UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

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	(I.R.S. Employer
incorporation or organization)	Identification Number)

VNUS Medical Technologies, Inc.
5799 Fontanoso Way
San Jose, California 95138
(Address of principal executive offices, including zip code)

(408) 360-7200
(Registrant’s Telephone Number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o       Accelerated Filer þ       Non-Accelerated Filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     As of November 2, 2007 15,614,746 shares of the registrant’s common stock, par value $0.001, were outstanding.

VNUS MEDICAL TECHNOLOGIES, INC.
FORM 10-Q for the Quarter Ended September 30, 2007

TABLE OF CONTENTS

	Page
Part I. Financial Information
Item 1. Financial Statements (unaudited)		3
Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006		3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006		4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		18
Item 4. Controls and Procedures		18
Part II. Other Information
Item 1. Legal Proceedings		19
Item 1A. Risk Factors		19
Item 6. Exhibits		22
Signature		23
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

2

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

VNUS MEDICAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	September 30,			December 31,
	2007			2006(1)
ASSETS
Current assets:
Cash and cash equivalents	$	40,731		$	38,917
Short-term investments		23,258			28,996
Accounts receivable, net		10,652			8,246
Inventories		5,160			2,798
Prepaid expenses and other current assets		935			1,443
Total current assets		80,736			80,400
Property and equipment, net		4,716			4,651
Other assets		130			782
Total assets	$	85,582		$	85,833
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,246		$	1,340
Accrued compensation and benefits		4,401			2,708
Other accrued liabilities		2,882			2,979
Deferred revenue		1,303			2,514
Total current liabilities		11,832			9,541
Other long term liabilities		1,963			1,544
Total liabilities		13,795			11,085
Commitments and Contingencies (Note 4)
Stockholders’ equity:
Common stock		15			15
Additional paid-in capital		121,222			117,964
Deferred stock-based compensation		(43	)		(144	)
Accumulated other comprehensive income (loss)		34			(5	)
Accumulated deficit		(49,441	)		(43,082	)
Total stockholders’ equity		71,787			74,748
Total liabilities and stockholders’ equity	$	85,582		$	85,833

(1) December 31, 2006 condensed consolidated balance sheet data was derived from the audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

See accompanying notes to condensed consolidated financial statements

3

VNUS MEDICAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Net revenues	$	17,495		$	11,919		$	50,333		$	38,359
Cost of revenues		6,741			4,345			18,665			12,524
Gross profit		10,754			7,574			31,668			25,835
Operating Expenses
Sales and marketing		5,460			5,279			18,435			16,614
Research and development		2,258			1,871			7,168			5,155
General and administrative		6,128			3,861			15,029			11,873
Total operating expenses		13,846			11,011			40,632			33,642
Loss from operations		(3,092	)		(3,437	)		(8,964	)		(7,807	)
Interest and other income		945			926			2,569			2,498
Loss before provision for income taxes		(2,147	)		(2,511	)		(6,395	)		(5,309	)
Provision for income taxes		19			13			37			13
Loss before cumulative effect of change in accounting principle		(2,166	)		(2,524	)		(6,432	)		(5,322	)
Cumulative effect of change in accounting principle		—			—			—			73
Net loss after cumulative effect of change in accounting principle	$	(2,166	)	$	(2,524	)	$	(6,432	)	$	(5,249	)
Basic and diluted net loss per share	$	(0.14	)	$	(0.17	)	$	(0.42	)	$	(0.35	)
Basic and diluted weighted average number of shares		15,466			15,064			15,364			15,014

See accompanying notes to condensed consolidated financial statements

4

VNUS MEDICAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	September 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(6,432	)	$	(5,249	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		891			825
Provision for excess and obsolete inventory		663			198
Impairment of long-lived assets		—			181
Stock-based compensation and amortization of deferred stock-based compensation		1,610			1,939
Cumulative effect of change in accounting principle		—			(73	)
Allowance for doubtful accounts		189			109
Changes in operating assets and liabilities:
Accounts receivable		(2,595	)		(919	)
Inventories		(3,025	)		156
Prepaid expenses and other current assets		508			216
Other long-term assets		652			47
Accounts payable		1,906			687
Accrued compensation and benefits		1,954			106
Other accrued liabilities		(285	)		863
Deferred revenue		(1,211	)		861
Other long-term liabilities		515			1,387
Net cash (used in) provided by operating activities		(4,660	)		1,334
Cash flows from investing activities:
Purchase of short-term investments		(39,737	)		(31,164	)
Sale of short-term investments		45,514			32,486
Purchase of property and equipment		(1,052	)		(4,159	)
Net cash provided by (used in) investing activities		4,725			(2,837	)
Cash flows from financing activities:
Proceeds from the exercise of stock options for common stock		2,010			196
Employees’ taxes withheld and paid for restricted stock		(261	)		(23	)
Net cash provided by financing activities		1,749			173
Net increase (decrease) in cash and cash equivalents		1,814			(1,330	)
Cash and cash equivalents at the beginning of the year		38,917			46,797
Cash and cash equivalents at the end of the period	$	40,731		$	45,467

See accompanying notes to condensed consolidated financial statements

5

VNUS MEDICAL TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – THE COMPANY

     VNUS Medical Technologies, Inc. (the “Company”) is a leading provider of medical devices for the minimally invasive treatment of venous reflux disease, a progressive condition caused by incompetent vein valves in the legs. The Company also provides devices for use in the minimally invasive treatment of other peripheral vascular diseases, including a device for use in peripheral arterial bypass and arteriovenous access procedures. In late 1998, the Company introduced its Closure^® system in Europe. In late 1999, the Company introduced its Closure system in the United States. In 2005, the Company introduced the ClosureRFS™ line of products for the minimally invasive treatment of perforator and tributary vein reflux. The Company introduced the ClosureFAST™ catheter for the minimally invasive treatment of venous reflux disease in the United States in the first quarter of 2007, and internationally in the second quarter of 2007.

