                                                |  | Payments Due by Period |       
|                                                |  |                        |       
|Contractual Obligations and Capital Expenditure |  |                        |        | Less Than |        |   | 1-3   |       |  | 3-5 |       |  | More Than |        
|Requirements                                    |  | Total                  |        |           | 1 Year |   |       | Years |  |     | Years |  |           | 5 Years |      
|                                                |  |                        |        |           |        |   |       |       |  |     |       |  |           |         |      
|                                                |  | (In thousands)         |       
|Operating lease obligations                     |  | $                      | 8,737  |           |        | $ | 816   |       |  | $   | 2,850 |  |           | $       | 3,594 |  |  | $ | 1,477 | 
|Inventory purchase commitments                  |  |                        | 2,074  |           |        |   | 2,074 |       |  |     |      |  |           |         |      |  |  |   |      | 
|Leasehold improvements                          |  |                        | 2,180  |           |        |   | 2,180 |       |  |     |      |  |           |         |      |  |  |   |      | 
|                                                |  |                        |        |           |        |   |       |       |  |     |       |  |           |         |      
|Total                                           |  | $                      | 12,991 |           |        | $ | 5,070 |       |  | $   | 2,850 |  |           | $       | 3,594 |  |  | $ | 1,477 | 
|                                                |  |                        |        |           |        |   |       |       |  |     |       |  |           |         |      




Item 7A:     Quantitative
and Qualitative Disclosures about Market Risk






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|        |                                                             
|------- | ------------------------------------------------------------
|Item 8: | Consolidated Financial Statements and Supplementary
    Data

VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                                               |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                               |  | Page |   
|                                                                                                                               |  |      |   
|Report of Independent Registered Public
    Accounting Firm                                                                    |  |      | 50 | 
|Consolidated Balance Sheets at
    December 31, 2005 and 2004                                                                  |  |      | 52 | 
|Consolidated Statements of Operations for
    each of the years in the three year period ended
    December 31, 2005           |  |      | 53 | 
|Consolidated Statements of
    Stockholders Equity for each of the years in the three
    year period ended December 31, 2005 |  |      | 54 | 
|Consolidated Statements of Cash Flows for
    each of the years in the three year period ended
    December 31, 2005           |  |      | 55 | 
|Notes to Consolidated Financial
    Statements                                                                                 |  |      | 56 | 
|Schedule II, Valuation and Qualifying
    Accounts and Reserves                                                                |  |      | 77 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Consolidated financial statements and financial statement
schedule




Internal control over financial reporting


Internal Control 
Integrated Framework Internal Control  Integrated
Framework




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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY





CONSOLIDATED BALANCE SHEETS


|                                       |                                                                                                                                                                    |                                            |       |         |        |  |       |         |        | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ----- | ------- | ------ |  | ----- | ------- | ------ | 
|                                       |                                                                                                                                                                    | December 31,                               |      
|                                       |                                                                                                                                                                    |                                            |      
|                                       |                                                                                                                                                                    | 2005                                       |       |         | 2004   | 
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|                                       |                                                                                                                                                                    | (In thousands,                             |      
|                                       |                                                                                                                                                                    | except share data)                         |      
|ASSETS                                
|Current assets:                        |                                                                                                                                                                    |                                            |       |         |        |  |       |        
|                                       | Cash and cash equivalents                                                                                                                                          |                                            | $     | 46,797  |        |  | $     | 68,566  |       
|                                       | Short-term investments                                                                                                                                             |                                            |       | 25,718  |        |  |       |        |       
|                                       | Accounts receivable, net of allowance for doubtful accounts of
    $308 and $195, respectively                                                                     |                                            |       | 6,448   |        |  |       | 5,347   |       
|                                       | Inventories                                                                                                                                                        |                                            |       | 2,915   |        |  |       | 1,644   |       
|                                       | Prepaid expenses and other current assets                                                                                                                          |                                            |       | 1,265   |        |  |       | 677     |       
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|                                       |                                                                                                                                                                    | Total current assets                       |       |         | 83,143 |  |       |         | 76,234 | 
|Property and equipment, net            |                                                                                                                                                                    |                                            | 1,363 |         |        |  | 1,096 |        
|Other assets                           |                                                                                                                                                                    |                                            | 833   |         |        |  | 642   |        
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|                                       |                                                                                                                                                                    | Total assets                               |       | $       | 85,339 |  |       | $       | 77,972 | 
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|                                      
|LIABILITIES AND STOCKHOLDERS EQUITY  
|Current liabilities:                   |                                                                                                                                                                    |                                            |       |         |        |  |       |        
|                                       | Accounts payable                                                                                                                                                   |                                            | $     | 1,233   |        |  | $     | 1,242   |       
|                                       | Accrued liabilities                                                                                                                                                |                                            |       | 4,548   |        |  |       | 4,311   |       
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|                                       |                                                                                                                                                                    | Total current liabilities                  |       |         | 5,781  |  |       |         | 5,553  | 
|Other liabilities                      |                                                                                                                                                                    |                                            | 36    |         |        |  | 111   |        
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|                                       |                                                                                                                                                                    | Total liabilities                          |       |         | 5,817  |  |       |         | 5,664  | 
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|Commitments and contingencies (Note 9) |                                                                                                                                                                    |                                            |       |         |        |  |       |        
|Stockholders equity:                  |                                                                                                                                                                    |                                            |       |         |        |  |       |        
|                                       | Convertible preferred stock: $0.001 par value; 10,000,000
    authorized; none issued and outstanding at December 31,
    2005 and December 31, 2004, respectively |                                            |       |        |        |  |       |        |       
|                                       | Common stock: $0.001 par value; 56,666,666 authorized,
    14,899,989 and 14,371,439 issued and outstanding at
    December 31, 2005 and 2004, respectively        |                                            |       | 15      |        |  |       | 14      |       
|                                       | Additional paid-in capital                                                                                                                                         |                                            |       | 117,924 |        |  |       | 114,698 |       
|                                       | Deferred stock-based compensation                                                                                                                                  |                                            |       | (2,544  | )      |  |       | (1,231  | )     
|                                       | Accumulated other comprehensive loss                                                                                                                               |                                            |       | (50     | )      |  |       |        |       
|                                       | Accumulated deficit                                                                                                                                                |                                            |       | (35,823 | )      |  |       | (41,173 | )     
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|                                       |                                                                                                                                                                    | Total stockholders equity                 |       |         | 79,522 |  |       |         | 72,308 | 
|                                       |                                                                                                                                                                    |                                            |       |         |        | 
|                                       |                                                                                                                                                                    | Total liabilities and stockholders equity |       | $       | 85,339 |  |       | $       | 77,972 | 
|                                       |                                                                                                                                                                    |                                            |       |         |        | 



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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                  |                               |                                 |        |        |        |   |        |        |        |   |        |        |        | 
|--------------------------------------------------------------------------------- | ----------------------------- | ------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                  |                               | Year Ended December 31,         |       
|                                                                                  |                               |                                 |       
|                                                                                  |                               | 2005                            |        |        | 2004   |   |        | 2003   |       
|                                                                                  |                               |                                 |        |        |        |   |        |        |       
|                                                                                  |                               | (In thousands, except share and |       
|                                                                                  |                               | per share data)                 |       
|Net revenues                                                                      |                               | $                               | 49,170 |        |        | $ | 38,166 |        |        | $ | 21,838 |       
|Cost of revenues(1)                                                               |                               |                                 | 12,311 |        |        |   | 9,542  |        |        |   | 6,311  |       
|                                                                                  |                               |                                 |        |        |        |   |        |        |       
|Gross profit                                                                      |                               |                                 | 36,859 |        |        |   | 28,624 |        |        |   | 15,527 |       
|                                                                                  |                               |                                 |        |        |        |   |        |        |       
|Operating expenses                                                                |                               |                                 |        |        |        |   |        |        |        |   |        |       
|                                                                                  | Sales and marketing(1)        |                                 |        | 20,173 |        |   |        | 16,235 |        |   |        | 11,997 |       
|                                                                                  | Research and development(1)   |                                 |        | 3,815  |        |   |        | 4,540  |        |   |        | 3,513  |       
|                                                                                  | General and administrative(1) |                                 |        | 9,025  |        |   |        | 5,200  |        |   |        | 2,772  |       
|                                                                                  |                               |                                 |        |        |        |   |        |        |       
|                                                                                  |                               | Total operating expenses        |        |        | 33,013 |   |        |        | 25,975 |   |        |        | 18,282 | 
|                                                                                  |                               |                                 |        |        |        |   |        |        |       
|Income (loss) from operations                                                     |                               |                                 | 3,846  |        |        |   | 2,649  |        |        |   | (2,755 | )     
|Interest income and other income, net                                             |                               |                                 | 1,779  |        |        |   | 439    |        |        |   | 171    |       
|                                                                                  |                               |                                 |        |        |        |   |        |        |       
|Income (loss) before provision for taxes                                          |                               |                                 | 5,625  |        |        |   | 3,088  |        |        |   | (2,584 | )     
|Provision for income taxes                                                        |                               |                                 | 275    |        |        |   | 222    |        |        |   |       |       
|                                                                                  |                               |                                 |        |        |        |   |        |        |       
|Net income (loss)                                                                 |                               | $                               | 5,350  |        |        | $ | 2,866  |        |        | $ | (2,584 | )     
|                                                                                  |                               |                                 |        |        |        |   |        |        |       
|Net income (loss) per share (see Note 2)                                          |                               |                                 |        |        |        |   |        |        |        |   |        |       
|Basic                                                                             |                               | $                               | 0.37   |        |        | $ | 0.73   |        |        | $ | (1.97  | )     
|Diluted                                                                           |                               | $                               | 0.35   |        |        | $ | 0.23   |        |        | $ | (1.97  | )     
|Weighted average number of shares used in per share calculations
    (see Note 2) |                               |                                 |        |        |        |   |        |        |        |   |        |       
|Basic                                                                             |                               |                                 | 14,652 |        |        |   | 3,946  |        |        |   | 1,309  |       
|Diluted                                                                           |                               |                                 | 15,466 |        |        |   | 12,368 |        |        |   | 1,309  |       






|    |                                                             
|--- | ------------------------------------------------------------
|(1) | Includes the following charges for stock-based compensation:

|                         |  |                         |     |  |      |   |       |      |  |   |     | 
|------------------------ |  | ----------------------- | --- |  | ---- | - | ----- | ---- |  | - | --- | 
|                         |  | Year Ended December 31, |    
|                         |  |                         |    
|                         |  | 2005                    |     |  | 2004 |   |       | 2003 | 
|                         |  |                         |     |  |      |   |       |      | 
|Cost of revenues         |  | $                       | 65  |  |      | $ | 90    |      |  | $ | 56  | 
|Sales and marketing      |  |                         | 264 |  |      |   | 525   |      |  |   | 257 | 
|Research and development |  |                         | 68  |  |      |   | 84    |      |  |   | 89  | 
|General administrative   |  |                         | 279 |  |      |   | 352   |      |  |   | 146 | 
|                         |  |                         |     |  |      |   |       |      | 
|                         |  | $                       | 676 |  |      | $ | 1,051 |      |  | $ | 548 | 
|                         |  |                         |     |  |      |   |       |      | 



