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|   | [  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|----------------|-----------------------------------------------------------------------------------------------|

|   | Delaware(State or other jurisdictionof incorporation or organization) |   | 59-2058100(I.R.S.  EmployerIdentification No.) |   |
|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------|--------|

|   |  Title of each classNone |   | Name of each exchangeon which registeredNone |   |
|--------|-------------------------------|--------|----------------------------------------------|--------|

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|   | Large accelerated filer [__] | Accelerated filer [__]        |   |
|--------|------------------------------|-------------------------------|--------|
|   |                         |                          |   |
|   | Non-accelerated filer [__]   | Smaller reporting company [X] |   |

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|                |   |                                                                                                                   |   | Page[Missing Graphic Reference] |
|---------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|
| Part I         |   |                                                                                                                   |   |                            |
|  Item 1.  |   |  Business                                                                                                         |   |  1                         |
| Item 1A.       |   | Risk Factors                                                                                                           |   | 16                              |
| Item 1B.       |   | Unresolved Staff Comments                                                                                              |   | 34                              |
| Item 2.        |   | Properties                                                                                                             |   | 34                              |
| Item 3.        |   | Legal Proceedings                                                                                                      |   | 34                              |
| Item 4.        |   | Removed and Reserved                                                                                                   |   |                            |
|  Part II  |   |                                                                                                                   |   |                            |
|  Item 5.  |   |  Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |   |  35                        |
| Item 6.        |   | Selected 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                                                             |   | 61                              |
| Item 8.        |   | Financial Statements and Supplementary Data                                                                            |   | 63                              |
| Item 9.        |   | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                   |   | 63                              |
| Item 9A.       |   | Controls and Procedures                                                                                                |   | 63                              |
| Item 9B.       |   | Other Information                                                                                                      |   | 64                              |
|  Part III |   |                                                                                                                   |   |                            |
|  Item 10. |   |  Directors, Executive Officers and Corporate Governance                                                           |   |  64                        |
| Item 11.       |   | Executive Compensation                                                                                                 |   | 69                              |
| Item 12.       |   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                         |   | 81                              |
| Item 13.       |   | Certain Relationships and Related Transactions and Director Independence                                               |   | 83                              |
| Item 14.       |   | Principal Accountant Fees and Services                                                                                 |   | 83                              |
|  Part IV       |   |                                                                                                                   |   |                            |
|  Item 15. |   |  Exhibits and Financial Statement Schedules                                                                       |   |  84                        |
|                |   | Signatures                                                                                                             |   | 87                              |

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| Item 1.   | Business |
|---------------------|----------|

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|   | • |   | the application of our XTRAC system to the treatment of inflammatory skin disorders;                                                                                                                             |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | the development of complementary devices to further improve the phototherapy treatments performed with our XTRAC and other light-based systems;                                                                  |
|   | • |   | the development of new lines of phototherapy products for medical treatments;                                                                                                                                    |
|   | • |   | the development of new skin health and hair care products;                                                                                                                                                       |
|   | • |   | the development of DNA skin health protocols;                                                                                                                                                                    |
|   | • |   | the improvement of surgical products through tissue-effect technologies that include laser and non-laser based technologies focused on improving our product offerings;                                          |
|   | • |   | the development of new lines of delivery systems for medical treatments; and                                                                                                                                     |
|   | • |   | the development of additional products and applications, whether in phototherapy or surgery, by working closely with our scientific advisory board, medical centers, universities and other companies worldwide. |

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|   | • |   | 96920 – designated for: the total area less than 250 square centimeters. CMS assigned a 2009 national payment of approximately $161.66 per treatment;  |
|--------|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | 96921 – designated for: the total area 250 to 500 square centimeters. CMS assigned a 2009 national payment of approximately $160.58 per treatment; and |
|   | • |   | 96922 – designated for: the total area over 500 square centimeters. CMS assigned a 2009 national payment of approximately $234.91 per treatment.       |

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Risk 

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|    | • |   | debt financing for capital expenditures cannot be obtained;                                                                                                                                        |
|--------------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | • |   | operating losses continue because anticipated demand for our skincare products, including our Photo Therapeutics, or PTL, products, does not meet our expectations under our new sales strategies; |
|         | • |   | we fail to maintain existing, or develop new, customers or sales affiliates and alternate channels for the marketing and distribution of our skincare and PTL products;                            |
|         | • |   | we need to maintain or accelerate favorable, but costlier, growth of our revenues;                                                                                                                 |
|         | • |   | changes in our research and development plans necessitate unexpected, large expenditures;                                                                                                          |
|         | • |   | the investor that holds the Convertible Notes does not convert the notes, thereby obliging us to have funds to satisfy the notes upon maturity on February 27, 2014; or                            |
|         | • |   | costs to defend existing and unknown future litigation exceed our current planned resources.                                                                                                       |

|   | • |   | execute our growth plan for our XTRAC system, skincare products and PTL products;                                                                          |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | expand our manufacturing facilities, if necessary, based on increased demand for the XTRAC system or new skincare or PTL products which may be introduced; |

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|   | • |   | meet our debt obligations, including the obligation to repay all amounts outstanding under our Convertible Notes at maturity on February 27, 2014; |
|--------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | take advantage of future opportunities, including synergistic, accretive acquisitions;                                                                  |
|   | • |   | respond to customers, competitors or violators of our proprietary and contractual rights; or                                                            |
|   | • |   | remain in operation.                                                                                                                                    |

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|   | • |   | broad product offerings, which address the needs of physicians and hospitals in a wide range of procedures;                                                             |
|--------|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | greater experience in, and resources for, launching, marketing, distributing and selling products, including strong sales forces and established distribution networks; |
|   | • |   | existing relationships with physicians and hospitals;                                                                                                                   |
|   | • |   | more extensive intellectual property portfolios and resources for patent protection;                                                                                    |
|   | • |   | greater financial and other resources for product research and development;                                                                                             |
|   | • |   | greater experience in obtaining and maintaining FDA and other regulatory clearances or approvals for products and product enhancements;                                 |
|   | • |   | established manufacturing operations and contract manufacturing relationships;                                                                                          |
|   | • |   | significantly greater name recognition and more recognizable trademarks; and                                                                                            |
|   | • |   | established relationships with healthcare providers and payors.                                                                                                         |

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|   | • |   | management, communication and integration problems resulting from cultural differences and geographic dispersion;                                                                                                      |   |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | • |   | compliance with foreign laws, including laws regarding importation and registration of products;                                                                                                                       |
|   | • |   | compliance with foreign regulatory requirements and the ability of GlobalMed to establish additional regulatory clearances necessary to expand distribution of our products in countries outside of the United States; |   |
|   | • |   | competition from companies with international operations, including large international competitors and entrenched local companies;                                                                                    |   |
|   | • |   | difficulties in protecting intellectual property rights in international jurisdictions;                                                                                                                                |   |
|   | • |   | political and economic instability in some international markets;                                                                                                                                                      |   |
|   | • |   | sufficiency of qualified labor pools in various international markets;                                                                                                                                                 |   |
|   | • |   | currency fluctuations and exchange rates; and                                                                                                                                                                          |   |
|   | • |   | potentially adverse tax consequences or an inability to realize tax benefits.                                                                                                                                          |   |

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|   | • |   | to hire, as needed, a sufficient number of qualified sales and marketing personnel with the aptitude, skills and understanding to market our XTRAC system, our skincare products and our surgical products effectively;                                   |
|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | to adequately train our sales and marketing force in the use and benefits of all our products and services, thereby making them more effective promoters;                                                                                                 |
|   | • |   | to manage our sales and marketing force and our ancillary channels (e.g., telesales) such that variable and semi-fixed expenses grow at a lesser rate than our revenues;                                                                                  |
|   | • |   | to set the prices and other terms and conditions for treatments using the XTRAC system in a complex legal environment so that they will be accepted as attractive skin health and appropriate alternatives to conventional modalities and treatments; and |
|   | • |   | to cope with employee turnover among the sales force in the skin health business, in which there is substantial competition for talented sales representatives.                                                                                           |

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|   | • |   | Dennis M. McGrath, President and Chief Executive Officer;                     |
|--------|---------|--------|-------------------------------------------------------------------------------|
|   | • |   | Michael R. Stewart, Executive Vice President and Chief Operating Officer; and |
|   | • |   | Christina L. Allgeier, Vice President and Chief Financial Officer.            |

|   | • |   | that PTL’s extensive international network of distributors would present a growth opportunity for us to market our existing products;                                                    |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | that PTL would benefit from our significantly larger U.S. direct sales and marketing organization;                                                                                             |
|   | • |   | that PTL’s presence in the tanning spa and medi-spa markets would present a growth opportunity for us to market our existing products;                                                   |
|   | • |   | that the combined company would realize short-term cost savings and have the opportunity for additional longer-term cost efficiencies, thus providing additional cash flow for operations; and |
|   | • |   | that PTL’s hand-held devices would open up to us a path to the consumer market.                                                                                                          |

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|   | • |   | requiring the dedication of a substantial portion of our expected cash flow from operations to service the indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures; |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | increasing our vulnerability to general adverse economic and industry conditions;                                                                                                                                                        |
|   | • |   | limiting our ability to obtain additional financing;                                                                                                                                                                                     |
|   | • |   | limiting our flexibility to plan for, or react to, changes in our business and the industry in which we compete; and                                                                                                                     |
|   | • |   | placing us at a possible competitive disadvantage to competitors with less debt obligations and competitors that have better access to capital resources.                                                                                |

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|   | • |   | consummating any transaction that would result in a change of control of us unless such transaction is for consideration that meets certain thresholds specified in the SPA; |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | acquiring another business or corporation or a substantial portion of the assets of any such entity;                                                                         |
|   | • |   | selling any of our assets that are material, individually or in the aggregate, to our business; and                                                                          |
|   | • |   | paying dividends to our stockholders.                                                                                                                                        |

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|         | • |   | the federal healthcare programs’ Anti-Kickback Law, which prohibits, among other things, persons or entities from soliciting, receiving, offering or providing remuneration, directly or indirectly, in return for or to induce either the referral of an individual for, or the purchase order or recommendation of, any item or service for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs;                                                  |
|--------------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | • |   | federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, or are for items or services not provided as claimed and which may apply to entities like us to the extent that our interactions with customers may affect their billing or coding practices;                                                              |
|         | • |   | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which established new federal crimes for knowingly and willfully executing a scheme to defraud any healthcare benefit program or making false statements in connection with the delivery of or payment for healthcare benefits, items or services, as well as leading to regulations imposing certain requirements relating to the privacy, security and transmission of individually identifiable health information; and |
|    | • |   | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.                                                                       |

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|   | • |   | the present macro-economic downturn in the global economy and financial industry and governmental monetary and fiscal programs to stimulate better economic conditions; |
|--------|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | healthcare reform and reimbursement policies;                                                                                                                           |
|   | • |   | demand for our products;                                                                                                                                                |
|   | • |   | changes in our pricing policies or those of our competitors;                                                                                                            |
|   | • |   | increases in our manufacturing costs;                                                                                                                                   |
|   | • |   | the number, timing and significance of product enhancements and new product announcements by ourselves and our competitors;                                             |
|   | • |   | the termination or expiration of significant royalty-generating licensing contracts to which we are party;                                                              |
|   | • |   | the expiration of certain of our patents;                                                                                                                               |

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|   | • |   | our ability to develop, introduce and market new and enhanced versions of our products on a timely basis considering, among other things, delays associated with the FDA and other regulatory approval processes and the timing and results of future clinical trials; and |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | product quality problems, personnel changes and changes in our business strategy.                                                                                                                                                                                          |

|   | • |   | conversion of the Convertible Notes or outstanding stock options or warrants;                    |
|--------|---------|--------|--------------------------------------------------------------------------------------------------|
|   | • |   | announcements by us or our competitors of new contracts, products, or technological innovations; |
|   | • |   | changes in government regulations;                                                               |
|   | • |   | fluctuations in our quarterly and annual operating results; and                                  |
|   | • |   | general market and economic conditions.                                                          |

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Unresolved 

| Item 2.   | Properties |
|---------------------|------------|

| Item 3.   | Legal Proceedings |
|---------------------|-------------------|

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| Item 4.   | Removed and Reserved |
|---------------------|----------------------|

|   Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
|----------------|--------------------------------------------------------------------------------------------------------------|

|                          |   | High   |   |   | Low    |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|
| Year Ended December 31, 2009: |   |   |   |   |   |   |
| Fourth Quarter                |   | $      | 5.82   |   |   | $      | 3.78 |   |
| Third Quarter                 |   |   | 6.42   |   |   |   | 3.96 |   |
| Second Quarter                |   |   | 12.30  |   |   |   | 5.52 |   |
| First Quarter                 |   |   | 22.80  |   |   |   | 8.16 |   |
| Year Ended December 31, 2008: |   |   |   |   |   |   |   |   |
| Fourth Quarter                |   | $      | 18.40  |   |   | $      | 5.46 |   |
| Third Quarter                 |   |   | 33.60  |   |   |   | 13.02 |   |
| Second Quarter                |   |   | 40.32  |   |   |   | 23.10 |   |
| First Quarter                 |   |   | 48.30  |   |   |   | 33.60 |   |

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|                                                       |   | EQUITY COMPENSATION PLAN INFORMATION                                                        |       |
|------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|------------|
|                                                       |   | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |       |   | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |   |   | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (A)) |   |
|                                                       |   | (A)                                                                                         |       |   | (B) |   |   | (C) |   |
| Equity compensation plans                                  |   |                                                                                        |       |   |   |   |   |   |   |
| approved by security holders                               |   |                                                                                        | 481,641    |   |   | $ | 40.20 |   |   |   | 71,218 |   |
|                                                       |   |                                                                                        |       |   |   |   |   |   |   |   |   |   |
| Equity compensation plans not approved by security holders |   |                                                                                        |   501 |   |   | $ | 77.70 |   |   |   |   - |   |
|                                                       |   |                                                                                        |       |   |   |   |   |   |   |   |   |   |
| Total                                                      |   |                                                                                        | 482,142    |   |   | $ | 77.70 |   |   |   | 71,218 |   |

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| Item 6.   | Selected Financial Data |
|---------------------|-------------------------|

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|                                                                                                  |   | Year Ended December 31,               |    |
|-------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                                                  |   | (In thousands, except per-share data) |    |
|                                                                                                  |   | 2009                                  |    |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Statement of Operations Data:                                                                         |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                              |   | $                                     | 32,688  |   |   | $ | 34,770 |   |   | $ | 31,046 |   |   | $ | 26,246 |   |   | $ | 20,665 |   |
| Costs of revenues                                                                                     |   |                                  | 17,426  |   |   |   | 16,995 |   |   |   | 13,486 |   |   |   | 12,768 |   |   |   | 10,000 |   |
|   Gross profit                                                                              |   |                                  | 15,262  |   |   |   | 17,775 |   |   |   | 17,560 |   |   |   | 13,478 |   |   |   | 10,665 |   |
| Selling, general and administrative                                                                   |   |                                  | 23,083  |   |   |   | 26,797 |   |   |   | 22,375 |   |   |   | 19,722 |   |   |   | 15,284 |   |
| Engineering and product development                                                                   |   |                                  | 1,138   |   |   |   | 1,073 |   |   |   | 799 |   |   |   | 1,007 |   |   |   | 1,128 |   |
|   Loss from continuing operations before refinancing charge, interest and other income, net |   |                                  | (8,959  | ) |   |   | (10,095 | ) |   |   | (5,614 | ) |   |   | (7,251 | ) |   |   | (5,747 | ) |
| Interest income                                                                                       |   |                                  | 8       |   |   |   | 156 |   |   |   | 384 |   |   |   | 149 |   |   |   | 61 |   |
| Interest expense                                                                                      |   |                                  | (2,379  | ) |   |   | (1,189 | ) |   |   | (913 | ) |   |   | (671 | ) |   |   | (403 | ) |
| Change in the fair value of warrant liability                                                         |   |                                  | 809     |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Refinancing charge                                                                                    |   |                                  | -       |   |   |   | - |   |   |   | (442 | ) |   |   | - |   |   |   | - |   |
| Other income, net                                                                                     |   |                                  | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,302 |   |
|   Loss from continuing operations                                                           |   |                                  | (10,521 | ) |   |   | (11,128 | ) |   |   | (6,585 | ) |   |   | (7,773 | ) |   |   | (4,787 | ) |
| Discontinued operations:                                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Income from discontinued operations                                                       |   |                                  | -       |   |   |   | 286 |   |   |   | 231 |   |   |   | 281 |   |   |   | 851 |   |
|   Loss on sale of discontinued operations                                                   |   |                                  | -       |   |   |   | (449 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Net loss                                                                                              |   | $                                     | (10,521 | ) |   | $ | (11,291 | ) |   | $ | (6,354 | ) |   | $ | (7,492 | ) |   | $ | (3,936 | ) |
|                                                                                                  |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted net loss per share(1):                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing operations                                                                     |   | $                                     | (6.42   | ) |   | $ | (7.41 | ) |   | $ | (4.40 | ) |   | $ | (6.02 | ) |   | $ | (4.12 | ) |
|   Discontinued operations                                                                   |   |                                  | (0.00   | ) |   |   | (0.11 | ) |   |   | 0.15 |   |   |   | 0.22 |   |   |   | 0.73 |   |
| Basic and diluted net loss per share                                                                  |   | $                                     | (6.42   | ) |   | $ | (7.52 | ) |   | $ | (4.25 | ) |   | $ | (5.80 | ) |   | $ | (3.39 | ) |
| Shares used in computing basic and diluted net loss per share (1)                                     |   |                                  | 1,640   |   |   |   | 1,501 |   |   |   | 1,496 |   |   |   | 1,290 |   |   |   | 1,162 |   |
| Balance Sheet Data (At Period End):                                                                   |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                                                             |   | $                                     | 2,195   |   |   | $ | 3,737 |   |   | $ | 9,954 |   |   | $ | 12,886 |   |   | $ | 5,610 |   |
| Working capital                                                                                       |   |                                  | 2,215   |   |   |   | 3,408 |   |   |   | 13,706 |   |   |   | 16,070 |   |   |   | 11,151 |   |
| Total assets                                                                                          |   |                                  | 53,168  |   |   |   | 46,714 |   |   |   | 56,687 |   |   |   | 57,482 |   |   |   | 48,675 |   |
| Long-term debt (net of current portion)                                                               |   |                                  | 807     |   |   |   | 3,985 |   |   |   | 5,709 |   |   |   | 3,727 |   |   |   | 2,437 |   |
| Convertible Debt                                                                                      |   |                                  | 18,111  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Stockholders’ equity                                                                            |   | $                                     | 22,922  |   |   | $ | 29,682 |   |   | $ | 39,533 |   |   | $ | 44,103 |   |   | $ | 38,417 |   |

| (1)   | For all periods, all common stock equivalents and convertible issues are antidilutive and, therefore, are not included in the weighted shares outstanding during the years in which we incurred net losses. Share amounts and basic and diluted net loss per share amounts shown on the condensed statements of operations have been adjusted to reflect the 1-for-7 reverse stock split effective January 26, 2009 and the 1-for-6 reverse stock split effective February 3, 2010. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 7.   | Management's Discussion and Analysis of Financial Condition and Results of Operations |
|---------------------|---------------------------------------------------------------------------------------|

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| ·   | Domestic XTRAC, |
|--------------------|-----------------|

| ·   | International Dermatology Equipment, |
|--------------------|--------------------------------------|

| ·   | Skin Care (ProCyte), |
|--------------------|----------------------|

| ·   | Photo Therapeutics (PTL), and |
|--------------------|-------------------------------|

| ·   | Surgical Products. |
|--------------------|--------------------|

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|                                |   | December 31, 2009 |       |
|-------------------------------------|--------|-------------------|------------|
| PTLCustomer Relationships           |   | $                 | 458,333    |   |
| PTL Tradename                       |   |              | 916,667    |   |
| PTL Patented Technologies           |   |              | 6,783,333  |   |
| Goodwill                            |   |              | 2,554,878  |   |
|      Total |   | $                 | 10,713,211 |   |

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|                                         |   | For the Year Ended December 31, |       |
|----------------------------------------------|--------|---------------------------------|------------|
|                                         |   | 2009                            |       |   | 2008 |   |   | 2007 |   |
| Dermatology:                                 |   |                            |       |   |   |   |   |   |   |
| XTRAC Domestic Services                      |   | $                               | 12,790,948 |   |   | $ | 12,419,972 |   |   | $ | 9,141,857 |   |
| International Dermatology Equipment Products |   |                            | 3,996,067  |   |   |   | 3,782,456 |   |   |   | 3,256,505 |   |
| Skin Care Products                      |   |                            | 7,895,473  |   |   |   | 12,829,816 |   |   |   | 13,471,973 |   |
| Photo Therapeutics (PTL) Products            |   |                            | 4,383,016  |   |   |   |   |   |   |   |   |   |
| Total Dermatology Revenues                   |   | $                               | 29,065,504 |   |   | $ | 29,032,244 |   |   | $ | 25,870,335 |   |
|                                         |   |                            |       |   |   |   |   |   |   |   |   |   |
| Surgical:                                    |   |                            |       |   |   |   |   |   |   |   |   |   |
| Surgical Products                            |   | $                               | 3,622,580  |   |   | $ | 5,738,048 |   |   | $ | 5,176,108 |   |
| Total Surgical Revenues                      |   | $                               | 3,622,580  |   |   | $ | 5,738,048 |   |   | $ | 5,176,108 |   |
|                                         |   |                            |       |   |   |   |   |   |   |   |   |   |
| Total Revenues                               |   | $                               | 32,688,084 |   |   | $ | 34,770,292 |   |   | $ | 31,046,443 |   |