     The Company was incorporated in Delaware on January 4, 1995. The Company has funded its operations through the issuance of convertible preferred stock and common stock, and through cash provided from operations. During 1999, the Company commenced volume shipment of its product and emerged from the development stage. Although no longer in the development stage, the Company continues to be subject to certain risks common to companies in similar stages of development, including its dependence on a limited product line; limited manufacturing, marketing and sales experience; reliance on key individuals; potential competition from larger, more established companies and uncertainty of future profitability. The Company completed its initial public offering of common stock in October 2004.

NOTE 2 – BASIS OF PRESENTATION & SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

     The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished in this report reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the Company’s results of operations, financial position, and cash flows, and such adjustments consist of items of a normal recurring nature. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year or for any other future period. The condensed consolidated financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2006 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 30, 2007.

     Reclassifications. Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not change previously reported net loss or total stockholders’ equity.

Significant Accounting Policies

     Reference is made to “Summary of Significant Accounting Policies and Estimates” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Recent Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS No. 157 is required to be adopted by the Company in the first quarter of its fiscal year 2008. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.

6

SFAS No. 159 will be effective for the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 159 on its consolidated financial statements.

     On January 1, 2007, the Company adopted the provision of FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertain Income Taxes — An Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes” and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 and its impact on the Company’s financial statements is discussed in Note 6.

NOTE 3 – BALANCE SHEET COMPONENTS

	September 30,			December 31,
(in thousands)	2007			2006
Inventories
Raw materials and sub-assemblies	$	2,461		$	1,212
Finished goods		2,029			1,344
Radio-frequency generators		670			242
Total inventories (1)	$	5,160		$	2,798
Property and equipment, net
Furniture and fixtures	$	383		$	367
Computers and office equipment		1,405			1,274
Leasehold improvements		2,965			2,884
Laboratory equipment		1,891			1,181
Purchased software		1,098			906
Construction in progress		214			296
		7,956			6,908
Less: Accumulated depreciation and amortization		(3,240	)		(2,257	)
Total property and equipment, net	$	4,716		$	4,651
Other accrued liabilities
Accrued legal expense	$	1,833		$	98
Other accrued liabilities		1,049			2,881
Total other accrued liabilities	$	2,882		$	2,979

(1) Inventories are stated at the lower of market value or standard cost, which approximates actual cost under the first-in, first-out method.

NOTE 4 – COMMITMENTS AND CONTINGENCIES

     Product Warranty Commitment. The Company generally provides a one year limited warranty on its RF generator which is included in the sales price of the generator. The Company provides for the estimated future costs of repair upon shipment of the product. The warranty accrual is based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. In addition, from time to time, specific warranty accruals are made for specific technical problems including software bugs, component or other manufacturing defects. Costs are estimated and accrued for specific warranty issues in the period in which the warranty issue becomes known to management and the costs are reasonably estimable. The Company’s warranty liability at September 30, 2007 was $60,000 and was included in other accrued liabilities.

7

     Legal Proceedings.

     On July 21, 2005, the Company announced that it had filed a patent infringement action in the United States District Court, Northern District of California, against Diomed Holdings, Inc. and Diomed, Inc. (collectively, “Diomed”) for infringement of certain U.S. Patents. Diomed markets endovenous laser ablation products for use in methods which the Company believes infringe several of its patents. The Company is seeking an injunction prohibiting Diomed from selling these products in addition to monetary damages. On September 15, 2005, Diomed answered the Company’s complaint and asserted counterclaims against the Company for a judicial declaration that the asserted patents are not infringed and are invalid. On October 12, 2005, the Company filed an amended complaint for patent infringement against AngioDynamics, Inc. (“AngioDynamics”) and Vascular Solutions, Inc. (“Vascular Solutions”) adding them as additional defendants in the lawsuit, which is entitled VNUS Medical Technologies, Inc. v. Diomed Holdings, Inc., et al., Case No. C05-02972 MMC (N.D. Cal.). AngioDynamics and Vascular Solutions market endovenous laser ablation products for use in methods which the Company believes infringe these same patents. The Company is seeking an injunction prohibiting AngioDynamics and Vascular Solutions from selling these products in addition to monetary damages. On October 31, 2005, Diomed filed a new answer and counterclaims against the Company for a judicial declaration that the asserted patents are not infringed, are invalid and are unenforceable. On December 9, 2005, AngioDynamics and Vascular Solutions both answered the Company’s amended complaint and asserted counterclaims against the Company for a judicial declaration that the asserted patents are not infringed and are invalid. The Company has answered and denied all counterclaims against it. On October 30, 2006, a claims construction hearing was held, and on November 20, 2006, the Court issued its Order Construing Claims. In October 2007, the Court denied numerous motions for summary judgment, clearing the way for the case to proceed to trial. The original trial commencement date of October 2007 has been postponed due to Court schedule delays and a new trial date has not yet been set.