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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                              |                                                               |                                                 |            |             |              |   |    |            |   |  |             |           |   |               |    |   |              |   |         |               |   |   |         |        |   |        |     |     |   |   |         |   |  |   |        |        |  
|----------------------------- | ------------------------------------------------------------- | ----------------------------------------------- | ---------- | ----------- | ------------ | - | -- | ---------- | - |  | ----------- | --------- | - | ------------- | -- | - | ------------ | - | ------- | ------------- | - | - | ------- | ------ | - | ------ | --- | --- | - | - | ------- | - |  | - | ------ | ------ | -
|                              |                                                               | Convertible                                     |            |             |              |   |    |            |   |  | Accumulated |           |   |               |    |  
|                              |                                                               | Preferred Stock                                 |            |             | Common Stock |   |    | Additional |   |  | Deferred    |           |   | Other         |    |   |              |   | Total   |              
|                              |                                                               |                                                 |            |             |              |   |    | Paid-In    |   |  | Stock-Based |           |   | Comprehensive |    |   | Accumulated  |   |         | Shareholders |  
|                              |                                                               | Shares                                          |            |             | Amount       |   |    | Shares     |   |  | Amount      |           |   | Capital       |    |   | Compensation |   |         | Loss          |   |   | Deficit |        |   | Equity |    
|                              |                                                               |                                                 |            |             |              |   |    |            |   |  |             |           |   |               |    |   |              |   |         |               |   |   |         |        |   |        |    
|                              |                                                               | (In thousands, except share and per share data) |           
|Balances at December 31, 2002 |                                                               |                                                 | 25,186,747 |             |              | $ | 25 |            |   |  | 1,308,028   |           |   | $             | 1  |   |              | $ | 58,267  |               |   | $ | (624    | )      |   | $      |    |     |   | $ | (41,455 | ) |  | $ | 16,214 |       
|                              | Exercise of stock options                                     |                                                 |            |            |              |   |    |           |   |  |             | 21,341    |   |               |    |  |              |   |         | 28            |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        | 28     |  
|                              | Deferred stock compensation for stock option grants           |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | 401           |   |   |         | (366   | ) |        |     |    |   |   |         |  |  |   |        | 35     |  
|                              | Fair value of options issued for services                     |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | 22            |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        | 22     |  
|                              | Cancellation of options                                       |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | (32           | ) |   |         | 32     |   |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Amortization of deferred stock-based compensation             |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         |              |   |   |         | 526    |   |        |     |    |   |   |         |  |  |   |        | 526    |  
|Net loss                      |                                                               |                                                 |           |             |              |   |   |            |   |  |            |           |   |               |   |   |              |   |        |               |   |   |        |        |   |        |    |     |   |   | (2,584  | ) |  |   | (2,584 | )     
|                              |                                                               |                                                 |            |             |              |   |    |            |   |  |             |           |   |               |    |   |              |   |         |               |   |   |         |        |   |        |    
|Balances at December 31, 2003 |                                                               |                                                 | 25,186,747 |             |              |   | 25 |            |   |  | 1,329,369   |           |   |               | 1  |   |              |   | 58,686  |               |   |   | (432    | )      |   |        |    |     |   |   | (44,039 | ) |  |   | 14,241 |       
|                              | Exercise of warrants for Series C preferred stock             |                                                 |            | 33,006      |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         |              |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Net exercise of warrants for common stock                     |                                                 |            |            |              |   |    |           |   |  |             | 2,602     |   |               |    |  |              |   |         |              |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Exercise of stock options                                     |                                                 |            |            |              |   |    |           |   |  |             | 82,871    |   |               |    |  |              |   |         | 149           |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        | 149    |  
|                              | Deferred stock compensation for stock option grants           |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | 1,701         |   |   |         | (1,701 | ) |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Fair value of options issued for services                     |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | 181           |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        | 181    |  
|                              | Cancellation of options                                       |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | (32           | ) |   |         | 32     |   |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Conversion of preferred stock to common stock                 |                                                 |            | (25,219,753 | )            |   |    | (25        | ) |  |             | 8,957,389 |   |               |    | 9 |              |   |         | 16            |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Issuance of common stock in initial public offering           |                                                 |            |             |              |   |    |            |   |  |             | 4,000,000 |   |               |    | 4 |              |   |         | 53,998        |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        | 54,002 |  
|                              | Repurchase of restricted stock common stock                   |                                                 |            |            |              |   |    |           |   |  |             | (792      | ) |               |    |  |              |   |         | (1            | ) |   |         |       |   |        |     |    |   |   |         |  |  |   |        | (1     | )
|                              | Amortization of deferred stock-based compensation             |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         |              |   |   |         | 870    |   |        |     |    |   |   |         |  |  |   |        | 870    |  
|Net income                    |                                                               |                                                 |           |             |              |   |   |            |   |  |            |           |   |               |   |   |              |   |        |               |   |   |        |        |   |        |    |     |   |   | 2,866   |   |  |   | 2,866  |       
|                              |                                                               |                                                 |            |             |              |   |    |            |   |  |             |           |   |               |    |   |              |   |         |               |   |   |         |        |   |        |    
|Balances at December 31, 2004 |                                                               |                                                 |           |             |              |   |   |            |   |  | 14,371,439  |           |   |               | 14 |   |              |   | 114,698 |               |   |   | (1,231  | )      |   |        |    |     |   |   | (41,173 | ) |  |   | 72,308 |       
|                              | Unrealized loss on short-term investments                     |                                                 |            |             |              |   |    |            |   |  |             |           |   |               |    |   |              |   |         |               |   |   |         |        |   |        |     | (50 | ) |   |         |   |  |   |        | (50    | )
|                              | Exercise of stock options                                     |                                                 |            |            |              |   |    |           |   |  |             | 528,550   |   |               |    | 1 |              |   |         | 1,149         |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        | 1,150  |  
|                              | Deferred stock compensation for stock option grants           |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | 10            |   |   |         | (10    | ) |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Deferred stock compensation for restricted stock units (RSUs) |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | 2,264         |   |   |         | (2,264 | ) |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Fair value of options issued for services                     |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | 62            |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        | 62     |  
|                              | Cancellation of options                                       |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | (284          | ) |   |         | 284    |   |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Cancellation of RSUs                                         |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | (63           | ) |   |         | 63     |   |        |     |    |   |   |         |  |  |   |        |       |  
|                              | Amortization of deferred stock-based compensation             |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         |              |   |   |         | 614    |   |        |     |    |   |   |         |  |  |   |        | 614    |  
|                              | Tax benefit on exercise of employee stock options             |                                                 |            |            |              |   |    |           |   |  |             |          |   |               |    |  |              |   |         | 88            |   |   |         |       |   |        |     |    |   |   |         |  |  |   |        | 88     |  
|Net income                    |                                                               |                                                 |           |             |              |   |   |            |   |  |            |           |   |               |   |   |              |   |        |               |   |   |        |        |   |        |    |     |   |   | 5,350   |   |  |   | 5,350  |       
|                              |                                                               |                                                 |            |             |              |   |    |            |   |  |             |           |   |               |    |   |              |   |         |               |   |   |         |        |   |        |    
|Balances at December 31, 2005 |                                                               |                                                 |           |             |              | $ |   |            |   |  | 14,899,989  |           |   | $             | 15 |   |              | $ | 117,924 |               |   | $ | (2,544  | )      |   | $      | (50 | )   |   | $ | (35,823 | ) |  | $ | 79,522 |       
|                              |                                                               |                                                 |            |             |              |   |    |            |   |  |             |           |   |               |    |   |              |   |         |               |   |   |         |        |   |        |    