----

|                                                      |   | For the Year Ended December 31, |       |
|-----------------------------------------------------------|--------|---------------------------------|------------|
|                                                      |   | 2009                            |       |   | 2008 |   |   | 2007 |   |
| Total revenue                                             |   | $                               | 12,790,948 |   |   | $ | 12,419,972 |   |   | $ | 9,141,857 |   |
| Less: laser sales revenue                                 |   |                            | (3,054,148 | ) |   |   | (3,919,520 | ) |   |   | (2,160,634 | ) |
| Recognized treatment revenue                              |   |                            | 9,736,800  |   |   |   | 8,500,452 |   |   |   | 6,981,223 |   |
|    Change in deferred program revenue      |   |                            | (18,132    | ) |   |   | 109,777 |   |   |   | 103,851 |   |
|    Change in deferred unused treatments    |   |                            | (260,211   | ) |   |   | 107,210 |   |   |   | 56,896 |   |
| Net billed treatment revenue                              |   |                            | 9,458,457  |   |   |   | 8,717,439 |   |   |   | 7,141,970 |   |
|    Procedure volume total                  |   |                            | 152,088    |   |   |   | 140,493 |   |   |   | 113,296 |   |
|    Less: Non-billed procedures             |   |                            | 6,567      |   |   |   | 6,899 |   |   |   | 4,157 |   |
| Net billed procedures                                     |   |                            | 145,521    |   |   |   | 133,594 |   |   |   | 109,139 |   |
|    Avg. price of treatments sold           |   | $                               | 65.00      |   |   | $ | 65.25 |   |   | $ | 65.44 |   |
| Change in procedures with deferred program revenue, net   |   |                            | (279       | ) |   |   | 1,682 |   |   |   | 1,587 |   |
| Change in procedures with deferred unused treatments, net |   |                            | (4,003     | ) |   |   | 1,643 |   |   |   | 869 |   |

----

| ·   | We sell refurbished domestic XTRAC laser systems into the international market. The selling price for used equipment is substantially less than new equipment, some of which may be substantially depreciated in connection with its use in the domestic market. We sold 25 of these used lasers in the year ended December 31, 2009 at an average price of $23,500. We sold 11 and five of these used lasers, at an average price of $33,000 and $36,500 for the years ended December 31, 2008 and 2007, respectively; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In addition to the XTRAC laser system (both new and used) we sell the VTRAC, a lamp-based, alternative UVB light source that has a wholesale sales price that is substantially below our competitors’ international dermatology equipment and below our XTRAC laser. In the years ended December 31, 2009, 2008 and 2007, we sold 35, 34 and 20 VTRAC systems, respectively. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                      |   | For the Year Ended December 31, |      |
|-------------------------------------------|--------|---------------------------------|-----------|
|                                      |   | 2009                            |      |   | 2008 |   |   | 2007 |   |
| Revenues                                  |   | $                               | 3,996,067 |   |   | $ | 3,782,456 |   |   | $ | 3,256,505 |   |
|    Less: part sales        |   |                            | (852,767  | ) |   |   | (664,456 | ) |   |   | (543,015 | ) |
| Laser/lamp revenues                       |   |                            | 3,143,300 |   |   |   | 3,118,000 |   |   |   | 2,713,490 |   |
|    Laser/lamp systems sold |   |                            | 94        |   |   |   | 86 |   |   |   | 65 |   |
| Average revenue per laser/lamp            |   | $                               | 33,439    |   |   | $ | 36,256 |   |   | $ | 41,746 |   |

| ·   | The product sales decreased for the year ended December 31, 2009 due to the macro economic conditions and to transitioning from our discontinued MD Lash Factor eyelash conditioning product to our internally developed Neova Advanced Essential Lash™ eyelash conditioner, which launched February 1, 2009. This segment is more susceptible to such economic conditions than our other segments because cosmetic products are more likely to be discretionary and not medically necessary. Product sales for the year ended December 31, 2009 were approximately $7.7 million down from approximately $12.6 million and $12.7 million for the years ended December 31, 2008 and 2007, respectively. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Included in Product sales for the year ended December 31, 2008 were $2,687,241 of revenues from MD Lash Factor as part of an exclusive license to distribute in the United States. In 2007 there were $1,037,212 of revenues as the product was launched in August 2007. We discontinued marketing MD Lash Factor as of January 31, 2009 under the terms of an agreement with Allergan, Inc. in settlement of certain patent litigation, and we have replaced it with our own peptide-based conditioner. For the year ended December 31, 2009, we sold $326,170 of our Neova Advanced Essential Lash. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Bulk compound sales decreased by $16,000 for the year ended December 31, 2009 compared to the year ended December 31, 2008. Bulk compound sales decreased by $208,000 for the year ended December 31, 2008 compared to the year ended December 31, 2007. Minimum contractual royalties from Neutrogena expired in November 2007 and as such the royalties decreased by $268,023 for the year ended December 31, 2008 from the year ended December 31, 2007. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                    |   | For the Year Ended December 31, |      |
|-------------------------|--------|---------------------------------|-----------|
|                    |   | 2009                            |      |   | 2008 |   |   | 2007 |   |
| Product sales           |   | $                               | 7,653,950 |   |   | $ | 12,566,839 |   |   | $ | 12,732,973 |   |
| Bulk compound sales     |   |                            | 239,760   |   |   |   | 256,000 |   |   |   | 464,000 |   |
| Royalties               |   |                            | 1,763     |   |   |   | 6,977 |   |   |   | 275,000 |   |
| Total Skin Care revenue |   | $                               | 7,895,473 |   |   | $ | 12,829,816 |   |   | $ | 13,471,973 |   |

|                                 |   | For the Year Ended December 31, |      |
|--------------------------------------|--------|---------------------------------|-----------|
|                                 |   | 2009                            |      |   | 2008 |   |   | 2007 |   |
| Product revenues                     |   | $                               | 3,975,045 |   |   | $ | - |   |   | $ | - |   |
| Licensing revenues                   |   |                            | 407,971   |   |   |   | - |   |   |   | - |   |
|    Total PTL revenues |   | $                               | 4,383,016 |   |   | $ | - |   |   | $ | - |   |

----

|                                        |   | For the Year Ended December 31, |      |
|---------------------------------------------|--------|---------------------------------|-----------|
|                                        |   | 2009                            |      |   | 2008 |   |   | 2007 |   |
| Revenues                                    |   | $                               | 3,622,580 |   |   | $ | 5,738,048 |   |   | $ | 5,176,108 |   |
| Percent (decrease)/increase                 |   |                            | (36.9     | %) |   |   | 10.9 | % |   |   |   |   |
|    Laser systems sold        |   |                            | 30        |   |   |   | 145 |   |   |   | 87 |   |
| Laser system revenues                       |   | $                               | 603,000   |   |   | $ | 2,236,000 |   |   | $ | 1,684,000 |   |
|    Average revenue per laser |   | $                               | 20,115    |   |   | $ | 15,422 |   |   | $ | 19,356 |   |

----

|                                |   | For the Year Ended December 31, |       |
|-------------------------------------|--------|---------------------------------|------------|
|                                |   | 2009                            |       |   | 2008 |   |   | 2007 |   |
| Product:                            |   |                            |       |   |   |   |   |   |   |
| XTRAC Domestic                      |   | $                               | 1,458,587  |   |   | $ | 1,797,397 |   |   | $ | 818,733 |   |
| International Dermatology Equipment |   |                            | 2,588,195  |   |   |   | 1,871,470 |   |   |   | 1,701,102 |   |
| Skin Care                           |   |                            | 2,639,213  |   |   |   | 4,431,545 |   |   |   | 4,208,287 |   |
| PTL                                 |   |                            | 2,338,330  |   |   |   | - |   |   |   | - |   |
| Surgical Products                   |   |                            | 2,650,908  |   |   |   | 3,867,810 |   |   |   | 2,854,593 |   |
| Total Product costs                 |   | $                               | 11,675,233 |   |   | $ | 11,968,222 |   |   | $ | 9,582,715 |   |
|                                |   |                            |       |   |   |   |   |   |   |   |   |   |
| Services:                           |   |                            |       |   |   |   |   |   |   |   |   |   |
| XTRAC Domestic                      |   | $                               | 5,623,782  |   |   | $ | 4,917,389 |   |   | $ | 3,888,214 |   |
| Surgical Products                   |   |                            | 126,951    |   |   |   | 109,706 |   |   |   | 110,697 |   |
| Total Services costs                |   | $                               | 5,750,733  |   |   | $ | 5,027,095 |   |   | $ | 3,998,911 |   |
|                                |   |                            |       |   |   |   |   |   |   |   |   |   |
| Total Costs of Revenues             |   | $                               | 17,425,966 |   |   | $ | 16,995,317 |   |   | $ | 13,581,626 |   |

|  Company Profit Analysis |   | For the Year Ended December 31, |       |
|-------------------------------|--------|---------------------------------|------------|
|                          |   | 2009                            |       |   | 2008 |   |   | 2007 |   |
| Revenues                      |   | $                               | 32,688,084 |   |   | $ | 34,770,292 |   |   | $ | 31,046,443 |   |
| Percent (decrease)/ increase  |   |                            | (6.0       | %) |   |   | 12.0 | % |   |   |   |   |
| Cost of revenues              |   |                            | 17,425,966 |   |   |   | 16,995,317 |   |   |   | 13,581,626 |   |
| Percent increase              |   |                            | 2.5        | % |   |   | 25.1 | % |   |   |   |   |
| Gross profit                  |   | $                               | 15,262,118 |   |   | $ | 17,774,975 |   |   | $ | 17,464,817 |   |
| Gross margin percentage       |   |                            | 46.7       | % |   |   | 51.1 | % |   |   | 56.3 | % |

----

| ·   | Our Skin Care segment is more susceptible to the macro economic conditions than our other segments because cosmetic products are more likely to be discretionary and not medically necessary. Product sales for the year ended December 31, 2009 were approximately $7.7 million down from approximately $12.6 million for the year ended December 31, 2008. Our Skin Care margins are substantially higher than the other business segments and consequently substantive swings in the revenues attributed to Skin Care’s sales will have a significant impact on our overall margins. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In our Surgical Products segment there were 115 fewer laser systems sold in the year ended December 31, 2009 than in the comparable period of 2008. This included 100 sales due to our OEM arrangement, but in the second half of 2008, AngioDynamics elected out of the OEM contract. Since that time, our sales to AngioDynamics have been $0. Additionally, the higher manufacturing levels in 2008 caused better absorption of fixed overheads which lowered average unit costs and resulted in a higher gross margin in 2008 compared to 2009. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $865,372 less in domestic XTRAC lasers in the year ended December 31, 2009 then in the comparable period of 2008. In addition, the current year sales were at lower margins compared to the same period in 2008. Certain of these lasers were previously being depreciated, since they were previously placements. The margin on these capital equipment sales was 52% in the year ended December 31, 2009 compared to 59% in the year ended December 31, 2008. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We recorded severance and lease liability of approximately $226,000 related to the integration of the PTL acquisition and the relocation of our Skin Care facility. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Additional gross profit was realized from our PTL segment. We acquired PTL on February 27, 2009; therefore only the activity after that date is recorded in our financial statements. There was no activity recorded in our financial statements in 2008. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We decreased the number of laser systems placed with our customers but sold a greater number of XTRAC treatment procedures in the year ended December 31, 2009 than in the year ended December 31, 2008. Procedure volume increased 8.9% from 133,594 to 145,521 billed procedures in the year ended December 31, 2009 compared to the same period in 2008. Increased usage at existing sites carries negligible variable cost thereby enhancing profit margins. Our ability to increase the number of procedures sold is a direct result of improved insurance reimbursement and increased marketing efforts. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $1,759,000 worth of additional lasers domestically in the year ended December 31, 2008 at lower margins compared to the same period in 2007. Certain of these lasers were previously being depreciated. The margin on these capital equipment sales was 59% in the year ended December 31, 2008 compared to 62% in the comparable period in 2007. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | There was an increase in depreciation of $429,000 included in the XTRAC Domestic cost of sales as a result of increasing the overall placements of new lasers since the year ended December 31, 2007. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | There was an increase in warranty expense of approximately $143,000 due to the increased number of laser sales for the year ended December 31, 2008 compared to the same period in 2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Additionally, we recorded additional excess and obsolete inventory reserves of approximately $579,000 mainly due to the decision to stop production of the CTH and CO2 laser systems and for slow-moving skincare products. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Skincare product revenues included $2,687,241 and $1,037,212 for the year ended December 31, 2008 and 2007, respectively, of products which are manufactured by a third-party supplier in conjunction with a licensing agreement. The margin of these licensed products is lower than the margins of other internally developed brands which we distribute. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Offsetting the above items that had a negative impact on gross profit, we sold a greater number of treatment procedures for the XTRAC laser systems in 2008 than in 2007. Procedure volume increased 22% from 109,139 to 133,594 billed procedures in the year ended December 31, 2008 compared to the same period in 2007. Since each incremental treatment procedure carries negligible variable cost, this significantly enhanced profit margins. The increase in procedure volume was a direct result of improving insurance reimbursement and increased marketing efforts. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $405,000 worth of additional international dermatology equipment for the year ended December 31, 2008 compared to the same period in 2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| XTRAC Domestic Segment  |   | For the Year Ended December 31, |       |
|-------------------------|--------|---------------------------------|------------|
|                    |   | 2009                            |       |   | 2008 |   |   | 2007 |   |
| Revenues                |   | $                               | 12,790,948 |   |   | $ | 12,419,972 |   |   | $ | 9,141,857 |   |
| Percent increase        |   |                            | 3.0        | % |   |   | 35.9 | % |   |   |   |   |
| Cost of revenues        |   |                            | 7,082,369  |   |   |   | 6,714,786 |   |   |   | 4,706,947 |   |
| Percent increase        |   |                            | 5.5        | % |   |   | 42.7 | % |   |   |   |   |
| Gross profit            |   | $                               | 5,708,579  |   |   | $ | 5,705,186 |   |   | $ | 4,434,910 |   |
| Gross margin percentage |   |                            | 44.6       | % |   |   | 45.9 | % |   |   | 48.5 | % |

| ·   | Key drivers in increasing the fee-per-procedure revenue from this segment are insurance reimbursement and increased direct-to-consumer advertising in targeted territories. In 2009, we began offering enhanced services to our customers through a recently developed membership program which bundles certain features and benefits offered to our customers. These services include enhanced access to our reimbursement team, marketing assistance, and discounts off our other product lines. Consequently procedure volume increased by 9% from 133,594 to 145,521 billed procedures in the year ended December 31, 2009 compared to the same period in 2008. Price per procedure did not change significantly between the periods. Each incremental treatment procedure carries negligible variable cost. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $865,000 less in domestic XTRAC lasers in the year ended December 31, 2009 compared to the same period in 2008. Such sales in 2009 were at lower margins compared to the same period in 2008. Certain of these lasers were previously being depreciated, since they were placements. The margin on these capital equipment sales was 52% in the year ended December 31, 2009 compared to 59% in the same period in 2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The cost of revenues increased by $367,583 for the year ended December 31, 2009 compared to the same period in 2008. This increase is due to an increase in the service expenses due to the increase in lasers placed in the field, of approximately $263,810 and in certain allocable XTRAC manufacturing overhead costs that are charged against the XTRAC service revenues of $390,338. Offsetting these increases was a decrease in cost of revenues related to laser sales of $338,799 over the comparable period in 2008. The depreciation costs will continue to increase in subsequent periods as the number of net placements grows. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | XTRAC Domestic deferred revenues increased $151,612 between the year-end periods without any offset in the cost of revenues. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | The cost of revenues increased by $2,007,839 for the year ended December 31, 2008. This increase is due to an increase in depreciation on the lasers-in-service of $429,000, an increase in cost of revenues related to the laser sales of $978,700 and an increase in warranty expense of $88,700 over the comparable prior period. The depreciation costs will continue to increase in subsequent periods as the business grows. In addition, there were unabsorbed costs, relating to excess capacity, allocated to the Domestic XTRAC including unabsorbed labor and direct plant costs. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold approximately $1,759,000 worth of additional domestic XTRAC lasers in the year ended December 31, 2008 at lower margins compared to the same period in 2007. Certain of these lasers were previously being depreciated, since they were placements. The margin on these capital equipment sales was 59% in the year ended December 31, 2008 compared to 62% in the comparable period in 2007. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Key drivers in increasing the fee-per-procedure revenue from this segment are insurance reimbursement and increased direct-to-consumer advertising in targeted territories. Improved insurance reimbursement, together with greater consumer awareness of the XTRAC therapy, increase treatment revenue accordingly. Our clinical support specialists focus their efforts on increasing physicians’ utilization of the XTRAC laser system. Consequently procedure volume increased 22% from 109,139 to 133,594 billed procedures in the year ended December 31, 2008 compared to the same period in 2007. Price per procedure did not change significantly between the periods. Each incremental treatment procedure carries negligible variable cost. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| International Dermatology Equipment Segment |   | For the Year Ended December 31, |      |
|---------------------------------------------|--------|---------------------------------|-----------|
|                                        |   | 2009                            |      |   | 2008 |   |   | 2007 |   |
| Revenues                                    |   | $                               | 3,996,067 |   |   | $ | 3,782,456 |   |   | $ | 3,256,505 |   |
|    Percent increase          |   |                            | 5.6       | % |   |   | 16.2 | % |   |   |   |   |
| Cost of revenues                            |   |                            | 2,588,195 |   |   |   | 1,871,470 |   |   |   | 1,701,102 |   |
|    Percent increase          |   |                            | 38.3      | % |   |   | 10.0 | % |   |   |   |   |
| Gross profit                                |   | $                               | 1,407,872 |   |   | $ | 1,910,986 |   |   | $ | 1,555,403 |   |
| Gross margin percentage                     |   |                            | 35.2      | % |   |   | 50.5 | % |   |   | 47.8 | % |

| ·   | We sold 59 XTRAC laser systems and 35 VTRAC lamp-based excimer systems during the year ended December 31, 2009 and 52 XTRAC laser systems and 34 VTRAC systems in the comparable period in 2008. Included in the 59 XTRAC lasers systems sold were 25 used laser systems, which have a lower average selling price and gross margin percentage, compared to 11 used laser systems in 2008. Consequently, gross profit decreased as a result of the mix of units sold. The gross margin percentage for the VTRAC is higher than for the XTRAC. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | International part sales, which have a higher margin percentage than system sales, increased for the year ended December 31, 2009 by approximately $188,300 compared to the same period in 2008. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | In addition, there was an increase of approximately $375,000, for the year ended December 31, 2009 in certain allocable XTRAC manufacturing overhead costs that are charged against our international dermatology equipment revenues as compared to the same period in 2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We sold 52 XTRAC laser systems and 34 VTRAC lamp-based excimer systems during the year ended December 31, 2008 and 45 XTRAC laser systems and 20 VTRAC systems in the comparable period in 2007. Consequently, gross profit increased as a result of an increase in the volume of units sold. The gross margin percentage for the VTRAC is higher than the XTRAC. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | International part sales, which have a higher margin percentage than system sales, increased for the year ended December 31, 2008 by approximately $121,400 compared to the same period in 2007. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Skin Care Segment         |   | For the Year Ended December 31, |      |
|--------------------------------|--------|---------------------------------|-----------|
|                           |   | 2009                            |      |   | 2008 |   |   | 2007 |   |
| Product revenues               |   | $                               | 7,653,950 |   |   | $ | 12,566,839 |   |   | $ | 12,732,973 |   |
| Bulk compound revenues         |   |                            | 239,760   |   |   |   | 256,000 |   |   |   | 464,000 |   |
| Royalties                      |   |                            | 1,763     |   |   |   | 6,977 |   |   |   | 275,000 |   |
| Total revenues                 |   |                            | 7,895,473 |   |   |   | 12,829,816 |   |   |   | 13,471,973 |   |
| Percent decrease               |   |                            | (38.5     | %) |   |   | (4.8 | %) |   |   |   |   |
|                           |   |                            |      |   |   |   |   |   |   |   |   |   |
| Product cost of revenues       |   |                            | 2,502,509 |   |   |   | 4,249,273 |   |   |   | 3,885,229 |   |
| Bulk compound cost of revenues |   |                            | 136,704   |   |   |   | 182,272 |   |   |   | 323,058 |   |
| Total cost of revenues         |   |                            | 2,639,213 |   |   |   | 4,431,545 |   |   |   | 4,208,287 |   |
| Percent (decrease)/increase    |   |                            | (40.4     | %) |   |   | 5.3 | % |   |   |   |   |
| Gross profit                   |   | $                               | 5,256,260 |   |   | $ | 8,398,271 |   |   | $ | 9,263,686 |   |
| Gross margin percentage        |   |                            | 66.6      | % |   |   | 65.5 | % |   |   | 68.8 | % |