     The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

     Leases. The Company leases office space and equipment under non-cancelable operating leases with various expiration dates through 2014. Rent expense for the three months ended September 30, 2007 and 2006 was $292,000 and $320,000, respectively. Rent expense for the nine months ended September 30, 2007 and 2006 was $930,000 and $1,078,000, respectively. In November 2005, the Company entered into a lease agreement with Legacy Partners I SJ Fontanoso, LLC, a Delaware limited liability company, for a facility located in San Jose, California. The Company moved its headquarters and manufacturing operations to this facility, which consists of 93,650 square feet. The term of the lease is March 6, 2006 through March 5, 2014, which included a rent holiday period during which the Company was not required to make lease payments. The terms of the lease provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid.

     Indemnifications. In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations, and accordingly, the Company has not accrued any amounts for such indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

     Purchase Commitments. At September 30, 2007, the Company had approximately $4.2 million in purchase commitments for the next twelve months with suppliers, of which $3.2 million was inventory related.

     Contingencies. The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

NOTE 5 — OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

     The Company is organized and operates as one operating segment to provide medical devices for the minimally invasive treatment of venous reflux disease and uses one measure of profitability to manage its business. In accordance with SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” the chief operating decision-maker has been identified as the President and Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. Since the Company operates in one segment and provides one group of similar products and services, all financial segment and product line information required by SFAS No. 131 can be found in the consolidated financial statements.

8

     The following is a summary of the percentage of the Company’s net revenues by geographic region and by product within the Company’s single segment:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
United States		93	%		98	%		94	%		96	%
Europe		6	%		1	%		5	%		3	%
Other International		1	%		1	%		1	%		1	%
		100	%		100	%		100	%		100	%
Catheters and devices		76	%		86	%		72	%		81	%
RF Generators		10	%		4	%		15	%		11	%
Accessories		14	%		10	%		13	%		8	%
		100	%		100	%		100	%		100	%

     All long-lived assets are located in the United States.

NOTE 6 – INCOME TAXES

     As a result of the implementation of FIN 48, the Company recognized a change in the liability for unrecognized tax benefits related to tax positions taken in prior periods. Additionally, FIN 48 specifies that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. The Company’s total amount of unrecognized tax benefits as of the January 1, 2007 adoption date and September 30, 2007 was approximately $1.1 million. Also, the Company had approximately $32,000 of unrecognized tax benefits that, if recognized, would affect its effective tax rate for the three months ended September 30, 2007.

     The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the Company’s provision for (benefit from) income taxes. As of September 30, 2007, the Company had approximately $12,000 accrued for payment of interest and penalties related to unrecognized tax benefits (and approximately $8,000 as of the adoption date of FIN 48). For the three-months ended September 30, 2007, the Company recognized approximately $1,000 of interest and penalties related to unrecognized tax benefits in its provision for income taxes.

     The Company’s only major tax jurisdictions are the United States and Germany. The tax years 1995 through 2006 remain open and subject to examination by the appropriate governmental agencies in the U.S. and the tax years 2004 through 2006 remain open and subject to examination by the appropriate governmental agencies in Germany.

NOTE 7 – NET LOSS PER SHARE

     The Company computes basic net loss per share by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of potential stock including stock options and restricted stock units.

9

     The following table sets forth the computation of basic and diluted net loss attributable to common stockholders per common share (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Numerator:
Loss before cumulative effect of change in accounting principle	$	(2,166	)	$	(2,524	)	$	(6,432	)	$	(5,322	)
Cumulative effect of change in accounting principle, net of tax		—			—			—			73
Net loss after cumulative effect of change in accounting principle	$	(2,166	)	$	(2,524	)	$	(6,432	)	$	(5,249	)
Denominator:
Weighted average common shares outstanding, basic and diluted		15,466			15,064			15,364			15,014
Net loss income per share, basic and diluted:
Loss per share before cumulative effect of a change in accounting principle	$	(0.14	)	$	(0.17	)	$	(0.42	)	$	(0.35	)
Cumulative effect of a change in accounting principle, net of tax		—			—			—			—
Basic and diluted net loss per share	$	(0.14	)	$	(0.17	)	$	(0.42	)	$	(0.35	)

Anti-dilutive securities

     The following outstanding employee stock options and restricted stock units were excluded from the computation of diluted net loss per share as they had an antidilutive effect (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Stock options		621		207		521		394
Restricted stock units		542		464		542		464
Total		1,163		671		1,063		858

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

     This financial review presents our operating results for the three and nine months ended September 30, 2007 and September 30, 2006. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report and our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2007.

     Except for the historical information contained herein, this discussion contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions, that involve risks and uncertainties that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors” under Item 1A of Part II below, as well as those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and elsewhere. The cautionary statements made herein should be read as applying to all related forward-looking statements wherever they appear herein.

     Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “VNUS” refer to VNUS Medical Technologies, Inc. and its consolidated subsidiaries.

10

Business Overview

     We are a leading provider of medical devices for the minimally invasive treatment of venous reflux disease, a progressive condition caused by incompetent vein valves in the legs. We also provide devices for use in the minimally invasive treatment of other peripheral vascular diseases, including devices for use in peripheral arterial bypass and arteriovenous access procedures. Venous reflux disease results in symptoms such as leg pain, swelling, fatigue, skin ulcers and painful varicose veins. Our primary product line, the VNUS Closure system, consists of a proprietary radio frequency (RF) generator and proprietary disposable endovenous catheters and devices to close diseased veins through the application of temperature-controlled RF energy. As of December 31, 2006, we estimated that in excess of 200,000 patients had been treated using our Closure system since 1999, with approximately 65,000 of these patients treated in 2006 in the U.S.