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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |        |   |        |        |      |  
|------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------- | ------- | - | ------ | ------ | ------ | - | ------ | ------ | ---- | -
|                                                                                      |                                                                                           | Year Ended December 31,                             |        
|                                                                                      |                                                                                           |                                                     |        
|                                                                                      |                                                                                           | 2005                                                |         |         | 2004    |   |        | 2003   |       
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|                                                                                      |                                                                                           | (In thousands)                                      |        
|Cash flows from operating activities:                                                 |                                                                                           |                                                     |         |         |         |   |        |        |        |   |        |       
|Net income (loss)                                                                     |                                                                                           | $                                                   | 5,350   |         |         | $ | 2,866  |        |        | $ | (2,584 | )     
|Adjustments to reconcile net income (loss) to net cash from
    operating activities: |                                                                                           |                                                     |         |         |         |   |        |        |        |   |        |       
|                                                                                      | Depreciation and amortization                                                             |                                                     |         | 634     |         |   |        | 420    |        |   |        | 351    |     
|                                                                                      | Non-employee stock compensation and amortization of deferred
    stock-based compensation |                                                     |         | 676     |         |   |        | 1,051  |        |   |        | 583    |     
|                                                                                      | Tax benefit on the exercise of employee stock options                                     |                                                     |         | 88      |         |   |        |       |        |   |        |       |     
|                                                                                      | Changes in operating assets and liabilities:                                              |                                                     |         |         |         |   |        |        |        |   |        |        |     
|                                                                                      | Accounts receivable                                                                       |                                                     |         | (1,101  | )       |   |        | (2,018 | )      |   |        | (1,485 | )   
|                                                                                      | Inventories                                                                               |                                                     |         | (1,271  | )       |   |        | (773   | )      |   |        | 560    |     
|                                                                                      | Prepaid expenses and other assets                                                         |                                                     |         | (588    | )       |   |        | (435   | )      |   |        | 19     |     
|                                                                                      | Other long-term assets                                                                    |                                                     |         | (191    | )       |   |        | 2      |        |   |        |       |     
|                                                                                      | Accounts payable                                                                          |                                                     |         | (9      | )       |   |        | 358    |        |   |        | 472    |     
|                                                                                      | Accrued and other liabilities                                                             |                                                     |         | 162     |         |   |        | 1,758  |        |   |        | 1,404  |     
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|                                                                                      |                                                                                           | Net cash provided by (used in) operating activities |         |         | 3,750   |   |        |        | 3,229  |   |        |        | (680 | )
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|Cash flows from investing activities:                                                 |                                                                                           |                                                     |         |         |         |   |        |        |        |   |        |       
|                                                                                      | Purchase of short-term investments                                                        |                                                     |         | (34,468 | )       |   |        |       |        |   |        |       |     
|                                                                                      | Sale/maturities of short-term investments                                                 |                                                     |         | 8,700   |         |   |        |       |        |   |        |       |     
|                                                                                      | Purchase of property and equipment                                                        |                                                     |         | (901    | )       |   |        | (525   | )      |   |        | (238   | )   
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|                                                                                      |                                                                                           | Net cash used in investing activities               |         |         | (26,669 | ) |        |        | (525   | ) |        |        | (238 | )
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|Cash flows from financing activities:                                                 |                                                                                           |                                                     |         |         |         |   |        |        |        |   |        |       
|                                                                                      | Proceeds from the sale of common stock                                                    |                                                     |         |        |         |   |        | 55,800 |        |   |        |       |     
|                                                                                      | Stock issuance costs                                                                      |                                                     |         |        |         |   |        | (1,798 | )      |   |        |       |     
|                                                                                      | Proceeds from the exercise of stock options for common stock                              |                                                     |         | 1,150   |         |   |        | 149    |        |   |        | 28     |     
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|                                                                                      |                                                                                           | Net cash provided by financing activities           |         |         | 1,150   |   |        |        | 54,151 |   |        |        | 28   |  
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|Net (decrease) increase in cash and cash equivalents                                  |                                                                                           |                                                     | (21,769 | )       |         |   | 56,855 |        |        |   | (890   | )     
|Cash and cash equivalents at the beginning of the year                                |                                                                                           |                                                     | 68,566  |         |         |   | 11,711 |        |        |   | 12,601 |       
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|Cash and cash equivalents at the end of the period                                    |                                                                                           | $                                                   | 46,797  |         |         | $ | 68,566 |        |        | $ | 11,711 |       
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       
|Supplemental disclosure of cash flow information:                                     |                                                                                           |                                                     |         |         |         |   |        |        |        |   |        |       
|                                                                                      | Deferred stock-based compensation                                                         |                                                     |         | 1,927   |         |   |        | 1,669  |        |   |        | 334    |     
|                                                                                      |                                                                                           |                                                     |         |         |         |   |        |        |       



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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|         |            
|-------- | -----------
|Note 1  | The Company

®






|         |                                           
|-------- | ------------------------------------------
|Note 2  | Summary of Significant Accounting Policies

Principles of consolidation and basis of presentation.


Use of Estimates.


Net Income (Loss) Per Share. in-the


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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                   |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       |  |   |        |       |  
|-------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------ | ---- | ---- | - | ------ | ----- |  | - | ------ | ----- | -
|                                                                                                   |                                                                                                                                                                                                                        | Year Ended December 31, |       
|                                                                                                   |                                                                                                                                                                                                                        |                         |       
|                                                                                                   |                                                                                                                                                                                                                        | 2005                    |        |      | 2004 |   |        | 2003  | 
|                                                                                                   |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       | 
|Numerator:                                                                                         |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       |  |   |        |      
|Net income (loss) available to common stockholders, basic and
    diluted                          |                                                                                                                                                                                                                        | $                       | 5,350  |      |      | $ | 2,866  |       |  | $ | (2,584 | )    
|                                                                                                   |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       | 
|Denominator:                                                                                       |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       |  |   |        |      
|Weighted average common shares outstanding                                                         |                                                                                                                                                                                                                        |                         | 14,652 |      |      |   | 3,947  |       |  |   | 1,318  |      
|Weighted average unvested common shares subject to repurchase                                      |                                                                                                                                                                                                                        |                         |       |      |      |   | (1     | )     |  |   | (9     | )    
|                                                                                                   |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       | 
|Weighted average common shares outstanding used in computing
    basic net income (loss) per share |                                                                                                                                                                                                                        |                         | 14,652 |      |      |   | 3,946  |       |  |   | 1,309  |      
|Effect of dilutive securities:                                                                     |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       |  |   |        |      
|                                                                                                   | Stock options, restricted stock units, warrants, weighted
    average convertible preferred stock, weighted average unvested
    common shares subject to repurchase agreements, deferred
    stock-based compensation |                         |        | 814  |      |   |        | 8,422 |  |   |        |      |  
|                                                                                                   |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       | 
|Total shares, diluted                                                                              |                                                                                                                                                                                                                        |                         | 15,466 |      |      |   | 12,368 |       |  |   | 1,309  |      
|                                                                                                   |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       | 
|Net income (loss) per common share:                                                                |                                                                                                                                                                                                                        |                         |        |      |      |   |        |       |  |   |        |      
|                                                                                                   | Basic                                                                                                                                                                                                                  |                         | $      | 0.37 |      |   | $      | 0.73  |  |   | $      | (1.97 | )
|                                                                                                   | Diluted                                                                                                                                                                                                                |                         | $      | 0.35 |      |   | $      | 0.23  |  |   | $      | (1.97 | )



|                                                                                                                     |  |              |     |  |      |  |    |      |  |  |        | 
|-------------------------------------------------------------------------------------------------------------------- |  | ------------ | --- |  | ---- |  | -- | ---- |  |  | ------ | 
|                                                                                                                     |  | Year Ended   |    
|                                                                                                                     |  | December 31, |    
|                                                                                                                     |  |              |    
|                                                                                                                     |  | 2005         |     |  | 2004 |  |    | 2003 | 
|                                                                                                                     |  |              |     |  |      |  |    |      | 
|Convertible preferred stock (assuming conversion, using
    appropriate conversion ratio, to common shares)          |  |              |    |  |      |  |   |      |  |  | 8,957  | 
|Convertible preferred stock warrants (assuming conversion, using
    appropriate conversion ratio, to common shares) |  |              |    |  |      |  |   |      |  |  | 13     | 
|Common stock warrants                                                                                                |  |              |    |  |      |  |   |      |  |  | 147    | 
|Stock options                                                                                                        |  |              | 214 |  |      |  | 38 |      |  |  | 1,389  | 
|Unvested common shares subject to repurchase agreements                                                              |  |              |    |  |      |  |   |      |  |  | 4      | 
|                                                                                                                     |  |              |     |  |      |  |    |      | 
|                                                                                                                     |  |              | 214 |  |      |  | 38 |      |  |  | 10,510 | 
|                                                                                                                     |  |              |     |  |      |  |    |      | 

Cash and Cash Equivalents.


Short-Term Investments.


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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Fair Value of Financial Instruments.


Inventory. first-in,


Property and Equipment.




|                              |  |  |              | 
|----------------------------- |  |  | ------------ | 
|Furniture and fixtures        |  |  | 3 years      | 
|Computer and office equipment |  |  | 3 years      | 
|Laboratory equipment          |  |  | 5 years      | 
|Purchased software            |  |  | 3 to 5 years | 



Long-Lived Assets.


Revenue Recognition.




Warranty.


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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Research and Development Costs.


Advertising Expenses.


Stock-based Compensation. Accounting for Stock Issued to
Employees Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of
APB No 25,


Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of SFAS No. 123,


|                                                                                                     |  |            |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ---------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                     |  | Year Ended |       
|                                                                                                     |  |            |       
|                                                                                                     |  | 2005       |        |   | 2004 |   |        | 2003 | 
|                                                                                                     |  |            |        |   |      |   |        |      | 
|Net income (loss), as reported                                                                       |  | $          | 5,350  |   |      | $ | 2,866  |      |  | $ | (2,584 | )
|Add: Employee stock-based compensation expense determined under
    the intrinsic method, net of tax |  |            | 502    |   |      |   | 809    |      |  |   | 526    |  
|Deduct: Stock-based compensation expense determined under fair
    value based method, net of tax    |  |            | (1,938 | ) |      |   | (925   | )    |  |   | (627   | )
|                                                                                                     |  |            |        |   |      |   |        |      | 
|Pro forma net income (loss)                                                                          |  | $          | 3,914  |   |      | $ | 2,750  |      |  | $ | (2,685 | )
|                                                                                                     |  |            |        |   |      |   |        |      | 
|Weighted average number of shares used in per share calculation                                      |  |            |        |   |      |   |        |      |  |   |        |  
|Basic                                                                                                |  |            | 14,652 |   |      |   | 3,946  |      |  |   | 1,309  |  
|Diluted                                                                                              |  |            | 15,218 |   |      |   | 12,368 |      |  |   | 1,309  |  
|Pro forma net income (loss) per share                                                                |  |            |        |   |      |   |        |      |  |   |        |  
|Basic                                                                                                |  | $          | 0.27   |   |      | $ | 0.70   |      |  | $ | (2.05  | )
|Diluted                                                                                              |  | $          | 0.26   |   |      | $ | 0.22   |      |  | $ | (2.05  | )





|                         |  |            |             |   |      |  |             |      |  |  |             |  
|------------------------ |  | ---------- | ----------- | - | ---- |  | ----------- | ---- |  |  | ----------- | -
|                         |  | Year Ended |            
|                         |  |            |            
|                         |  | 2005       |             |   | 2004 |  |             | 2003 | 
|                         |  |            |             |   |      |  |             |      | 
|Risk free interest rates |  |            | 3.71  4.45 | % |      |  | 2.64  3.62 | %    |  |  | 1.95  3.04 | %
|Expected Life (in years) |  |            | 3.70        |   |      |  | 4.00        |      |  |  | 4.00        |  
|Dividend Yield           |  |            |            |   |      |  |            |      |  |  |            |  
|Volatility               |  |            | 51.59       | % |      |  | 65.00       | %    |  |  |            | *






|  |                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------
|* | Note: Prior to the Companys initial public offering on
    October 20, 2004, the minimum value method was used.

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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans,


Comprehensive Income (Loss)


Income Taxes.