| ·   | The decrease in revenues for the year ended December 31, 2009 is due in large part to the macro economic conditions. This segment is more susceptible to such economic conditions than our other segments because cosmetic products are more likely to be discretionary and not medically necessary. Product sales for the year ended December 31, 2009 were approximately $7.7 million down from approximately $12.6 million for the year ended December 31, 2008. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | For the year ended December 31, 2008 product revenues include $2,687,241 of products which are manufactured by a third-party supplier in conjunction with a licensing agreement. The margin of these licensed products is lower than the margins of other internally developed brands which we distribute. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Copper peptide bulk compound is sold at a substantially lower gross margin than skincare products, while royalty revenues generated from licensees have no significant costs associated with this revenue stream. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | In the year ended December 31, 2009, severance and lease liability expense of approximately $168,000 were recorded with respect to the relocation of the warehouse facility. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | For the years ended December 31, 2008 and 2007, product revenues include $2,687,241 and $1,037,212, respectively, of products which are manufactured by a third-party supplier in conjunction with a licensing agreement. The margin of these licensed products is lower than the margins of other internally developed brands which we distribute. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Copper peptide bulk compound is sold at a substantially lower gross margin than skincare products, while royalty revenues generated from licensees have no significant costs associated with this revenue stream. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Additionally, we increased the excess and obsolete reserves by approximately $162,000 for slow moving products, which had a direct impact on the gross margin. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| PTL Segment             |   | For the Year Ended December 31, |      |
|-------------------------|--------|---------------------------------|-----------|
|                    |   | 2009                            |      |   | 2008 |   |   | 2007 |   |
| Revenues                |   | $                               | 4,383,016 |   |   | $ | - |   |   | $ | - |   |
| Percent increase        |   |                            | 100       | % |   |   |   |   |   |   |   |   |
| Cost of revenues        |   |                            | 2,338,330 |   |   |   | - |   |   |   | - |   |
| Percent increase        |   |                            | 100       | % |   |   |   |   |   |   |   |   |
| Gross profit            |   | $                               | 2,044,686 |   |   | $ | - |   |   | $ | - |   |
| Gross margin percentage |   |                            | 46.7      | % |   |   |   |   |   |   |   |   |

| ·   | Since the business was acquired on February 27, 2009, there was no corresponding activity for the periods ending 2008 and 2007. Consequently, the activity for the year ended December 31, 2009 includes activity from February 27, 2009 through December 31, 2009. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The year ended December 31, 2009 includes revenues from a milestone payment of $407,971 under a certain licensing arrangement for the Clear U™ hand-held device. The licensee intends to use the device and its technology as a platform to attempt to address the mass consumer acne market. There are no specific costs allocated to this revenue stream. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Surgical Products Segment   |   | For the Year Ended December 31, |      |
|-----------------------------|--------|---------------------------------|-----------|
|                        |   | 2009                            |      |   | 2008 |   |   | 2007 |   |
| Revenues                    |   | $                               | 3,622,580 |   |   | $ | 5,738,048 |   |   | $ | 5,176,108 |   |
| Percent (decrease)/increase |   |                            | (36.9     | %) |   |   | 10.9 | % |   |   |   |   |
| Cost of revenues            |   |                            | 2,777,859 |   |   |   | 3,977,516 |   |   |   | 2,965,290 |   |
| Percent (decrease)/increase |   |                            | (30.2     | %) |   |   | 34.1 | % |   |   |   |   |
| Gross profit                |   | $                               | 844,721   |   |   | $ | 1,760,532 |   |   | $ | 2,210,818 |   |
| Gross margin percentage     |   |                            | 23.3      | % |   |   | 30.1 | % |   |   | 42.7 | % |

| ·   | This segment includes product sales of surgical laser systems and laser disposables. Disposables are more profitable than laser systems, but the sale of laser systems generates the subsequent recurring sale of laser disposables. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Revenues for the year ended December 31, 2009 decreased by $2,115,468 from the year ended December 31, 2008 while cost of revenues decreased by $1,199,657 between the same periods. There were 115 fewer laser systems sold in the year ended December 31, 2009 than in the comparable period of 2008. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The sales of diode systems, in the year ended December 31, 2008, included 100 sales due to our OEM arrangement, but in the second half of 2008 AngioDynamics elected not to continue the contract. Since that time, our sales to AngioDynamics have been $0. Additionally, the higher manufacturing levels in 2008 caused better absorption of fixed overhead costs, which lowered average unit costs resulting in a higher gross margin in 2008 compared to 2009. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Additionally, there was a decrease in sales of disposables between the periods, which have a higher gross margin as a percent of revenues than lasers. Fiber and other disposables sales decreased 14% between the comparable period in 2008. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | This segment includes product sales of surgical laser systems and laser disposables. Disposables are more profitable than laser systems, but the sale of laser systems generates the subsequent recurring sale of laser disposables. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Revenues for the year ended December 31, 2008 increased by $561,940 from the year ended December 31, 2007 while cost of revenues increased by $1,012,226 between the same periods. There were 58 more laser systems sold in the year ended December 31, 2008 than in the comparable period of 2007. However, the lasers sold in the 2007 period were at higher prices than those sold in the comparable period in 2008. The decrease in average price per laser was largely due to the mix of lasers sold and volume discounts. Included in the laser sales for the year ended December 31, 2008 and 2007 were sales of diode lasers of $2,026,000 (representing 141 systems) and $1,190,000 (representing 78 systems), respectively. Diode lasers have substantially lower list sales prices than the other types of surgical lasers. The sales of diode systems for the years ended December 31, 2008 and 2007 included 100 diode lasers and 30 diode lasers, respectively, due to our OEM arrangement. Despite the lower average sales price of the laser systems sold compared to the prior year, the higher manufacturing levels in 2008 caused better absorption of fixed overheads thereby lowering average unit costs. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Additionally, we increased the excess and obsolete inventory reserves by approximately $374,000 due to the decision to stop producing the CTH and CO2 laser systems, which should not impact future revenues as there was only one sale of these lasers in 2008. This had a direct impact on lowering the gross margin for the year ended December 31, 2008. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The majority of the decrease related to a $1,505,000 in salaries, benefits and travel expenses associated with a decrease in the sales force and decreased revenues which generated lower commission expenses, particularly in our Skin Care segment; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | There was a decrease in marketing expense of $411,000 which resulted from improved control over  marketing efforts; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | There was a decrease of bonus expense of $853,000 due to the fact that no bonus accrual was recorded in the current year; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | There was a decrease in amortization expense of $480,000 related to the impairment of certain intangibles as of the year end December 31, 2008; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | There was a decrease in stock compensation expense of $722,000, mainly due to the reduction in the sales force as well as the termination of an executive officer; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We expensed $432,000 of legal and transaction costs under ASC Topic 718 incurred in connection with the acquisition of Photo Therapeutics compared to $1,533,000 in the year ended December 31, 2008; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Additionally in 2008, we wrote off $353,000 for the investment in AzurTec and the related intangibles, net, due to the dissolution of AzurTec and the impairment of the assets and we wrote down the Neutrogena Agreement intangible due to impairment by $582,000 to its fair value; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Offsetting the above decreases was an increase in the selling, general and administrative expenses related to our PTL segment of $2,072,091. Additionally, we expensed approximately $987,000 related to severance and accelerated vesting of restricted stock and options in connection with the termination of our former chief executive officer. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The majority of the increase related to a $2,155,000 increase in salaries, benefits and travel expenses associated with an increase in the sales force, marketing programs and increased revenues which generate higher commission expenses, particularly in the Domestic XTRAC and Skin Care segments; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We expensed $1,533,000 of legal and transaction costs under ASC Topic 718 incurred in connection with the acquisition of Photo Therapeutics. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We wrote off $353,000 for the investment in AzurTec and the related intangibles, net, due to the dissolution of AzurTec and the impairment of the assets. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Additionally, we wrote down the Neutrogena Agreement intangible due to impairment by $582,000 to its fair value. |
|--------------------|------------------------------------------------------------------------------------------------------------------|

----

|                 |   | December 31, 2009 |      |   | December 31, 2008 |   |      | Change |   |
|----------------------|--------|-------------------|-----------|--------|-------------------|--------|-----------|--------|--------|
|                 |   |              |      |   |              |   |      |   |   |
| Interest expense     |   | $                 | 2,378,863 |   |              | $      | 1,188,783 |   |   | $ | 1,190,080 |   |
| Interest income      |   |              | (8,187    | )      |              |   | (156,186  | )      |   |   | 147,999 |   |
| Net interest expense |   | $                 | 2,370,676 |   |              | $      | 1,032,597 |   |   | $ | 1,338,079 |   |
|                 |   |              |      |   |              |   |      |   |   |   |   |   |

|                 |   | December 31, 2008 |      |   | December 31, 2007 |   |     | Change |   |
|----------------------|--------|-------------------|-----------|--------|-------------------|--------|----------|--------|--------|
|                 |   |              |      |   |              |   |     |   |   |
| Interest expense     |   | $                 | 1,188,783 |   |              | $      | 913,821  |   |   | $ | 274,962 |   |
| Interest income      |   |              | (156,186  | )      |              |   | (384,332 | )      |   |   | 228,146 |   |
| Net interest expense |   | $                 | 1,032,597 |   |              | $      | 529,489  |   |   | $ | 503,108 |   |
|                 |   |              |      |   |              |   |     |   |   |   |   |   |

----

|                                                 |   | For the Year ended December 31, |       |
|------------------------------------------------------|--------|---------------------------------|------------|
|                                                 |   | 2009                            |       |   | 2008 |   |   | Change |   |
|                                                 |   |                            |       |   |   |   |   |   |   |
| Net loss                                             |   | $                               | 10,520,775 |   |   | $ | 11,290,907 |   |   | $ | 770,132 |   |
|                                                 |   |                            |       |   |   |   |   |   |   |   |   |   |
| Components included in net loss:                     |   |                            |       |   |   |   |   |   |   |   |   |   |
| Acquisition expenses                                 |   |                            | (432,352   | ) |   |   | (1,532,798 | ) |   |   | 1,100,446 |   |
| Depreciation and amortization                        |   |                            | (4,610,265 | ) |   |   | (4,542,038 | ) |   |   | (68,227 | ) |
| Stock-based compensation expense                     |   |                            | (1,262,027 | ) |   |   | (1,395,538 | ) |   |   | 133,511 |   |
| Severance costs                                      |   |                            | (873,905   | ) |   |   | - |   |   |   | (873,905 | ) |
| Interest expense, net                                |   |                            | (2,370,676 | ) |   |   | (1,032,597 | ) |   |   | (1,338,079 | ) |
| Litigation costs                                     |   |                            | (407,042   | ) |   |   | (981,126 | ) |   |   | 574,084 |   |
| Change in fair value of warrants                     |   |                            | 808,786    |   |   |   | - |   |   |   | 808,786 |   |
| Impairment on intangibles and other long-lived asset |   |                            | -          |   |   |   | (934,612 | ) |   |   | 934,612 |   |
| Loss on sale of discontinued operations              |   |                            | -          |   |   |   | (448,675 | ) |   |   | 448,675 |   |
|                                                 |   | $                               | (9,147,481 | ) |   | $ | (10,867,384 | ) |   | $ | 1,719,903 |   |

|                                                 |   | For the Year ended December 31, |        |
|------------------------------------------------------|--------|---------------------------------|-------------|
|                                                 |   | 2008                            |        |   | 2007 |   |   | Change |   |
|                                                 |   |                            |        |   |   |   |   |   |   |
| Net loss                                             |   | $                               | 11,290,907  |   |   | $ | 6,354,246 |   |   | $ | 4,936,661 |   |
|                                                 |   |                            |        |   |   |   |   |   |   |   |   |   |
| Components included in net loss:                     |   |                            |        |   |   |   |   |   |   |   |   |   |
| Pending acquisition expenses                         |   |                            | (1,532,798  | ) |   |   | - |   |   |   | (1,532,798 | ) |
| Loss on sale of discontinued operations              |   |                            | (448,675    | ) |   |   | - |   |   |   | (448,675 | ) |
| Impairment on intangibles and other long-lived asset |   |                            | (934,612    | ) |   |   | - |   |   |   | (934,612 | ) |
| Refinancing charge                                   |   |                            | -           |   |   |   | (441,956 | ) |   |   | 441,956 |   |
| Interest expense, net                                |   |                            | (1,032,597  | ) |   |   | (529,489 | ) |   |   | (503,108 | ) |
| Legal expenses                                       |   |                            | (1,437,181  | ) |   |   | (1,558,387 | ) |   |   | 121,206 |   |
| Depreciation and amortization expense                |   |                            | (4,542,038  | ) |   |   | (4,822,035 | ) |   |   | 279,997 |   |
| Stock-based compensation expense                     |   |                            | (1,395,538  | ) |   |   | (1,444,880 | ) |   |   | 49,342 |   |
|                                                 |   | $                               | (11,323,439 | ) |   | $ | (8,796,747 | ) |   | $ | (2,526,692 | ) |

----

| ·   | We have combined the aggregate outstanding obligations under the Convertible Notes into two convertible notes. Each note matures on February 27, 2014 and is identical to the original form of convertible note except as noted below; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The larger note has a principal amount of $16,746,270. The interest rate of this note was increased from 8% to 10%. The incremental 2% increase in the interest rate may be paid in cash and may not be paid in convertible PIK notes unless and until our stockholders vote to approve payment in the form of convertible PIK notes; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The smaller note has a principal amount of $2,800,406. The conversion price of this note was reduced to $11.25850 and the down-round anti-dilution adjustment to the conversion price was removed. The interest rate of this note was increased from 8% to 10%. The full amount of the accrued interest remains payable in cash or convertible PIK notes. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The collateral securing the Convertible Note was expanded by adding a first-priority lien against all of our assets other than the assets pledged with first-priority liens to CIT Healthcare and to Clutterbuck Funds. When assets are released from the lien of CIT Healthcare, such assets will become subject to the first-priority lien of Clutterbuck Funds and a second-priority lien of the Holder. Finally, when assets are released from the lien of Clutterbuck Funds, such assets will become subject to the first-priority lien of the Holder. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Three of our subsidiaries (ProCyte Corporation, Photo Therapeutics, Inc. and SLT Technology, Inc.) have guaranteed our obligations under the Convertible Notes. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                   |   | Payments due by period |       |
|----------------------------------------|--------|------------------------|------------|
|  Contractual Obligations          |   | Total                  |       |   | Less than 1 year |   |   | 1 – 3 years |   |   | 4 – 5 years |   |
|                                   |   |                   |       |   |   |   |   |   |   |   |   |   |
| Convertible Notes                      |   | $                      | 18,720,000 |   |   | $ | - |   |   | $ | - |   |   | $ | 18,720,000 |   |
| Credit facility obligations            |   |                   | 3,973,997  |   |   |   | 3,194,654 |   |   |   | 779,343 |   |   |   | - |   |
| Capital lease obligations              |   |                   | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Rental and Operating lease obligations |   |                   | 1,052,859  |   |   |   | 623,515 |   |   |   | 429,344 |   |   |   | - |   |
| Notes payable                          |   |                   | 77,239     |   |   |   | 30,762 |   |   |   | 46,477 |   |   |   | - |   |
|      Total    |   | $                      | 23,824,095 |   |   | $ | 3,848,931 |   |   | $ | 1,255,164 |   |   | $ | 18,720,000 |   |

----

Quantitative 

----

|                                                       |   |                          |        |   | Pro-forma Information        |   |
|------------------------------------------------------------|--------|-------------------------------|-------------|--------|------------------------------|--------|
|                                                       |   | As Reported December 31, 2009 |        |   | Common Stock Price Reduction |   |   | Common Stock Price Increase |   |
|                                                       |   |                          |        |   |                         |   |   |   |   |
| Common stock price                                         |   | $                             | 0.95        |   |                         | $      | 0.70 |   |   | $ | 1.20 |   |
|                                                       |   |                          |        |   |                         |   |   |   |   |   |   |   |
| Condensed Consolidated Balance Sheet:                      |   |                          |        |   |                         |   |   |   |   |   |   |   |
| Derivative financial instruments                           |   | $                             | 741,525     |   |                         | $      | 492,310 |   |   | $ | 1,006,677 |   |
|                                                       |   |                          |        |   |                         |   |   |   |   |   |   |   |
| Change in fair value of derivative financial instruments   |   | $                             | -           |   |                         | $      | (249,215 | ) |   | $ | 265,152 |   |
|                                                       |   |                          |        |   |                         |   |   |   |   |   |   |   |
| Condensed Consolidated Statement of Operations:            |   |                          |        |   |                         |   |   |   |   |   |   |   |
| Decrease in fair value of derivative financial instruments |   | $                             | (808,786    | )      |                         | $      | (1,058,001 | ) |   | $ | (543,634 | ) |
|                                                       |   |                          |        |   |                         |   |   |   |   |   |   |   |
| Net loss attributable to common stockholders               |   | $                             | (10,520,775 | )      |                         | $      | (10,271,560 | ) |   | $ | (10,785,927 | ) |

----

Financial 

Changes 

Controls 

| ·   | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of  our assets; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Other 

Directors

|                  |         |                                                 |         |   |
|-----------------------|--------------|------------------------------------------------------|--------------|--------|
| Name                  |    | Position                                             |    | Age    |
| Richard J. DePiano    |    | Non-Executive Chairman of the Board of Directors     |    | 68     |
| Dennis M. McGrath     |    | President, Chief Executive Officer and Director      |    | 53     |
| Christina L. Allgeier |    | Vice President and Chief Financial Officer           |    | 37     |
| Michael R. Stewart    |    | Executive Vice President and Chief Operating Officer |    | 52     |
| David W. Anderson     |    | Director                                             |    | 57     |
| Stephen P. Connelly   |    | Director                                             |    | 58     |
| Leonard L. Mazur      |    | Director                                             |    | 65     |
| Alan R. Novak         |    | Director                                             |    | 75     |

----

----

| ·   | reviewing and approving objectives relevant to executive officer compensation; |
|--------------------|--------------------------------------------------------------------------------|

| ·   | evaluating performance and determining the compensation of our Chief Executive Officer and other executive officers in accordance with those objectives; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | reviewing employment agreements for executive officers; |
|--------------------|---------------------------------------------------------|

| ·   | recommending to the Board the compensation for our directors; |
|--------------------|---------------------------------------------------------------|

| ·   | administering our stock option plans (except the 2000 Non-Employee Director Stock Option Plan); and |
|--------------------|-----------------------------------------------------------------------------------------------------|

| ·   | evaluating human resources and compensation strategies, as needed. |
|--------------------|--------------------------------------------------------------------|

----

| ·   | identifying and recommending to our Board individuals qualified to become members of our Board and to fill vacant Board positions; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|

| ·   | overseeing the compensation of non-employee directors, including administering the 2000 Non-Employee Director Stock Option Plan; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

| ·   | recommending to our Board the director nominees for the next annual meeting of stockholders; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | recommending to our Board director committee assignments; |
|--------------------|-----------------------------------------------------------|

| ·   | reviewing and evaluating succession planning for our Chief Executive Officer and other executive officers; |
|--------------------|------------------------------------------------------------------------------------------------------------|

| ·   | monitoring the independence of our board members; |
|--------------------|---------------------------------------------------|

| ·   | developing and overseeing the corporate governance principles applicable to our Board members, officers and employees; |
|--------------------|------------------------------------------------------------------------------------------------------------------------|

| ·   | monitoring the continuing education for our directors; and |
|--------------------|------------------------------------------------------------|

| ·   | evaluating annually the Nominations and Corporate Governance Committee charter. |
|--------------------|---------------------------------------------------------------------------------|

----

| ·   | appointing, evaluating and determining the compensation of our independent auditors; |
|--------------------|--------------------------------------------------------------------------------------|

| ·   | reviewing and approving the scope of the annual audit, the audit fee and the financial statements; |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | reviewing disclosure controls and procedures, internal control over financial reporting, any internal audit function and corporate policies with respect to financial information; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | reviewing other risks that may have a significant impact on our financial statements; |
|--------------------|---------------------------------------------------------------------------------------|

| ·   | preparing the Audit Committee report for inclusion in the annual proxy statement; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | establishing procedures for the receipt, retention and treatment of complaints regarding accounting and auditing matters; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | evaluating annually the Audit Committee charter. |
|--------------------|--------------------------------------------------|

| ·   | a representation that the stockholder is a holder of record of our capital stock; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | the name and address, as they appear on our books, of the stockholder sending such communication; and |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | the class and number of shares of our capital stock that are beneficially owned by such stockholder. |
|--------------------|------------------------------------------------------------------------------------------------------|