     We market our products through a direct sales organization in the United States and subsidiaries in Germany and the United Kingdom. We also market and sell our products through distributors worldwide.

     Most of our U.S. customers are reimbursed by governmental and third-party payors, and that reimbursement is subject to periodic review and adjustment. As of September 30, 2007, our Closure procedure was accepted by the policies of over 100 health insurers, representing over 220 million covered lives in the United States.

     We have a diverse customer base of hospitals, physicians and physician groups. No one customer accounted for 10% or more of our net revenues or accounts receivable in the first nine months of 2007.

Critical Accounting Policies and Estimates

     The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we re-evaluate our judgments and estimates, including those related to doubtful accounts, income taxes and loss contingencies. We base our estimates and judgments on our historical experience, knowledge of current conditions and our belief of what could occur in the future, considering available information, including assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these policies.

     We believe the following critical accounting policies reflect our most significant estimates, judgments and assumptions used in the preparation of our consolidated financial statements:

• Revenue recognition;

• Valuation of inventory;

• Warranty costs;

• Allowance for doubtful accounts;

• Income taxes; and

• Share based compensation expense.

     For more information, see “Summary of Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2006. As of September 30, 2007, we have not identified any significant changes to these critical accounting policies discussed in our “Summary of Critical Accounting Policies and Estimates” except for the Company’s adoption of FIN 48, as discussed in Note 6 to the Company’s condensed consolidated financial statements.

11

Financial Operations Overview

     Net Revenues. We derive our net revenues from the sale of disposable endovenous catheters and devices, RF generators and accessory products. Our large installed base of RF generators facilitates a recurring revenue stream from the sale of disposable catheters.

     Cost of Revenues. Our cost of revenues represents the cost of materials, overhead, direct labor and delivery charges associated with the manufacture of disposable catheters, the purchase and delivery of RF generators, the purchase and delivery of accessory products, warranty, inventory reserves and share-based compensation.

     Sales and Marketing Expenses. Sales and marketing expenses consist primarily of marketing personnel compensation, sales force incentive compensation, travel, promotional materials, advertising, patient education materials, other expenses incurred to provide reimbursement services, clinical training and share-based compensation.

     Research and Development Expenses. Research and development expenses consist primarily of personnel expenses, supplies, materials and other expenses associated with product development, expenses associated with preclinical and clinical studies and share-based compensation.

     General and Administrative Expenses. General and administrative expenses consist primarily of personnel expenses for accounting, human resources, information technology and corporate administration, professional fees and share-based compensation.

Results of Operations

Net Revenues by Period

     The following table sets forth our net revenues for the three and nine months ended September 30, 2007 and 2006, and the percentage change in net revenues between periods:

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2007		2006		% Change			2007		2006		% Change
	(dollars in thousands)
Net Revenues	$	17,495	$	11,919		47	%	$	50,333	$	38,359		31	%

     The increase in net revenues in the three and nine months ended September 30, 2007 as compared to the same periods in 2006 was primarily due to increased catheter and radiofrequency (RF) generator sales worldwide, primarily due to increased market acceptance of our new ClosureFast catheter. Net revenues for the three and nine months ended September 30, 2006 excludes $600,000 of RF generator revenues deferred until we delivered the required software upgrade in 2007. Net revenues for the nine months ended September 30, 2007 includes the recognition of $2.0 million of revenue previously deferred in 2006 until a software upgrade was delivered in 2007.

     We expect net revenues to increase approximately 33% for the full year 2007 when compared to 2006 including the recognition of $2.0 million of revenue previously deferred in 2006.

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Net Revenues by Product

     The following table sets forth our net revenues by product for the three and nine months ended September 30, 2007 and 2006:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Catheters and devices		76	%		86	%		72	%		81	%
RF Generators		10	%		4	%		15	%		11	%
Accessories		14	%		10	%		13	%		8	%
		100	%		100	%		100	%		100	%

     We derive our net revenues from the sale of disposable endovenous catheters and devices, RF generators and accessory products. Our large installed base of RF generators facilitates a recurring revenue stream from the sale of disposable catheters. We expect that any shift in the percentage of net revenues derived from the sales of RF generators during the remainder of 2007 will be modest. We manufacture, package and label our disposable endovenous catheters and devices and outsource the manufacture of our RF generators and accessory products. We have several competitors selling a laser-based alternative to our Closure system and we believe that competitive pressures have increased modestly over the last twelve months. We believe that the reasons for the increased competitive pressures include pricing and the number of competitors in the market. We expect that the competitive pressures on our business will continue for the foreseeable future.

Net Revenues by Geography as a Percent of Net Revenues

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
United States		93	%		98	%		94	%		96	%
Europe		6	%		1	%		5	%		3	%
Other International		1	%		1	%		1	%		1	%
		100	%		100	%		100	%		100	%

Gross Profit by Period

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2007		2006		% Change			2007		2006		% Change
	(dollars in thousands)
Gross Profit	$	10,754	$	7,574		42	%	$	31,668	$	25,835		23	%

     Gross profit margin for the three months ended September 30, 2007 was approximately 61.5% compared with approximately 63.5% for the three months ended September 30, 2006. Gross profit margin for the nine months ended September 30, 2007 was approximately 62.9% compared with approximately 67.4% for the nine months ended September 30, 2006. The overall decrease in gross profit margin in both periods was primarily due to:

• lower margin of ClosureFAST catheters, which were introduced by the Company in the first quarter of 2007, as compared to ClosurePLUS catheters due to initial manufacturing inefficiencies associated with launching a new product; and

• increases in inventory reserves.