Recent Accounting Pronouncements. Inventory
Costs  an Amendment of ARB No. 43,
Chapter 4


Share Based Payment Accounting for Stock-Based Compensation, straight-line


Share Based Payment


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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting Changes and Error Corrections: a Replacement
of Accounting Principles Board Opinion No. 20
(APB 20) and FASB Statement No. 3


Determining the Amortization Period for
Leasehold Improvements Purchased after Lease Inception or
Acquired in a Business Combination


13-1, Accounting for Rental Costs Incurred during a
Construction Period 13-1). Issues Relating
to Accounting for Leases, Accounting for Leases, Accounting for Operating
Leases with Scheduled Rent Increases, 13-1 13-1 13-1




|         |                             
|-------- | ----------------------------
|Note 3  | Concentration of Credit Risk





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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|         |                                             
|-------- | --------------------------------------------
|Note 4  | Operating Segment and Geographic Information

Disclosures About Segments of an
Enterprise and Related Information




|                    |  |              |     |   |      |  |     |      |  |  |     |  
|------------------- |  | ------------ | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                    |  | Years Ended  |    
|                    |  | December 31, |    
|                    |  |              |    
|                    |  | 2005         |     |   | 2004 |  |     | 2003 | 
|                    |  |              |     |   |      |  |     |      | 
|United States       |  |              | 96  | % |      |  | 96  | %    |  |  | 96  | %
|Europe              |  |              | 3   | % |      |  | 3   | %    |  |  | 3   | %
|Other International |  |              | 1   | % |      |  | 1   | %    |  |  | 1   | %
|                    |  |              |     |   |      |  |     |      | 
|                    |  |              | 100 | % |      |  | 100 | %    |  |  | 100 | %
|                    |  |              |     |   |      |  |     |      | 

|              |  |  |     |   |  |  |     |   |  |  |     |  
|------------- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|Catheters     |  |  | 76  | % |  |  | 77  | % |  |  | 72  | %
|RF Generators |  |  | 18  | % |  |  | 18  | % |  |  | 24  | %
|Accessories   |  |  | 6   | % |  |  | 5   | % |  |  | 4   | %
|              |  |  |     |   |  |  |     |   | 
|              |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
|              |  |  |     |   |  |  |     |   | 



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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                       
|-------- | ----------------------
|Note 5  | Short-Term Investments





|                       |                                                |                   |        |        |            |   |   |            |  |   |            |     |   |   |        |        | 
|---------------------- | ---------------------------------------------- | ----------------- | ------ | ------ | ---------- | - | - | ---------- |  | - | ---------- | --- | - | - | ------ | ------ | 
|                       |                                                | December 31, 2005 |       
|                       |                                                |                   |       
|                       |                                                | Gross             |        |        | Gross      |   |   | Gross      |  |   |           
|                       |                                                | Amortized         |        |        | Unrealized |   |   | Unrealized |  |   | Estimated  |    
|                       |                                                | Cost              |        |        | Gains      |   |   | Losses     |  |   | Fair Value |    
|                       |                                                |                   |        |        |            |   |   |            |  |   |            |    
|Short-term investments |                                                |                   |        |        |            |   |   |            |  |   |            |     |   |   |        |       
|                       | Certificates of deposit and money market funds |                   | $      | 688    |            |   | $ |           |  |   | $          | (3  | ) |   | $      | 685    | 
|                       | Commercial paper                               |                   |        | 987    |            |   |   | 1          |  |   |            |    |   |   |        | 988    | 
|                       | Corporate debt securities                      |                   |        | 19,629 |            |   |   |           |  |   |            | (38 | ) |   |        | 19,591 | 
|                       | Asset backed securities                        |                   |        | 4,464  |            |   |   |            |  |   |            | (10 | ) |   |        | 4,454  | 
|                       |                                                |                   |        |        |            |   |   |            |  |   |            |    
|                       |                                                | $                 | 25,768 |        |            | $ | 1 |            |  | $ | (51        | )   |   | $ | 25,718 |       
|                       |                                                |                   |        |        |            |   |   |            |  |   |            |    







|                  |  |              |        | 
|----------------- |  | ------------ | ------ | 
|                  |  | December 31, |       
|                  |  | 2005         |       
|                  |  |              |       
|One year or less  |  | $            | 21,264 | 
|One to five years |  |              | 4,454  | 
|                  |  |              |       
|                  |  | $            | 25,718 | 
|                  |  |              |       

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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                         
|-------- | ------------------------
|Note 6  | Balance Sheet Components



|                                                |  |              |        |   |      |   |        |  
|----------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                |  | December 31, |       
|                                                |  |              |       
|                                                |  | 2005         |        |   | 2004 |  
|                                                |  |              |        |   |      |  
|Prepaid expenses and other current assets       |  |              |        |   |      |   |        |  
|Prepaid expenses                                |  | $            | 902    |   |      | $ | 663    |  
|Interest receivable                             |  |              | 314    |   |      |   |       |  
|Other                                           |  |              | 49     |   |      |   | 14     |  
|                                                |  |              |        |   |      |  
|                                                |  | $            | 1,265  |   |      | $ | 677    |  
|                                                |  |              |        |   |      |  
|Inventories                                     |  |              |        |   |      |   |        |  
|Finished goods                                  |  | $            | 1,528  |   |      | $ | 626    |  
|Raw materials and sub-assemblies                |  |              | 893    |   |      |   | 876    |  
|Radio-frequency generators                      |  |              | 494    |   |      |   | 142    |  
|                                                |  |              |        |   |      |  
|                                                |  | $            | 2,915  |   |      | $ | 1,644  |  
|                                                |  |              |        |   |      |  
|Property and equipment, net                     |  |              |        |   |      |   |        |  
|Furniture and fixtures                          |  | $            | 158    |   |      | $ | 138    |  
|Computers and office equipment                  |  |              | 637    |   |      |   | 493    |  
|Leasehold improvements                          |  |              | 1,107  |   |      |   | 924    |  
|Laboratory equipment                            |  |              | 962    |   |      |   | 735    |  
|Purchased software                              |  |              | 674    |   |      |   | 442    |  
|Construction in progress                        |  |              | 95     |   |      |   |       |  
|                                                |  |              |        |   |      |  
|                                                |  |              | 3,633  |   |      |   | 2,732  |  
|Less: Accumulated depreciation and amortization |  |              | (2,270 | ) |      |   | (1,636 | )
|                                                |  |              |        |   |      |  
|                                                |  | $            | 1,363  |   |      | $ | 1,096  |  
|                                                |  |              |        |   |      |  
|Accrued liabilities                             |  |              |        |   |      |   |        |  
|Sales commissions and bonuses                   |  | $            | 1,975  |   |      | $ | 2,402  |  
|Payroll and related expenses                    |  |              | 718    |   |      |   | 692    |  
|Taxes payable, including taxes on earnings      |  |              | 424    |   |      |   | 490    |  
|Deferred revenue                                |  |              | 222    |   |      |   | 145    |  
|Other                                           |  |              | 1,209  |   |      |   | 582    |  
|                                                |  |              |        |   |      |  
|                                                |  | $            | 4,548  |   |      | $ | 4,311  |  
|                                                |  |              |        |   |      |  



|         |                                      
|-------- | -------------------------------------
|Note 7  | Interest Income and Other Income, Net

|                             |  |              |       |   |      |   |     |      |  |   |     | 
|---------------------------- |  | ------------ | ----- | - | ---- | - | --- | ---- |  | - | --- | 
|                             |  | December 31, |      
|                             |  |              |      
|                             |  | 2005         |       |   | 2004 |   |     | 2003 | 
|                             |  |              |       |   |      |   |     |      | 
|Interest income              |  | $            | 1,852 |   |      | $ | 351 |      |  | $ | 135 | 
|Foreign exchange gain (loss) |  |              | (152  | ) |      |   | 46  |      |  |   | 35  | 
|Other                        |  |              | 79    |   |      |   | 42  |      |  |   | 1   | 
|                             |  |              |       |   |      |   |     |      | 
|                             |  | $            | 1,779 |   |      | $ | 439 |      |  | $ | 171 | 
|                             |  |              |       |   |      |   |     |      | 

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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |             
|-------- | ------------
|Note 8  | Income Taxes





|                                                     |  |                          |        |    |      |  |        |      |  |  |        |   
|---------------------------------------------------- |  | ------------------------ | ------ | -- | ---- |  | ------ | ---- |  |  | ------ | --
|                                                     |  | Years Ended December 31, |       
|                                                     |  |                          |       
|                                                     |  | 2005                     |        |    | 2004 |  |        | 2003 | 
|                                                     |  |                          |        |    |      |  |        |      | 
|U.S. federal statutory tax rate                      |  |                          | 35.00  | %  |      |  | 35.00  | %    |  |  | (34.00 | )%
|State income taxes, net of federal benefit           |  |                          | 5.58   | %  |      |  | 6.40   | %    |  |  | (5.83  | )%
|Meals/ entertainment and other permanent adjustments |  |                          | 1.57   | %  |      |  |       |      |  |  |       |   
|Deferred tax assets utilized during the year         |  |                          | (48.60 | )% |      |  | (59.03 | )%   |  |  | (16.58 | )%
|Net increase in temporary tax adjustments            |  |                          | 1.25   | %  |      |  | 4.72   | %    |  |  | 54.38  | % 
|Amortization of book stock-based compensation        |  |                          | 4.77   | %  |      |  | 11.14  | %    |  |  | 8.45   | % 
|AMT tax credit not benefited                         |  |                          | 2.69   | %  |      |  |       |      |  |  |       |   
|Other                                                |  |                          | 2.64   | %  |      |  | 8.93   | %    |  |  | (6.42  | )%
|                                                     |  |                          |        |    |      |  |        |      | 
|                                                     |  |                          | 4.90   | %  |      |  | 7.16   | %    |  |  | 0.00   | % 
|                                                     |  |                          |        |    |      |  |        |      | 



|                                  |  |              |         |   |      |   |         |  
|--------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                  |  | December 31, |        
|                                  |  |              |        
|                                  |  | 2005         |         |   | 2004 |  
|                                  |  |              |         |   |      |  
|Net operating loss carryovers     |  | $            | 11,166  |   |      | $ | 12,470  |  
|Tax credits                       |  |              | 1,857   |   |      |   | 1,661   |  
|Accruals, allowances and reserves |  |              | 515     |   |      |   | 564     |  
|Capitalization & cost recovery    |  |              | 711     |   |      |   | 494     |  
|Other                             |  |              | 136     |   |      |   | 134     |  
|                                  |  |              |         |   |      |  
|Net deferred tax assets           |  |              | 14,385  |   |      |   | 15,323  |  
|Valuation allowance               |  |              | (14,385 | ) |      |   | (15,323 | )
|                                  |  |              |         |   |      |  
|Net deferred tax assets           |  | $            |        |   |      | $ |        |  
|                                  |  |              |         |   |      |  







|         |                              
|-------- | -----------------------------
|Note 9  | Commitments and Contingencies

Leases.