----

Executive 

----

----

----

----

| Name and Principal Position                                              | Year   |   | Salary ($) |    |   | Bonus ($) (1) |   |   | Stock Awards ($) (2) |   |   | Option Awards ($) (2) |   |   | All Other Compensation ($) (4) |   |   | Total ($) |   |
|--------------------------------------------------------------------------|--------|--------|------------|---------|--------|---------------|--------|--------|----------------------|--------|--------|-----------------------|--------|--------|--------------------------------|--------|--------|-----------|--------|
| Dennis M. McGrath, President and Chief Executive Officer                 | 2009   |   |       | 300,000 |   |          |   | 0      |                 |   |   | 18,025                |   |   |                           | 45,045 |   |      |   | 20,156 |   |   |   | 383,226 |   |
| 2008                                                                     |   |   | 297,606    |    |   |          | 53,865 |   |                 |   | 0      |                  |   |   | 116,362                        |   |   |      | 18,192 |   |   |   | 486,025 |   |
|                                                                     |   |   |       |    |   |          |   |   |                 |   |   |                  |   |   |                           |   |   |      |   |   |   |   |   |   |   |
| Michael R. Stewart, Chief Operating Officer and Executive Vice President | 2009   |   |       | 262,500 |   |          |   | 0      |                 |   |   | 10,815                |   |   |                           | 27,027 |   |      |   | 19,097 |   |   |   | 319,439 |   |
| 2008                                                                     |   |   | 261,058    |    |   |          | 39,375 |   |                 |   | 0      |                  |   |   | 93,158                         |   |   |      | 19,004 |   |   |   | 412,852 |   |
|                                                                     |   |   |       |    |   |          |   |   |                 |   |   |                  |   |   |                           |   |   |      |   |   |   |   |   |   |   |
| Christina L. Allgeier, Chief Financial Officer & Vice President      | 2009   |   |       | 101,521 |   |          |   | 0      |                 |   |   | 0                     |   |   |                           | 4,290  |   |      |   | 2,766 |   |   |   | 108,577 |   |
|                                                                     |   |   |       |    |   |          |   |   |                 |   |   |                  |   |   |                           |   |   |      |   |   |   |   |   |   |   |
| Jeffrey F. O’Donnell, former President and Chief Executive Officer | 2009   |   |       | 367,500 |   |          |   | 0      |                 |   |   | 0                     |   |   |                           | 0      |   |      |   | 10,170 |   |   |   | 377,670 |   |
| 2008                                                                     |   |   | 365,481    |    |   |          | 83,377 |   |                 |   | 0      |                  |   |   | 139,677                        |   |   |      | 20,388 |   |   |   | 608,923 |   |

----

| (1) | “Bonus” in the foregoing table is the bonus earned in 2009 and 2008, even though such bonus will have been paid in a subsequent period. No bonus has been accrued for 2009 as the condition for accrual has not been met. The bonus for 2008 does not include portions contingent upon events in 2009, which have not occurred. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The amounts shown for option awards, restricted stock awards and stock purchase rights relate to shares granted under our 2005 Equity Plan. These amounts are equal to the aggregate grant-date fair value with respect to the awards made in 2009 and 2008, computed in accordance with FASB ASC Topic 718 (formerly SFAS 123R), before amortization and without giving effect to estimated forfeitures. For information regarding the number of shares subject to 2009 and 2008 awards, other features of those awards, and the grant-date fair value of the awards, see the Grants of Plan-Based Awards Table on page 12. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | “All Other Compensation” includes car allowance ($1,000 per month), premiums for supplementary life and/or disability insurance and matching 401(k) plan contributions for Messrs. McGrath, Stewart and O’Donnell and Ms. Allgeier. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Name             | Benefit                    |   | Before Change in Control Termination w/o Cause or for Good Reason ($)  |    |   | After Change in Control Termination w/o Cause or for Good Reason ($)  |   |    | VoluntaryTermination  |   |   | Death (1)  |   |   | Disability (1)  |   |   | Change inControl  |   |
|----------------------------|--------------------------------------|--------|-----------------------------------------------------------------------------|---------|--------|---------------------------------------------------------------------------------|--------|---------|----------------------------|--------|--------|-----------------|--------|--------|----------------------|--------|--------|-----------------------------|--------|
|                       |                                 |   |                                                                        |    |   |                                                                            |   |    |                       |   |   |            |   |   |                 |   |   |                        |   |
| Dennis McGrath             | Salary & bonus  (1)(2) |   | $                                                                           | 300,000 |   |                                                                            | $      | 600,000 |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Health continuation                  |   |                                                                        | 8,199   |   |                                                                            |   | 16,398  |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | AD&D insurance                   |   |                                                                        | 1,046   |   |                                                                            |   | 2,092   |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Executive life ins.                  |   |                                                                        | 5,852   |   |                                                                            |   | 11,705  |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Accelerated vesting (3)              |   |                                                                        | 69,580  |   |                                                                            |   | 69,580  |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Tax gross-up (4)                     |   |                                                                        | 2,578   |   |                                                                            |   | 5,156   |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | TOTAL                                |   | $                                                                           | 387,255 |   |                                                                            | $      | 704,931 |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       |                                 |   |                                                                        |    |   |                                                                            |   |    |                       |   |   |            |   |   |                 |   |   |                        |   |   |   |   |   |   |   |
| Michael Stewart            | Salary & bonus  (1)(2) |   | $                                                                           | 262,500 |   |                                                                            | $      | 525,000 |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Health continuation                  |   |                                                                        | 8,199   |   |                                                                            |   | 16,398  |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | AD&D insurance                   |   |                                                                        | 1,046   |   |                                                                            |   | 2,092   |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Executive life ins.                  |   |                                                                        | 5,076   |   |                                                                            |   | 10,152  |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Accelerated vesting (3)              |   |                                                                        | 38,486  |   |                                                                            |   | 38,486  |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Tax gross-up (4)                     |   |                                                                        | 2,236   |   |                                                                            |   | 4,472   |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | TOTAL                                |   | $                                                                           | 317,543 |   |                                                                            | $      | 596,600 |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       |                                 |   |                                                                        |    |   |                                                                            |   |    |                       |   |   |            |   |   |                 |   |   |                        |   |   |   |   |   |   |   |
| Christina L. Allgeier      | Salary & bonus  (1)(2) |   |                                                                        | N/A     |   |                                                                            | $      | 62,500  |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Health continuation                  |   |                                                                        | N/A     |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | AD&D insurance                   |   |                                                                        | N/A     |   |                                                                            |   | 310     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Executive life ins.                  |   |                                                                        | N/A     |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Accelerated vesting (3)              |   |                                                                        | N/A     |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Tax gross-up (4)                     |   |                                                                        | N/A     |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | TOTAL                                |   |                                                                        | N/A     |   |                                                                            | $      | 62,810  |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       |                                 |   |                                                                        |    |   |                                                                            |   |    |                       |   |   |            |   |   |                 |   |   |                        |   |   |   |   |   |   |   |
| Jeffrey F. O’Donnell | Salary & bonus  (1)(2) |   |                                                                        | 367,500 |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Health continuation                  |   |                                                                        | 8,199   |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | AD&D insurance                   |   |                                                                        | 1,046   |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Executive life ins.                  |   |                                                                        | 7,366   |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Accelerated vesting (3)              |   |                                                                        | 74,700  |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | Tax gross-up (4)                     |   |                                                                        | 3,352   |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |
|                       | TOTAL                                |   |                                                                        | 462,163 |   |                                                                            |   | N/A     |                       |   |   | 0               |   |   |                 | 0      |   |                        |   | 0 |   |   |   | N/A |   |

| (1) | An executive’s salary and benefits are paid through the end of the month of termination due to death or disability, except that we will pay the disability premiums during the period of disability. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Severance based on 2009 salary levels. No bonus will be payable for 2009 as the condition for accrual has not been met. |
|-----|-------------------------------------------------------------------------------------------------------------------------|

| (3) | If upon a change of control, the acquirer does not desire the services of the executive, then any unvested restricted stock will vest. The closing price of our stock on December 31, 2009 was $0.95 per share (or $5.70 after the 1-for-6 reverse split effective February 3, 2010). All shares were unvested at that date. For stock awarded prior to January 26, 2009, the date of our 1-for-7 reverse stock split, such shares were purchased for $0.42 (par value of $0.01 per share adjusted for the 1-for-7 reverse stock split and the assumed 1-for-6 reverse stock split). For stock awarded after January 26, 2009, such shares were purchased for $0.06 (par value of $0.01 per share adjusted for the 1-for-6 reverse stock split). The gain associated with the acceleration of a share of restricted stock upon a change of control is calculated as the difference between the closing price of our common stock on the date of such event and the purchase price of such share of restricted stock.  |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | All unvested options generally become exercisable by reason of a change of control. However, none of the executives’ unvested options were in the money as of December 31, 2009, and therefore there would have been no benefit as of December 31, 2009. Similarly, in the event of an involuntary termination without cause, the executive optionee becomes vested in those options that would otherwise have vested in twelve months following the date of termination. As in the hypothetical change of control, so in this case of hypothetical involuntary termination, there would have been no benefit to the optionee inasmuch as no option was in the money at December 31, 2009.  |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Tax gross-ups are with respect to supplementary executive life and/or disability insurance benefits. |
|-----|------------------------------------------------------------------------------------------------------|

----

|   | STOCK OPTIONS |
|--------|---------------|

|               |       | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Closing Price on Grant Date ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) (1) |
|--------------------|------------|-------------------------------------------------------------|----------------------------------------------------------------------|------------------------------------------------|------------------------------------|----------------------------------------------------------|
| Name               | Grant Date | Threshold (#)                                               | Target (#)                                                           | Maximum (#)                                    |                               |                                                     |   |   |
|               |       |                                                        |                                                                 |                                           |                               |                                                     |   |   |
| Dennis McGrath     | 6/15/09    | -                                                           | 2,917                                                                | -                                              | 8,750                              | 6.24                                                     | 6.24 | 63,070 |
|               |       |                                                        |                                                                 |                                           |                               |                                                     |   |   |
| Michael Stewart    | 6/15/09    | -                                                           | 1,750                                                                | -                                              | 5,250                              | 6.24                                                     | 6.24 | 37,842 |
|               |       |                                                        |                                                                 |                                           |                               |                                                     |   |   |
| Christina Allgeier | 6/15/09    | -                                                           | -                                                                    | -                                              | 834                                | 6.24                                                     |   | 4,290 |

----

|   |   Option Awards |   |   Stock Awards |
|--------|----------------------|--------|---------------------|

|  Name              | Number of Securities Underlying Unexercised Options (#)  | Number of Securities Underlying Unexercised Options(#)  |   Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |  Option Exercise Price ($) | Option Expiration  |   Number ofShares or Units of Stock That Have Not Vested (#) |   Market Value of Shares or Units of Stock That Have Not Vested ($)(1) |   Equity IncentivePlan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |   Equity Incentive Plan Awards:Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (1) |
|-------------------------|---------------------------------------------------------------|--------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|---------------------------------|-------------------------|-------------------------------------------------------------------|-----------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
| Dennis McGrath          | 3,334                                                         | 0                                                            | 0                                                                                                     | 102.90                          | 3/1/10                  | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 0                                                             | N/A                                                          | 0                                                                                                     | N/A                             | N/A                     | 0                                                                 | 0                                                                           | 7,977                                                                                                         | 45,469                                                                                                                            |
|                    | 2,000                                                         | 1,334                                                        | 0                                                                                                     | 93.66                           | 3/10/16                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 119                                                           | 0                                                            | 0                                                                                                     | 66.36                           | 5/24/16                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 48                                                            | 0                                                            | 0                                                                                                     | 68.46                           | 5/25/16                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 1,572                                                         | 1,048                                                        | 0                                                                                                     | 46.62                           | 11/20/16                | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 0                                                             | N/A                                                          | 0                                                                                                     | N/A                             | N/A                     | 0                                                                 | 0                                                                           | 2,084                                                                                                         | 11,879                                                                                                                            |
|                    | 778                                                           | 3,109                                                        | 0                                                                                                     | 37.38                           | 2/1/18                  | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 0                                                             | 8,750                                                        | 0                                                                                                     | 6.24                            | 6/15/19                 | 0                                                                 | 0                                                                           | 2,917                                                                                                         | 16,627                                                                                                                            |
|                    |                                                          |                                                         |                                                                                                  |                            |                    |                                                              |                                                                        |                                                                                                          |                                                                                                                              |
| Michael Stewart         | 2,381                                                         | 0                                                            | 0                                                                                                     | 102.90                          | 3/1/10                  | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 953                                                           | 0                                                            | 0                                                                                                     | 110.46                          | 7/19/10                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 1,429                                                         | 953                                                          | 0                                                                                                     | 93.66                           | 3/10/16                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 0                                                             | N/A                                                          | 0                                                                                                     | N/A                             | N/A                     | 0                                                                 | 0                                                                           | 1,667                                                                                                         | 9,502                                                                                                                             |
|                    | 0                                                             | N/A                                                          | 0                                                                                                     | N/A                             | N/A                     | 0                                                                 | 0                                                                           | 3,750                                                                                                         | 21,375                                                                                                                            |
|                    | 622                                                           | 2,488                                                        | 0                                                                                                     | 37.38                           | 2/1/18                  | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 0                                                             | 5,250                                                        | 0                                                                                                     | 6.24                            | 6/15/19                 | 0                                                                 | 0                                                                           | 1,750                                                                                                         | 9,975                                                                                                                             |
|                    |                                                          |                                                         |                                                                                                  |                            |                    |                                                              |                                                                        |                                                                                                          |                                                                                                                              |
| Christina Allgeier      | 274                                                           | 0                                                            | 0                                                                                                     | 102.90                          | 3/1/10                  | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 287                                                           | 191                                                          | 0                                                                                                     | 93.66                           | 3/10/16                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 144                                                           | 215                                                          | 0                                                                                                     | 47.46                           | 1/23/17                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 72                                                            | 287                                                          | 0                                                                                                     | 37.80                           | 1/17/18                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 0                                                             | 834                                                          | 0                                                                                                     | 6.24                            | 6/15/19                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    |                                                          |                                                         |                                                                                                  |                            |                    |                                                              |                                                                        |                                                                                                          |                                                                                                                              |
| Jeffrey O’Donnell | 3,572                                                         | 0                                                            | 0                                                                                                     | 102.90                          | 3/1/10                  | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 4,762                                                         | 0                                                            | 0                                                                                                     | 105.00                          | 7/30/10                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 48                                                            | 0                                                            | 0                                                                                                     | 66.78                           | 7/30/10                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 2,977                                                         | 0                                                            | 0                                                                                                     | 46.62                           | 7/30/10                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 48                                                            | 0                                                            | 0                                                                                                     | 47.46                           | 7/30/10                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 24                                                            | 0                                                            | 0                                                                                                     | 48.30                           | 7/30/10                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |
|                    | 4,665                                                         | 0                                                            | 0                                                                                                     | 37.38                           | 7/30/10                 | 0                                                                 | 0                                                                           | N/A                                                                                                           | N/A                                                                                                                               |

| (1) | The market value of unvested shares of restricted stock is based on $5.70 per share, which was the closing price of our stock on December 31, 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Options and restricted stock granted to Mr. O’Donnell vested as of July 31, 2009, his separation date. |
|-----|------------------------------------------------------------------------------------------------------------------------|

| (3) | Options granted to Mr. McGrath on May 24, 2006 and May 25, 2006 were made under the 2005 Investment Plan. They became exercisable on the third anniversary of the grant dates. All other options granted to Messrs. McGrath and Stewart were under the 2005 Equity Plan. The options granted to Ms. Allgeier were under the 2005 Equity Plan. Options with portions unvested as of December 31, 2009 vest ratably on each of the five anniversary dates from the respective grant dates. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  Name           |   | Fees Earned or Paid in Cash ($) |   |   | Option Awards ($) (1)(2) |   |   | Total ($) |   |
|----------------------|--------|---------------------------------|--------|--------|--------------------------|--------|--------|-----------|--------|
|                 |   |                            |   |   |                     |   |   |      |   |
| Richard J. DePiano   |   |                            | 46,500 |   |                     |   | 7,825  |      |   |   | 54,325 |   |
|                 |   |                            |   |   |                     |   |   |      |   |   |   |   |
| Alan R. Novak        |   |                            | 30,500 |   |                     |   | 7,825  |      |   |   | 38,325 |   |
|                 |   |                            |   |   |                     |   |   |      |   |   |   |   |
| Anthony J. Dimun (3) |   |                            | 9,167  |   |                     |   | 1,956  |      |   |   | 11,123 |   |
|                 |   |                            |   |   |                     |   |   |      |   |   |   |   |
| David W. Anderson    |   |                            | 38,500 |   |                     |   | 7,825  |      |   |   | 46,325 |   |
|                 |   |                            |   |   |                     |   |   |      |   |   |   |   |
| Wayne M. Withrow (4) |   |                            | 38,500 |   |                     |   | 7,825  |      |   |   | 46,325 |   |
|                 |   |                            |   |   |                     |   |   |      |   |   |   |   |
| Stephen P. Connelly  |   |                            | 37,250 |   |                     |   | 7,825  |      |   |   | 45,075 |   |
|                 |   |                            |   |   |                     |   |   |      |   |   |   |   |
| John M. Glazer (5)   |   |                            | 16,667 |   |                     |   | 6,443  |      |   |   | 23,110 |   |
|                 |   |                            |   |   |                     |   |   |      |   |   |   |   |
| Leonard L. Mazur (6) |   |                            | 19,500 |   |                     |   | 4,534  |      |   |   | 24,034 |   |

| (1) | The amounts shown for option awards relate to shares granted under our Non-Employee Director Plan. These amounts are equal to the aggregate grant-date fair value with respect to the option awards for financial statement purposes, computed in accordance with FASB ASC Topic 718, but without giving effect to estimated forfeitures. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The grant date fair value computed in accordance with ASC Topic 718 was $9.42 on January 1, 2009, $10.32 on February 27, 2009 and $7.26 on May 13, 2009. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Mr. Dimun resigned from our Board of Directors effective as of March 17, 2009. |
|-----|------------------------------------------------------------------------------------------|

| (4) | Mr. Withrow resigned from our Board of Directors effective as of December 28, 2009. |
|-----|-------------------------------------------------------------------------------------|

| (5) | Mr. Glazer joined our Board of Directors on February 27, 2009 and resigned from the Board of Directors effective as of August 7, 2009. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Mr. Mazur joined our Board of Directors on May 13, 2009. |
|-----|--------------------------------------------------------------------|