     Assuming we are able to meet forecasted manufacturing efficiency targets associated with ClosureFAST catheter production, we expect gross margins for 2007 to range from 62.5% to 63%.

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Operating Expenses by Period

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2007		2006		% Change			2007		2006		% Change
Sales and marketing	$	5,460	$	5,279		3	%	$	18,435	$	16,614		11	%
Research and development		2,258		1,871		21	%		7,168		5,155		39	%
General and administrative		6,128		3,861		59	%		15,029		11,873		27	%
	$	13,846	$	11,011		26	%	$	40,632	$	33,642		21	%

Operating Expenses as a Percent of Net Revenues

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Sales and marketing		31	%		44	%		37	%		43	%
Research and development		13	%		16	%		14	%		13	%
General and administrative		35	%		32	%		30	%		31	%

Operating Expense Summary

     Overall operating expenses increased $2.8 million in the three months ended September 30, 2007, as compared to the three months ended September 30, 2006, primarily due to:

• an increase of $1.9 million in legal and other professional fees, primarily associated with the Company’s on-going patent litigation; and

• an increase of $1.3 million due to increased headcount and related expense (including share based compensation) over the prior year; partially offset by

• a decrease of $220,000 in outside audit and tax services, and

• a decrease of $100,000 in travel expenditures.

     Overall operating expenses increased $7.0 million in the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006, primarily due to:

• an increase of $4.3 million due to increased headcount and related expense (including share based compensation) over the prior year;

• an increase of $2.1 million in legal and other professional fees, primarily associated with the Company’s on-going patent litigation;

• an increase of $450,000 in direct advertising expenses related to our television ad campaign;

• an increase of $425,000 in clinical studies; and

• an increase of $290,000 in outside audit and tax services; partially offset by

• A decrease of $847,000 in restructuring charges for a lease termination in the second quarter of 2006 related to the move out of our old facility.

Sales and Marketing Expenses

     Sales and marketing expenses increased $181,000 in the three months ended September 30, 2007, as compared to the three months ended September 30, 2006, due to increased headcount and related expense (including share based compensation) over the prior year.

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     Sales and marketing expenses increased $1.8 million in the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006, primarily due to:

• an increase of $917,000 due to increased headcount and related expense (including share based compensation), and outside professional fees;

• n increase of $450,000 in direct advertising expenses;

• an increase of $150,000 in travel expenses; and

• an increase of $130,000 in equipment and facilities charges related to increased head count.

     We expect sales and marketing related expenses as a percentage of net revenues to remain consistent for the remainder of 2007.

Research and Development Expenses

     Research and development expenses increased $387,000 in the three months ended September 30, 2007, as compared to the three months ended September 30, 2006, primarily due to increased headcount and related expense (including share based compensation) over the prior year.

     Research and development expenses increased $2.0 million in the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006, primarily due to:

• an increase of $1.6 million due to increased headcount and related expense (including share based compensation); and

• an increase of $425,000 in clinical studies.

     We expect research and development expenses as a percentage of net revenues to remain consistent for the remainder of 2007.

General and Administrative Expenses

     General and administrative expenses increased $2.3 million in the three months ended September 30, 2007, as compared to the three months ended September 30, 2006, primarily due to:

• an increase of $1.9 million in legal and other professional fees, primarily associated with the Company’s on-going patent litigation; and

• an increase of $620,000 due to increased headcount and related expense (including share based compensation); partially offset by

• a decrease of $220,000 in outside audit and tax services.

     General and administrative expenses increased $3.2 million in the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006, primarily due to:

• an increase of $2.1 million in legal and other professional fees, primarily associated with the Company’s on-going patent litigation;

• an increase of $1.8 million due to increased headcount and related expense (including share based compensation); and

• an increase of $290,000 in outside audit and tax services; partially offset by

• a decrease of $847,000 in restructuring charges for a lease termination in the second quarter of 2006 related to the move out of our old facility; and

• a decrease of $114,000 of facility costs.

     We expect general and administrative expenses as a percentage of net revenues to decrease for the remainder of 2007 primarily due to anticipated reductions in legal fees associated with the Company’s ongoing patent litigation.

Interest Income and Other, Net

     Interest income and other, net, increased to $945,000 in the three months ended September 30, 2007 from $926,000 for the three months ended September 30, 2006, primarily due to:

• an increase of $200,000 in foreign currency translation gain related to the translation of foreign currency denominated cash balances held by the Company into US dollars; partially offset by

• a decrease of $180,000 in interest income related to an overall decrease in the short-term investment balances.

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     Interest income and other, net, increased to $2.6 million in the nine months ended September 30, 2007 from $2.5 million in the same period in 2006, primarily due to:

• an increase of $200,000 in foreign currency translation gain related to the translation of foreign currency denominated cash balances held by the Company into US dollars; partially offset by

• a decrease of $100,000 in interest income related to an overall decrease in the short-term investment balances.

Provision for Income Taxes

     Provision for income tax was $19,000 in the three months ended September 30, 2007, primarily for foreign tax. Provision for income tax was $13,000 in the three months ended September 30, 2006, primarily related to federal and state tax amounts due for fiscal 2005. Our effective tax rate for both periods was 0%.

     Provision for income tax was $37,000 in the nine months ended September 30, 2007, primarily for foreign tax. Provision for income tax was $13,000 in the nine months ended September 30, 2006, primarily related to federal and state tax amounts due for fiscal 2005. Our effective tax rate for both periods was 0%.