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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                         |  |                  |       | 
|------------------------ |  | ---------------- | ----- | 
|Year Ending December 31, |  | Operating Leases |      
|                         |  |                  |      
|2006                     |  | $                | 816   | 
|2007                     |  |                  | 837   | 
|2008                     |  |                  | 918   | 
|2009                     |  |                  | 1,095 | 
|2010                     |  |                  | 1,166 | 
|2011 and thereafter      |  |                  | 3,905 | 
|                         |  |                  |      
|                         |  | $                | 8,737 | 
|                         |  |                  |      



Indemnifications.


Purchase Commitments.


Leasehold Improvements.


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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Contingencies.




|          |                   
|--------- | ------------------
|Note 10  | Stock Option Plans











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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                              |  |               |            |                           |               |  |           |                 |  |   |               |  |  |   |      | 
|----------------------------- |  | ------------- | ---------- | ------------------------- | ------------- |  | --------- | --------------- |  | - | ------------- |  |  | - | ---- | 
|                              |  |               |            | Options/ RSUs Outstanding |               |  | Weighted  |                
|                              |  | Options/ RSUs |            |                           |               |  |           | Average         | 
|                              |  | Available for |            |                           | Number of     |  |           | Range of        |  |   | Exercise      | 
|                              |  | Future Grant  |            |                           | Options/ RSUs |  |           | Exercise Prices |  |   | Price         | 
|                              |  |               |            |                           |               |  |           |                 |  |   |               | 
|Balances at December 31, 2002 |  |               | 374,568    |                           |               |  | 974,601   |                 |  | $ | 0.04  $ 7.14 |  |  | $ | 2.15 | 
|Authorized                    |  |               | 98,000     |                           |               |  |          |                 |  |   |              |  |  |   |     | 
|Granted                       |  |               | (489,915   | )                         |               |  | 489,915   |                 |  |   | 1.50          |  |  |   | 1.50 | 
|Exercised                     |  |               |           |                           |               |  | (21,341   | )               |  |   | 0.43    1.50 |  |  |   | 1.32 | 
|Terminated/cancelled          |  |               | 50,010     |                           |               |  | (53,814   | )               |  |   | 0.43    7.14 |  |  |   | 2.66 | 
|                              |  |               |            |                           |               |  |           |                 |  |   |               | 
|Balances at December 31, 2003 |  |               | 32,663     |                           |               |  | 1,389,361 |                 |  | $ | 0.04  $ 7.14 |  |  | $ | 1.92 | 
|Authorized                    |  |               | 1,231,333  |                           |               |  |          |                 |  |   |              |  |  |   |     | 
|Granted                       |  |               | (477,944   | )                         |               |  | 477,944   |                 |  |   | 3.00   16.70 |  |  |   | 5.41 | 
|Exercised                     |  |               |           |                           |               |  | (82,871   | )               |  |   | 0.04    7.14 |  |  |   | 1.79 | 
|Terminated/cancelled          |  |               | 101,632    |                           |               |  | (104,712  | )               |  |   | 0.71   10.50 |  |  |   | 2.87 | 
|                              |  |               |            |                           |               |  |           |                 |  |   |               | 
|Balances at December 31, 2004 |  |               | 887,684    |                           |               |  | 1,679,722 |                 |  | $ | 0.04  $16.70 |  |  | $ | 2.86 | 
|Authorized                    |  |               | 595,999    |                           |               |  |          |                 |  |   |              |  |  |   |     | 
|Expired                       |  |               | (273       | )                         |               |  |          |                 |  |   |              |  |  |   |     | 
|Granted                       |  |               | (1,021,218 | )                         |               |  | 1,021,218 |                 |  |   | 0.00   13.78 |  |  |   | 8.61 | 
|Exercised                     |  |               |           |                           |               |  | (528,550  | )               |  |   | 0.61   10.50 |  |  |   | 2.18 | 
|Terminated/cancelled          |  |               | 210,486    |                           |               |  | (210,486  | )               |  |   | 0.00   14.91 |  |  |   | 5.18 | 
|                              |  |               |            |                           |               |  |           |                 |  |   |               | 
|Balances at December 31, 2005 |  |               | 672,678    |                           |               |  | 1,961,904 |                 |  | $ | 0.00  $16.70 |  |  | $ | 6.60 | 
|                              |  |               |            |                           |               |  |           |                 |  |   |               | 

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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                |  |                              |           |             |                  |  |             |              |          |  |          |  |  |   |       | 
|--------------- |  | ---------------------------- | --------- | ----------- | ---------------- |  | ----------- | ------------ | -------- |  | -------- |  |  | - | ----- | 
|                |  | Options and RSUs Outstanding |           |             |                 
|                |  |                              |           |             | Options and RSUs | 
|                |  |                              |           | Weighted    |                  |  | Exercisable |             
|                |  |                              |           | Average     |                  |  |             |             
|                |  |                              |           | Remaining   |                  |  |             |              | Weighted | 
|                |  |                              |           | Contractual |                  |  |             |              | Average  | 
|                |  | Number of                    |           |             | Life (In         |  |             | Number of    |          |  | Exercise | 
|Exercise Prices |  | Options/RSUs                 |           |             | Years)           |  |             | Options/RSUs |          |  | Price    | 
|                |  |                              |           |             |                  |  |             |              |          |  |          | 
|$ 0.00   0.01  |  |                              | 242,259   |             |                  |  | 9.85        |              |          |  | 393      |  |  | $ |      | 
|0.11   0.71    |  |                              | 181,594   |             |                  |  | 2.46        |              |          |  | 181,594  |  |  |   | 0.59  | 
|1.50   1.50    |  |                              | 408,370   |             |                  |  | 6.69        |              |          |  | 324,354  |  |  |   | 1.50  | 
|3.00   3.00    |  |                              | 220,480   |             |                  |  | 8.18        |              |          |  | 96,672   |  |  |   | 3.00  | 
|6.00  10.05    |  |                              | 176,826   |             |                  |  | 7.40        |              |          |  | 93,909   |  |  |   | 7.41  | 
|10.08  10.76   |  |                              | 219,244   |             |                  |  | 9.20        |              |          |  | 50,169   |  |  |   | 10.67 | 
|10.86  10.95   |  |                              | 173,880   |             |                  |  | 9.45        |              |          |  | 19,688   |  |  |   | 10.86 | 
|10.97  12.44   |  |                              | 191,270   |             |                  |  | 9.50        |              |          |  | 6,443    |  |  |   | 11.59 | 
|12.45  14.91   |  |                              | 122,981   |             |                  |  | 9.23        |              |          |  | 9,425    |  |  |   | 13.40 | 
|15.00  15.00   |  |                              | 20,000    |             |                  |  | 8.82        |              |          |  | 20,000   |  |  |   | 15.00 | 
|16.70  16.70   |  |                              | 5,000     |             |                  |  | 8.91        |              |          |  | 1,354    |  |  |   | 16.70 | 
|                |  |                              |           |             |                  |  |             |              |          |  |          | 
|                |  |                              | 1,961,904 |             |                  |  | 7.91        |              |          |  | 804,001  |  |  | $ | 3.55  | 
|                |  |                              |           |             |                  |  |             |              |          |  |          | 



Employee Deferred
Stock-Based
Compensation.


Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans straight-line


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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |  |           |         |          |          |   |          |            |  |         |           |  |  |   |      | 
|------------------------------------ |  | --------- | ------- | -------- | -------- | - | -------- | ---------- |  | ------- | --------- |  |  | - | ---- | 
|                                     |  |           |         |          |          |   |          | Weighted   | 
|                                     |  |           |         | Weighted |          |   | Weighted |            |  | Average |          
|                                     |  | Number of |         |          | Average  |   |          | Average    |  |         | Intrinsic | 
|                                     |  | Options   |         |          | Exercise |   |          | Fair Value |  |         | Value     | 
|Grants Made During the Quarter Ended |  | Granted   |         |          | Price    |   |          | per Share  |  |         | per Share | 
|                                     |  |           |         |          |          |   |          |            |  |         |           | 
|March 31, 2004                       |  |           | 168,620 |          |          | $ | 3.00     |            |  | $       | 6.51      |  |  | $ | 3.51 | 
|June 30, 2004                        |  |           | 144,883 |          |          | $ | 3.77     |            |  | $       | 10.56     |  |  | $ | 6.79 | 
|September 30, 2004                   |  |           | 49,391  |          |          | $ | 9.93     |            |  | $       | 13.31     |  |  | $ | 3.38 | 
|December 31, 2004                    |  |           | 24,130  |          |          | $ | 10.73    |            |  | $       | 15.21     |  |  | $ | 4.48 | 
|March 31, 2005                       |  |           | 3,333   |          |          | $ | 10.50    |            |  | $       | 13.45     |  |  | $ | 2.95 | 
|June 30, 2005                        |  |           |        |          |          | $ |         |            |  | $       |          |  |  | $ |     | 
|September 30, 2005                   |  |           |        |          |          | $ |         |            |  | $       |          |  |  | $ |     | 
|December 31, 2005                    |  |           |        |          |          | $ |         |            |  | $       |          |  |  | $ |     | 



|                                     |  |           |         |          |          |          |            |          |         |           |      |  |  |   |      | 
|------------------------------------ |  | --------- | ------- | -------- | -------- | -------- | ---------- | -------- | ------- | --------- | ---- |  |  | - | ---- | 
|                                     |  |           |         |          |          |          |            | Weighted |        
|                                     |  |           |         | Weighted |          | Weighted |            |          | Average |          
|                                     |  | Number of |         |          | Average  |          | Average    |          |         | Intrinsic |     
|                                     |  | RSUs      |         |          | Exercise |          | Fair Value |          |         | Value     |     
|Grants Made During the Quarter Ended |  | Granted   |         |          | Price    |          | per Share  |          |         | per Share |     
|                                     |  |           |         |          |          |          |            |          |         |           |     
|March 31, 2004                       |  |           |        |          |          | $        |           |          |         | $         |     |  |  | $ |     | 
|June 30, 2004                        |  |           |        |          |          | $        |           |          |         | $         |     |  |  | $ |     | 
|September 30, 2004                   |  |           |        |          |          | $        |           |          |         | $         |     |  |  | $ |     | 
|December 31, 2004                    |  |           |        |          |          | $        |           |          |         | $         |     |  |  | $ |     | 
|March 31, 2005                       |  |           |        |          |          | $        |           |          |         | $         |     |  |  | $ |     | 
|June 30, 2005                        |  |           |        |          |          | $        |           |          |         | $         |     |  |  | $ |     | 
|September 30, 2005                   |  |           |        |          |          | $        |           |          |         | $         |     |  |  | $ |     | 
|December 31, 2005                    |  |           | 249,279 |          |          | $        |           |          |         | $         | 9.02 |  |  | $ | 9.02 | 

