Dow Jones 7,986.02 +43.63  9:55 pm EST, Sun., Sept 22, 2002  NASDAQ 1,221.09 +4.64  For info, visit access.smallcapnetwork.com .  S & P 500   845.39 +2.07  To be removed, please click here .  Russell 2000   367.28 +1.74  VOLUME 02: ISSUE 66 Diomed Is A Painful Treatment The risk of owning a company that hopes to revolutionize an entire industry is if the company fails.  Failure results in the loss of capital for just about everyone.  Diomed (DIO) was our February profile and we were proud to have found a company that appeared to be on the cusp of changing cosmetic surgery. In particular, the company's patented and newly FDA approved EndoVenous Laser Treatment (EVLT) varicose veins solutions was said to be a less cost inhibitive and minimally invasive procedure.  This is in stark contrast to the current treatments such as stripping and other more painful and costly solutions. According to Diomed, EVLT is the most painless and effective way to remove varicose veins which affects one of every two people 50 or older, and about 15 percent of men and 25 percent of women overall according to the Society of Cardiovascular and Interventional Radiology. EVLT has been featured in such media as Good Morning America, Forbes, Newsweek and New York Times. The technology behind the company was exciting and the smart money that invested in Diomed put shareholders in the same class as some heavy hitters.  Individuals that helped finance the company include Sir Richard Branson the founder of Virgin International (Virgin Airlines and Records), Jack Rivkin- Executive VP at Citigroup Investments and former head of research at Smith Barney,  Jonathan Cohen- JHC Capital Management - Formerly at Merrill Lynch and Smith Barney, and Robert Lessin- Chairman of Wit SoundView Group. Unfortunately as Diomed proves, smart money does not guarantee success.  Initially, shares of Diomed reached $9 per share as the excitement about the company's future prospects peaked.  However, corporate performance failed to meet the expectations of Wall Street. The stock has fallen to an all time low of $0.56 per share. On September 10 a registration statement was filed with the SEC by Diomed whereby 20.9 million shares of common stock were registered for sale.  This would bring the total number of shares outstanding to 30.1 million shares, giving Diomed a market capitalization of $16.85 million. Originally, Diomed was estimated to bring in approximately $17 to $18 million in revenue for 2002.  However, for the six months ending June 30 this year the company had revenues of $2.125 million and losses of $3.585 million.  According to the most recent SEC filing the company has enough cash till December of this year so there is a good chance that the company will still need to raise additional capital. It is possible that the company will be unable to raise additional capital unless there is more evidence that EVLT is gaining in the market place. Diomed reported second quarter financials on August 14th with less than stellar results.  There was some good news as EVLT revenue in the second quarter rose to $530,000 as compared to $283,000 in the first quarter of 2002.  The number of EVLT lasers sold increased from 11 in the first quarter of 2002 to 18 in the second quarter of 2002. To win back its investors Diomed has a long road ahead and doubling EVLT revenue every quarter for the next six quarters would certainly help. There is no guarantee that this will happen but at the current price many investors have already given up and left Diomed for dead. The future of this company rests on the laurels of EVLT.  If the national roll out picks up traction then the share price will move from the current levels.  On the other hand lowered growth could mean the end of the company as cash runs out or massive dilution with financing performed at less than favorable terms. This is not the time to add to your Diomed holdings or establish yourself as a new shareholder.  Without knowing how well EVLT is being received in the marketplace the risks of investing in the company are far too great.  If you already own it then selling now makes little sense.  However, tax loss selling season is almost upon us so if there are gains that need to be offset by losses then Diomed would be a good candidate to sell. Diomed exhibited all the elements of a successful company with a great product, an all star team of financiers, and national media attention.  None of these things matter if at the end of the day the company can't perform its duty which is to bring in profits.  Is Diomed destined to fail?  We don't think so but our expectations have been lowered tremendously and until the company shows us that it is moving in the right direction there are no reasons for new investors to look at Diomed. 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