Cumulative effect of change in accounting principle

     Upon the adoption of SFAS No. 123R on January 1, 2006, we recognized a change of approximately $73,000 in the three months ending March 31, 2006.

Liquidity and Capital Resources

	As of
	September 30,		December 31,
	2007		2006		% Change
Cash, cash equivalents and short-term investments	$	63,989	$	67,913		-6	%
Working capital	$	68,904	$	70,859		-3	%

	Nine Months Ended
	September 30,
	2007			2006			% Change
Net cash provided (used in) by operating activities	$	(4,660	)	$	1,334			-449	%
Net cash provided by (used in) investing activities	$	4,725		$	(2,837	)		-267	%
Net cash provided by financing activities	$	1,749		$	173			911	%

     Cash flows from operating activities

     We incurred net losses from inception through September 30, 2007 of $49.4 million. We are projecting a net loss in 2007. We currently invest our cash and cash equivalents in several large money market funds consisting of debt instruments of the U.S. government and its agencies and high-quality corporate issuers with original maturities of less than three months. Investments designated as short-term consist of cash invested in debt instruments of the U.S. government and its agencies and high-quality corporate issuers with original maturities greater than three months and less than one year. Since inception, we have financed our operations primarily through sales of convertible preferred stock and common stock, and cash generated from operations.

     Net cash provided by operating activities decreased by $5.9 million for the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006. The decrease was primarily due to:

• an increase of $1.2 million in our net loss;

• an increase of $1.7 million in accounts receivable, driven by increased revenue offset by slower collections;

• an increase of $3.2 million in inventories, as the Company continues to build inventory in response to increased customer demand;

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• a decrease of $2.0 million in deferred revenue driven by the recognition of RF generators in the first two quarters of 2007, which had been deferred in the second half of 2006; and

• a decrease of $900,000 in other long term liabilities; partially offset by

• an increase of $3.0 million in accounts payable and accrued compensation, primarily related to increase in professional fee expense accruals, employee compensation related accruals.

     Cash flows from investing activities

     Net cash provided by investing activities increased by $7.6 million for the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006. The decrease was primarily due to:

• an increase of $4.5 million in net sales of short-term investments; and

• a decrease of $3.1 million in purchases of property, plant and equipment.

     Cash flows from financing activities

     Net cash provided by financing activities decreased by $1.5 million for the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006. The decrease was primarily due to:

• an increase of $1.8 million in proceeds received upon the exercise of stock options for common stock; partially offset by

• an increase of $238,000in employee payroll taxes withheld and paid on behalf of employees related to the release of restricted stock units on a net issuance basis. There were no restricted stock unit releases on a net issuance basis during the nine months ended September 30, 2006.

     Net proceeds from the issuance of common stock related to the exercise of employee stock options have historically been a significant component of our liquidity. However, in the fourth quarter of 2005, we began granting RSUs which, unlike stock options, do not generate cash from exercise. In addition, because RSUs are taxable to the individuals when they vest, the number of shares we issue may be net of applicable payroll withholding taxes. As a result, we will likely generate less cash from the proceeds of the sale of our common stock in future periods.

     Other Factors Affecting Liquidity and Capital Resources

     We expect that marketing and research and development expenses will increase in absolute dollars as compared to 2006 in connection with the growth of our business. We expect to fund these increased costs and expenditures from our cash flows from operations and our existing cash balance. However, our future capital requirements depend on numerous forward-looking factors. These factors include, but are not limited to the following: 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; patent litigation; the costs of obtaining and maintaining Food and Drug Administration and other regulatory clearances of our products and products in development; the effects of competing technological and market developments; the costs associated with being a public company; and the number and timing of acquisitions and other strategic transactions.

     We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, we may require additional funds in order to further develop the marketplace, complete clinical studies and deliver new products to our customers. We may seek financing of future cash needs through the sale of equity securities and debt. We cannot assure you that additional financing will be available when needed or that, if available, such financing will be obtained on terms favorable to us or our stockholders. Insufficient funds may require us to delay, scale back or eliminate some or all of our business operations or may adversely affect our ability to operate as a going concern. If additional funds are obtained by issuing equity or debt securities, substantial dilution to existing stockholders may result.

Off-Balance Sheet Arrangements

     We do not have any off-balance sheet arrangements as of September 30, 2007.

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Contractual Obligations and Capital Expenditure Requirements

     The following table summarizes our contractual obligations as of September 30, 2007:

	Payments Due by Period
Contractual Obligations and Capital			Less Than		1 - 3		3 - 5		More Than
Expenditure Requirements	Total		1 Year		Years		Years		5 Years
	(In thousands)
Operating lease obligations	$	7,322	$	891	$	1,074	$	1,160	$	4,197
Inventory purchase commitments		3,171		3,171
Other purchase commitments		994		994
Total	$	11,487	$	5,056	$	1,074	$	1,160	$	4,197

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     To date, substantially all of our sales have been denominated in U.S. dollars. Approximately 7% of sales revenue for the three-month period ended September 30, 2007 has been denominated in currencies other than U.S. dollars. Accordingly, we believe that there is currently no material exposure to risk from changes in foreign currency exchange rates.