Stock Compensation Expense Related to Consultant
Services.




|          |                       
|--------- | ----------------------
|Note 11  | Employee Benefit Plans



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VNUS MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |                                               
|--------- | ----------------------------------------------
|Note 12  | Selected Quarterly Financial Data (unaudited):



|                                          |  |                |        |   |           |   |        |          |  |   |          |  |  |          |        |  |           |   |        |          |  |   |          |  |  |   |       |  |  |   |       | 
|----------------------------------------- |  | -------------- | ------ | - | --------- | - | ------ | -------- |  | - | -------- |  |  | -------- | ------ |  | --------- | - | ------ | -------- |  | - | -------- |  |  | - | ----- |  |  | - | ----- | 
|                                          |  | Dec. 05       |        |   | Sept. 05 |   |        | June 05 |  |   | Mar. 05 |  |  | Dec. 04 |        |  | Sept. 04 |   |        | June 04 |  |   | Mar. 04 | 
|                                          |  |                |        |   |           |   |        |          |  |   |          |  |  |          |        |  |           |   |        |          |  |   |          | 
|                                          |  | (In thousands) |       
|                                          |  | (Unaudited)    |       
|Net revenues                              |  | $              | 13,535 |   |           | $ | 12,129 |          |  | $ | 12,314   |  |  | $        | 11,192 |  |           | $ | 11,186 |          |  | $ | 10,116   |  |  | $ | 9,230 |  |  | $ | 7,634 | 
|Cost of revenues(1)                       |  |                | 3,521  |   |           |   | 2,915  |          |  |   | 3,145    |  |  |          | 2,730  |  |           |   | 2,845  |          |  |   | 2,562    |  |  |   | 2,285 |  |  |   | 1,850 | 
|                                          |  |                |        |   |           |   |        |          |  |   |          |  |  |          |        |  |           |   |        |          |  |   |          | 
|Gross profit                              |  |                | 10,014 |   |           |   | 9,214  |          |  |   | 9,169    |  |  |          | 8,462  |  |           |   | 8,341  |          |  |   | 7,554    |  |  |   | 6,945 |  |  |   | 5,784 | 
|Total operating expenses(1)               |  |                | 9,879  |   |           |   | 7,898  |          |  |   | 8,067    |  |  |          | 7,169  |  |           |   | 7,651  |          |  |   | 6,494    |  |  |   | 6,443 |  |  |   | 5,387 | 
|                                          |  |                |        |   |           |   |        |          |  |   |          |  |  |          |        |  |           |   |        |          |  |   |          | 
|Income from operations                    |  |                | 135    |   |           |   | 1,316  |          |  |   | 1,102    |  |  |          | 1,293  |  |           |   | 690    |          |  |   | 1,060    |  |  |   | 502   |  |  |   | 397   | 
|Interest income and other, net            |  |                | 575    |   |           |   | 458    |          |  |   | 385      |  |  |          | 361    |  |           |   | 340    |          |  |   | 46       |  |  |   | 21    |  |  |   | 32    | 
|                                          |  |                |        |   |           |   |        |          |  |   |          |  |  |          |        |  |           |   |        |          |  |   |          | 
|Income before provision for income taxes  |  |                | 710    |   |           |   | 1,774  |          |  |   | 1,487    |  |  |          | 1,654  |  |           |   | 1,030  |          |  |   | 1,106    |  |  |   | 523   |  |  |   | 429   | 
|Provision for (benefit from) income taxes |  |                | (66    | ) |           |   | 121    |          |  |   | 104      |  |  |          | 116    |  |           |   | 16     |          |  |   | 111      |  |  |   | 52    |  |  |   | 43    | 
|                                          |  |                |        |   |           |   |        |          |  |   |          |  |  |          |        |  |           |   |        |          |  |   |          | 
|Net income                                |  | $              | 776    |   |           | $ | 1,653  |          |  | $ | 1,383    |  |  | $        | 1,538  |  |           | $ | 1,014  |          |  | $ | 995      |  |  | $ | 471   |  |  | $ | 386   | 
|                                          |  |                |        |   |           |   |        |          |  |   |          |  |  |          |        |  |           |   |        |          |  |   |          | 






|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(1) | Includes charges for stock-based compensation in the following
    amounts:

|                   |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|------------------ |  | - | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- | 
|Cost of revenues   |  | $ | 14  |  |  | $ | 16  |  |  | $ | 17  |  |  | $ | 18  |  |  | $ | 26  |  |  | $ | 26  |  |  | $ | 24  |  |  | $ | 14  | 
|Operating expenses |  |   | 190 |  |  |   | 130 |  |  |   | 111 |  |  |   | 180 |  |  |   | 284 |  |  |   | 270 |  |  |   | 273 |  |  |   | 134 | 
|                   |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|Total              |  | $ | 204 |  |  | $ | 146 |  |  | $ | 128 |  |  | $ | 198 |  |  | $ | 310 |  |  | $ | 296 |  |  | $ | 297 |  |  | $ | 148 | 
|                   |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 

|                                          |  |          |       |   |           |  |       |          |  |  |          |   |  |          |       |   |           |  |       |          |  |  |          |   |  |  |       |   |  |  |       |  
|----------------------------------------- |  | -------- | ----- | - | --------- |  | ----- | -------- |  |  | -------- | - |  | -------- | ----- | - | --------- |  | ----- | -------- |  |  | -------- | - |  |  | ----- | - |  |  | ----- | -
|                                          |  | Dec. 05 |       |   | Sept. 05 |  |       | June 05 |  |  | Mar. 05 |   |  | Dec. 04 |       |   | Sept. 04 |  |       | June 04 |  |  | Mar. 04 |  
|                                          |  |          |       |   |           |  |       |          |  |  |          |   |  |          |       |   |           |  |       |          |  |  |          |  
|Net revenues                              |  |          | 100.0 | % |           |  | 100.0 | %        |  |  | 100.0    | % |  |          | 100.0 | % |           |  | 100.0 | %        |  |  | 100.0    | % |  |  | 100.0 | % |  |  | 100.0 | %
|Cost of revenues                          |  |          | 26.0  |   |           |  | 24.0  |          |  |  | 25.5     |   |  |          | 24.4  |   |           |  | 25.4  |          |  |  | 25.3     |   |  |  | 24.8  |   |  |  | 24.2  |  
|                                          |  |          |       |   |           |  |       |          |  |  |          |   |  |          |       |   |           |  |       |          |  |  |          |  
|Gross profit                              |  |          | 74.0  |   |           |  | 76.0  |          |  |  | 74.5     |   |  |          | 75.6  |   |           |  | 74.6  |          |  |  | 74.7     |   |  |  | 75.2  |   |  |  | 75.8  |  
|Total operating expenses                  |  |          | 73.0  |   |           |  | 65.1  |          |  |  | 65.5     |   |  |          | 64.0  |   |           |  | 68.4  |          |  |  | 64.2     |   |  |  | 69.8  |   |  |  | 70.6  |  
|                                          |  |          |       |   |           |  |       |          |  |  |          |   |  |          |       |   |           |  |       |          |  |  |          |  
|Income from operations                    |  |          | 1.0   |   |           |  | 10.9  |          |  |  | 9.0      |   |  |          | 11.6  |   |           |  | 6.2   |          |  |  | 10.5     |   |  |  | 5.4   |   |  |  | 5.2   |  
|Interest income and other, net            |  |          | 4.2   |   |           |  | 3.8   |          |  |  | 3.1      |   |  |          | 3.1   |   |           |  | 3.0   |          |  |  | 0.4      |   |  |  | 0.2   |   |  |  | 0.4   |  
|                                          |  |          |       |   |           |  |       |          |  |  |          |   |  |          |       |   |           |  |       |          |  |  |          |  
|Income before provision for income taxes  |  |          | 5.2   |   |           |  | 14.7  |          |  |  | 12.1     |   |  |          | 14.7  |   |           |  | 9.2   |          |  |  | 10.9     |   |  |  | 5.6   |   |  |  | 5.6   |  
|Provision for (benefit from) income taxes |  |          | (0.5  | ) |           |  | 1.0   |          |  |  | 0.9      |   |  |          | 1.0   |   |           |  | 0.1   |          |  |  | 1.1      |   |  |  | 0.6   |   |  |  | 0.6   |  
|                                          |  |          |       |   |           |  |       |          |  |  |          |   |  |          |       |   |           |  |       |          |  |  |          |  
|Net income                                |  |          | 5.7   | % |           |  | 13.7  | %        |  |  | 11.2     | % |  |          | 13.7  | % |           |  | 9.1   | %        |  |  | 9.8      | % |  |  | 5.0   | % |  |  | 5.0   | %
|                                          |  |          |       |   |           |  |       |          |  |  |          |   |  |          |       |   |           |  |       |          |  |  |          |  

71



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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9: | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES


13a-15(e),


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING




MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING


13a-15(f)




10-K,







|         |                  
|-------- | -----------------
|Item 9B. | Other Information



72



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##### Table of Contents






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10: | Directors and Executive Officers of the Registrant








|         |                       
|-------- | ----------------------
|Item 11: | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12: | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13: | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14: | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15: | Exhibits and Financial Statement Schedules

Consolidated Financial Statements and
Supplementary Data:




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The following financial statements are included herein under
    Item 8 of this report:

|                                                                                                                           |  |        |    | 
|-------------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                                                           |  | Page   |   
|                                                                                                                           |  | Number |   
|                                                                                                                           |  |        |   
|Report of Independent Registered Public Accounting Firm                                                                    |  |        | 50 | 
|Audit of Managements Assessment of Internal Controls Over
    Financial Reporting                                         |  |        |    | 
|Consolidated Balance Sheets at December 31, 2005 and
    December 31, 2004                                                 |  |        | 52 | 
|Consolidated Statements of Operations for Each of the Years in
    the Three Year Period Ended December 31, 2005           |  |        | 53 | 
|Consolidated Statements of Stockholders Equity for Each of
    the Years in the Three Year Period Ended December 31, 2005 |  |        | 54 | 
|Consolidated Statements of Cash Flows for Each of the Years in
    the Three Year Period Ended December 31, 2005           |  |        | 55 | 
|Notes to Consolidated Financial Statements                                                                                 |  |        | 56 | 



| |                                  
| | ---------------------------------
| | 2. Financial Statement Schedules:

|                                                |  |  |    | 
|----------------------------------------------- |  |  | -- | 
|Schedule II  Valuation and Qualifying Accounts |  |  | 77 | 



| |                 
| | ----------------
| | 3. Exhibit Index

73



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##### Table of Contents



INDEX OF EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                                                                                  
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Amended and Restated Certificate of Incorporation (incorporated
    by reference to Exhibit 3.1 to the Companys
    Registration Statement on Form S-1/A No. 333-117640,
    filed on September 28, 2004).                                                                                                      
|       
|        | 3  | .2          |  | Amended and Restated Bylaws (incorporated by reference to
    Exhibit 3.2 to the Companys Registration Statement on
    Form S-1/A No. 333-117640, filed on September 28,
    2004).                                                                                                                            
|       
|        | 4  | .1          |  | Specimen Stock Certificate (incorporated by reference to
    Exhibit 4.1 to the Companys Registration Statement on
    Form No. S-1/A 333-117640, filed on October 15, 2004).                                                                                                                                   
|       
|        | 4  | .2          |  | Fifth Restated Stockholder Rights Agreement, dated
    August 15, 2001 (incorporated by reference to
    Exhibit 4.2 to the Companys Registration Statement on
    Form S-1 No. 333-117640, filed on July 23, 2004).                                                                                            
|       
|        | 4  | .3          |  | Warrant to purchase common stock between VNUS Medical
    Technologies, Inc. and The Bay City Capital Fund I, L.P.
    (incorporated by reference to Exhibit 4.3 to the
    Companys Registration Statement on Form
    No. 333-117640, filed on July 23, 2004).                                                
|       
|        | 10 | .1#         |  | Stock Purchase Right Grant Notice and Restricted Stock Purchase
    Agreement, by and between VNUS Medical Technologies, Inc. and
    Dennis Rosenberg, dated July 29, 2005 (incorporated by
    reference to the Companys Report on Form 8-K dated
    July 29, 2005).                                         
|       
|        | 10 | .2#         |  | VNUS Medical Technologies, Inc. Amended and Restated 2000 Equity
    Incentive Plan (incorporated by reference to Exhibit 10.1
    to the Companys Report on Form 8-K dated
    November 10, 2005).                                                                                                             
|       
|        | 10 | .3#         |  | Form of Restricted Stock Unit Award Grant Notice and Restricted
    Stock Unit Award Agreement Under the VNUS Medical Technologies,
    Inc. Amended and Restated 2000 Equity Incentive Plan
    (incorporated by reference to Exhibit 10.1 to the
    Companys Report on Form 8-K dated September 8,
    2005).
|       
|        | 10 | .4#         |  | VNUS Medical Technologies, Inc. 1995 Stock Plan (incorporated by
    reference to Exhibit 10.4 to the Companys
    Registration Statement on Form S-1 No. 333-117640,
    filed on July 23, 2004).                                                                                                              
|       
|        | 10 | .5#         |  | First Amendment to the VNUS Medical Technologies, Inc. 1995
    Stock Plan (incorporated by reference to Exhibit 10.5 to
    the Companys Registration Statement on Form S-1
    No. 333-117640, filed on July 23, 2004).                                                                                       
|       
|        | 10 | .6#         |  | Second Amendment to the VNUS Medical Technologies, Inc. 1995
    Stock Plan (incorporated by reference to Exhibit 10.6 to
    the Companys Registration Statement on Form S-1
    No. 333-117640, filed on July 23, 2004).                                                                                      
|       
|        | 10 | .7#         |  | Amended and Restated VNUS Severance Plan for Management and Key
    Employees (incorporated by reference to Exhibit 10.1 to the
    Companys Report on Form 8-K dated November 8,
    2005).                                                                                                                    
|       
|        | 10 | .8#         |  | Summary of the 2004 Bonus Payments and 2005 Salary for the Chief
    Executive Officer (incorporated by reference to the
    Companys Report on Form 8-K dated March 25,
    2005).                                                                                                                             
|       
|        | 10 | .9#         |  | Summary of the 2004 Bonus Payments and 2005 Salaries for
    Executive Officers (incorporated by reference to the
    Companys Report on Form 8-K dated March 16,
    2005).                                                                                                                                    
|       
|        | 10 | .10#        |  | Summary of the 2005 Bonus Payments and 2006 Salaries for
    Executive Officers, including the Chief Executive Officer
    (incorporated by reference to the Companys Report on
    Form 8-K dated January 31, 2006).                                                                                           
|       
|        | 10 | .11#        |  | Form of Indemnity Agreement for Directors and Officers
    (incorporated by reference to Exhibit 10.8 to the
    Companys Registration Statement on Form S-1/A
    No. 333-117640, filed on September 28, 2004).                                                                                                
|       
|        | 10 | .12#        |  | Dennis Rosenberg Offer Letter, dated July 7, 2005
    (incorporated by reference to the Companys Report on
    Form 8-K dated July 29, 2005).                                                                                                                                                                   
|       
|        | 10 | .13#        |  | Charlene A. Friedman Offer Letter, dated October 26, 2005
    (incorporated by reference to the Companys Report on
    Form 8-K dated November 10, 2005).                                                                                                                                                       

74



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##### Table of Contents



|        |     |             |  |                                                                                                                                                                                                                                                                                                   
|------- | --- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|       
|        | 10  | .14         |  | RF Generator Development Agreement between VNUS Medical
    Technologies, Inc. and Stellartech Research Corporation dated
    May 26, 2000 (incorporated by reference to
    Exhibit 10.9 to the Companys Registration Statement
    on Form S-1/A No. 333-117640, filed on August 18,
    2004).
|       
|        | 10  | .15         |  | Service and Supply Agreement by and between VNUS Medical
    Technologies, Inc. and Byers Peak, Inc., dated February 20,
    2004 (incorporated by reference to Exhibit 10.10 to the
    Companys Registration Statement on Form S-1/A
    No. 333-117640, filed on September 28, 2004).         
|       
|        | 10  | .16         |  | Lease by and between SPI Commerce Park, LP and VNUS Medical
    Technologies, Inc., dated January 24, 2001 (incorporated by
    reference to Exhibit 10.11 to the Companys
    Registration Statement on Form S-1 No. 333-117640,
    filed on July 23, 2004).                                   
|       
|        | 10  | .17         |  | First Amendment to Lease Agreement by and between SPI Commerce
    Park, LP and VNUS Medical Technologies, Inc., dated
    August 1, 2003 (incorporated by reference to
    Exhibit 10.12 to the Companys Registration Statement
    on Form S-1 No. 333-117640, filed on July 23,
    2004).    
|       
|        | 10  | .18         |  | Second Amendment to Lease Agreement by and between SPI Commerce
    Park, LP and VNUS Medical Technologies, Inc., dated
    February 13, 2004 (incorporated by reference to
    Exhibit 10.13 to the Companys Registration Statement
    on Form S-1 No. 333-117640, filed on July 23,
    2004).
|       
|        | 10  | .19*        |  | Lease Agreement by and between Legacy Partners I SJ Fontanoso,
    LLC and VNUS Medical Technologies, Inc., dated November 15,
    2005.                                                                                                                                                          
|       
|        | 10  | .20*+       |  | Distributor Agreement, dated January 24, 2006, by and
    between Medtronic USA, Inc. and VNUS Medical Technologies, Inc.                                                                                                                                                                         
|       
|        | 10  | .21*+       |  | Addendum to Distributor Agreement, dated January 24, 2006,
    by and between Medtronic USA, Inc. and VNUS Medical
    Technologies, Inc.                                                                                                                                                         
|       
|        | 21* |             |  | List of Subsidiaries of VNUS Medical Technologies, Inc.                                                                                                                                                                                                                                           
|       
|        | 23  | .1*         |  | Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.                                                                                                                                                                                                         
|       
|        | 31  | .1*         |  | Certification of Chief Executive Officer Required Under
    Rule 13a-14(a) of the Securities Exchange Act of 1934, as
    amended.                                                                                                                                                                
|       
|        | 31  | .2*         |  | Certification of Principal Financial Officer Required Under
    Rule 13a-14(a) of the Securities Exchange Act of 1934, as
    amended.                                                                                                                                                            
|       
|        | 32* |             |  | Certification of Chief Executive Officer and Principal Financial
    Officer Required Under Rule 13a-14(b) of the Securities
    Exchange Act of 1934, as amended, and 18 U.S.C.
    Section 1350.                                                                                                






|  |                                                                            
|- | ---------------------------------------------------------------------------
|* | Filed herewith.                                                            
| 
|# | Management compensation or arrangement.                                    
| 
|+ | Confidential treatment requested for certain portions of this
    document.

Exhibits.


S-K


75



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##### Table of Contents



SIGNATURES






| |                                
| | -------------------------------
| | VNUS MEDICAL TECHNOLOGIES, INC.



| |    |                    
| | -- | -------------------
| | By | /s/ BRIAN E. FARLEY

| |                                   
| | ----------------------------------
| |                                   
| | Brian E. Farley                   
| | President, Chief Executive Officer
| | and Director                      





|   |  |                                                |  |                                                                                       |  |                     
|-- |  | ---------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --------------------
|  
|By |  | /s/ BRIAN E. FARLEYBrian E. Farley             |  | President, Chief Executive Officer
    and Director
    (Principal Executive Officer) |  | Date: March 14, 2006
|  
|By |  | /s/ TIMOTHY A. MARCOTTETimothy A. Marcotte     |  | Vice President and
    Chief Financial Officer
    (Principal Financial Officer)      |  | Date: March 14, 2006
|  
|By |  | /s/ W. JAMES FITZSIMMONSW. James Fitzsimmons   |  | Director                                                                              |  | Date: March 14, 2006
|  
|By |  | /s/ KATHLEEN D. LAPORTEKathleen D. Laporte     |  | Director                                                                              |  | Date: March 14, 2006
|  
|By |  | /s/ EDWARD W. UNKARTEdward W. Unkart           |  | Director                                                                              |  | Date: March 14, 2006
|  
|By |  | /s/ LORI M. ROBSON, PH.D.Lori M. Robson, Ph.D. |  | Director                                                                              |  | Date: March 14, 2006
|  
|By |  | /s/ MICHAEL J. COYLEMichael J. Coyle           |  | Director                                                                              |  | Date: March 14, 2006