----

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

| Name and Address Of Beneficial Owner (1)              | Number of Shares Beneficially Owned; Post Split  | Percentage of Shares Beneficially Owned (1)  |
|------------------------------------------------------------|-------------------------------------------------------|---------------------------------------------------|
| Richard J. DePiano(2)                                      | 8,314                                                 | *                                                 |
| Dennis M. McGrath(3)                                       | 19,201                                                | *                                                 |
| Michael R. Stewart(4)                                      | 11,302                                                | *                                                 |
| Christina L. Allgeier(5)                                   | 736                                                   | *                                                 |
| Alan R. Novak(6)                                           | 7,880                                                 | *                                                 |
| David W. Anderson(7)                                       | 4,998                                                 | *                                                 |
| Stephen P. Connelly(8)                                     | 3,065                                                 | *                                                 |
| Leonard L. Mazur(9)                                        | 1,041                                                 | *                                                 |
| Perseus Partners VII, LP(10)                               | 1,280,914                                             | 36.40                                             |
| Goldman Capital Management, Inc. (11)                      | 238,289                                               | 10.64                                             |
| Corsair Capital Management, LLC(12)                        | 256,411                                               | 11.45                                             |
| Leap Tide Management Inc.(13)                              | 210,063                                               | 9.38                                              |
| Paul J. Denby(14)                                          | 170,834                                               | 7.63                                              |
| James W. Sight(15)                                         | 152,436                                               | 6.81                                              |
| LB I Group, Inc.(16)                                       | 146,694                                               | 6.55                                              |
| Jeffrey F. O’Donnell(17)                             | 31,260                                                | *                                                 |
| All directors and officers as a group (eight persons) (18) | 56,537                                                | 2.52                                              |

| (1)   | Beneficial ownership is determined in accordance with the rules of the Commission. Shares of common stock subject to delivery, or subject to options or warrants currently exercisable or exercisable, within 60 days of March 22, 2010, are deemed outstanding for computing the percentage ownership of the stockholder holding the options or warrants, but are not deemed outstanding for computing the percentage ownership of any other stockholder. Unless otherwise indicated in the footnotes to this table, we believe stockholders named in the table have sole voting and sole investment power with respect to the shares set forth opposite such stockholder’s name. Unless otherwise indicated, the listed officers, directors and stockholders can be reached at our principal offices. Percentage of ownership is based on 2,238,637 shares of common stock outstanding as of March 22, 2010. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes 758 shares of common stock and options to purchase up to 7,556 shares of common stock. Does not include options to purchase up to 417 shares of common stock, which may vest more than 60 days after March 22, 2010. Mr. DePiano’s address is 147 Keystone Drive, Montgomeryville, PA 18936. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Includes 262 shares of common stock, 12,977 additional shares of common stock subject to restriction agreements with us and vested options to purchase 5,962 shares of common stock. Does not include options to purchase up to 12,794 shares of common stock, which may vest more than 60 days after March 22, 2010. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Includes 35 shares of common stock, 7,167 additional shares of common stock subject to restriction agreements with us and vested options to purchase 4,100 shares of common stock. Does not include options to purchase up to 593 shares of common stock, which may vest more than 60 days after March 22, 2010. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (5)   | Includes options to purchase up to 736 shares of common stock. Does not include options to purchase up to 1,287 shares of common stock, which may vest more than 60 days after March 22, 2010. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | Includes 681 shares of common stock and options to purchase up to 7,199 shares of common stock. Does not include options to purchase up to 417 shares of common stock, which may vest more than 60 days after March 22, 2010. Mr. Novak’s address is 147 Keystone Drive, Montgomeryville, PA 18936. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)   | Includes options to purchase up to 4,998 shares of common stock. Does not include options to purchase up to 417 shares of common stock, which may vest more than 60 days after March 22, 2010.Mr. Anderson’s address is 147 Keystone Drive, Montgomeryville, PA 18936. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8)   | Includes 358 shares of common stock and options to purchase up to 2,707 shares of common stock. Does not include options to purchase up to 417 shares of common stock, which may vest more than 60 days after March 22, 2010.Mr. Connelly’s address is 147 Keystone Drive, Montgomeryville, PA 18936. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9)   | Includes options to purchase up to 1,041 shares of common stock. Does not include options to purchase up to 417 shares of common stock, which may vest more than 60 days after March 22, 2010. Mr. Mazur’s address is 147 Keystone Drive, Montgomeryville, PA 18936. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10)   | Includes (a) $19,546,676 aggregate principal amount of promissory notes convertible into 1,028,762 shares of common stock (248,737 of such shares are issuable at a conversion price of $11.25850 per share, and 780,025 of such shares are issuable at a conversion price of $21.4690 per share); (b) warrants exercisable into 251,527 shares of common stock at $21.46890 per share and (c) options to purchase up to 625 shares of common stock. Parties related to Perseus Partners VII, L.P. include Perseus Partners VII GP, L.L.C., Perseus Partners VII GP, L.P., Perseus L.L.C., and Perseuspur, L.L.C. The address of Perseus Partners VII, L.P. is c/o Perseus, L.L.C., 2099 Pennsylvania Avenue, NW, Ninth Floor, Washington, D.C. 20006. |
|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11)   | Includes 238,289 shares of common stock which Goldman Capital Management Inc. owns directly and indirectly through related entities, including without limitation the Goldman Capital Management Money Purchase Plan dated 12/23/87. The foregoing information has been derived in part from a Schedule 13F-HR filed by Goldman Capital Management on October 28, 2009 and from information obtained from the investor on December 22, 2009. The address of Goldman Capital Management is 320 Park Avenue, New York, New York 10022. |
|------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (12)   | Corsair Capital Management LLC is deemed to own 256,411 shares of common stock held through the following affiliates: Corsair Capital Partners LP owns 211,539 shares of common stock; Corsair Capital Investors, Ltd. owns 26,667 shares of common stock, and Corsair Capital Partners 100, L.P. owns 18,206 shares of common stock. The address of Corsair Capital Management LLC is 350 Madison Avenue, Ninth Floor, New York, NY 10017. |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (13)   | Leap Tide Management Inc. owns 210,063 shares of common stock. The foregoing information has been derived in part from a Schedule 13G filed. on February 16, 2010. The address of Leap Tide Management Inc.. is 10451 Mill Run Circle, Suite 400, Owings Mills, MD 21117. |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (14)   | Paul J. Denby is deemed to own 170,834 shares of common stock. The Paul J. Denby Revocable Trust holds 132,500 shares of common stock; Morgan Stanley & Co. holds 38,334 shares of common stock as custodian for the Paul J. Denby IRA, of which Mr. Denby is the beneficiary. Mr. Denby’s address is 179 Milford Circle, Mooresville, NC 28117. |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (15)   | James W. Sight owns 152,435 shares of common stock. Mr. Sight’s address is 2100 Brookwood, Mission, KS 66208. |
|------------------|--------------------------------------------------------------------------------------------------------------------------|

| (16)   | LB I Group Inc. is a wholly-owned subsidiary of Lehman Brothers Inc, which is a wholly-owned subsidiary of Lehman Brothers Holdings Inc. LB I Group Inc. owns 146,694 shares of common stock and warrants which became exercisable on May 15, 2007 to purchase up to 149,039 shares of common stock but which cannot be exercised if LBI owns more than 4.999% of our stock. The foregoing information has been derived from a Schedule 13G/A filed on behalf of LB I Group, Inc. on February 13, 2008. The address of LB I Group is 745 Seventh Avenue, New York, New York 10019. |
|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (17)   | Includes 15,167 shares of common stock and options to purchase up to 16,093 shares of common stock. Mr. O’Donnell was a director, the President and Chief Executive Officer of the Company until July 2, 2009. Mr. O’Donnell’s address is c/o PhotoMedex, Inc., 147 Keystone Drive, Montgomeryville, PA 18936. |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (18)   | Includes 2,094 unrestricted shares of common stock and 20,144 restricted shares of common stock and vested options to purchase 34,299 shares of common stock. Does not include options to purchase up to 22,759 shares of common stock, which may vest more than 60 days after March 22, 2010. |
|------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 13. | Certain Relationships and Related Transactions, Director Independence |
|----------|-----------------------------------------------------------------------|

Principal 

|               |   | 2009   |    |   | 2008   |   |
|--------------------|--------|--------|---------|--------|--------|--------|
| Audit Fees         |   | $      | 307,000 |   |   | $      | 307,000 |   |
| Audit-Related Fees |   |   | 126,350 |   |   |   | 59,500 |   |
| All Other Fees     |   |   | 11,000  |   |   |   | 20,000 |   |
| Total              |   | $      | 444,350 |   |   | $      | 386,500 |   |

----

Exhibits 

| (a)(1)   | Financial Statements |
|--------------------|----------------------|

| 10.7   |   | License and Development Agreement, dated May 22, 2002, between Surgical Laser Technologies, Inc. and Reliant Technologies, Inc. (5)                                             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8   |   | Settlement Agreement and Release, dated November 11, 2008, by and among Allergan, Inc., Murray A. Johnstone, MD, PhotoMedex, Inc. and ProCyte Corporation. (26)                 |
| 10.9   |   | Master Purchase Agreement, dated September 7, 2004, between PhotoMedex, Inc. and Stern Laser, srl (9)                                                                           |
| 10.10  |   | Master Lease Agreement, dated June 25, 2004, between PhotoMedex, Inc. and GE Capital Corporation. (10)                                                                          |
| 10.11  |   | Investment Agreement, dated March 30, 2006, between AzurTec, Inc. and PhotoMedex, Inc. (11)                                                                                     |
| 10.12  |   | License Agreement, dated March 30, 3006, between AzurTec, Inc. and PhotoMedex, Inc. (11)                                                                                        |
| 10.13  |   | License Agreement, dated March 31, 2006, and effective April 1, 1006, between the Mount Sinai School of Medicine and PhotoMedex, Inc. (12)                                      |
| 10.14  |   | 2005 Equity Compensation Plan, approved December 28, 2005 (13)                                                                                                                  |
| 10.15  |   | 2005 Investment Plan, approved December 28, 2005 (13)                                                                                                                           |
| 10.16  |   | Amended and Restated 2000 Non-Employee Director Stock Option Plan (1)                                                                                                           |
| 10.17  |   | Amended and Restated 2000 Stock Option Plan (1)                                                                                                                                 |
| 10.18  |   | 2004 Stock Option Plan, assumed from ProCyte (14)                                                                                                                               |
| 10.19  |   | 1996 Stock Option Plan, assumed from ProCyte (14)                                                                                                                               |
| 10.20  |   | 1991 Restated Stock Option Plan for Non-Employee Directors, assumed from ProCyte (14)                                                                                           |
| 10.21  |   | 1989 Restated Stock Option Plan, assumed from ProCyte (14)                                                                                                                      |
| 10.22  |   | Amended and Restated Employment Agreement with Jeffrey F. O'Donnell, dated October 30, 2007 (19)                                                                                |
| 10.23  |   | Amended and Restated Employment Agreement with Dennis M. McGrath, dated September 1, 2007 (19)                                                                                  |
| 10.24  |   | Amended and Restated Employment Agreement of Michael R. Stewart, dated September 1, 2007 (19)                                                                                   |
| 10.25  |   | Employment Agreement of John F. Clifford, dated March 18, 2005 (2)                                                                                                              |
| 10.26  |   | Employment Agreement of Robin L. Carmichael, dated March 18, 2005 (2)                                                                                                           |
| 10.27  |   | Separation Agreement, effective June 30, 2006, between PhotoMedex, Inc. and John F. Clifford. (15)                                                                              |
| 10.28  |   | Restricted Stock Purchase Agreement of Jeffrey F. O’Donnell, dated January 15, 2006 (8)                                                                                   |
| 10.29  |   | Restricted Stock Purchase Agreement of Dennis M. McGrath, dated January 15, 2006 (8)                                                                                            |
| 10.30  |   | Consulting Agreement dated January 21, 1998 between the Company and R. Rox Anderson, M.D. (7)                                                                              |
| 10.31  |   | Restricted Stock Purchase Agreement of Jeffrey F. O’Donnell, dated May 1, 2007 (17)                                                                                       |
| 10.32  |   | Restricted Stock Purchase Agreement of Dennis M. McGrath, dated May 1, 2007 (17)                                                                                                |
| 10.33  |   | Restricted Stock Purchase Agreement of Michael R. Stewart, dated May 1, 2007 (17)                                                                                               |
| 10.34  |   | Restricted Stock Purchase Agreement of Michael R. Stewart, dated August 13, 2007 (18)                                                                                           |
| 10.35  |   | Amended and Restated 2000 Non-Employee Director Stock Option Plan, dated as of June 26, 2007 (17)                                                                               |
| 10.36  |   | Amended and Restated 2005 Equity Compensation Plan, dated as of June 26, 2007, as amended on October 28, 2008 (25)                                                              |
| 10.37  |   | Master Term Loan and Security Agreement, dated December 31, 2007 among PhotoMedex, Inc., CIT Healthcare LLC, as Agent and Lender, and Life Sciences Capital LLC, as Lender (20) |
| 10.38  |   | Omnibus Amendment dated September 30, 2008 by and among CIT Healthcare LLC, Life Sciences Capital LLC and PhotoMedex, Inc. (23)                                                 |
| 10.39  |   | Amendment No. 1 to Omnibus Amendment, dated February 27, 2009 (24)                                                                                                              |
| 10.40  |   | Form of Indemnification Agreement for directors and executive officers of PhotoMedex, Inc. (24)                                                                                 |
| 10.41  |   | Restricted Stock Purchase Agreement of Dennis M. McGrath, dated June 15, 2009 (28)                                                                                         |
| 10.42  |   | Restricted Stock Purchase Agreement of Michael R. Stewart, dated June 15, 2009 (28)                                                                                        |
| 22.1   |   | List of subsidiaries of the Company                                                                                                                                             |
| 23.1   |   | Consent of Amper, Politziner & Mattia LLP                                                                                                                                   |
| 31.1   |   | Rule 13a-14(a) Certificate of Chief Executive Officer                                                                                                                           |
| 31.2   |   | Rule 13a-14(a) Certificate of Chief Financial Officer                                                                                                                           |
| 32.1   |   | Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                 |
| 32.2   |   | Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                 |
|   |   |                                                                                                                                                                            |

----

| (1)   | Filed as part of our Registration Statement on Form S-4, as filed with the Commission on October 18, 2002, and as amended. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------|

| (2)   | Filed as part of our Registration Statement on Form S-4/A filed with the Commission on January 21, 2005, and as amended. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------|

| (3)   | Filed as part of our Current Report on Form 8-K, dated November 6, 2006. |
|-----------------|--------------------------------------------------------------------------|

| (4)   | Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. |
|-----------------|-----------------------------------------------------------------------------------------|

| (5)   | Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2002. |
|-----------------|---------------------------------------------------------------------------------------|

| (6)   | Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2006. |
|-----------------|---------------------------------------------------------------------------------------|

| (7)   | Filed as part of our Registration Statement on Form S-1, as filed with the Commission on January 28, 1998, as amended. |
|-----------------|------------------------------------------------------------------------------------------------------------------------|

| (8)   | Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2005. |
|-----------------|---------------------------------------------------------------------------------------|

| (9)   | Filed as part of our Current Report on Form 8-K, dated September 10, 2004. |
|-----------------|----------------------------------------------------------------------------|

| (10)   | Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. |
|------------------|-----------------------------------------------------------------------------------------|

| (11)   | Filed as part of our Current Report on Form 8-K, filed on April 6, 2006. |
|------------------|--------------------------------------------------------------------------|

| (12)   | Filed as part of our Current Report on Form 8-K, filed on April 10, 2006. |
|------------------|---------------------------------------------------------------------------|

| (13)   | Filed as part of our Definitive Proxy Statement on Schedule 14A, as filed with the Commission on November 15, 2005. |
|------------------|---------------------------------------------------------------------------------------------------------------------|

| (14)   | Filed as part of our Registration Statement on Form S-8, as filed with the Commission on April 13, 2005. |
|------------------|----------------------------------------------------------------------------------------------------------|

| (15)   | Filed as part of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. |
|------------------|------------------------------------------------------------------------------------------|

| (16)   | Filed as part of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. |
|------------------|----------------------------------------------------------------------------------------------|

| (17)   | Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
|------------------|-----------------------------------------------------------------------------------------|

| (18)   | Filed as part of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
|------------------|----------------------------------------------------------------------------------------------|

| (19)   | Filed as part of our Annual Report on Form 10-K for the year ended December 31, 2007. |
|------------------|---------------------------------------------------------------------------------------|

| (20)   | Filed as part of our amended Annual Report on Form 10-K/A for the year ended December 31, 2007. |
|------------------|-------------------------------------------------------------------------------------------------|

| (21)   | Filed as part of our Current Report on Form 8-K filed on August 4, 2008. |
|------------------|--------------------------------------------------------------------------|

| (22)   | Fled as part of our Annual Report on Form 10-K for the year ended December 31, 2003. |
|------------------|--------------------------------------------------------------------------------------|

| (23)   | Filed as part of our Current Report on Form 8-K on February 27, 2009. |
|------------------|-----------------------------------------------------------------------|

| (24)   | Filed as part of our Current Report on Form 8-K on March 5, 2009. |
|------------------|-------------------------------------------------------------------|

| (25)   | Filed as part of our Definitive Proxy Statement on Schedule 14A on December 18, 2008. |
|------------------|---------------------------------------------------------------------------------------|

| (26)   | Filed with this Form 10-K. |
|------------------|----------------------------|

| (27)   | Filed as part of our Current Report on Form 8-K on January 26, 2009. |
|------------------|---------------------------------------------------------------------------|

| (28)   | Filed as part of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009. |
|------------------|----------------------------------------------------------------------------------------------|

| (29)   | Filed as part of our Current Report on Form 8-K on October 23, 2009. |
|------------------|---------------------------------------------------------------------------|

| (30)   | Filed as part of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009. |
|------------------|---------------------------------------------------------------------------------------------------|

| (31)   | Filed as part of our Current Report on Form 8-K on January 11, 2010. |
|------------------|----------------------------------------------------------------------|

| (32)   | Filed as part of our Current Report on Form 8-K on February 3, 2010. |
|------------------|----------------------------------------------------------------------|

----

----

SIGNATURES

|   |                            |   | PHOTOMEDEX, INC.                                |   |
|--------|---------------------------------|--------|-------------------------------------------------|--------|
|   |                            |   |                                            |   |
|   | Date:  March 23, 2010 |   | By:/s/ Dennis M. McGrath                        |   |
|   |                            |   | Dennis M. McGrath                               |   |
|   |                            |   | President, Chief Executive Officer and Director |   |

| Signature                    |   | Capacity in Which Signed                                                      |   | Date           |
|------------------------------|--------|-------------------------------------------------------------------------------|--------|----------------|
|  /s/ Richard J. DePiano |   | Chairman of the Board of Directors                                            |   | March 23, 2010 |
| Richard J. DePiano      |   |                                                                          |   |           |
| /s/ Dennis M. McGrath        |   | President, Chief Executive Officer and Director (Principal Executive Officer) |   | March 23, 2010 |
| Dennis M. McGrath       |   |                                                                          |   |           |
| /s/ Christina L. Allgeier    |   | Chief Financial Officer (Principal Financial and Accounting Officer)          |   | March 23, 2010 |
| Christina L. Allgeier        |   |                                                                          |   |           |
|  /s/ Alan R. Novak      |   | Director                                                                      |   | March 23, 2010 |
| Alan R. Novak                |   |                                                                          |   |           |
|  /s/ David W. Anderson  |   | Director                                                                      |   | March 23, 2010 |
| David W. Anderson       |   |                                                                          |   |           |
| /s/ Stephen P. Connelly      |   | Director                                                                      |   | March 23, 2010 |
| Stephen P. Connelly     |   |                                                                          |   |           |
| /s/ Leonard L. Mazur         |   | Director                                                                      |   | March 23, 2010 |
| Leonard L. Mazur             |   |                                                                          |   |           |

----

|                                                                                                |  Page  |
|-----------------------------------------------------------------------------------------------------|------------------|
| Report of Independent Registered Public Accounting Firm                                             | F-2              |
| Consolidated Balance Sheets, December 31, 2009 and 2008                                             | F-3              |
| Consolidated Statements of Operations, Years ended December 31, 2009, 2008 and 2007                 | F-4              |
| Consolidated Statements of Stockholders’ Equity, Years ended December 31, 2009, 2008 and 2007 | F-5         |
| Consolidated Statements of Cash Flows, Years ended December 31, 2009, 2008 and 2007                 | F-6              |
| Notes to Consolidated Financial Statements                                                          | F-7              |

----

----

| ASSETS                                                                                                                                                                                                                                                                                                                        |   | December 31, |         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------------|
|                                                                                                                                                                                                                                                                                                                          |   | 2009         |         |   | 2008 |   |
| Current assets:                                                                                                                                                                                                                                                                                                               |   |         |         |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                     |   | $            | 2,116,788    |   |   | $ | 3,658,607 |   |
| Restricted cash                                                                                                                                                                                                                                                                                                               |   |         | 78,000       |   |   |   | 78,000 |   |
| Accounts receivable, net of allowance for doubtful accounts of $400,000 and $486,000, respectively                                                                                                                                                                                                                            |   |         | 3,998,785    |   |   |   | 5,421,688 |   |
| Inventories                                                                                                                                                                                                                                                                                                                   |   |         | 7,002,850    |   |   |   | 6,974,194 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                     |   |         | 345,673      |   |   |   | 322,549 |   |
| Total current assets                                                                                                                                                                                                                                                                                                          |   |         | 13,542,096   |   |   |   | 16,455,038 |   |
|                                                                                                                                                                                                                                                                                                                          |   |         |         |   |   |   |   |   |
| Property and equipment, net                                                                                                                                                                                                                                                                                                   |   |         | 9,293,482    |   |   |   | 10,388,406 |   |
| Patents and licensed technologies, net                                                                                                                                                                                                                                                                                        |   |         | 7,751,662    |   |   |   | 1,142,462 |   |
| Goodwill, net                                                                                                                                                                                                                                                                                                                 |   |         | 19,472,686   |   |   |   | 16,917,808 |   |
| Other intangible assets, net                                                                                                                                                                                                                                                                                                  |   |         | 2,020,625    |   |   |   | 1,095,625 |   |
| Other assets                                                                                                                                                                                                                                                                                                                  |   |         | 1,087,595    |   |   |   | 714,930 |   |
| Total assets                                                                                                                                                                                                                                                                                                                  |   | $            | 53,168,146   |   |   | $ | 46,714,269 |   |
|                                                                                                                                                                                                                                                                                                                          |   |         |         |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                                                                                                          |   |         |         |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                          |   |         |         |   |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                                          |   |         |         |   |   |   |   |   |
| Current portion of notes payable                                                                                                                                                                                                                                                                                              |   | $            | 129,696      |   |   | $ | 28,975 |   |
|    Current portion of long-term debt                                                                                                                                                                                                                                                                           |   |         | 3,179,469    |   |   |   | 4,663,281 |   |
| Accounts payable                                                                                                                                                                                                                                                                                                              |   |         | 4,171,707    |   |   |   | 5,204,334 |   |
| Accrued compensation and related expenses                                                                                                                                                                                                                                                                                     |   |         | 1,133,346    |   |   |   | 1,487,153 |   |
| Accrued interest payable                                                                                                                                                                                                                                                                                                      |   |         | 499,200      |   |   |   | - |   |
| Other accrued liabilities                                                                                                                                                                                                                                                                                                     |   |         | 1,601,414    |   |   |   | 864,433 |   |
| Deferred revenues                                                                                                                                                                                                                                                                                                             |   |         | 612,757      |   |   |   | 798,675 |   |
| Total current liabilities                                                                                                                                                                                                                                                                                                     |   |         | 11,327,589   |   |   |   | 13,046,851 |   |
|                                                                                                                                                                                                                                                                                                                          |   |         |         |   |   |   |   |   |
| Long-term liabilities:                                                                                                                                                                                                                                                                                                        |   |         |         |   |   |   |   |   |
| Notes payable, net of current maturities                                                                                                                                                                                                                                                                                      |   |         | 46,477       |   |   |   | 77,239 |   |
| Long-term debt, net of current maturities                                                                                                                                                                                                                                                                                     |   |         | 760,783      |   |   |   | 3,907,752 |   |
| Convertible debt                                                                                                                                                                                                                                                                                                              |   |         | 17,369,943   |   |   |   | - |   |
| Warrants related to convertible debt                                                                                                                                                                                                                                                                                          |   |         | 741,525      |   |   |   | - |   |
| Total liabilities                                                                                                                                                                                                                                                                                                             |   |         | 30,246,317   |   |   |   | 17,031,842 |   |
|                                                                                                                                                                                                                                                                                                                          |   |         |         |   |   |   |   |   |
| Commitment and contingencies                                                                                                                                                                                                                                                                                                  |   |         |         |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                          |   |         |         |   |   |   |   |   |
| Stockholders' Equity:                                                                                                                                                                                                                                                                                                         |   |         |         |   |   |   |   |   |
| Common Stock, $.01 par value, 21,428,571 shares authorized; 13,428,940 and 9,004,601 shares issued and outstanding, respectively (3,571,429 shares authorized; 2,238,157 and 1,500,767 shares deemed to be issued and outstanding after adjustments to reflect the reverse stock split of 1-for-6 effective February 3, 2010) |   |         | 22,382       |   |   |   | 15,008 |   |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                    |   |         | 138,639,143  |   |   |   | 134,987,575 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                                           |   |         | (115,840,931 | ) |   |   | (105,320,156 | ) |
|     Cumulative translation adjustment                                                                                                                                                                                                                                                                     |   |         | 101,235      |   |   |   | - |   |
| Total stockholders' equity                                                                                                                                                                                                                                                                                                    |   |         | 22,921,829   |   |   |   | 29,682,427 |   |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                                                                                              |   | $            | 53,168,146   |   |   | $ | 46,714,269 |   |