     While our reporting currency is the U.S. dollar, a portion of our assets (primarily deposit accounts) are denominated in foreign currency. As a result, we are exposed to foreign exchange risk as our results of operations may be affected by fluctuations in the exchange rate between U.S. dollars and foreign currencies. If a foreign currency depreciates against the U.S. dollar, the value of a portion of our earnings and assets as expressed in our U.S. dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

     Our exposure to interest rate risk at September 30, 2007 is related to our investment of our excess cash and cash equivalents in debt instruments of the U.S. government and its agencies, and in high-quality corporate issuers via several large money market funds. Due to the short-term nature of these investments, we believe that there is currently no material exposure to interest rate risk arising from our investments.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

     We maintain “disclosure controls and procedures,” as such term is defined under Securities Exchange Act Rule 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2007 due to the material weakness in our internal control over financial reporting as discussed below. We have taken steps to remediate the material weakness, including hiring of additional staff, additional training of existing staff and additional management review of accrued liabilities. Our Chief Executive Officer and Interim Chief Financial Officer, however, cannot provide assurances that the material weakness has been remediated as of September 30, 2007 until independent testing is performed.

     A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management’s assessment identified the following material weakness in our internal control over financial reporting as of December 31, 2006:

     We did not maintain effective controls over the completeness and accuracy of accrued liabilities and operating expenses. Specifically, we failed to maintain effective controls over the cutoff of vendor invoices to ensure that all liabilities were recorded in the appropriate accounting period. This control deficiency resulted in an audit adjustment to our 2006 annual consolidated financial statements. Additionally, this control deficiency could result in a misstatement of accrued liabilities and related operating expenses

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that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Management’s Plans for Remediation

     In response to the material weakness in our internal control over financial reporting discussed above, we implemented a process to enhance review of open purchase orders and review of invoices and receipts after the end of each quarter to ensure proper recording of accrued expenses and open purchase order commitments. Additionally, in March 2007, we began implementing additional training for the financial staff and plan to continue this process to ensure that personnel have the necessary competency, training and supervision for their assigned levels of responsibility and the nature and complexity of our business. We plan to further enhance the discipline throughout the organization to achieve greater compliance with policies, procedures and controls that are in place, and also those that are being implemented, particularly with respect to ensuring the completeness and accuracy of accrued liabilities and related operating expenses. We expect to complete our evaluation of the effectiveness of our internal controls over financial reporting, including the remediation of the material weakness discussed above.

Changes in internal control over financial reporting

     There were changes in our internal control over financial reporting during the quarter ended September 30, 2007 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting. As previously reported, our Chief Financial Officer resigned effective October 1, 2007, and we appointed an Interim Chief Financial Officer effective October 1, 2007.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

     On July 21, 2005, we announced that we had filed a patent infringement action in the United States District Court, Northern District of California, against Diomed Holdings, Inc. and Diomed, Inc. (collectively, “Diomed”) for infringement of certain U.S. Patents. Diomed markets endovenous laser ablation products for use in methods which we believe infringe several of our patents. We are seeking an injunction prohibiting Diomed from selling these products in addition to monetary damages. On September 15, 2005, Diomed answered our complaint and asserted counterclaims against us for a judicial declaration that the asserted patents are not infringed and are invalid. On October 12, 2005, we filed an amended complaint for patent infringement against AngioDynamics, Inc. (“AngioDynamics”) and Vascular Solutions, Inc. (“Vascular Solutions”) adding them as additional defendants in the lawsuit, which is entitled VNUS Medical Technologies, Inc. v. Diomed Holdings, Inc., et al., Case No. C05-02972 MMC (N.D. Cal.). AngioDynamics and Vascular Solutions market endovenous laser ablation products for use in methods which we believe infringe these same patents. We are seeking an injunction prohibiting AngioDynamics and Vascular Solutions from selling these products in addition to monetary damages. On October 31, 2005, Diomed filed a new answer and counterclaims against us for a judicial declaration that the asserted patents are not infringed, are invalid and are unenforceable. On December 9, 2005, AngioDynamics and Vascular Solutions both answered our amended complaint and asserted counterclaims against us for a judicial declaration that the asserted patents are not infringed and are invalid. We have answered and denied all counterclaims against us. On October 30, 2006 a claims construction hearing was held, and on November 20, 2006, the Court issued its Order Construing Claims. In October 2007, the Court denied numerous motions for summary judgment, clearing the way for the case to proceed to trial. The original trial commencement date of October 2007 has been postponed due to Court schedule delays and a new trial date has not yet been set.

     We are also involved from time to time in other legal proceedings arising in the ordinary course of its business. While there can be no assurances as to the ultimate outcome of any litigation involving us, management does not believe any pending legal proceeding will result in a judgment or settlement that would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

     This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, including statements about our future plans, objectives, intentions and expectations. Many factors, including those described below, could cause

     actual results to differ materially from those discussed in any forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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     The following is a summary description of some of the many risks we face in our business, including any risk factors as to which there may have been a material change from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2006. You should carefully review these risks and those described in our Annual Report on Form 10-K and in other reports we file with the Securities and Exchange Commission in evaluating our business.