76



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##### Table of Contents



FINANCIAL STATEMENT SCHEDULE





SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES


|                                                        |  |                |        |  |           |  |       |            |            |  |        |   |  |   |        | 
|------------------------------------------------------- |  | -------------- | ------ |  | --------- |  | ----- | ---------- | ---------- |  | ------ | - |  | - | ------ | 
|                                                        |  | Balance at     |        |  |           |  |       |            | Balance at | 
|                                                        |  | Beginning      |        |  |           |  |       |            | End of     | 
|                                                        |  | of Period      |        |  | Additions |  |       | Write-offs |            |  | Period |  
|                                                        |  |                |        |  |           |  |       |            |            |  |        |  
|                                                        |  | (In thousands) |       
|Allowance for Doubtful Accounts Year Ended:             |  |                |        |  |           |  |       |            |            |  |        |   |  |   |        | 
|December 31, 2003                                       |  | $              | 164    |  |           |  | 43    |            |            |  | (15    | ) |  | $ | 192    | 
|December 31, 2004                                       |  | $              | 192    |  |           |  | 105   |            |            |  | (102   | ) |  | $ | 195    | 
|December 31, 2005                                       |  | $              | 195    |  |           |  | 216   |            |            |  | (103   | ) |  | $ | 308    | 
|Allowance for Excess and Obsolete Inventory Year Ended: |  |                |        |  |           |  |       |            |            |  |        |   |  |   |        | 
|December 31, 2003                                       |  | $              | 148    |  |           |  | 77    |            |            |  | (29    | ) |  | $ | 196    | 
|December 31, 2004                                       |  | $              | 196    |  |           |  | 68    |            |            |  | (233   | ) |  | $ | 31     | 
|December 31, 2005                                       |  | $              | 31     |  |           |  | 174   |            |            |  | (50    | ) |  | $ | 155    | 
|Allowance for Deferred Tax Assets Year Ended:           |  |                |        |  |           |  |       |            |            |  |        |   |  |   |        | 
|December 31, 2003                                       |  | $              | 15,066 |  |           |  | 1,365 |            |            |  |       |   |  | $ | 16,431 | 
|December 31, 2004                                       |  | $              | 16,431 |  |           |  |      |            |            |  | (1,108 | ) |  | $ | 15,323 | 
|December 31, 2005                                       |  | $              | 15,323 |  |           |  |       |            |            |  | (938   | ) |  | $ | 14,385 | 

77



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##### Table of Contents



INDEX OF EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                                                                                  
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Amended and Restated Certificate of Incorporation (incorporated
    by reference to Exhibit 3.1 to the Companys
    Registration Statement on Form S-1/A No. 333-117640,
    filed on September 28, 2004).                                                                                                      
|       
|        | 3  | .2          |  | Amended and Restated Bylaws (incorporated by reference to
    Exhibit 3.2 to the Companys Registration Statement on
    Form S-1/A No. 333-117640, filed on September 28,
    2004).                                                                                                                            
|       
|        | 4  | .1          |  | Specimen Stock Certificate (incorporated by reference to
    Exhibit 4.1 to the Companys Registration Statement on
    Form No. S-1/A 333-117640, filed on October 15, 2004).                                                                                                                                   
|       
|        | 4  | .2          |  | Fifth Restated Stockholder Rights Agreement, dated
    August 15, 2001 (incorporated by reference to
    Exhibit 4.2 to the Companys Registration Statement on
    Form S-1 No. 333-117640, filed on July 23, 2004).                                                                                            
|       
|        | 4  | .3          |  | Warrant to purchase common stock between VNUS Medical
    Technologies, Inc. and The Bay City Capital Fund I, L.P.
    (incorporated by reference to Exhibit 4.3 to the
    Companys Registration Statement on Form
    No. 333-117640, filed on July 23, 2004).                                                
|       
|        | 10 | .1#         |  | Stock Purchase Right Grant Notice and Restricted Stock Purchase
    Agreement, by and between VNUS Medical Technologies, Inc. and
    Dennis Rosenberg, dated July 29, 2005 (incorporated by
    reference to the Companys Report on Form 8-K dated
    July 29, 2005).                                         
|       
|        | 10 | .2#         |  | VNUS Medical Technologies, Inc. Amended and Restated 2000 Equity
    Incentive Plan (incorporated by reference to Exhibit 10.1
    to the Companys Report on Form 8-K dated
    November 10, 2005).                                                                                                             
|       
|        | 10 | .3#         |  | Form of Restricted Stock Unit Award Grant Notice and Restricted
    Stock Unit Award Agreement Under the VNUS Medical Technologies,
    Inc. Amended and Restated 2000 Equity Incentive Plan
    (incorporated by reference to Exhibit 10.1 to the
    Companys Report on Form 8-K dated September 8,
    2005).
|       
|        | 10 | .4#         |  | VNUS Medical Technologies, Inc. 1995 Stock Plan (incorporated by
    reference to Exhibit 10.4 to the Companys
    Registration Statement on Form S-1 No. 333-117640,
    filed on July 23, 2004).                                                                                                              
|       
|        | 10 | .5#         |  | First Amendment to the VNUS Medical Technologies, Inc. 1995
    Stock Plan (incorporated by reference to Exhibit 10.5 to
    the Companys Registration Statement on Form S-1
    No. 333-117640, filed on July 23, 2004).                                                                                       
|       
|        | 10 | .6#         |  | Second Amendment to the VNUS Medical Technologies, Inc. 1995
    Stock Plan (incorporated by reference to Exhibit 10.6 to
    the Companys Registration Statement on Form S-1
    No. 333-117640, filed on July 23, 2004).                                                                                      
|       
|        | 10 | .7#         |  | Amended and Restated VNUS Severance Plan for Management and Key
    Employees (incorporated by reference to Exhibit 10.1 to the
    Companys Report on Form 8-K dated November 8,
    2005).                                                                                                                    
|       
|        | 10 | .8#         |  | Summary of the 2004 Bonus Payments and 2005 Salary for the Chief
    Executive Officer (incorporated by reference to the
    Companys Report on Form 8-K dated March 25,
    2005).                                                                                                                             
|       
|        | 10 | .9#         |  | Summary of the 2004 Bonus Payments and 2005 Salaries for
    Executive Officers (incorporated by reference to the
    Companys Report on Form 8-K dated March 16,
    2005).                                                                                                                                    
|       
|        | 10 | .10#        |  | Summary of the 2005 Bonus Payments and 2006 Salaries for
    Executive Officers, including the Chief Executive Officer
    (incorporated by reference to the Companys Report on
    Form 8-K dated January 31, 2006).                                                                                           
|       
|        | 10 | .11#        |  | Form of Indemnity Agreement for Directors and Officers
    (incorporated by reference to Exhibit 10.8 to the
    Companys Registration Statement on Form S-1/A
    No. 333-117640, filed on September 28, 2004).                                                                                                
|       
|        | 10 | .12#        |  | Dennis Rosenberg Offer Letter, dated July 7, 2005
    (incorporated by reference to the Companys Report on
    Form 8-K dated July 29, 2005).                                                                                                                                                                   
|       
|        | 10 | .13#        |  | Charlene A. Friedman Offer Letter, dated October 26, 2005
    (incorporated by reference to the Companys Report on
    Form 8-K dated November 10, 2005).                                                                                                                                                       

78



---



##### Table of Contents



|        |     |             |  |                                                                                                                                                                                                                                                                                                   
|------- | --- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|       
|        | 10  | .14         |  | RF Generator Development Agreement between VNUS Medical
    Technologies, Inc. and Stellartech Research Corporation dated
    May 26, 2000 (incorporated by reference to
    Exhibit 10.9 to the Companys Registration Statement
    on Form S-1/A No. 333-117640, filed on August 18,
    2004).
|       
|        | 10  | .15         |  | Service and Supply Agreement by and between VNUS Medical
    Technologies, Inc. and Byers Peak, Inc., dated February 20,
    2004 (incorporated by reference to Exhibit 10.10 to the
    Companys Registration Statement on Form S-1/A
    No. 333-117640, filed on September 28, 2004).         
|       
|        | 10  | .16         |  | Lease by and between SPI Commerce Park, LP and VNUS Medical
    Technologies, Inc., dated January 24, 2001 (incorporated by
    reference to Exhibit 10.11 to the Companys
    Registration Statement on Form S-1 No. 333-117640,
    filed on July 23, 2004).                                   
|       
|        | 10  | .17         |  | First Amendment to Lease Agreement by and between SPI Commerce
    Park, LP and VNUS Medical Technologies, Inc., dated
    August 1, 2003 (incorporated by reference to
    Exhibit 10.12 to the Companys Registration Statement
    on Form S-1 No. 333-117640, filed on July 23,
    2004).    
|       
|        | 10  | .18         |  | Second Amendment to Lease Agreement by and between SPI Commerce
    Park, LP and VNUS Medical Technologies, Inc., dated
    February 13, 2004 (incorporated by reference to
    Exhibit 10.13 to the Companys Registration Statement
    on Form S-1 No. 333-117640, filed on July 23,
    2004).
|       
|        | 10  | .19*        |  | Lease Agreement by and between Legacy Partners I SJ Fontanoso,
    LLC and VNUS Medical Technologies, Inc., dated November 15,
    2005.                                                                                                                                                          
|       
|        | 10  | .20*+       |  | Distributor Agreement, dated January 24, 2006, by and
    between Medtronic USA, Inc. and VNUS Medical Technologies, Inc.                                                                                                                                                                         
|       
|        | 10  | .21*+       |  | Addendum to Distributor Agreement, dated January 24, 2006,
    by and between Medtronic USA, Inc. and VNUS Medical
    Technologies, Inc.                                                                                                                                                         
|       
|        | 21* |             |  | List of Subsidiaries of VNUS Medical Technologies, Inc.                                                                                                                                                                                                                                           
|       
|        | 23  | .1*         |  | Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.                                                                                                                                                                                                         
|       
|        | 31  | .1*         |  | Certification of Chief Executive Officer Required Under
    Rule 13a-14(a) of the Securities Exchange Act of 1934, as
    amended.                                                                                                                                                                
|       
|        | 31  | .2*         |  | Certification of Principal Financial Officer Required Under
    Rule 13a-14(a) of the Securities Exchange Act of 1934, as
    amended.                                                                                                                                                            
|       
|        | 32* |             |  | Certification of Chief Executive Officer and Principal Financial
    Officer Required Under Rule 13a-14(b) of the Securities
    Exchange Act of 1934, as amended, and 18 U.S.C.
    Section 1350.                                                                                                






|  |                                                                            
|- | ---------------------------------------------------------------------------
|* | Filed herewith.                                                            
| 
|# | Management compensation or arrangement.                                    
| 
|+ | Confidential treatment requested for certain portions of this
    document.

Exhibits.


S-K


79