----

|                                                                   |   | For the Year Ended December 31, |        |
|------------------------------------------------------------------------|--------|---------------------------------|-------------|
|                                                                   |   | 2009                            |        |   | 2008 |   |   | 2007 |   |
|                                                                   |   |                            |        |   |   |   |   |   |   |
| Revenues:                                                              |   |                            |        |   |   |   |   |   |   |
| Product sales                                                          |   | $                               | 22,452,724  |   |   | $ | 26,144,084 |   |   | $ | 23,626,660 |   |
| Services                                                               |   |                            | 10,235,360  |   |   |   | 8,626,208 |   |   |   | 7,419,783 |   |
|                                                                   |   |                            | 32,688,084  |   |   |   | 34,770,292 |   |   |   | 31,046,443 |   |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Cost of revenues:                                                      |   |                            |        |   |   |   |   |   |   |   |   |   |
| Product cost of revenues                                               |   |                            | 11,675,233  |   |   |   | 11,968,222 |   |   |   | 9,582,715 |   |
| Services cost of revenues                                              |   |                            | 5,750,733   |   |   |   | 5,027,095 |   |   |   | 3,998,911 |   |
|                                                                   |   |                            | 17,425,966  |   |   |   | 16,995,317 |   |   |   | 13,581,626 |   |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Gross margin                                                           |   |                            | 15,262,118  |   |   |   | 17,774,975 |   |   |   | 17,464,817 |   |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                                    |   |                            |        |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative                                    |   |                            | 23,083,278  |   |   |   | 26,797,107 |   |   |   | 22,279,534 |   |
| Engineering and product development                                    |   |                            | 1,137,725   |   |   |   | 1,073,215 |   |   |   | 799,108 |   |
|                                                                   |   |                            | 24,221,003  |   |   |   | 27,870,322 |   |   |   | 23,078,642 |   |
|  Operating loss from continuing operations                        |   |                            | (8,958,885  | ) |   |   | (10,095,347 | ) |   |   | (5,613,825 | ) |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Other income (loss):                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Refinancing charge                                                     |   |                            | -           |   |   |   | - |   |   |   | (441,956 | ) |
| Interest expense, net                                                  |   |                            | (2,370,676  | ) |   |   | (1,032,597 | ) |   |   | (529,489 | ) |
| Change in fair value of warrants (see Note 1)                          |   |                            | 808,786     |   |   |   | - |   |   |   | - |   |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations                                        |   |                            | (10,520,775 | ) |   |   | (11,127,944 | ) |   |   | (6,585,270 | ) |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Discontinued operations:                                               |   |                            |        |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations, net of tax                        |   |                            | -           |   |   |   | 285,712 |   |   |   | 231,024 |   |
| Loss on sale of discontinued operations                                |   |                            | -           |   |   |   | (448,675 | ) |   |   | - |   |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Net loss                                                               |   | $                               | (10,520,775 | ) |   | $ | (11,290,907 | ) |   | $ | ( 6,354,246 | ) |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Basic and diluted net loss per share (Note 1):                         |   |                            |        |   |   |   |   |   |   |   |   |   |
| Continuing operations                                                  |   | $                               | (6.42       | ) |   | $ | (7.41 | ) |   | $ | (4.40 | ) |
| Discontinued operations                                                |   |                            | (0.00       | ) |   |   | (0.11 | ) |   |   | 0.15 |   |
| Basic and diluted net loss per share                                   |   | $                               | (6.42       | ) |   | $ | (7.52 | ) |   | $ | (4.25 | ) |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |
| Shares used in computing basic and diluted net loss per share (Note 1) |   |                            | 1,640,006   |   |   |   | 1,500,767 |   |   |   | 1,495,484 |   |
|                                                                   |   |                            |        |   |   |   |   |   |   |   |   |   |

----

|                                                          |   |         |      |   |       |   |   |        |   |   | Accumulated   |   |   |   |         |
|---------------------------------------------------------------|--------|--------------|-----------|--------|------------|--------|--------|-------------|--------|--------|---------------|--------|--------|--------|--------------|
|                                                          |   | Common Stock |      |   | Additional |   |   |        |   |   | Other         |   |   |   |         |
|                                                          |   |         |      |   | Paid-In    |   |   | Accumulated |   |   | Comprehensive |   |   |   |         |
|                                                          |   | Shares (1)   |      |   | Amount (1) |   |   | Capital (1) |   |   | Deficit       |   |   | Income |         |   | Total |   |
| BALANCE, DECEMBER 31, 2006                                    |   |         | 1,488,954 |   |       | $      | 14,890 |        |   | $      | 763,027       |   |   | $      | (87,675,003  | ) |   | $ | - |   |   | $ | 44,102,914 |   |
| Exercise of stock options                                     |   |         | 1,813     |   |       |   | 18     |        |   |   | 85,936        |   |   |   | -            |   |   |   | - |   |   |   | 85,954 |   |
| Stock options issued to consultants for services              |   |         | -         |   |       |   | -      |        |   |   | 109,107       |   |   |   | -            |   |   |   | - |   |   |   | 109,107 |   |
| Stock-based compensation expense related to employee options  |   |         | -         |   |       |   | -      |        |   |   | 955,767       |   |   |   | -            |   |   |   | - |   |   |   | 955,767 |   |
| Issuance of restricted stock                                  |   |         | 10,000    |   |       |   | 100    |        |   |   | 384,107       |   |   |   | -            |   |   |   | - |   |   |   | 384,207 |   |
| Issuance of warrants for draws under line of credit           |   |         | -         |   |       |   | -      |        |   |   | 249,727       |   |   |   | -            |   |   |   | - |   |   |   | 249,727 |   |
| Net loss                                                      |   |         | -         |   |       |   | -      |        |   |   | -             |   |   |   | (6,354,246   | ) |   |   | - |   |   |   | (6,354,246 | ) |
| BALANCE, DECEMBER 31, 2007                                    |   |         | 1,500,767 |   |       |   | 15,008 |        |   |   | 133,547,671   |   |   |   | (94,029,249  | ) |   |   | - |   |   |   | 39,533,430 |   |
| Stock options issued to consultants for services              |   |         | -         |   |       |   | -      |        |   |   | 92,501        |   |   |   | -            |   |   |   | - |   |   |   | 92,501 |   |
| Stock-based compensation expense related to employee options  |   |         | -         |   |       |   | -      |        |   |   | 888,546       |   |   |   | -            |   |   |   | - |   |   |   | 888,546 |   |
| Amortization of restricted stock                              |   |         | -         |   |       |   | -      |        |   |   | 414,491       |   |   |   | -            |   |   |   | - |   |   |   | 414,491 |   |
| Issuance of warrants for draws under line of credit           |   |         | -         |   |       |   | -      |        |   |   | 44,366        |   |   |   | -            |   |   |   | - |   |   |   | 44,366 |   |
| Net loss                                                      |   |         | -         |   |       |   | -      |        |   |   | -             |   |   |   | (11,290,907  | ) |   |   | - |   |   |   | (11,290,907 | ) |
| BALANCE, DECEMBER 31, 2008                                    |   |         | 1,500,767 |   |       |   | 15,008 |        |   |   | 134,987,575   |   |   |   | (105,320,156 | ) |   |   | - |   |   |   | 29,682,427 |   |
| Stock options issued to consultants for services              |   |         | -         |   |       |   | -      |        |   |   | 54,181        |   |   |   | -            |   |   |   |   |   |   |   | 54,181 |   |
| Stock-based compensation expense related to employee options  |   |         | -         |   |       |   | -      |        |   |   | 552,608       |   |   |   | -            |   |   |   | - |   |   |   | 552,608 |   |
| Amortization of restricted stock                              |   |         | -         |   |       |   | -      |        |   |   | 655,237       |   |   |   | -            |   |   |   | - |   |   |   | 655,237 |   |
| Round up for fractional shares due to the reverse stock split |   |         | 96        |   |       |   | 1      |        |   |   | (1            | )      |   |   | -            |   |   |   | - |   |   |   | - |   |
| Sale of stock net of expenses                                 |   |         | 732,627   |   |       |   | 7,326  |        |   |   | 2,824,146     |   |   |   | -            |   |   |   | - |   |   |   | 2,831,472 |   |
| Registration costs                                            |   |         | -         |   |       |   | -      |        |   |   | (434,836      | )      |   |   | -            |   |   |   | - |   |   |   | (434,836 | ) |
| Issuance of restricted stock                                  |   |         | 4,667     |   |       |   | 47     |        |   |   | 233           |   |   |   | -            |   |   |   | - |   |   |   | 280 |   |
| Change in cumulative translation adjustment                   |   |         | -         |   |       |   | -      |        |   |   | -             |   |   |   | -            |   |   |   | 101,235 |   |   |   | 101,235 |   |
| Net loss                                                      |   |         | -         |   |       |   | -      |        |   |   | -             |   |   |   | (10,520,775  | ) |   |   | - |   |   |   | (10,520,775 | ) |
| BALANCE, DECEMBER 31, 2009                                    |   |         | 2,238,157 |   |       | $      | 22,382 |        |   | $      | 138,639,143   |   |   | $      | (115,840,931 | ) |   | $ | 101,235 |   |   | $ | 22,921,829 |   |

----

|                                                                                              |   | For the Year Ended December 31, |        |
|---------------------------------------------------------------------------------------------------|--------|---------------------------------|-------------|
|                                                                                              |   | 2009                            |        |   | 2008 |   |   | 2007 |   |
| Cash Flows From Operating Activities:                                                             |   |                            |        |   |   |   |   |   |   |
| Net loss                                                                                          |   | $                               | (10,520,775 | ) |   | $ | (11,290,907 | ) |   | $ | (6,354,246 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities-continuing operations: |   |                            |        |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                                     |   |                            | 4,610,265   |   |   |   | 4,172,436 |   |   |   | 3,834,870 |   |
| Loss on sale of discontinued operations                                                           |   |                            | -           |   |   |   | 448,675 |   |   |   | - |   |
| Refinancing charge                                                                                |   |                            | -           |   |   |   | - |   |   |   | 441,956 |   |
| Impairment on intangibles and other long-lived assets                                             |   |                            | -           |   |   |   | 934,611 |   |   |   | - |   |
| Loss on disposal of property and equipment                                                        |   |                            | 904         |   |   |   | 4,658 |   |   |   | - |   |
| Provision for doubtful accounts                                                                   |   |                            | 93,741      |   |   |   | 137,766 |   |   |   | 92,892 |   |
| Stock options issued to consultants for services                                                  |   |                            | 54,181      |   |   |   | 92,501 |   |   |   | 109,107 |   |
| Stock-based compensation                                                                          |   |                            | 1,207,845   |   |   |   | 1,303,037 |   |   |   | 1,335,773 |   |
| Change in estimated fair value of warrant liability (See Note 1)                                  |   |                            | (808,786    | ) |   |   | - |   |   |   | - |   |
| Changes in operating assets and liabilities, net of effects from discontinued operations:         |   |                            |        |   |   |   |   |   |   |   |   |   |
| Accounts receivable                                                                               |   |                            | 2,172,169   |   |   |   | 238,166 |   |   |   | (1,836,091 | ) |
| Inventories                                                                                       |   |                            | 1,995,795   |   |   |   | (63,946 | ) |   |   | (460,564 | ) |
| Prepaid expenses and other assets                                                                 |   |                            | 524,123     |   |   |   | 932,306 |   |   |   | 818,555 |   |
| Accounts payable                                                                                  |   |                            | (1,968,726  | ) |   |   | 1,569,815 |   |   |   | 172,794 |   |
| Accrued compensation and related expenses                                                         |   |                            | (389,713    | ) |   |   | (93,889 | ) |   |   | 51,180 |   |
| Other accrued liabilities                                                                         |   |                            | 317,798     |   |   |   | 190,058 |   |   |   | 18,189 |   |
| Interest accrued on convertible debt                                                              |   |                            | 1,219,200   |   |   |   | - |   |   |   | - |   |
| Deferred revenues                                                                                 |   |                            | (762,267    | ) |   |   | 130,643 |   |   |   | 35,857 |   |
| Net cash used in operating activities-continuing operations                                       |   |                            | (2,254,246  | ) |   |   | (1,294,070 | ) |   |   | (1,739,728 | ) |
| Net cash provided by operating activities-discontinued operations                                 |   |                            | -           |   |   |   | 584,838 |   |   |   | 761,741 |   |
| Net cash used in operating activities                                                             |   |                            | (2,254,246  | ) |   |   | (709,232 | ) |   |   | (977,987 | ) |
|                                                                                              |   |                            |        |   |   |   |   |   |   |   |   |   |
| Cash Flows From Investing Activities:                                                             |   |                            |        |   |   |   |   |   |   |   |   |   |
| Purchases of property and equipment                                                               |   |                            | (137,434    | ) |   |   | (261,822 | ) |   |   | (131,654 | ) |
| Lasers placed into service                                                                        |   |                            | (1,940,810  | ) |   |   | (5,089,137 | ) |   |   | (4,169,970 | ) |
| Proceeds from disposition of discontinued operations                                              |   |                            | -           |   |   |   | 3,149,736 |   |   |   | - |   |
| Deferred costs on proposed acquisition                                                            |   |                            | -           |   |   |   | (564,930 | ) |   |   | - |   |
| Acquisition costs, net of cash received                                                           |   |                            | (12,578,022 | ) |   |   | - |   |   |   | - |   |
| Net cash used in investing activities-continuing operations                                       |   |                            | (14,656,266 | ) |   |   | (2,766,153 | ) |   |   | (4,301,624 | ) |
| Net cash used in investing activities-discontinued operations                                     |   |                            | -           |   |   |   | (68,462 | ) |   |   | (271,864 | ) |
| Net cash used in investing activities                                                             |   |                            | (14,656,266 | ) |   |   | (2,834,615 | ) |   |   | (4,573,488 | ) |
|                                                                                              |   |                            |        |   |   |   |   |   |   |   |   |   |
| Cash Flows From Financing Activities:                                                             |   |                            |        |   |   |   |   |   |   |   |   |   |
| Proceeds from issuance of common stock, net                                                       |   |                            | 2,831,472   |   |   |   | - |   |   |   | - |   |
| Proceeds from issuance of restricted common stock                                                 |   |                            | 280         |   |   |   | - |   |   |   | 4,200 |   |
| Proceeds from exercise of options                                                                 |   |                            | -           |   |   |   | - |   |   |   | 85,954 |   |
| Registration costs                                                                                |   |                            | (434,836    | ) |   |   | - |   |   |   | - |   |
| Payments on long-term debt other than line of credit                                              |   |                            | (415,902    | ) |   |   | (107,376 | ) |   |   | (96,504 | ) |
| Payments on notes payable                                                                         |   |                            | -           |   |   |   | (911,350 | ) |   |   | (688,040 | ) |
| Advances on line of credit                                                                        |   |                            | -           |   |   |   | 3,580,933 |   |   |   | 6,824,778 |   |
| Repayments on line of credit                                                                      |   |                            | (4,717,381  | ) |   |   | (5,236,056 | ) |   |   | (3,510,351 | ) |
| Decrease in restricted cash and cash equivalents                                                  |   |                            | -           |   |   |   | 39,000 |   |   |   | 39,000 |   |
| Proceeds from convertible debt                                                                    |   |                            | 18,000,000  |   |   |   | - |   |   |   | - |   |
| Net cash (used in) provided by financing activities-continuing operations                         |   |                            | 15,263,633  |   |   |   | (2,634,849 | ) |   |   | 2,659,036 |   |
| Net cash provided by financing activities-discontinued operations                                 |   |                            | -           |   |   |   | - |   |   |   | - |   |
| Net cash provided by (used in) financing activities                                               |   |                            | 15,263,633  |   |   |   | (2,634,849 | ) |   |   | 2,659,036 |   |
| Effect of exchange rate changes on cash                                                           |   |                            | 105,060     |   |   |   | - |   |   |   | - |   |
| Net decrease in cash and cash equivalents                                                         |   |                            | (1,541,819  | ) |   |   | (6,178,696 | ) |   |   | (2,892,439 | ) |
| Cash and cash equivalents, beginning of year                                                      |   |                            | 3,658,607   |   |   |   | 9,837,303 |   |   |   | 12,729,742 |   |
|                                                                                              |   |                            |        |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents, end of year                                                            |   | $                               | 2,116,788   |   |   | $ | 3,658,607 |   |   | $ | 9,837,303 |   |

----

----

| ·   | The Company has combined the aggregate outstanding obligations under the Convertible Notes into two convertible notes. Each note matures on February 27, 2014 and is identical to the original form of convertible note except as noted below; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The larger note has a principal amount of $16,746,270. The interest rate of this note was increased from 8% to 10%. The incremental 2% increase in the interest rate may be paid in cash and  may not be paid in convertible PIK notes unless and until our stockholders vote to approve payment in the form of a convertible PIK note; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The smaller note has a principal amount of $2,800,406. The conversion price of this note was reduced to $11.25850 and the down-round anti-dilution adjustment to the conversion price was removed. The interest rate of this note was increased from 8% to 10%. The full amount of the accrued interest remains payable in cash or convertible PIK notes. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The collateral securing the Convertible Note was expanded by adding a first-priority lien against all of the Company’s assets other than the assets pledged with first-priority liens to CIT Healthcare and to Clutterbuck Funds. When assets are released from the lien of CIT Healthcare, such assets will become subject to the first-priority lien of Clutterbuck Funds and a second-priority lien of the Holder. Finally, when assets are released from the lien of Clutterbuck Funds, such assets will become subject to the first-priority lien of the Holder. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Three of the Company’s subsidiaries (ProCyte Corporation, Photo Therapeutics, Inc. and SLT Technology, Inc.) have guaranteed the Company’s obligations under the Convertible Notes. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |   •  |  Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.                                       |
|--------|----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •              | Level 2 - inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.  |
|   | •              | Level 3 - unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.                                   |

|                                       |   | Fair Value as of December 31, 2009 |    |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
|--------------------------------------------|--------|------------------------------------|---------|--------|---------------------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------------|--------|
| Liabilities:                               |   |                               |    |   |                                                          |   |   |                                         |   |   |                                     |   |
| Derivative financial instruments (Note 12) |   | $                                  | 741,525 |   |                                                          | $      | -      |                                         |   | $      | -                                        |   |   | $ | 741,525 |   |

----

----

|                                  | December 31,               |
|---------------------------------------|----------------------------|
|                                  | 2009                       | 2008 |
| Accrual at beginning of year          | $   442,527 | $   218,587 |
| Additions due to PTL acquisition      | 227,334                    | - |
| Additions charged to warranty expense | 369,081                    | 359,200 |
| Expiring warranties                   | (53,149)                   | (49,784) |
| Claims satisfied                      | (212,165)                  | (85,476) |
| Accrual at end of year                | $   773,628 | $   442,527 |

----

----

|                                        | Year Ended December 31, |
|---------------------------------------------|-------------------------|
|                                        | 2009                    |   | 2008 |   | 2007 |
| Net loss                                    | ($10,520,775)           |   | ($11,290,907) |   | ($6,354,246) |
| Change in cumulative translation adjustment |  101,235           |   |  - |   | - |
| Comprehensive loss                          | ($10,419,540)           |   | ($11,290,907) |   | ($6,354,246) |