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

     As of September 30, 2007, we had an accumulated deficit of approximately $49.4 million. While we were profitable in 2004 and 2005, we had a net loss in 2006. We have increased and intend to continue to increase operating expenses in 2007 in areas such as research and development, sales and marketing and legal fees, which we project, will result in a net loss for 2007. Also, fluctuations in our quarterly and annual results of operations have and will continue to result from numerous factors, including:

• physician and patient acceptance of our products and procedures;

• design or manufacturing defects in our Closure system;

• the effect of competition from existing and new products and procedures;

• fluctuations in the demand for our products, including seasonal demand, the timing of orders received and the timing of new product introductions;

• our ability to recognize revenue from the sales of our products;

• our ability to protect our intellectual property rights and defend against third party challenges;

• our ability to hire and train key personnel, including management, sales and technical personnel;

• practices of insurance companies and Medicare with respect to reimbursement for our procedure and our products;

• delays or interruptions in manufacturing and shipping of our products, which may result from our dependence on third-party suppliers;

• the results of future clinical trial data, including long-term randomized trial data;

• litigation, including product liability claims, patent litigation and securities litigation;

• failure to comply with current government regulations and announcements of changes in government regulations affecting us or our competitors;

• failure to obtain or maintain regulatory approvals and clearances to market our products;

• our ability to train physicians in performing our Closure procedure; and

• fluctuations in the international markets where we sell our products.

     These factors, some of which are not within our control, may cause the price of our common stock to fluctuate substantially. If our quarterly or annual operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price could drop suddenly and significantly. We believe the quarterly or annual comparisons of our financial results are not always meaningful and should not be relied upon as an indication of our future performance.

     In addition, we anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to expand our sales and marketing, manufacturing and product development activities. We estimate that our continued expansion efforts and higher expenses will offset the effect of increased revenues and will lead to a net loss in 2007, which may result in a decline in the market price for our common stock.

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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.

     Our products are classified as medical devices. Medical devices are subject to extensive regulation in the United States by the Food and Drug Administration and numerous other federal, state and foreign governmental authorities. Food and Drug Administration regulations specific to medical devices are wide ranging and govern, among other things:

• 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.

     Our manufacturing processes are required to comply with the Food and Drug Administration’s Quality System Regulations, which cover the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our devices. The Food and Drug Administration enforces its Quality System Regulations through periodic announced or unannounced inspections and if our manufacturing facility fails a Quality System inspection, our operations and manufacturing could be interrupted. Failure to take adequate and timely corrective action in response to an adverse Quality System inspection could force a shutdown of our manufacturing operations or a recall of our products.

     Compliance with these regulations can be complex, expensive and time-consuming. If we fail to comply with such regulations, we could be subject to the imposition of injunctions, suspensions or loss of regulatory approvals, product recalls, orders for repair, replacement or refund, customer notifications, termination of distribution, product seizures or civil penalties. In the most egregious cases, criminal sanctions or closure of our manufacturing facilities or those of our suppliers are possible. If we are required to shut down our manufacturing operations or recall any of our products, we may not be able to provide our customers with the quantity of products they require, and we could lose customers and suffer reduced revenue. If we are unable to obtain sufficient quantities of high quality products to meet customer demand on a timely basis, we could lose customers, our growth could be limited and our business could be harmed.

     We are also subject to medical device reporting, or MDR, regulations that require us to report to the Food and Drug Administration if our products cause or contribute to a death or serious injury or if they malfunction. As of September 30, 2007, we have submitted 109 medical device reports. In 49 cases, a thrombus, or blood clot, was noticed at varying lengths of time after our Closure procedure was performed. In 16 cases, the patient developed a pulmonary embolism, 13 of which related to the Company’s ClosurePLUS catheter, and 3 relate to the Company’s ClosureFAST catheter. In March 2005, we received a report that a patient treated with a motorized varicose vein treatment device and our radiofrequency ablation catheter was admitted to a hospital and diagnosed with a pulmonary embolism 13 days after the procedure and died the following day. In November 2006, we received a report that a patient treated with ambulatory phlebectomy of systemic varicosities and our radiofrequency ablation catheter died the following day of a

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pulmonary embolism. In October 2007, we received a report that a patient previously treated with the ClosureFAST catheter died as a result of a pulmonary embolism.  We have reported all MDR events to the Food and Drug Administration via the MDR process. We believe that none of these incidents were caused by design faults or defects in our products. However, it is possible that claims could be made against us alleging that our products are defective or unsafe. Our failure to comply with applicable regulatory requirements could result in an enforcement action by the Food and Drug Administration, which could include any of the above sanctions. In addition, the identification of serious safety risks could result in product recalls or withdrawal of our clearance or approval. The imposition of any one or more of these penalties could have a negative effect on our production, product sales and profitability.

     Our third party component manufacturers may also be subject to the same sanctions and, as a result, may be unable to supply components for our products. Any failure to retain governmental clearances or approvals that we currently hold or to obtain additional similar clearances or approvals could prevent us from successfully marketing our products and technology and could harm our operating results. Furthermore, changes in the applicable governmental regulations could prevent further commercialization of our products and technologies and could harm our business.

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

     We are highly dependent on our President and Chief Executive Officer, Brian E. Farley, and other officers. Due to the specialized knowledge each of our officers possesses with respect to our Closure system and our operations, the loss of service of one or more of these individuals could significantly affect our ability to operate and manage our business. We do not have any insurance in the event of the death or disability of any of these key personnel. Each of our officers may terminate their employment without notice and without cause or good reason. During 2007, five of our officers have resigned. We cannot assure you that we will be able to retain other qualified personnel or recruit other qualified personnel in the event of any future terminations.

Item 6. Exhibits

(a) Exhibits.

Exhibit No	Description
31.1	Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Interim Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32	Certification of Principal Executive Officer and Interim Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 8, 2007	VNUS Medical Technologies, Inc.
	/s/ PETER OSBORNE
	Peter Osborne
	Interim Chief Financial Officer (Interim Principal
	Financial Officer and Authorized Signatory)

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EXHIBIT INDEX

Exhibit Number	Description
31.1	Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Interim Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32	Certification of Principal Executive Officer and Interim Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.