----

----

| Cash and cash equivalents                 |   | $      | 421,978    |   |
|-------------------------------------------|--------|--------|------------|--------|
| Accounts receivable                       |   |   | 843,007    |   |
| Inventories                               |   |   | 1,979,983  |   |
| Prepaid expenses and other current assets |   |   | 187,232    |   |
| Property and equipment                    |   |   | 80,462     |   |
| Patents and licensed technologies         |   |   | 7,400,000  |   |
| Other intangible assets                   |   |   | 1,500,000  |   |
| Total assets acquired at fair value       |   |   | 12,412,662 |   |
|                                      |   |   |       |   |
| Accounts payable                          |   |   | (936,099   | )      |
| Accrued compensation and related expenses |   |   | (35,906    | )      |
| Other accrued liabilities                 |   |   | (419,186   | )      |
| Deferred revenues                         |   |   | (576,349   | )      |
| Total liabilities assumed                 |   |   | (1,967,540 | )      |
|                                      |   |   |       |   |
| Net assets acquired                       |   | $      | 10,445,122 |   |

|                                                        |   | Year Ended December 31 |        |
|-------------------------------------------------------------|--------|------------------------|-------------|
|                                                        |   | 2009                   |        |   | 2008 |   |   | 2007 |   |
|                                                        |   |                   |        |   |   |   |   |   |   |
| Net revenues                                                |   | $                      | 33,515,493  |   |   | $ | 42,861,963 |   |   | $ | 37,304,121 |   |
| Net loss                                                    |   | $                      | (11,233,919 | ) |   | $ | (13,270,587 | ) |   | $ | (10,955,483 | ) |
| Basic and diluted loss per share                            |   | $                      | (6.85       | ) |   | $ | (8.84 | ) |   | $ | (7.29 | ) |
| Shares used in calculating basic and diluted loss per share |   |                   | 1,640,006   |   |   |   | 1,500,767 |   |   |   | 1,502,683 |   |

----

|                                              |   | December 31, 2007 |      |
|---------------------------------------------------|--------|-------------------|-----------|
| Current assets of discontinued operations         |   |              |      |
| Accounts receivable                               |   | $                 | 961,440   |   |
| Inventories                                       |   |              | 949,362   |   |
| Total current assets of discontinued operations   |   |              | 1,910,802 |   |
|                                              |   |              |      |   |
| Long term assets of discontinued operations:      |   |              |      |   |
| Property, plant and equipment, net                |   |              | 2,119,347 |   |
| Deposits                                          |   |              | 9,879     |   |
| Total long term assets of discontinued operations |   |              | 2,129,226 |   |
|                                              |   |              |      |   |
| Total net assets of discontinued operations       |   | $                 | 4,040,028 |   |

----

|                              |   | December 31, |      |
|-----------------------------------|--------|--------------|-----------|
|                              |   | 2009         |      |   | 2008 |   |
| Raw materials and work-in-process |   | $            | 4,082,593 |   |   | $ | 5,157,455 |   |
| Finished goods                    |   |         | 2,920,257 |   |   |   | 1,816,739 |   |
| Total inventories                 |   | $            | 7,002,850 |   |   | $ | 6,974,194 |   |

|                                      |   | December 31, |       |
|-------------------------------------------|--------|--------------|------------|
|                                      |   | 2009         |       |   | 2008 |   |
| Lasers-in-service                         |   | $            | 16,436,529 |   |   | $ | 17,288,400 |   |
| Computer hardware and software            |   |         | 368,668    |   |   |   | 341,407 |   |
| Furniture and fixtures                    |   |         | 683,573    |   |   |   | 562,418 |   |
| Machinery and equipment                   |   |         | 845,856    |   |   |   | 830,778 |   |
| Leasehold improvements                    |   |         | 262,395    |   |   |   | 259,595 |   |
|                                      |   |         | 18,597,021 |   |   |   | 19,282,597 |   |
| Accumulated depreciation and amortization |   |         | (9,303,539 | ) |   |   | (8,894,192 | ) |
| Property and equipment, net               |   | $            | 9,293,482  |   |   | $ | 10,388,406 |   |

|                                                                                                                                                                         |   | December 31, |            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------------|
|                                                                                                                                                                         |   | 2009         |            |   | 2008 |   |
| Patents, owned and licensed, at gross costs of $8,019,351 and $583,623 net of accumulated amortization of $1,025,400 and $359,195, respectively                              |   | $            |  6,993,951 |   |   | $ |  224,428 |   |
| Other licensed and developed technologies, at gross costs of $2,332,364 and $2,328,059, net of accumulated amortization of $1,574,653 and $1,410,025  respectively |   |         |   757,711  |   |   |   |   918,034 |   |
| Total patents and licensed technologies, net                                                                                                                                 |   | $            | 7,751,662       |   |   | $ | 1,142,462 |   |

----

|                                                                                                                                           |   | December 31, |             |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------------|
|                                                                                                                                           |   | 2009         |             |   | 2008 |   |
| Customer Relationships, at gross cost of $2,200,000 and $1,700,000 net of accumulated amortization of $1,669,398 and $1,287,735, respectively. |   | $            |  530,602    |   |   | $ |  412,265 |   |
| Tradename, at gross cost of $2,100,000 and $1,100,000 net of accumulated amortization of $609,977 and $416,640, respectively.                  |   |         |   1,490,023 |   |   |   |   683,360 |   |
|                                                                                                                                           |   | $            | 2,020,625        |   |   | $ | 1,095,625 |   |

|                                           |   | December 31, |      |
|------------------------------------------------|--------|--------------|-----------|
|                                           |   | 2009         |      |   | 2008 |   |
| Accrued payroll and related taxes              |   | $            | 260,280   |   |   | $ | 348,677 |   |
| Accrued vacation                               |   |         | 129,026   |   |   |   | 143,922 |   |
| Accrued commissions and bonus                  |   |         | 341,685   |   |   |   | 930,355 |   |
| Accrued severance                              |   |         | 402,355   |   |   |   | 64,199 |   |
| Total accrued compensation and related expense |   | $            | 1,133,346 |   |   | $ | 1,487,153 |   |

----

|                                     |   | December 31, |      |
|------------------------------------------|--------|--------------|-----------|
|                                     |   | 2009         |      |   | 2008 |   |
| Accrued professional and consulting fees |   | $            | 552,990   |   |   | $ | 186,162 |   |
| Accrued warranty                         |   |         | 773,627   |   |   |   | 442,527 |   |
| Accrued sales taxes and other expenses   |   |         | 274,797   |   |   |   | 235,744 |   |
| Total other accrued liabilities          |   | $            | 1,601,414 |   |   | $ | 864,433 |   |

|                                                                                                                                                 |   | December 31, |     |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|
|                                                                                                                                                 |   | 2009         |     |   | 2008 |   |
| Note payable – unsecured creditor, interest at 5.43%, payable in monthly principal and interest installments of $49,803 through February 2010. |   | $            | 98,934   |   |   | $ | - |   |
|                                                                                                                                                 |   |         |     |   |   |   |   |   |
| Note payable – unsecured creditor, interest at 6%, payable in monthly principal and interest installments of $2,880 through June 2012.         |   |         | 77,239   |   |   |   | 106,214 |   |
|                                                                                                                                                 |   |         |     |   |   |   |   |   |
|                                                                                                                                                 |   |         | 176,173  |   |   |   | 106,214 |   |
| Less: current maturities                                                                                                                             |   |         | (129,696 | ) |   |   | (28,975 | ) |
| Notes payable, net of current maturities                                                                                                             |   | $            | 46,477   |   |   | $ | 77,239 |   |

|                                  |   | December 31, |       |
|---------------------------------------|--------|--------------|------------|
|                                  |   | 2009         |       |   | 2008 |   |
| Total borrowings on credit facilities |   | $            | 3,940,252  |   |   | $ | 8,571,033 |   |
| Less: current portion                 |   |         | (3,179,469 | ) |   |   | (4,663,281 | ) |
| Total long-term debt                  |   | $            | 760,783    |   |   | $ | 3,907,752 |   |

|                    |   | December 2007 |    |   | September 2008 |   |
|-------------------------|--------|---------------|---------|--------|---------------------|--------|
|                    |   |          |    |   |                |   |
| Number of warrants      |   |          | 11,216  |   |                |   | 4,589 |   |
| Exercise price          |   | $             | 47.04   |   |                | $      | 18.48 |   |
| Fair value of warrants  |   | $             | 221,716 |   |                | $      | 44,366 |   |
| Volatility              |   |          | 59.44   | %      |                |   | 60.92 | % |
| Risk-free interest rate |   |          | 3.45    | %      |                |   | 2.98 | % |
| Expected dividend yield |   |          | 0       | %      |                |   | 0 | % |
| Expected warrant life   |   | 5 years       |    |   | 5 years             |   |

----

| Year Ended December 31,                    |   |   |      |
|--------------------------------------------|--------|--------|-----------|
| 2010                                       |   | $      | 3,444,782 |   |
| 2011                                       |   |   | 811,059   |   |
| Total minimum payments                     |   |   | 4,255,841 |   |
|                                       |   |   |      |   |
| Less: interest                             |   |   | (281,845  | ) |
| Less: unamortized warrant discount         |   |   | (33,744   | ) |
|                                       |   |   |      |   |
| Present value of total minimum obligations |   | $      | 3,940,252 |   |

|                                          |   | December 31, 2009 |       |
|-----------------------------------------------|--------|-------------------|------------|
|                                          |   |              |       |
| Total borrowings on convertible debt facility |   | $                 | 17,369,943 |   |
| Less: current portion                         |   |              | -          |   |
| Total long-term debt                          |   | $                 | 17,369,943 |   |

----

|                    |   | February 27, 2009 |      |   | December 31, 2009 |   |
|-------------------------|--------|-------------------|-----------|--------|-------------------|--------|
| Number of warrants      |   |              | 174,367   |   |              |   | 244,251 |   |
| Exercise price          |   | $                 | 30.96     |   |              | $      | 22.108 |   |
| Fair value of warrants  |   | $                 | 1,550,311 |   |              | $      | 741,525 |   |
| Volatility              |   |              | 87.89     | %      |              |   | 79.23 | % |
| Risk-free interest rate |   |              | 2.69      | %      |              |   | 3.39 | % |
| Expected dividend yield |   |              | 0         | %      |              |   | 0 | % |
| Expected warrant life   |   | 8 years           |      |   | 7.17 years        |   |

----

| Warrant liability:                 |   |   |      |
|------------------------------------|--------|--------|-----------|
| Balance as of January 1, 2009      |   | $      | -         |   |
| Initial measurement of warrants    |   |   | 1,550,311 |   |
| Decrease in fair value of warrants |   |   | (808,786  | ) |
| Balance as of December 31, 2009    |   | $      | 741,525   |   |

| Year Ending December 31, |   |   |      |
|--------------------------|--------|--------|-----------|
| 2010                     |   | $      | 623,515   |   |
| 2011                     |   |   | 339,481   |   |
| 2012                     |   |   | 89,862    |   |
| Thereafter               |   |   | -         |   |
| Total                    |   | $      | 1,052,858 |   |

----

----

----

|                             |   | Number of Shares |    |   | Weighted Average Exercise Price |   |
|----------------------------------|--------|------------------|---------|--------|---------------------------------|--------|
| Outstanding at December 31, 2006 |   |             | 145,089 |   |                            | $      | 87.78 |   |
| Granted                          |   |             | 19,155  |   |                            |   | 47.04 |   |
| Exercised                        |   |             | (1,813  | )      |                            |   | 47.46 |   |
| Expired/cancelled                |   |             | (16,486 | )      |                            |   | 79.80 |   |
| Outstanding at December 31, 2007 |   |             | 145,945 |   |                            |   | 84.00 |   |
| Granted                          |   |             | 30,243  |   |                            |   | 35.70 |   |
| Exercised                        |   |             | -       |   |                            |   | - |   |
| Expired/cancelled                |   |             | (31,044 | )      |                            |   | 78.96 |   |
| Outstanding at December 31, 2008 |   |             | 145,144 |   |                            |   | 75.36 |   |
| Granted                          |   |             | 41,224  |   |                            |   | 7.44 |   |
| Exercised                        |   |             | -       |   |                            |   | - |   |
| Expired/cancelled                |   |             | (28,186 | )      |                            |   | 76.62 |   |
| Outstanding at December 31, 2009 |   |             | 158,182 |   |                            | $      | 57.42 |   |
| Exercisable at December 31, 2009 |   |             | 101,076 |   |                            | $      | 75.24 |   |

|                      |   | Year Ended December 31, |   |
|---------------------------|--------|-------------------------|--------|
|                      |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
| Risk-free interest rate   |   |                    | 3.46   | % |   |   | 3.75 | % |   |   | 4.74 | % |
| Volatility                |   |                    | 88.67  | % |   |   | 84.06 | % |   |   | 85.94 | % |
| Expected dividend yield   |   |                    | 0      | % |   |   | 0 | % |   |   | 0 | % |
| Expected life             |   | 8.1 years               |   |   | 8.1 years |   |   | 8.1 years |   |
| Estimated forfeiture rate |   |                    | 27     | % |   |   | 10 | % |   |   | 16 | % |

----

| Assumptions for Stock Awards |   | Year Ended December 31, 2007 |   |
|------------------------------|--------|------------------------------|--------|
| Risk-free interest rate      |   |                         | 4.52   | % |
| Volatility                   |   |                         | 74.64  | % |
| Expected dividend yield      |   |                         | 0      | % |
| Expected Life                |   | 5.07 years                   |   |

| Options Range of Exercise Prices |            |   | Outstanding Number of Shares |    |   | Weighted Average Remaining Contractual Life (years) |   |   | Weighted Average Exercise Price |   |   | Exercisable Number of Shares |   |   | Exercisable Weighted Avg. Exercise Price |    |
|----------------------------------|-----------------|--------|------------------------------|---------|--------|-----------------------------------------------------|--------|--------|---------------------------------|--------|--------|------------------------------|--------|--------|------------------------------------------|---------|
| $                                | 0 - $30.00 |   |                         |    | 42,843 |                                                |   |   | 9.34                            |   |   | $                            | 7.92   |   |                                     |    | 7,945 |   |   | $ | 11.70 |   |
| $                                | 30.01 - $60.00  |   |                         |    | 45,629 |                                                |   |   | 7.49                            |   |   | $                            | 42.42  |   |                                     |    | 30,129 |   |   | $ | 43.26 |   |
| $                                | 60.01 - $90.00  |   |                         |    | 20,825 |                                                |   |   | 3.89                            |   |   | $                            | 73.20  |   |                                     |    | 19,862 |   |   | $ | 73.44 |   |
| $                                | 90.01 - up      |   |                         |    | 48,885 |                                                |   |   | 3.49                            |   |   | $                            | 108.18 |   |                                     |    | 43,140 |   |   | $ | 110.10 |   |
| Total                            |            |   |                         | 158,182 |   |                                                |   | 6.28   |                            |   | $      | 57.42                        |   |   |                                     | 101,076 |   |   | $ | 75.24 |   |

----

| Year Ending    |   | Number of Shares |    |   | Weighted Average Exercise Price |   |   |  Exercise Price |   |
|----------------|--------|------------------|---------|--------|---------------------------------|--------|--------|----------------------|--------|
| 2010           |   |             | 18,612  |   |                            | $      | 107.04 |                 |   | $ | 44.94 - $399.00 |   |
| 2011           |   |             | 4,637   |   |                            |   | 140.58 |                 |   | $ | 62.58 - $236.46 |   |
| 2012           |   |             | 3,081   |   |                            |   | 83.64  |                 |   | $ | 77.70 - $115.92 |   |
| 2013           |   |             | 7,104   |   |                            |   | 74.76  |                 |   | $ | 64.26 - $97.44 |   |
| 2014 and later |   |             | 124,748 |   |                            |   | 45.30  |                 |   | $ | 5.82 - $105.00 |   |
|           |   |             | 158,182 |   |                            | $      | 57.42  |                 |   | $ | 5.82 - $399.00 |   |

|                                                  |   |   Number of Warrants |    |   | Weighted AverageExercise Price |   |
|-------------------------------------------------------|--------|--------------------------------|---------|--------|--------------------------------|--------|
| Outstanding at December 31, 2006                      |   |                           | 113,016 |   |                           | $      | 73.50 |   |
|       Issued            |   |                           | 12,008  |   |                           |   | 47.46 |   |
|       Exercised         |   |                           | -       |   |                           |   | - |   |
|       Expired/cancelled |   |                           | (26,224 | )      |                           |   | 79.38 |   |
| Outstanding at December 31, 2007                      |   |                           | 98,800  |   |                           |   | 68.88 |   |
|       Issued            |   |                           | 4,589   |   |                           |   | 18.48 |   |
|       Exercised         |   |                           | -       |   |                           |   | - |   |
|       Expired/cancelled |   |                           | (23,680 | )      |                           |   | 84.00 |   |
| Outstanding at December 31, 2008                      |   |                           | 79,709  |   |                           |   | 61.74 |   |
|       Issued            |   |                           | 244,251 |   |                           |   | 22.08 |   |
|       Exercised         |   |                           | -       |   |                           |   | - |   |
|       Expired/cancelled |   |                           | -       |   |                           |   | - |   |
| Outstanding at December 31, 2009                      |   |                           | 323,960 |   |                           | $      | 31.80 |   |

----

|   Year Ending December 31, |   |  Number of Warrants |    |   | Weighted AverageExercise Price |   |
|--------------------------------------|--------|--------------------------|---------|--------|--------------------------------|--------|
|                                 |   |                     |    |   |                           |   |
| 2010                                 |   |                     | -       |   |                           | $      | - |   |
| 2011                                 |   |                     | 63,905  |   |                           |   | 67.20 |   |
| 2012                                 |   |                     | 11,215  |   |                           |   | 47.04 |   |
| 2013                                 |   |                     | 4,589   |   |                           |   | 18.48 |   |
| 2014                                 |   |                     | 244,251 |   |                           |   | 22.08 |   |
|                                 |   |                     | 323,960 |   |                           | $      | 31.80 |   |

|                          |   | Year Ended December 31, |       |
|-------------------------------|--------|-------------------------|------------|
|                          |   | 2009                    |       |   | 2008 |   |   | 2007 |   |
| Federal, including AMT tax:   |   |                    |       |   |   |   |   |   |   |
| Current                       |   | $                       | -          |   |   | $ | - |   |   | $ | - |   |
| Deferred                      |   |                    | (2,475,000 | ) |   |   | (2,494,000 | ) |   |   | (2,371,000 | ) |
|                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| State and United Kingdom:     |   |                    |       |   |   |   |   |   |   |   |   |   |
| Current                       |   |                    | -          |   |   |   | - |   |   |   | - |   |
| Deferred                      |   |                    | (5,118,000 | ) |   |   | (228,000 | ) |   |   | (630,000 | ) |
|                          |   |                    | (7,593,000 | ) |   |   | (2,722,000 | ) |   |   | (3,001,000 | ) |
|                          |   |                    |       |   |   |   |   |   |   |   |   |   |
| Change in valuation allowance |   |                    | (7,593,000 | ) |   |   | 2,722,000 |   |   |   | 3,001,000 |   |
| Income tax expense            |   | $                       | -          |   |   | $ | - |   |   | $ | - |   |

----

|                                                                                    |   | Year Ended December 31, |       |
|-----------------------------------------------------------------------------------------|--------|-------------------------|------------|
|                                                                                    |   | 2009                    |       |   | 2008 |   |   | 2007 |   |
|                                                                                    |   |                    |       |   |   |   |   |   |   |
| Expected Federal tax benefit at statutory rate                                          |   | $                       | 3,577,000  |   |   | $ | 3,839,000 |   |   | $ | 2,160,000 |   |
|                                                                                    |   |                    |       |   |   |   |   |   |   |   |   |   |
| Gross change in valuation allowance                                                     |   |                    | (7,593,000 | ) |   |   | (2,722,000 | ) |   |   | (3,001,000 | ) |
|                                                                                    |   |                    |       |   |   |   |   |   |   |   |   |   |
| Adjustments of temporary differences and net operating loss expirations and limitations |   |                    | 3,651,000  |   |   |   | (1,313,000 | ) |   |   | 130,000 |   |
|                                                                                    |   |                    |       |   |   |   |   |   |   |   |   |   |
| State income taxes                                                                      |   |                    | 286,000    |   |   |   | 228,000 |   |   |   | 630,000 |   |
|                                                                                    |   |                    |       |   |   |   |   |   |   |   |   |   |
| Other, including adjustment due to State loss carryforwards and U.K. rate differences   |   |                    | 79,000     |   |   |   | (32,000 | ) |   |   | 81,000 |   |
|                                                                                    |   |                    |       |   |   |   |   |   |   |   |   |   |
| Income tax expense                                                                      |   | $                       | -          |   |   | $ | - |   |   | $ | - |   |

|                                                                                                           |   | December 31, |        |
|----------------------------------------------------------------------------------------------------------------|--------|--------------|-------------|
|                                                                                                           |   | 2009         |        |   | 2008 |   |
|                                                                                                           |   |         |        |   |   |   |
| Beginning balance, gross                                                                                       |   | $            | 51,838,000  |   |   | $ | 49,116,000 |   |
|                                                                                                           |   |         |        |   |   |   |   |   |
| Net changes due to:                                                                                            |   |         |        |   |   |   |   |   |
| Operating loss carryforwards                                                                                   |   |         | 5,778,000   |   |   |   | (203,000 | ) |
|         Temporary Differences                                     |   |         | 1,736,000   |   |   |   |   |   |
| Other, including adjustment due to state loss carryforwards and net operating loss limitations and expirations |   |         | 79,000      |   |   |   | 2,925,000 |   |
|                                                                                                           |   |         |        |   |   |   |   |   |
| Ending balance, gross                                                                                          |   |         | 59,431,000  |   |   |   | 51,838,000 |   |
|                                                                                                           |   |         |        |   |   |   |   |   |
| Less: valuation allowance                                                                                      |   |         | (59,431,000 | ) |   |   | (51,838,000 | ) |
|                                                                                                           |   |         |        |   |   |   |   |   |
| Ending balance, net                                                                                            |   | $            | -           |   |   | $ | - |   |
|                                                                                                           |   |         |        |   |   |   |   |   |

----

|                                       |   | December 31, |        |
|--------------------------------------------|--------|--------------|-------------|
|                                       |   | 2009         |        |   | 2008 |   |
|                                       |   |         |        |   |   |   |
| Loss carryforwards                         |   | $            | 44,986,000  |   |   | $ | 39,208,000 |   |
| Carryforward and AMT credits               |   |         | 878,000     |   |   |   | 799,000 |   |
| Accrued employment expenses                |   |         | 1,452,000   |   |   |   | 1,249,000 |   |
| Amortization and write-offs                |   |         | 2,872,000   |   |   |   | 2,783,000 |   |
| Bad debts                                  |   |         | 141,000     |   |   |   | 185,000 |   |
| Deferred R&D costs                     |   |         | 3,763,000   |   |   |   | 3,594,000 |   |
| Deferred revenues                          |   |         | 233,000     |   |   |   | 304,000 |   |
| Depreciation                               |   |         | 3,560,000   |   |   |   | 2,757,000 |   |
| Inventoriable costs                        |   |         | 27,000      |   |   |   | 66,000 |   |
| Inventory reserves                         |   |         | 908,000     |   |   |   | 698,000 |   |
| Other accruals and reserves                |   |         | 265,000     |   |   |   | 195,000 |   |
| U.K. capital and research allowances, etc. |   |         | 346,000     |   |   |   | - |   |
| Gross deferred tax asset                   |   |         | 59,431,000  |   |   |   | 51,838,000 |   |
|                                       |   |         |        |   |   |   |   |   |
| Less: valuation allowance                  |   |         | (59,431,000 | ) |   |   | (51,838,000 | ) |
|                                       |   |         |        |   |   |   |   |   |
| Net deferred tax asset                     |   | $            | -           |   |   | $ | - |   |

----

----

|                                     |   | Year Ended December 31, 2009 |       |
|------------------------------------------|--------|------------------------------|------------|
|                                     |   | DOMESTICXTRAC                |       |   | INTERN’LDERM. EQUIPMENT |   |   |  SKIN CARE |   |   |  PTL |   |   | SURGICAL PRODUCTSAND OTHER |   |   |  TOTAL |   |
| Revenues                                 |   | $                            | 12,790,948 |   |   | $ | 3,996,067 |   |   | $ | 7,895,473 |   |   | $ | 4,383,016 |   |   | $ | 3,622,580 |   |   | $ | 32,688,084 |   |
| Costs of revenues                        |   |                         | 7,082,369  |   |   |   | 2,588,195 |   |   |   | 2,639,213 |   |   |   | 2,338,330 |   |   |   | 2,777,859 |   |   |   | 17,425,966 |   |
| Gross profit                             |   |                         | 5,708,579  |   |   |   | 1,407,872 |   |   |   | 5,256,260 |   |   |   | 2,044,686 |   |   |   | 844,721 |   |   |   | 15,262,118 |   |
| Gross profit %                           |   |                         | 44.6       | % |   |   | 35.2 | % |   |   | 66.6 | % |   |   | 46.7 | % |   |   | 23.3 | % |   |   | 46.7 | % |
|                                     |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allocated operating expenses:            |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative      |   |                         | 7,122,207  |   |   |   | 251,344 |   |   |   | 4,904,642 |   |   |   | 2,075,245 |   |   |   | 469,331 |   |   |   | 14,822,769 |   |
| Engineering and product development      |   |                         | -          |   |   |   | - |   |   |   | 381,590 |   |   |   | 286,806 |   |   |   | 242,693 |   |   |   | 911,089 |   |
|                                     |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unallocated operating expenses           |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 8,487,145 |   |
|                                     |   |                         | 7,122,207  |   |   |   | 251,344 |   |   |   | 5,286,232 |   |   |   | 2,362,051 |   |   |   | 712,024 |   |   |   | 24,221,003 |   |
| Income (loss) from operations            |   |                         | (1,413,628 | ) |   |   | 1,156,528 |   |   |   | (29,972 | ) |   |   | (317,365 | ) |   |   | 132,697 |   |   |   | (8,958,885 | ) |
|                                     |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                    |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (2,370,676 | ) |
| Change in fair value of warrant          |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 808,786 |   |
|                                     |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations |   |                         | (1,413,628 | ) |   |   | 1,156,528 |   |   |   | (29,972 | ) |   |   | (317,365 | ) |   |   | 132,697 |   |   |   | (10,520,775 | ) |
|                                     |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations:                 |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations      |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                     |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                        |   | $                            | (1,413,628 | ) |   | $ | 1,156,528 |   |   | $ | (29,972 | ) |   | $ | (317,365 | ) |   | $ | 132,697 |   |   | $ | (10,520,775 | ) |
|                                     |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment assets                           |   | $                            | 14,419,022 |   |   | $ | 2,514,979 |   |   | $ | 17,135,033 |   |   | $ | 12,841,517 |   |   | $ | 2,980,393 |   |   | $ | 49,890,944 |   |
| Capital expenditures                     |   | $                            | 66,825     |   |   | $ | 22,873 |   |   | $ | 4,950 |   |   | $ | 23,350 |   |   | $ | 8,716 |   |   | $ | 126,714 |   |

|                                                  |   | Year Ended December 31, 2008 |       |
|-------------------------------------------------------|--------|------------------------------|------------|
|                                                  |   | DOMESTICXTRAC                |       |   | INTERN’LDERM. EQUIPMENT |   |   | SKINCARE |   |   | PTL |   |   | SURGICAL PRODUCTSAND OTHER |   |   |  TOTAL |   |
| Revenues                                              |   | $                            | 12,419,972 |   |   | $ | 3,782,456 |   |   | $ | 12,829,816 |   |   | $ | - |   |   | $ | 5,738,048 |   |   | $ | 34,770,292 |   |
| Costs of revenues                                     |   |                         | 6,714,786  |   |   |   | 1,871,470 |   |   |   | 4,431,545 |   |   |   | - |   |   |   | 3,977,516 |   |   |   | 16,995,317 |   |
|    Gross profit                        |   |                         | 5,705,186  |   |   |   | 1,910,986 |   |   |   | 8,398,271 |   |   |   | - |   |   |   | 1,760,532 |   |   |   | 17,774,975 |   |
| Gross profit %                                        |   |                         | 45.9       | % |   |   | 50.5 | % |   |   | 65.5 | % |   |   | N/A |   |   |   | 30.7 | % |   |   | 51.1 | % |
|                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allocated operating expenses:                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Selling, general and administrative |   |                         | 8,141,717  |   |   |   | 248,262 |   |   |   | 6,883,466 |   |   |   | - |   |   |   | 377,489 |   |   |   | 15,650,934 |   |
|    Engineering and product development |   |                         | 168,214    |   |   |   | 20,790 |   |   |   | 461,702 |   |   |   | - |   |   |   | 422,509 |   |   |   | 1,073,215 |   |
|                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unallocated operating expenses                        |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 11,146,173 |   |
|                                                  |   |                         | 8,309,931  |   |   |   | 269,052 |   |   |   | 7,345,168 |   |   |   | - |   |   |   | 799,998 |   |   |   | 27,870,322 |   |
| Loss from operations                                  |   |                         | (2,604,745 | ) |   |   | 1,641,934 |   |   |   | 1,053,103 |   |   |   | - |   |   |   | 960,534 |   |   |   | (10,095,347 | ) |
|                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                                 |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,032,597 | ) |
|                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations              |   |                         | (2,604,745 | ) |   |   | 1,641,934 |   |   |   | 1,053,103 |   |   |   | - |   |   |   | 960,534 |   |   |   | (11,127,944 | ) |
| Discontinued operations:                              |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations                   |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | 285,712 |   |
| Sale of discontinued operations                       |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (448,675 | ) |
|                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) income                                     |   | $                            | (2,604,745 | ) |   | $ | 1,641,934 |   |   | $ | 1,053,103 |   |   | $ | - |   |   | $ | 960,534 |   |   | $ | (11,290,907 | ) |
|                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment assets                                        |   | $                            | 17,369,541 |   |   | $ | 2,542,375 |   |   | $ | 18,398,212 |   |   | $ | - |   |   | $ | 3,765,114 |   |   | $ | 42,075,242 |   |
| Capital expenditures                                  |   | $                            | 2,405,082  |   |   | $ | 25,363 |   |   | $ | - |   |   | $ | - |   |   | $ | 31,241 |   |   | $ | 2,461,686 |   |

----

|                                                                         |   | Year Ended December 31, 2007 |       |
|------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                         |   | DOMESTICXTRAC                |       |   | INTERN’LDERM. EQUIPMENT |   |   | SKINCARE |   |   | PTL |   |   | SURGICAL PRODUCTSAND OTHER |   |   |  TOTAL |   |
| Revenues                                                                     |   | $                            | 9,141,857  |   |   |   | 3,256,505 |   |   | $ | 13,471,973 |   |   | $ | - |   |   | $ | 5,176,108 |   |   | $ | 31,046,443 |   |
| Costs of revenues                                                            |   |                         | 4,706,947  |   |   |   | 1,701,102 |   |   |   | 4,208,287 |   |   |   | - |   |   |   | 2,965,290 |   |   |   | 13,581,626 |   |
|    Gross profit                                               |   |                         | 4,434,910  |   |   |   | 1,555,403 |   |   |   | 9,263,686 |   |   |   | - |   |   |   | 2,210,818 |   |   |   | 17,464,817 |   |
| Gross profit %                                                               |   |                         | 48.5       | % |   |   | 47.8 | % |   |   | 68.8 | % |   |   | N/A |   |   |   | 42.7 | % |   |   | 56.3 | % |
|                                                                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allocated operating expenses:                                                |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Selling, general and administrative                        |   |                         | 6,189,047  |   |   |   | 251,318 |   |   |   | 5,812,185 |   |   |   | - |   |   |   | 395,211 |   |   |   | 12,647,761 |   |
|    Engineering and product    development |   |                         | -          |   |   |   | - |   |   |   | 391,928 |   |   |   | - |   |   |   | 407,180 |   |   |   | 799,108 |   |
|                                                                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unallocated operating expenses                                               |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 9,631,773 |   |
|                                                                         |   |                         | 6,189,047  |   |   |   | 251,318 |   |   |   | 6,204,113 |   |   |   | - |   |   |   | 802,391 |   |   |   | 23,078,642 |   |
| Loss from operations                                                         |   |                         | (1,754,137 | ) |   |   | 1,304,085 |   |   |   | 3,059,573 |   |   |   | - |   |   |   | 1,408,427 |   |   |   | (5,613,825 | ) |
|                                                                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Refinancing charge                                                           |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (441,956 | ) |
| Interest expense, net                                                        |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (529,489 | ) |
|                                                                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income from continuing operations                                     |   |                         | (1,754,137 | ) |   |   | 1,304,085 |   |   |   | 3,059,573 |   |   |   | - |   |   |   | 1,408,427 |   |   |   | (6,585,270 | ) |
| Discontinued operations:                                                     |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations                                          |   |                         | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 231,024 |   |
|                                                                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss,                                                                    |   | $                            | (1,754,137 | ) |   | $ | 1,304,085 |   |   | $ | 3,059,573 |   |   | $ | - |   |   | $ | 1,408,427 |   |   | $ | (6,354,246 | ) |
|                                                                         |   |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment assets                                                               |   | $                            | 13,823,060 |   |   | $ | 2,194,876 |   |   | $ | 21,269,256 |   |   | $ | - |   |   | $ | 4,946,011 |   |   | $ | 42,233,203 |   |
| Capital expenditures                                                         |   | $                            | 3,324,411  |   |   | $ | 15,679 |   |   | $ | 6,917 |   |   | $ | - |   |   | $ | 72,474 |   |   | $ | 3,419,481 |   |

|                                             |   | December 31, |       |
|--------------------------------------------------|--------|--------------|------------|
| Assets:                                          |   | 2009         |       |   | 2008 |   |
| Total assets for reportable segments             |   | $            | 49,890,944 |   |   | $ | 42,075,242 |   |
| Other unallocated assets                         |   |         | 3,277,202  |   |   |   | 4,639,027 |   |
|      Consolidated total |   | $            | 53,168,146 |   |   | $ | 46,714,269 |   |

|     |   | Year Ended December 31, |       |
|----------|--------|-------------------------|------------|
|     |   | 2009                    |       |   | 2008 |   |   | 2007 |   |
| Domestic |   | $                       | 25,624,725 |   |   | $ | 27,398,356 |   |   | $ | 24,359,462 |   |
| Foreign  |   |                    | 7,063,359  |   |   |   | 7,371,936 |   |   |   | 6,686,981 |   |
|     |   | $                       | 32,688,084 |   |   | $ | 34,770,292 |   |   | $ | 31,046,443 |   |

----

|                                                                |   | For the Quarter Ended |       |
|---------------------------------------------------------------------|--------|-----------------------|------------|
| 2009                                                                |   | Mar. 31               |       |   | Jun. 30 |   |   | Sep. 30 |   |   | Dec. 31 |   |
| Revenues                                                            |   | $                     | 7,498,000  |   |   | $ | 8,313,000 |   |   | $ | 8,597,000 |   |   | $ | 8,279,000 |   |
| Gross profit                                                        |   |                  | 3,701,000  |   |   |   | 4,407,000 |   |   |   | 3,716,000 |   |   |   | 3,438,000 |   |
| Net loss                                                            |   |                  | (3,512,000 | ) |   |   | (2,709,000 | ) |   |   | (2,011,000 | ) |   |   | (2,288,000 | ) |
| Basic and diluted net loss per share(2)                             |   | $                     | (2.34      | ) |   | $ | (1.80 | ) |   | $ | (1.34 | ) |   | $ | (1.12 | ) |
| Shares used in computing basic and diluted net loss per share(2)    |   |                  | 1,500,835  |   |   |   | 1,501,632 |   |   |   | 1,505,529 |   |   |   | 2,047,500 |   |
|                                                                |   |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2008                                                                |   | Mar. 31               |       |   | Jun. 30 |   |   | Sep. 30 |   |   | Dec. 31 |   |
| Revenues                                                            |   | $                     | 8,330,000  |   |   | $ | 9,390,000 |   |   | $ | 8,797,000 |   |   | $ | 8,253,000 |   |
| Gross profit                                                        |   |                  | 4,213,000  |   |   |   | 5,355,000 |   |   |   | 4,727,000 |   |   |   | 3,480,000 |   |
| Net loss                                                            |   |                  | (2,542,000 | ) |   |   | (1,607,000 | ) |   |   | (1,787,000 | ) |   |   | (5,354,000 | ) |
| Basic and diluted net loss per share(1)(2)                          |   | $                     | (1.69      | ) |   | $ | (1.07 | ) |   | $ | (1.19 | ) |   | $ | (3.57 | ) |
| Shares used in computing basic and diluted net loss per share(1)(2) |   |                  | 1,500,767  |   |   |   | 1,500,767 |   |   |   | 1,500,767 |   |   |   | 1,500,767 |   |
|                                                                |   |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2007                                                                |   | Mar. 31               |       |   | Jun. 30 |   |   | Sep. 30 |   |   | Dec. 31 |   |
| Revenues                                                            |   | $                     | 7,207,000  |   |   | $ | 7,311,000 |   |   | $ | 7,023,000 |   |   | $ | 9,505,000 |   |
| Gross profit                                                        |   |                  | 3,967,000  |   |   |   | 4,007,000 |   |   |   | 3,885,000 |   |   |   | 5,606,000 |   |
| Net loss                                                            |   |                  | (1,883,000 | ) |   |   | (1,836,000 | ) |   |   | (1,653,000 | ) |   |   | (982,000 | ) |
| Basic and diluted net loss per share(1)(2)                          |   | $                     | (1.26      | ) |   | $ | (1.23 | ) |   | $ | (1.10 | ) |   | $ | (0.65 | ) |
| Shares used in computing basic and diluted net loss per share(1)(2) |   |                  | 1,488,954  |   |   |   | 1,493,075 |   |   |   | 1,498,973 |   |   |   | 1,500,767 |   |

| (1)   | Adjusted to reflect the reverse stock split of 1-for-7 effective January 26, 2009. |
|-----------------|------------------------------------------------------------------------------------|

| (2)   | Adjusted to reflect the reverse stock split of 1-for-6 effective February 3, 2010. |
|-----------------|------------------------------------------------------------------------------------|

----

|                                        |   |                           |      |   | Additions Charged to |   |    |               |   |
|---------------------------------------------|--------|--------------------------------|-----------|--------|----------------------|--------|---------|--------------------|--------|
|   Description                     |   | Balance at Beginning of Period |      |   | Cost and Expenses    |   |    | Other Accounts (1) |   |   |  Deductions (2) |   |   | Balance at End of Period |   |
|  For The Year Ended December 31, 2009: |   |                           |      |   |                 |   |    |               |   |   |   |   |   |   |   |
| Reserve for Doubtful Accounts               |   | $                              | 486,162   |   |                 | $      | 136,424 |               |   | $ | 629 |   |   | $ | 222,939 |   |   | $ | 400,276 |   |
| Reserve for Excess and Obsolete Inventories |   | $                              | 1,836,441 |   |                 | $      | 449,726 |               |   | $ | 180,968 |   |   | $ | 78,873 |   |   | $ | 2,388,262 |   |
|  For The Year Ended December 31, 2008: |   |                           |      |   |                 |   |    |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Reserve for Doubtful Accounts               |   | $                              | 520,913   |   |                 | $      | 144,750 |               |   | $ | - |   |   | $ | 179,501 |   |   | $ | 486,162 |   |
| Reserve for Excess and Obsolete Inventories |   | $                              | 1,124,345 |   |                 | $      | 769,323 |               |   | $ | - |   |   | $ | 57,227 |   |   | $ | 1,836,441 |   |
|  For The Year Ended December 31, 2007: |   |                           |      |   |                 |   |    |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Reserve for Doubtful Accounts               |   | $                              | 496,540   |   |                 | $      | 95,624  |               |   | $ | - |   |   | $ | 71,251 |   |   | $ | 520,913 |   |
| Reserve for Excess and Obsolete Inventories |   | $                              | 1,354,443 |   |                 | $      | 134,541 |               |   | $ | - |   |   | $ | 364,639 |   |   | $ | 1,124,345 |   |

| (1)   | Represents additions due to the acquisition of PTL in February 2009. |
|-----------------|----------------------------------------------------------------------|

| (2)   | Represents write-offs of specific accounts receivable and inventories. |
|-----------------|------------------------------------------------------------------------|

| ·   | The Company has combined the aggregate outstanding obligations under the Convertible Notes into two convertible notes. Each note matures on February 27, 2014 and is identical to the original form of convertible note except as noted below; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The larger note has a principal amount of $16,746,270. The interest rate of this note was increased from 8% to 10%. The incremental 2% increase in the interest rate may be paid in cash and may not be paid in convertible PIK notes unless and until our stockholders vote to approve payment in the form of a convertible PIK note; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The smaller note has a principal amount of $2,800,406. The conversion price of this note was reduced to $11.25850 and the down-round anti-dilution adjustment to the conversion price was removed. The interest rate of this note was increased from 8% to 10%. The full amount of the accrued interest remains payable in cash or convertible PIK notes. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The collateral securing the Convertible Note was expanded by adding a first-priority lien against all of the Company’s assets other than the assets pledged with first-priority liens to CIT Healthcare and to Clutterbuck Funds. When assets are released from the lien of CIT Healthcare, such assets will become subject to the first-priority lien of Clutterbuck Funds and a second-priority lien of the Holder. Finally, when assets are released from the lien of Clutterbuck Funds, such assets will become subject to the first-priority lien of the Holder. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Three of the Company’s subsidiaries (ProCyte Corporation, Photo Therapeutics, Inc. and SLT Technology, Inc.) have guaranteed the Company’s obligations under the Convertible Notes. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----